Gen X’s Retirement Reality Check, the Happiness-Saving Link, and the Executive Dilemma
On this week’s Best of Simply Money podcast, Bob and Brian explore a simple phrase that could mean the difference between financial freedom and struggle: “the sooner the better.” They unpack new data around Gen X’s looming retirement crisis and what it means to be the first generation largely retiring without pensions.
Then, they dive into a compelling new study showing how saving—not spending—could be the true key to financial happiness.
Plus, career expert Julie Bauke joins to dissect “the executive dilemma”—when a promotion might not actually be the best next move.
Finally, Bob and Brian answer real listener questions on managing capital gains, tapping into dividends, and planning for long-term care.
Download and rate our podcast here.
Bob: Tonight, a simple phrase that could be the difference between financial freedom and financial struggle. You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James.
What is that simple phrase? The sooner the better. And tonight, we have some new data that explains all of this. It all centers around the group of people who are in the on-deck circle, Brian, for retirement, the Gen X group.
Brian: That's my group, Bob. So, let's talk about the problem that my generation has here. So...
Bob: Talk about all the dysfunction going on with your group.
Brian: Well, I don't think it's quite fair to label everybody with a generational label and say that everybody's a mess. But here are the common problems that are coming up with this generation. By the way, this is a generation we really never talk about because we're one of the smallest generations there are. I read a study a long time ago that, basically, looked at, over all the generations and when people are born and all that kind of stuff, and therefore how long do they have to be in control in terms of when that generation would take control of Congress, that kind of thing. And it was literally, like, an 18-month period before Gen X is quickly overwhelmed by this ensuing generation. But we'll have our moment in the sun.
Anyway, so we're talking about Gen X today because this is the first generation that's going to be funding retirement largely without private pension plans. And I think of myself there. My wife and I are somewhat fortunate to have old pensions from old jobs from a million years ago, but not anymore. But I do remember vividly my grandpa who worked... He was a facility's maintenance guy for what was then CG&E, then Cinergy, and now, Duke Energy. But we would fight as cousins to mark off the red Xs on his calendar, which were the day that he had his 30 years of time in and was 65, I think is how it worked. But anyway, that kind of countdown doesn't really exist for Gen X because there isn't really a clock unless you've built your own. Not everybody has the same. Without a private pension plan, it's basically whatever you've put together on your own. And that's exactly what this generation is going through. And with that as the measuring stick, not so good here.
Gen X workers, on average, have saved a median of about $107,000 in total household retirement accounts and $6,500 in emergency savings. This is coming from the nonprofit Transamerica Center for Retirement Studies in collaboration with Transamerica Institute, big insurance company out there. A total of 2 in 10, or 20%, have already dipped into their retirement savings by taking a hardship withdrawal or an early withdrawal. And these are people who the oldest among us was born in 1965. So, we're on the very, very early edge of retirement here and already dipping into retirement savings. That retirement balance compares with the estimated one and a quarter million dollars that Americans generally think they need to retire comfortably. That one comes from Northwestern Mutual. So, Gen X maybe has a bit of a tough hill to climb here, Bob.
Bob: Well, let's get into why this is happening. And I always hate, as you know, Brian, to paint with a broad brush, take a whole generation of folks and take the mean or average numbers. And it's not always representative of exactly everything that's going on here. But in reality, let's talk about what this generation of folks has had to endure from an economic standpoint. And just from a family dynamic standpoint, many members of Gen X graduated college or high school during a recession. They got their first jobs when 401(k)s were in their infancy, you know, pre-dating the internet and lacking the educational resources that, at least, some, or maybe even many plans offer today. And let's face it, from an investor confidence standpoint, the Gen X generation, well, they had to endure the dot-com bust, the great recession and the COVID pandemic. Those are three really big gut punches. And that all takes big swipes at what I'll call investor confidence.
I mean, shoot, when you see the market go down 55%, 60% in very short order more than once over a decade, that's going to make you scratch your head and say, "Wow, does this really still work?" Brian? And I think as a result, auto enrollment in 401(k)s maybe declined a little bit. The auto escalation features of savings in those 401(k)s declined. Tack on high student loan debt in some cases. And then a lot of these folks, and you live through this and I know our clients do, the Generation X folks are literally living in that sandwich generation where they're trying to support their own livelihood, their kids, and sometimes, their parents and other loved ones. It's a lot of stuff to take on both emotionally and financially.
Brian: Yeah. And I think all the generations have different experiences for what they go through, and for the things that they point to as the formative experiences of their lives. And a lot of times, that's in conflict. And I think really the conflict that Gen X has between that and the prior generation comes from the, I'd say, the '80s and the '90s. So, we had the 1970s where we had stagflation, we had a rough economy there. Obviously, one of the rougher periods, economically speaking. And that was the formative time. That's when the baby boom generation was starting to make its own. But then the pendulum swung back the other way and we had the '80s and the '90s where really nothing bad happened. And that was the beginning of really what has become the technology boom over the past several decades.
So, I think we had one generation and the baby boomers that did pay their dues in the '70s and were rewarded with the '80s and the '90s. And Generation X is looking at that and going, "Yeah, we've had 20 years' worth of chaos. The payoff periods have come with massive market up swings, but only three, four years at a time before chaos ensues versus the straight 20 years of really nothing scary happened." And that's nobody's fault. That's just how it works. And that's everybody's perspective in terms of how they see it. And every generation likes to think it's the one suffering the most. I think every single generation out there with the exception of maybe the silent generation, which is aptly named, has opinions on that. But in any case, yeah, I mean, everybody's gonna deal with their...
Bob: Brian, are you going to be one of those Gen Xers that sit down with your kids and talk about, "The woe is me. I had to walk uphill both ways to school, three miles in the snow." Are you going to be one of those old, curmudgeon folks blaming all of your ills on someone else or the weather?
Brian: I don't think so, but, I guess, that remains to be seen. Maybe that'll happen. Depends on the mood I'm in that day that that conversation comes up. I don't know.
Bob: All right. So, in the spirit of controlling what we can control. And that's all we can do, is control what we can control. What are some of the things that we need to talk to folks of any generation, including Generation X, on how to take ownership of your own retirement situation and get the trains back on the proverbial tracks here and move us forward?
Brian: Well, I think it's just like anything else. Like you said, controlling what you can control. And that's true for absolutely anybody. That's generationally irrelevant because everybody has their own situation to deal with. You've got your own resources, your own goals. And it simply means, understand what you have available to you and what you're trying to accomplish. And that's all financial planning. So, step back and understand, what are my limitations? What are my opportunities, my strengths, weaknesses, so forth? And then build some kind of financial plan out of that, and then operate accordingly. And the thing we shouldn't be doing is trying to follow some kind of blueprint that somebody else has written up for everybody to go do. It doesn't work that way. You have to understand your own situation, which is going to be very different from that of other family members, neighbors, and so forth. And then operate accordingly within those limitations.
Bob: So, if you do sit down with a good fiduciary advisor, which Brian and I highly recommend, and you do an assessment of where things are today, I mean, let's face it, you really only have three levers to pull at the end of the day. You can save more, you can spend less, or you can work more years, or a combination of all three. And that's where we get into some of the planning. And when people actually see some numbers and how pulling those different levers can really move the needle in a hurry, that at least, gives people a track to run on. And oftentimes, Brian, gives them a lot more confidence instead of just flying blind and hoping it all works out. And for folks that are in their 50s, man, this is prime catch-up time. To the extent that you can handle it from a cash flow standpoint, make those extra contributions, revisit your asset allocation, maybe take on a little bit more investment risk to get a little more growth or juice in your portfolio if your time horizon allows for that. Brian, talk about, for folks in their 60s, a lot of these folks are wanting to retire in the next 5 years or so. What are some things those folks can be doing?
Brian: Well, this is the leading edge of Gen X here. So, now, it's time to start thinking about, how are you going to optimize your Social Security timing? You know, if you're... There aren't as many levers to pull here as there used to be, right? We're not talking about tricks anymore, about file and suspend and all that. That's been gone for 10 years. But that doesn't mean there aren't decisions to be made. What you're trying to do is optimize Social Security timing alongside withdrawals from your investments, from your portfolio.
Because in a given situation, it may make sense to turn on Social Security early in retirement, it may make sense to push it. And that has everything to do with the taxation of the other assets you have. If everything you have is pre-tax, because that's just the way you set up your 401(k), that's where your retirement savings are, that itself is the pivot point between whether you're going to file off Social Security earlier versus later. Versus maybe if you focus more on the Roth, you've got tax-free assets, or if you have assets outside of retirement plans entirely in taxable type of accounts, then that could push the Social Security pendulum one direction versus the other.
So, we do see all the time, we have people who feel like they're behind, and they leave after having done a financial plan, you know, realizing they're actually in a good spot. So, give yourself a chance. If you're listening to this show and you're aware of Allworth or other financial education resources out there, you're probably in better shape than you already have. So, give yourself a break. People who have been seeking out that kind of information for a long time usually have put themselves in a good place. They've just never stepped back to look at the forest instead of the individual trees.
Bob: Yeah, and speaking of giving yourself a break, I mean, this is a good time to throw out a reminder here, Brian, of a topic we cover all the time on this show. And that's just managing the emotions if you are in that sandwich generation. And here's what I mean by that. You don't have to carry the whole world on your shoulders if you get out in front of this and communicate a little bit. For example, if you feel just this moral obligation to pay 100% of the cost of a private education for your kids, you might have to pump the brakes on that a little bit and compromise in the spirit of maintaining your own retirement viability. Same thing with aging parents or other relatives. If people are expecting you to help, you got to set a little bit of boundaries there to make sure you don't impoverish yourself in order to help parents or aunts or uncles or other relatives that you might perceive need some money.
So, it's not just running numbers. It's balancing and managing the behavioral aspects of all this. And all joking aside, there are a lot and a lot of folks in this Generation X generation that are really carrying a lot of weight here, both emotionally and financially. And sometimes working with a good financial advisor is just that other set of eyes and ears that can help you think objectively, and again, get yourself in a good place moving forward. Here's the Allworth advice. The earlier you act, the more options you'll have. But even later in life, smart planning and smart communication can make all the difference. Coming up next, one data-supported money move that could boost your happiness. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You are listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. If you can't listen to "Simply Money" live every night, subscribe and get our daily podcasts. If you think your friends or family could use some financial advice, especially during this volatile, uncertain times that we live in, tell them about us as well. Just search "Simply Money" on the iHeart app or wherever you find your podcast. Straight ahead at 6:43, real questions from real people will weigh in with insight, hopefully, that you can use no matter where you are on your financial journey. Well, we all want to be happy, Brian. I know I do. Don't you want to be happy?
Brian: Yes, yes, I do, Bob. Thanks for reminding me of that.
Bob: Well, talk to us about a new YouGov poll that found something very interesting when it comes to money and how we use money.
Brian: Well, Bob, this new poll came out and said a whopping 72% of Americans, including 69% of high-income earners, say they know they'd be happier if they saved or invested more money. Now, that, I think, that is just an earth-shattering statement right there. But only about 21% said spending would make them happier. Spending more would make them happier. This is good in a sense of people are realizing, I think, that they'd be happier... People are saying, "I'd like to know that I have a bigger cushion." And maybe not so many say they'd like to be spending more of that cushion. Just kind of a mindset saying that, "I'd like to know that I've got a little more shock absorber to kind of handle the crazy stuff that life can throw at us."
There was a poll that was done for MarketWatch of about 25 U.S. adults in late October. It was people with a household income of more than $250,000. They were more likely to agree that it was important to keep up in terms of saving, though they were also more likely than average to agree that it was important to keep up with spending. So, you know, a little bit of... I think we got a lot of opinions in there. But at the same time, it's interesting that we're pivoting more towards, saving makes us happier than spending. That is different than what I have heard my entire life, it seems like.
Bob: Yeah, and this reminds me of a cartoon I used to watch when I was a kid. And I can't even remember what it was, Brian. But I remember, you know, it was a cartoon that had two little kind of elves or voices, you know, standing on a guy's shoulder. And what I mean is, we always have two voices in our heads. One saying, "Long-term. Man, I really should be saving and investing and building for the long-term." And that other voice is saying, "Yeah, but I really want to take that trip. I really want a new car. I really want the iPhone 17 Pro." You know, there's always these conflicting voices going on. And I think that's what that study is getting at.
I'm more interested in this, hearing from an expert, you know, who actually studies behavior. And we're going to cite some comments from Arthur Brooks, an actual Harvard professor and writer who studies happiness professionally, Brian. And he says, there's five ways you could basically use money. You can buy things, you can buy experiences, you can buy time, you can give money away, or you can save it. And he says only the last four of those five things actually brings happiness. He wrote a summary of an article in a LinkedIn post earlier this year. And his point is, hey, stuff, even if it gives us that dopamine hit in the short-term, stuff always wears off. But saving money is progress, and progress makes us happy along with buying experiences and buying time, which is what saving money ultimately gives us. What do you say about those comments from Professor Brooks? I think those are pretty spot on myself.
Brian: Yeah, I think it makes a lot of sense. And again, having done a lot of financial planning for people where the big goal in life was that house in Hilton Head or, "I'm going to buy myself a nice car when I retire." When I hear those things not coupled with other greater experience-oriented or family-oriented plans, I know that's somebody who's probably not going to wind up super happy if that's the only thing they're focused on. But I want to move on to the next thing he says here, which is, he kind of determined that there is no ideal savings rate for happiness, but the research suggests that a golden mean exists between security and deprivation.
So, that's a lot of fancy college talk for basically saying, save enough so that you feel secure. but not so much that you are ruthlessly illiquid. Ruthlessly illiquid. I've never heard that phrase before, but I'm thinking of people that I've met in my planning career who just do nothing but save, save, save and just will not spend. The main purpose for getting out of bed is to go update their spreadsheet as to how much money and whatever their investments did yesterday. And there's really not much else going on in their lives. I run across these people every now and then, and they are just not the happiest people at all.
Bob: Yeah. And on the flip side, we've got those folks who really do need to be saving more and putting more away. I mean, the last data we saw on the personal savings rating in the United States, or the share of income left after spending and paying taxes was a very low 4.7% in September. And the analogy that comes to mind here, Brian, back to your point of finding that balance of feeling secure or feeling ruthlessly illiquid, it's kind of like knowing you need to lose 30 pounds and putting a goal out there that I'm going to lose 17 pounds in the next 27 days. And boy, you go off running around the neighborhood six times a day or whatever. And guess what? After about three days, you're exhausted. You say, "There's no way I can do this. It's not going to work for me," and you stop, you quit. And I think the point that the professor Brooks here is making is small incremental changes implemented over time is what's really going to move the needle here. There are forces at play out there that make this harder for people. Let's talk about what some of the things that maybe might be getting in our way mentally. And I'm talking about social media, Brian. It's a real influence out there.
Brian: Fear of missing out. Social media has made it easier than ever to measure our own lifestyle against other peoples, but only 17% of respondents polled by YouGov for MarketWatch that we referenced earlier, only about 17% agreed that it was important to keep up with their peers in terms of spending. But at the same time, 28% said it was important to keep up with them and to keep up with their peers in terms of saving. Regardless, I don't care whether you're keeping up in terms of spending or saving. If you're paying that much attention to other people, you're probably not going to wind up in a happy spot anyway. Understand what your situation is and what your goals are and focus only on that and get off of social media in terms of a measuring stick for your own life.
Bob: Here's the Allworth advice, happiness from money isn't about what you buy, it's about the security and options that you build over time. Focus on goals that truly bring you peace of mind. You've worked your way up the ladder, and you've perhaps made even some great money, but opportunity comes calling in the form of an executive position or a big promotion. Should you move up that corporate ladder? We'll talk about the "executive dilemma," coming up next. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James, joined tonight by our career expert, Julie Bauke. Julie, thanks as always for carving out some time for us tonight. We want to talk about something we're going to call the executive dilemma, staying put, versus jumping to the next big thing. Let's say, you're in a great role right now. You love your job. You're obviously doing very well at it, but opportunity comes knocking. What's the right move? And how do you evaluate whether to make a move?
Julie: Yeah, I can kind of speak in generalities because I've worked with a lot of people in this situation. The first question I would ask is, why would you consider this move? So, in other words, what are the compelling things about this move? And sometimes what I find when people start listing out compelling things, more salary, a higher-level title. My next question would be, are you sure that those are the things that really matter to you? Because it's very ingrained in us that jumping for the next big thing, more money, more title, equals more happiness and career satisfaction, but I know for sure that's not true.
And so, when you look at, why did that role appeal to you in the first place? And then ask yourself, are those the things that really matter to me at this point? I always start from a point of what matters most to you right now in your life, and then bring the career conversation into it. Because if you are going to get that bigger title and more money, does it also mean that you have to travel more? Does it mean you have to work weekends? And how does that fit into what your priorities are? So, that's the big question is, why would you?
And then take a look at, what is it about where you are now that might be sticking in your gut as to why it even makes sense to look for something else? What are you missing where you are? If you could change some things about your current situation, would that solve that if you're getting to move on? I think just a really good critical analysis of the whys and the whats, both behind where you are, and what the opportunity is in front of you is really, really important. Because we can get super caught up in, "Yeah, but it's a director title. Yeah, but it's a VP title," without really thinking about, what am I giving up to get that? And then how does that work against what my whole life priorities are right now? So, a career decision has to be made on a bigger platform than in a vacuum.
Brian: Julie, I think a lot of people learn the hard way exactly what you just said because we get this so ingrained in us that, "I got it. If I'm getting offered this position, well, clearly I'm fantastic. Obviously, they love me, and I should take advantage of these benefits." But people do tend to learn the hard way that, "Whoops, maybe I caught my limit. Maybe I don't want that next level because my other things in my life have taken priority." So, how do people unwind? For those people who feel like they may have done that in that position, what are some ways to unwind that?
Julie: Yeah, so you're saying, like, if you've already taken that role?
Brian: Yeah, and just didn't occur to you that, "You know what? I didn't really want this extra level of work. I just didn't think it through. I just thought it was another accomplishment."
Julie: So, the first thing... It kind of depends on a lot of things. So, let's say you have a very stable career history. You've worked a long time at one place, and you've jumped to this other place. And you've been there nine months to a year and you say, "Ah, this isn't exactly what I thought it was going to be." You can successfully and confidently pivot at that point. Versus a person who's had three, two-year jobs in a row. Now, it starts to... What story does your career tell? And that's what I would ask. Because you want to picture yourself. You're now interviewing for a new job beyond the one that you took by accident. You've got to explain yourself. You've got to explain your career.
And it's perfectly okay to say, "So, when they contacted me, it sounded like exactly what I wanted. When I got there, I realized that blah, blah, blah. I've done a lot of thinking, and now, I know exactly what I want. And this is why I applied for this role. And so, that's a good explanation. But if you are somebody who has a history of jumping without really thinking about what I've done, and therefore you have kind of a checkered history, you probably need to take a breath and build up some capital there where you are, so that as you move to the next thing, you've got a better story to tell. So, it's kind of a big fat, it depends. And it's really, what does your whole career story say about you?
Bob: Julie, I want to go back to the situation where somebody's, you know, considering a move, they haven't pulled the trigger yet, and they're wondering how to evaluate this. And I'm going to make an assumption here. You correct me if I'm wrong. Oftentimes, people just haven't been coached on how to walk into that, you know, the boss's office or the executive suite, and just be clear about what you love about working where you are. A couple things that you would like to see tweaked. And I think, especially in today's labor market where it is really hard to find good, seasoned, hardworking people, aren't people amazed? You know, if they're coached by someone like you on how to go in and broach that conversation, oftentimes, you can walk out of that office, you know, if your requests are reasonable, getting exactly what you really need to be truly happy where you are, instead of making a completely new move and complete jump to a new company. Am I on target there at all?
Julie: Yes, very much so. We always say, try to fix it where you are first, because job search is painful, and transitioning to a new unknown job, as exciting as it may sound on the surface, can also be really painful and surprising. And so, doing that clarity, that looking at everything that's on your plate and really saying, "What do I like about my current role? What are the things that if I had a magic wand and can move them off my plate, I would? What would I like to see more of less of in my role? And how do I then approach that?" Once you get clarity on that, then you have a better...then you have a framework, then you have talking points to go in and say, you know, "I've been in this role as COO for three years, and what I really love is integrating new ideas, new systems, new technologies, and then working across the, across the organization to help implement those and bring those to life. I do get to do some of that in my role, but as I look at my next role, I would love to be more involved in those types of initiatives." And that's the kind of conversation that you should be having. And we are so afraid to have those conversations because we feel like it's going to make us look less than committed, or that we're going to automatically end up on the layoff list.
And you've got to assess your situation. If you have the type of leader who you feel like it really is risky to have those conversations, that might be different than if you feel like you are valued and your leader is looking to retain you. I think it's up to you to go in and begin that conversation about what next might look like for you. Leaders are so busy. And yes they should be coming to you and initiating these conversations, but they aren't because they're getting squeezed. And I always say, the career fairy isn't coming. And so, if you want more or different out of your career, start where you are, try to get it where you are, or at least, put a plan together to get it where you are, especially in a job market like we're in. That's always going to be the place where it's going to be least stressful to move.
Bob: That is great advice, Julie. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Do you have a financial question you'd like for us to answer? There's a red button you can click. If you're listening to our show from the good, old iHeart app, simply record your question and it will come straight to us. Mark in Milford leads us off tonight. Brian, he says, "We've got several old tax lots in our brokerage account, and I'm not sure how to unwind them without triggering huge capital gains. How do you modernize a portfolio without burning the tax house down?" I love how he phrased that.
Brian: Yeah, this is a common question, especially this time of year as people are kind of taking stock of their overall situation, and what changes should I make by the end of New Year's Eve here? So, when you're modernizing a taxable portfolio, you've got these old, highly appreciated positions, the goal is usually to separate what you want to own from what you can afford to sell. There's usually kind of four steps to this. First off, make sure you understand what your embedded gains are. Think in terms of gain per dollar sold. Two positions with the same dollar gain can have very, very different tax impacts, maybe if one has a much lower cost basis. So, don't necessarily think only about the dollar positions. Think about the cost basis and what the tax is.
And then second, you're going to want to upgrade through additions before you upgrade through the actual sales. New savings, dividends, and interest into parts of the portfolio you want to build before you worry about selling and rejiggering the existing positions. That'll help the legacy positions gradually become a smaller percentage. And so, that's going to help you modernize your portfolio, as you said, before you're actually creating taxable events. And then the third step here, use that tax calendar to your advantage. Realizing gains in controlled increments, harvest losses in volatile years. If things are going way up and way down, then you're going to intentionally fill your lower brackets during retirement. You'll want to cap those gains to stay under the 0% or 15% threshold. It is possible to do that. Make sure you're not generating much more income that'll push you into higher brackets.
And then finally, remember that appreciation itself is going to create some flexibility. If a position keeps growing, you can donate those shares to meet some charitable goals, and you'll get a deduction on the backend of them. So, I hope that helps in the few steps there for you to look at over the next couple of weeks. And so, now, we're going to move on to Brian in Montgomery. Brian says, "We've always reinvested these dividends, but now that we're getting close to retirement, does it make sense to actually use the dividends for income rather than just reinvesting? What's the tipping point? How do you how do you know when it's time to make that decision?"
Bob: Well, Brian, great question. I would say the tipping point is proactive tax planning. Here's what I mean. There are some folks out there, and this is not a bad thing, who are just addicted to these, you know, reinvested dividend programs, and they've used them for years, if not decades. And, you know, there's a saying out there that says, well, you know, only spend your dividends and interest. By no means ever touch any principle or ever sell anything. And I know in principle that works. I mean, it keeps you from drawing down your principle. But you asked the point about, you know, what's the tipping point here? And my answer is proactive tax planning.
Here's what I mean. It might make some sense to actually, God forbid, have a little bit of capital gains, you know, going on, or recognition going on in your portfolio, because it might allow you to move your overall tax rate that you pay down. So, you know, depending on what the components of your investment portfolio are and where you need or want to derive your income from, sit down with somebody and actually run the numbers and create a proactive income plan that gets you the money that you need to have while balancing the risk of your overall portfolio and, hopefully, making this as tax efficient as possible. There's a lot of options out there to consider. Make sure you're at least evaluating all of your choices. All right. Olivia in Blue Ash says, "We're starting to think about long term care, but I've overwhelmed by how many options exist. How do you decide between self-funding, insurance, or some hybrid of the two?"
Brian: Well, this is a combination of matching your resources, your risk tolerance, and your control, and make sure that you understand what the needs are. You might be able to self-fund. You know, there's a lot of people out there who are actually in a stronger position than they've ever let themselves believe. And when we do financial plans frequently, somebody will say, "Okay, so we're in good shape right now, but what if this happens? What if I need to take on a long term care type of a situation? And do I really need to layer on an extra $10,000, $12,000 a month of expenses?" Because that is about that. That's the cost of a nice day. So, the comparison I always make here is, let's make sure that we understand what the real cost is, and what does it take away?
So, in other words, if the average stay in a nursing home... We're talking end-of-life care, by the way. And we're not talking Alzheimer's, your Parkinson's, Huntington's-type situation. That's very different. Those are 8 to 10 days and that is a life-changing event. But those are a little more rare. But for your average two and a half to three-year stay, you're looking at about $10,000 to $12,000 per month in a nice home for one individual. So, that's going to average somewhere in the $350,000 range. But the thing to remember, though, is you're not necessarily layering those expenses on top of everything else. If you've built a financial plan, then you've got your expenses out there, you know what you spend. Well, remember, you're not going to the grocery store anymore. You're not traveling anymore. You know, you're not taking on the same lifestyle that you are now when we're planning for something that could happen 15 years down the line. So, you know, it's very possible that you could actually sell-fund when you remember that whatever that expense is, isn't necessarily layered on top of everything else.
But if that's not the case, then you can consider traditional long-term care insurance. That's where you write a check, you know, once a year. And it's kind of like term insurance. And then finally, there's also something called hybrid insurance, which my favorite thing to do is to take a cash value life insurance policy and pull the cash out of it, move it via a 1035 tax-free exchange to another life policy that also has a long-term care rider. If you've got the ability to look into that, I would highly recommend considering doing those.
Bob: All right, good stuff. Coming up next, I've got my two cents from an actual client meeting I had yesterday. One of these Gen X couples we talked about earlier in the show. I'm going to walk you through the actual contents of that meeting I had yesterday and how we got these people all set up and feeling good about things moving forward. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Now, Brian, we spent several minutes earlier in the show today talking about all the dilemmas that the Gen X generation faces. And I just wanted to share, you know, hopefully, give people a little bit of hope out there. You know, I want to share the actual content from a meeting I had yesterday with a couple that falls into that generation. And, you know, they want to retire in the next, you know, about a year and a half to two years. And they've saved well. They've done a lot of great things. And we've run the plan, maintained it for years and years. And now that it's kind of starting to get down to crunch time, they came in yesterday and just wanted to take a look at the numbers because this whole thing is turning from hypothetical into real now.
And it was an interesting meeting because the one thing I asked them to do is take the next 18 months and really look hard at what they actually spend. Now that the kids are through college and it's just a couple, you know, we really wanted to find what their actual lifestyle is. And Brian, I get this response often. You know, they're like, "That requires a lot of work. We got to track this and that and whatever." And then in the next breath, they're talking about something they call the credit card game, where they have two or three credit cards. They pay them off every month. But they've been playing this credit card points game where they've become experts at getting free meals at luxury restaurants, free flights, you know, upgraded rooms on cruises. And my response is, "You guys are spending all this time and you become experts at playing the credit card points game, but you won't take 30 minutes just to look at what you actually spend every month." And kind of the you know, they looked at me like, "You know what? You're right. We're kind of being Pennywise and Pound Foolish potentially here."
The point I wanted to make is when we started to look at subtle differences in spending up or down when they retire, it makes a huge difference in the viability of their long-term retirement plan. And the meeting ended with them agreeing with me that, "Yep, it does make sense to take a look at this because we don't want any surprises down the road by going into retirement, assuming we're going to spend X, when we really might end up spending Y." And that's a bad time to make an adjustment after you've pulled the trigger on retirement. Brian, any feedback? Did I do it right? Do you have any other comments to add?
Brian: My favorite thing that you did there, which is why we've spent... And I need this myself every now and then, right? Sometimes we're all too close to our own forest and we keep staring at these individual trees, one little thing. In that case, it was their credit card. And there's nothing wrong with that. Look, I play some credit card games myself just to get reward points and all that kind of stuff. Got to pay the bills anyway, might as well get paid to do it. But you're going to put that much energy into it and ignore the other sides of your financial plan, then, yeah, you might need somebody to pull you back so you can see the whole forest a little bit. So, I think you did a great job.
Bob: We all got a good chuckle out of it. And these are smart people. They'll do the right thing. All right. You're been listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
What is that simple phrase? The sooner the better. And tonight, we have some new data that explains all of this. It all centers around the group of people who are in the on-deck circle, Brian, for retirement, the Gen X group.
Brian: That's my group, Bob. So, let's talk about the problem that my generation has here. So...
Bob: Talk about all the dysfunction going on with your group.
Brian: Well, I don't think it's quite fair to label everybody with a generational label and say that everybody's a mess. But here are the common problems that are coming up with this generation. By the way, this is a generation we really never talk about because we're one of the smallest generations there are. I read a study a long time ago that, basically, looked at, over all the generations and when people are born and all that kind of stuff, and therefore how long do they have to be in control in terms of when that generation would take control of Congress, that kind of thing. And it was literally, like, an 18-month period before Gen X is quickly overwhelmed by this ensuing generation. But we'll have our moment in the sun.
Anyway, so we're talking about Gen X today because this is the first generation that's going to be funding retirement largely without private pension plans. And I think of myself there. My wife and I are somewhat fortunate to have old pensions from old jobs from a million years ago, but not anymore. But I do remember vividly my grandpa who worked... He was a facility's maintenance guy for what was then CG&E, then Cinergy, and now, Duke Energy. But we would fight as cousins to mark off the red Xs on his calendar, which were the day that he had his 30 years of time in and was 65, I think is how it worked. But anyway, that kind of countdown doesn't really exist for Gen X because there isn't really a clock unless you've built your own. Not everybody has the same. Without a private pension plan, it's basically whatever you've put together on your own. And that's exactly what this generation is going through. And with that as the measuring stick, not so good here.
Gen X workers, on average, have saved a median of about $107,000 in total household retirement accounts and $6,500 in emergency savings. This is coming from the nonprofit Transamerica Center for Retirement Studies in collaboration with Transamerica Institute, big insurance company out there. A total of 2 in 10, or 20%, have already dipped into their retirement savings by taking a hardship withdrawal or an early withdrawal. And these are people who the oldest among us was born in 1965. So, we're on the very, very early edge of retirement here and already dipping into retirement savings. That retirement balance compares with the estimated one and a quarter million dollars that Americans generally think they need to retire comfortably. That one comes from Northwestern Mutual. So, Gen X maybe has a bit of a tough hill to climb here, Bob.
Bob: Well, let's get into why this is happening. And I always hate, as you know, Brian, to paint with a broad brush, take a whole generation of folks and take the mean or average numbers. And it's not always representative of exactly everything that's going on here. But in reality, let's talk about what this generation of folks has had to endure from an economic standpoint. And just from a family dynamic standpoint, many members of Gen X graduated college or high school during a recession. They got their first jobs when 401(k)s were in their infancy, you know, pre-dating the internet and lacking the educational resources that, at least, some, or maybe even many plans offer today. And let's face it, from an investor confidence standpoint, the Gen X generation, well, they had to endure the dot-com bust, the great recession and the COVID pandemic. Those are three really big gut punches. And that all takes big swipes at what I'll call investor confidence.
I mean, shoot, when you see the market go down 55%, 60% in very short order more than once over a decade, that's going to make you scratch your head and say, "Wow, does this really still work?" Brian? And I think as a result, auto enrollment in 401(k)s maybe declined a little bit. The auto escalation features of savings in those 401(k)s declined. Tack on high student loan debt in some cases. And then a lot of these folks, and you live through this and I know our clients do, the Generation X folks are literally living in that sandwich generation where they're trying to support their own livelihood, their kids, and sometimes, their parents and other loved ones. It's a lot of stuff to take on both emotionally and financially.
Brian: Yeah. And I think all the generations have different experiences for what they go through, and for the things that they point to as the formative experiences of their lives. And a lot of times, that's in conflict. And I think really the conflict that Gen X has between that and the prior generation comes from the, I'd say, the '80s and the '90s. So, we had the 1970s where we had stagflation, we had a rough economy there. Obviously, one of the rougher periods, economically speaking. And that was the formative time. That's when the baby boom generation was starting to make its own. But then the pendulum swung back the other way and we had the '80s and the '90s where really nothing bad happened. And that was the beginning of really what has become the technology boom over the past several decades.
So, I think we had one generation and the baby boomers that did pay their dues in the '70s and were rewarded with the '80s and the '90s. And Generation X is looking at that and going, "Yeah, we've had 20 years' worth of chaos. The payoff periods have come with massive market up swings, but only three, four years at a time before chaos ensues versus the straight 20 years of really nothing scary happened." And that's nobody's fault. That's just how it works. And that's everybody's perspective in terms of how they see it. And every generation likes to think it's the one suffering the most. I think every single generation out there with the exception of maybe the silent generation, which is aptly named, has opinions on that. But in any case, yeah, I mean, everybody's gonna deal with their...
Bob: Brian, are you going to be one of those Gen Xers that sit down with your kids and talk about, "The woe is me. I had to walk uphill both ways to school, three miles in the snow." Are you going to be one of those old, curmudgeon folks blaming all of your ills on someone else or the weather?
Brian: I don't think so, but, I guess, that remains to be seen. Maybe that'll happen. Depends on the mood I'm in that day that that conversation comes up. I don't know.
Bob: All right. So, in the spirit of controlling what we can control. And that's all we can do, is control what we can control. What are some of the things that we need to talk to folks of any generation, including Generation X, on how to take ownership of your own retirement situation and get the trains back on the proverbial tracks here and move us forward?
Brian: Well, I think it's just like anything else. Like you said, controlling what you can control. And that's true for absolutely anybody. That's generationally irrelevant because everybody has their own situation to deal with. You've got your own resources, your own goals. And it simply means, understand what you have available to you and what you're trying to accomplish. And that's all financial planning. So, step back and understand, what are my limitations? What are my opportunities, my strengths, weaknesses, so forth? And then build some kind of financial plan out of that, and then operate accordingly. And the thing we shouldn't be doing is trying to follow some kind of blueprint that somebody else has written up for everybody to go do. It doesn't work that way. You have to understand your own situation, which is going to be very different from that of other family members, neighbors, and so forth. And then operate accordingly within those limitations.
Bob: So, if you do sit down with a good fiduciary advisor, which Brian and I highly recommend, and you do an assessment of where things are today, I mean, let's face it, you really only have three levers to pull at the end of the day. You can save more, you can spend less, or you can work more years, or a combination of all three. And that's where we get into some of the planning. And when people actually see some numbers and how pulling those different levers can really move the needle in a hurry, that at least, gives people a track to run on. And oftentimes, Brian, gives them a lot more confidence instead of just flying blind and hoping it all works out. And for folks that are in their 50s, man, this is prime catch-up time. To the extent that you can handle it from a cash flow standpoint, make those extra contributions, revisit your asset allocation, maybe take on a little bit more investment risk to get a little more growth or juice in your portfolio if your time horizon allows for that. Brian, talk about, for folks in their 60s, a lot of these folks are wanting to retire in the next 5 years or so. What are some things those folks can be doing?
Brian: Well, this is the leading edge of Gen X here. So, now, it's time to start thinking about, how are you going to optimize your Social Security timing? You know, if you're... There aren't as many levers to pull here as there used to be, right? We're not talking about tricks anymore, about file and suspend and all that. That's been gone for 10 years. But that doesn't mean there aren't decisions to be made. What you're trying to do is optimize Social Security timing alongside withdrawals from your investments, from your portfolio.
Because in a given situation, it may make sense to turn on Social Security early in retirement, it may make sense to push it. And that has everything to do with the taxation of the other assets you have. If everything you have is pre-tax, because that's just the way you set up your 401(k), that's where your retirement savings are, that itself is the pivot point between whether you're going to file off Social Security earlier versus later. Versus maybe if you focus more on the Roth, you've got tax-free assets, or if you have assets outside of retirement plans entirely in taxable type of accounts, then that could push the Social Security pendulum one direction versus the other.
So, we do see all the time, we have people who feel like they're behind, and they leave after having done a financial plan, you know, realizing they're actually in a good spot. So, give yourself a chance. If you're listening to this show and you're aware of Allworth or other financial education resources out there, you're probably in better shape than you already have. So, give yourself a break. People who have been seeking out that kind of information for a long time usually have put themselves in a good place. They've just never stepped back to look at the forest instead of the individual trees.
Bob: Yeah, and speaking of giving yourself a break, I mean, this is a good time to throw out a reminder here, Brian, of a topic we cover all the time on this show. And that's just managing the emotions if you are in that sandwich generation. And here's what I mean by that. You don't have to carry the whole world on your shoulders if you get out in front of this and communicate a little bit. For example, if you feel just this moral obligation to pay 100% of the cost of a private education for your kids, you might have to pump the brakes on that a little bit and compromise in the spirit of maintaining your own retirement viability. Same thing with aging parents or other relatives. If people are expecting you to help, you got to set a little bit of boundaries there to make sure you don't impoverish yourself in order to help parents or aunts or uncles or other relatives that you might perceive need some money.
So, it's not just running numbers. It's balancing and managing the behavioral aspects of all this. And all joking aside, there are a lot and a lot of folks in this Generation X generation that are really carrying a lot of weight here, both emotionally and financially. And sometimes working with a good financial advisor is just that other set of eyes and ears that can help you think objectively, and again, get yourself in a good place moving forward. Here's the Allworth advice. The earlier you act, the more options you'll have. But even later in life, smart planning and smart communication can make all the difference. Coming up next, one data-supported money move that could boost your happiness. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You are listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. If you can't listen to "Simply Money" live every night, subscribe and get our daily podcasts. If you think your friends or family could use some financial advice, especially during this volatile, uncertain times that we live in, tell them about us as well. Just search "Simply Money" on the iHeart app or wherever you find your podcast. Straight ahead at 6:43, real questions from real people will weigh in with insight, hopefully, that you can use no matter where you are on your financial journey. Well, we all want to be happy, Brian. I know I do. Don't you want to be happy?
Brian: Yes, yes, I do, Bob. Thanks for reminding me of that.
Bob: Well, talk to us about a new YouGov poll that found something very interesting when it comes to money and how we use money.
Brian: Well, Bob, this new poll came out and said a whopping 72% of Americans, including 69% of high-income earners, say they know they'd be happier if they saved or invested more money. Now, that, I think, that is just an earth-shattering statement right there. But only about 21% said spending would make them happier. Spending more would make them happier. This is good in a sense of people are realizing, I think, that they'd be happier... People are saying, "I'd like to know that I have a bigger cushion." And maybe not so many say they'd like to be spending more of that cushion. Just kind of a mindset saying that, "I'd like to know that I've got a little more shock absorber to kind of handle the crazy stuff that life can throw at us."
There was a poll that was done for MarketWatch of about 25 U.S. adults in late October. It was people with a household income of more than $250,000. They were more likely to agree that it was important to keep up in terms of saving, though they were also more likely than average to agree that it was important to keep up with spending. So, you know, a little bit of... I think we got a lot of opinions in there. But at the same time, it's interesting that we're pivoting more towards, saving makes us happier than spending. That is different than what I have heard my entire life, it seems like.
Bob: Yeah, and this reminds me of a cartoon I used to watch when I was a kid. And I can't even remember what it was, Brian. But I remember, you know, it was a cartoon that had two little kind of elves or voices, you know, standing on a guy's shoulder. And what I mean is, we always have two voices in our heads. One saying, "Long-term. Man, I really should be saving and investing and building for the long-term." And that other voice is saying, "Yeah, but I really want to take that trip. I really want a new car. I really want the iPhone 17 Pro." You know, there's always these conflicting voices going on. And I think that's what that study is getting at.
I'm more interested in this, hearing from an expert, you know, who actually studies behavior. And we're going to cite some comments from Arthur Brooks, an actual Harvard professor and writer who studies happiness professionally, Brian. And he says, there's five ways you could basically use money. You can buy things, you can buy experiences, you can buy time, you can give money away, or you can save it. And he says only the last four of those five things actually brings happiness. He wrote a summary of an article in a LinkedIn post earlier this year. And his point is, hey, stuff, even if it gives us that dopamine hit in the short-term, stuff always wears off. But saving money is progress, and progress makes us happy along with buying experiences and buying time, which is what saving money ultimately gives us. What do you say about those comments from Professor Brooks? I think those are pretty spot on myself.
Brian: Yeah, I think it makes a lot of sense. And again, having done a lot of financial planning for people where the big goal in life was that house in Hilton Head or, "I'm going to buy myself a nice car when I retire." When I hear those things not coupled with other greater experience-oriented or family-oriented plans, I know that's somebody who's probably not going to wind up super happy if that's the only thing they're focused on. But I want to move on to the next thing he says here, which is, he kind of determined that there is no ideal savings rate for happiness, but the research suggests that a golden mean exists between security and deprivation.
So, that's a lot of fancy college talk for basically saying, save enough so that you feel secure. but not so much that you are ruthlessly illiquid. Ruthlessly illiquid. I've never heard that phrase before, but I'm thinking of people that I've met in my planning career who just do nothing but save, save, save and just will not spend. The main purpose for getting out of bed is to go update their spreadsheet as to how much money and whatever their investments did yesterday. And there's really not much else going on in their lives. I run across these people every now and then, and they are just not the happiest people at all.
Bob: Yeah. And on the flip side, we've got those folks who really do need to be saving more and putting more away. I mean, the last data we saw on the personal savings rating in the United States, or the share of income left after spending and paying taxes was a very low 4.7% in September. And the analogy that comes to mind here, Brian, back to your point of finding that balance of feeling secure or feeling ruthlessly illiquid, it's kind of like knowing you need to lose 30 pounds and putting a goal out there that I'm going to lose 17 pounds in the next 27 days. And boy, you go off running around the neighborhood six times a day or whatever. And guess what? After about three days, you're exhausted. You say, "There's no way I can do this. It's not going to work for me," and you stop, you quit. And I think the point that the professor Brooks here is making is small incremental changes implemented over time is what's really going to move the needle here. There are forces at play out there that make this harder for people. Let's talk about what some of the things that maybe might be getting in our way mentally. And I'm talking about social media, Brian. It's a real influence out there.
Brian: Fear of missing out. Social media has made it easier than ever to measure our own lifestyle against other peoples, but only 17% of respondents polled by YouGov for MarketWatch that we referenced earlier, only about 17% agreed that it was important to keep up with their peers in terms of spending. But at the same time, 28% said it was important to keep up with them and to keep up with their peers in terms of saving. Regardless, I don't care whether you're keeping up in terms of spending or saving. If you're paying that much attention to other people, you're probably not going to wind up in a happy spot anyway. Understand what your situation is and what your goals are and focus only on that and get off of social media in terms of a measuring stick for your own life.
Bob: Here's the Allworth advice, happiness from money isn't about what you buy, it's about the security and options that you build over time. Focus on goals that truly bring you peace of mind. You've worked your way up the ladder, and you've perhaps made even some great money, but opportunity comes calling in the form of an executive position or a big promotion. Should you move up that corporate ladder? We'll talk about the "executive dilemma," coming up next. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James, joined tonight by our career expert, Julie Bauke. Julie, thanks as always for carving out some time for us tonight. We want to talk about something we're going to call the executive dilemma, staying put, versus jumping to the next big thing. Let's say, you're in a great role right now. You love your job. You're obviously doing very well at it, but opportunity comes knocking. What's the right move? And how do you evaluate whether to make a move?
Julie: Yeah, I can kind of speak in generalities because I've worked with a lot of people in this situation. The first question I would ask is, why would you consider this move? So, in other words, what are the compelling things about this move? And sometimes what I find when people start listing out compelling things, more salary, a higher-level title. My next question would be, are you sure that those are the things that really matter to you? Because it's very ingrained in us that jumping for the next big thing, more money, more title, equals more happiness and career satisfaction, but I know for sure that's not true.
And so, when you look at, why did that role appeal to you in the first place? And then ask yourself, are those the things that really matter to me at this point? I always start from a point of what matters most to you right now in your life, and then bring the career conversation into it. Because if you are going to get that bigger title and more money, does it also mean that you have to travel more? Does it mean you have to work weekends? And how does that fit into what your priorities are? So, that's the big question is, why would you?
And then take a look at, what is it about where you are now that might be sticking in your gut as to why it even makes sense to look for something else? What are you missing where you are? If you could change some things about your current situation, would that solve that if you're getting to move on? I think just a really good critical analysis of the whys and the whats, both behind where you are, and what the opportunity is in front of you is really, really important. Because we can get super caught up in, "Yeah, but it's a director title. Yeah, but it's a VP title," without really thinking about, what am I giving up to get that? And then how does that work against what my whole life priorities are right now? So, a career decision has to be made on a bigger platform than in a vacuum.
Brian: Julie, I think a lot of people learn the hard way exactly what you just said because we get this so ingrained in us that, "I got it. If I'm getting offered this position, well, clearly I'm fantastic. Obviously, they love me, and I should take advantage of these benefits." But people do tend to learn the hard way that, "Whoops, maybe I caught my limit. Maybe I don't want that next level because my other things in my life have taken priority." So, how do people unwind? For those people who feel like they may have done that in that position, what are some ways to unwind that?
Julie: Yeah, so you're saying, like, if you've already taken that role?
Brian: Yeah, and just didn't occur to you that, "You know what? I didn't really want this extra level of work. I just didn't think it through. I just thought it was another accomplishment."
Julie: So, the first thing... It kind of depends on a lot of things. So, let's say you have a very stable career history. You've worked a long time at one place, and you've jumped to this other place. And you've been there nine months to a year and you say, "Ah, this isn't exactly what I thought it was going to be." You can successfully and confidently pivot at that point. Versus a person who's had three, two-year jobs in a row. Now, it starts to... What story does your career tell? And that's what I would ask. Because you want to picture yourself. You're now interviewing for a new job beyond the one that you took by accident. You've got to explain yourself. You've got to explain your career.
And it's perfectly okay to say, "So, when they contacted me, it sounded like exactly what I wanted. When I got there, I realized that blah, blah, blah. I've done a lot of thinking, and now, I know exactly what I want. And this is why I applied for this role. And so, that's a good explanation. But if you are somebody who has a history of jumping without really thinking about what I've done, and therefore you have kind of a checkered history, you probably need to take a breath and build up some capital there where you are, so that as you move to the next thing, you've got a better story to tell. So, it's kind of a big fat, it depends. And it's really, what does your whole career story say about you?
Bob: Julie, I want to go back to the situation where somebody's, you know, considering a move, they haven't pulled the trigger yet, and they're wondering how to evaluate this. And I'm going to make an assumption here. You correct me if I'm wrong. Oftentimes, people just haven't been coached on how to walk into that, you know, the boss's office or the executive suite, and just be clear about what you love about working where you are. A couple things that you would like to see tweaked. And I think, especially in today's labor market where it is really hard to find good, seasoned, hardworking people, aren't people amazed? You know, if they're coached by someone like you on how to go in and broach that conversation, oftentimes, you can walk out of that office, you know, if your requests are reasonable, getting exactly what you really need to be truly happy where you are, instead of making a completely new move and complete jump to a new company. Am I on target there at all?
Julie: Yes, very much so. We always say, try to fix it where you are first, because job search is painful, and transitioning to a new unknown job, as exciting as it may sound on the surface, can also be really painful and surprising. And so, doing that clarity, that looking at everything that's on your plate and really saying, "What do I like about my current role? What are the things that if I had a magic wand and can move them off my plate, I would? What would I like to see more of less of in my role? And how do I then approach that?" Once you get clarity on that, then you have a better...then you have a framework, then you have talking points to go in and say, you know, "I've been in this role as COO for three years, and what I really love is integrating new ideas, new systems, new technologies, and then working across the, across the organization to help implement those and bring those to life. I do get to do some of that in my role, but as I look at my next role, I would love to be more involved in those types of initiatives." And that's the kind of conversation that you should be having. And we are so afraid to have those conversations because we feel like it's going to make us look less than committed, or that we're going to automatically end up on the layoff list.
And you've got to assess your situation. If you have the type of leader who you feel like it really is risky to have those conversations, that might be different than if you feel like you are valued and your leader is looking to retain you. I think it's up to you to go in and begin that conversation about what next might look like for you. Leaders are so busy. And yes they should be coming to you and initiating these conversations, but they aren't because they're getting squeezed. And I always say, the career fairy isn't coming. And so, if you want more or different out of your career, start where you are, try to get it where you are, or at least, put a plan together to get it where you are, especially in a job market like we're in. That's always going to be the place where it's going to be least stressful to move.
Bob: That is great advice, Julie. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Do you have a financial question you'd like for us to answer? There's a red button you can click. If you're listening to our show from the good, old iHeart app, simply record your question and it will come straight to us. Mark in Milford leads us off tonight. Brian, he says, "We've got several old tax lots in our brokerage account, and I'm not sure how to unwind them without triggering huge capital gains. How do you modernize a portfolio without burning the tax house down?" I love how he phrased that.
Brian: Yeah, this is a common question, especially this time of year as people are kind of taking stock of their overall situation, and what changes should I make by the end of New Year's Eve here? So, when you're modernizing a taxable portfolio, you've got these old, highly appreciated positions, the goal is usually to separate what you want to own from what you can afford to sell. There's usually kind of four steps to this. First off, make sure you understand what your embedded gains are. Think in terms of gain per dollar sold. Two positions with the same dollar gain can have very, very different tax impacts, maybe if one has a much lower cost basis. So, don't necessarily think only about the dollar positions. Think about the cost basis and what the tax is.
And then second, you're going to want to upgrade through additions before you upgrade through the actual sales. New savings, dividends, and interest into parts of the portfolio you want to build before you worry about selling and rejiggering the existing positions. That'll help the legacy positions gradually become a smaller percentage. And so, that's going to help you modernize your portfolio, as you said, before you're actually creating taxable events. And then the third step here, use that tax calendar to your advantage. Realizing gains in controlled increments, harvest losses in volatile years. If things are going way up and way down, then you're going to intentionally fill your lower brackets during retirement. You'll want to cap those gains to stay under the 0% or 15% threshold. It is possible to do that. Make sure you're not generating much more income that'll push you into higher brackets.
And then finally, remember that appreciation itself is going to create some flexibility. If a position keeps growing, you can donate those shares to meet some charitable goals, and you'll get a deduction on the backend of them. So, I hope that helps in the few steps there for you to look at over the next couple of weeks. And so, now, we're going to move on to Brian in Montgomery. Brian says, "We've always reinvested these dividends, but now that we're getting close to retirement, does it make sense to actually use the dividends for income rather than just reinvesting? What's the tipping point? How do you how do you know when it's time to make that decision?"
Bob: Well, Brian, great question. I would say the tipping point is proactive tax planning. Here's what I mean. There are some folks out there, and this is not a bad thing, who are just addicted to these, you know, reinvested dividend programs, and they've used them for years, if not decades. And, you know, there's a saying out there that says, well, you know, only spend your dividends and interest. By no means ever touch any principle or ever sell anything. And I know in principle that works. I mean, it keeps you from drawing down your principle. But you asked the point about, you know, what's the tipping point here? And my answer is proactive tax planning.
Here's what I mean. It might make some sense to actually, God forbid, have a little bit of capital gains, you know, going on, or recognition going on in your portfolio, because it might allow you to move your overall tax rate that you pay down. So, you know, depending on what the components of your investment portfolio are and where you need or want to derive your income from, sit down with somebody and actually run the numbers and create a proactive income plan that gets you the money that you need to have while balancing the risk of your overall portfolio and, hopefully, making this as tax efficient as possible. There's a lot of options out there to consider. Make sure you're at least evaluating all of your choices. All right. Olivia in Blue Ash says, "We're starting to think about long term care, but I've overwhelmed by how many options exist. How do you decide between self-funding, insurance, or some hybrid of the two?"
Brian: Well, this is a combination of matching your resources, your risk tolerance, and your control, and make sure that you understand what the needs are. You might be able to self-fund. You know, there's a lot of people out there who are actually in a stronger position than they've ever let themselves believe. And when we do financial plans frequently, somebody will say, "Okay, so we're in good shape right now, but what if this happens? What if I need to take on a long term care type of a situation? And do I really need to layer on an extra $10,000, $12,000 a month of expenses?" Because that is about that. That's the cost of a nice day. So, the comparison I always make here is, let's make sure that we understand what the real cost is, and what does it take away?
So, in other words, if the average stay in a nursing home... We're talking end-of-life care, by the way. And we're not talking Alzheimer's, your Parkinson's, Huntington's-type situation. That's very different. Those are 8 to 10 days and that is a life-changing event. But those are a little more rare. But for your average two and a half to three-year stay, you're looking at about $10,000 to $12,000 per month in a nice home for one individual. So, that's going to average somewhere in the $350,000 range. But the thing to remember, though, is you're not necessarily layering those expenses on top of everything else. If you've built a financial plan, then you've got your expenses out there, you know what you spend. Well, remember, you're not going to the grocery store anymore. You're not traveling anymore. You know, you're not taking on the same lifestyle that you are now when we're planning for something that could happen 15 years down the line. So, you know, it's very possible that you could actually sell-fund when you remember that whatever that expense is, isn't necessarily layered on top of everything else.
But if that's not the case, then you can consider traditional long-term care insurance. That's where you write a check, you know, once a year. And it's kind of like term insurance. And then finally, there's also something called hybrid insurance, which my favorite thing to do is to take a cash value life insurance policy and pull the cash out of it, move it via a 1035 tax-free exchange to another life policy that also has a long-term care rider. If you've got the ability to look into that, I would highly recommend considering doing those.
Bob: All right, good stuff. Coming up next, I've got my two cents from an actual client meeting I had yesterday. One of these Gen X couples we talked about earlier in the show. I'm going to walk you through the actual contents of that meeting I had yesterday and how we got these people all set up and feeling good about things moving forward. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Now, Brian, we spent several minutes earlier in the show today talking about all the dilemmas that the Gen X generation faces. And I just wanted to share, you know, hopefully, give people a little bit of hope out there. You know, I want to share the actual content from a meeting I had yesterday with a couple that falls into that generation. And, you know, they want to retire in the next, you know, about a year and a half to two years. And they've saved well. They've done a lot of great things. And we've run the plan, maintained it for years and years. And now that it's kind of starting to get down to crunch time, they came in yesterday and just wanted to take a look at the numbers because this whole thing is turning from hypothetical into real now.
And it was an interesting meeting because the one thing I asked them to do is take the next 18 months and really look hard at what they actually spend. Now that the kids are through college and it's just a couple, you know, we really wanted to find what their actual lifestyle is. And Brian, I get this response often. You know, they're like, "That requires a lot of work. We got to track this and that and whatever." And then in the next breath, they're talking about something they call the credit card game, where they have two or three credit cards. They pay them off every month. But they've been playing this credit card points game where they've become experts at getting free meals at luxury restaurants, free flights, you know, upgraded rooms on cruises. And my response is, "You guys are spending all this time and you become experts at playing the credit card points game, but you won't take 30 minutes just to look at what you actually spend every month." And kind of the you know, they looked at me like, "You know what? You're right. We're kind of being Pennywise and Pound Foolish potentially here."
The point I wanted to make is when we started to look at subtle differences in spending up or down when they retire, it makes a huge difference in the viability of their long-term retirement plan. And the meeting ended with them agreeing with me that, "Yep, it does make sense to take a look at this because we don't want any surprises down the road by going into retirement, assuming we're going to spend X, when we really might end up spending Y." And that's a bad time to make an adjustment after you've pulled the trigger on retirement. Brian, any feedback? Did I do it right? Do you have any other comments to add?
Brian: My favorite thing that you did there, which is why we've spent... And I need this myself every now and then, right? Sometimes we're all too close to our own forest and we keep staring at these individual trees, one little thing. In that case, it was their credit card. And there's nothing wrong with that. Look, I play some credit card games myself just to get reward points and all that kind of stuff. Got to pay the bills anyway, might as well get paid to do it. But you're going to put that much energy into it and ignore the other sides of your financial plan, then, yeah, you might need somebody to pull you back so you can see the whole forest a little bit. So, I think you did a great job.
Bob: We all got a good chuckle out of it. And these are smart people. They'll do the right thing. All right. You're been listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.