November 1, 2024 Best of Simply Money Podcast
Navigating Financial Forks: When to Call a Financial Advisor
On this week’s Best of Simply Money podcast, Amy and Steve dive into pivotal life moments when reaching out to a financial advisor becomes essential. Whether it's an unexpected increase in income, a sudden job loss, or other major life changes, they discuss the importance of seeking professional guidance to navigate these financial crossroads effectively.
They also explore the unique challenges faced by high earners not retired yet (HENRYs), offering strategies for tax-efficient savings and investment opportunities. From leveraging 401k contributions to maximizing health savings accounts and non-qualified deferred compensation plans, Amy and Steve provide valuable insights to help listeners make the most of their financial situation.
Plus, they address the significance of open communication in relationships during financial transitions, such as marriage or divorce.
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Transcript
Amy: Tonight, we would say there are just some things that happen in life where one of the calls you make, maybe one of the first calls should be to a financial advisor, plus health care options if you retire early and we are taking your questions. You're listening to Simply Money presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby. You know, see, there's lots of people who kind of build wealth on their own. We call them DIYers, right? They do it themselves, and there's also plenty who work with an advisor. But when something comes along at some point in your life, we would say you need to stop and that first call either needs to be maybe to think about hiring an advisor or to your existing advisor to say, here's a major life update, right? It's like a fork in the road. Which way forward do I go?
Steve: Yeah. One to look at is as your income increases while you're still working and you have more money coming in than you did before, this could also be expenses falling off, like children no longer being on the bank of mom and dad or maybe you're debt free now, you've paid off some liabilities and you just find yourself with more cash flow. It could be a yearly bump in salary, a bonus, some kind of job change that just gives you more money. There are decisions that you need to make on how to save your next dollar as most tax efficient as possible.
Amy: On the flip side, there could also be a negative change with work, right? You were planning on retiring at 67 and all of a sudden you got papers, marching orders and you're 59 or 60. Wait, that was not part of the plan. What do I do? You took a pay cut. You lost your job, right? All of those things are changes from what you had expected, whether it's for the good or for the bad. And yeah, I think having someone whose job it is to process these things for lots of people and saying, okay, let's take a deep breath, right? Many times these things are emotional, right? You either got more money than you expected, which is a great thing or less. And then it's like, what is the next step that makes the most sense? You may not know what that is, but someone who's been helping other people make these kinds of decisions can certainly help point you in the right direction.
Steve: I want to focus for a couple of minutes here on those that are now making more money than they ever had or have more money to work with than they've ever had before, because there's actually a name for that in the industry. It's a HENRY, high earner, not retired yet. These are individuals that all of a sudden have more cash flow, but they don't know what to do with it. And they're looking at ways to save so there's always kind of a hierarchy that we would look at as financial advisors to focus on tax efficiency first, because there's only so many tax-efficient vehicles that you have that can defer taxes until you're probably in a lower tax bracket later on.
If you're making a half million dollars a year, for example, your effective tax rate is pretty high. So we're exploring things like the 401k up to the 402g limit, which is your $23,000 if you're under the age of 50. Beyond that we're looking at things like a health savings account, maybe Roth-Backdoor conversions, flexible spending accounts. Are you putting money into a 529 to get a state tax deduction? And then there's even opportunities out there like non-qualified deferred compensation plans for highly compensated executives or individuals that... you know, I'm working with somebody now that's in medical device sales. Obviously, I've had a history of working with people that are in medical device sales, but a lot of these folks make tons of money and they're like, what do I do? What do I do with my next dollar to be tax-efficient with it? And that's something that I'm helping guide somebody through right now, is taking advantage of this plan that is available to them. It's called their Top Hat Non-Qualified Deferred Compensation Plan.
Amy: Wow. You know, and I think, yeah, I think for many people, you know, when you first get out of college and you're working and you're kind of building, it's like, I don't know, I don't have a lot. I'm going to sock away whatever I can in that 401k. Sometimes you do it in a target date fund, which is just, you know, hey, I'm going to retire in the year 2040 or whatever. So I'm just going to throw the 401k proceeds into this fund. And then at some point you wake up and all of a sudden you realize like, wait a second, this is real money. You check that statement and you're like, there's more money in this than I ever would have imagined I could have. Or to your point, you're highly compensated and all of a sudden your bank account is like, wow, I never expected this. How do you be as intentional as possible with maximizing those assets, but then also shielding as much as you possibly can from Uncle Sam? I think at some point it's like I've taken it as far as I can, and now I realize, like, I'm in a little bit over my head and maybe to your point in a good way, what are my next steps? And I think that's when, okay, it makes a lot of sense then to reach out for a financial advisor.
And for those of you who have never done that, because you hate the idea of paying the fees, this is where there is real value, I would say, in hiring someone. I mean, when you look at what can be saved in tax efficiency and maximizing those assets, it's going to more than make up for those fees, right? Most of the time. So this is where I think lots of times it can make sense.
You're listening to Simply Money presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby. As we're kind of talking about major steps in your life, major changes, some of them feel like they're steps forward. Some of them can feel like steps backwards, but in either way, we would say one of the first calls you should make maybe to your parents, say this is going on, and then next to your financial advisor, what do I do? And some of those have to do with your career, right? When you're making more than you thought you would, and sometimes they're just a step backwards in your career. You lost the job. You were laid off, whatever that looks like. And then I would say there's also some kind of family changes. You're getting married, you're getting divorced.
Steve: Yeah, absolutely. Because if you're getting married, for example, this is where finances are being combined. Financial goals are being combined, financial resources. You need to have open and honest conversations with the other planning partner, so to speak. And oftentimes sitting down with a financial advisor can be eye-opening. I've sat in meetings with people that have been married for a long time, and it's clear that they had never had the conversation about what their shared goals and dreams are ...
Amy: Uh-huh, happens often.
Steve: ...as far as the requirement is concerned. You'll see two opposite ends of the spectrum. I want to get a place in Florida and live there. Or I want to rent all over the place and travel the country. And it's like, uh-oh, these people got some work to do.
Amy: Right. Have you two ever met each other?
Steve: Yeah, these people got some work to do.
Amy: And on the flip side, when someone gets divorced, this is something that I have been through on my own. And I was just really grateful that I had the financial background that I do. One of the things that I know is to not fight for the house. So many times, that's what the couple does. They inherently go to, this is where we raised our children. We have so many memories in this house. I want it. You want it. And I think what you have to do is step back and take a non-emotional look at it and say, okay, hold on. Can we afford, right? Can I afford on one income a house that we likely bought on two incomes and the upkeep of that? And that's where a financial advisor can kind of talk you through those things in a very unemotional way.
I recently had a client who emailed me over the weekend and it just said, hey, like, listen, we're going to go through a divorce. I want to talk about this. And the way that it kind of played out for them is that she's going to leave the house. He's going to buy her out. But her monthly expenses are going to go up because, hey, the cost of rent is insane. It's more than they were paying for the mortgage. And so we had a conversation about it. I plugged the new numbers into the plan and the plan no longer works. And when I say it no longer works, it means she's likely out of money when she's still here right before the age of 95. And so I said, hey, let's talk about this. Let's walk through your plan. I want to, you know, I want you to come into the office and sit face to face. Let's go over this so we can talk about the implications. Maybe that means you ask for a little more, right? Out of that house or some other assets in order for you to be okay. If she had never called a financial advisor, she would have just gone to paying the rent. She would have never looked through the implications of that decision down the road. And maybe she would have gotten to 78 and all of a sudden realized, wait a second, there's not enough money in this account. That's why I think, you know, working with an advisor, especially during these major life changes, can honestly be a game changer for you.
Steve: Yeah, I've worked with people over the years that have actually had those questions to me ahead of time. Like, "Hey, Steve, we have this plan together, but I would like to talk to you about what it would look like if it was a plan all by myself." And, you know, that's a place that we as advisors can provide some unbiased, non-judgmental feedback, pull the curtain back, look at the finances and talk about the feasibility of living on your own and answering big questions like that obviously provides a lot of values. Same thing with planning ahead of time for, you know, end of life. You know, these are tough conversations to have, but there's plenty of folks I work with who are, you know, the man is significantly younger than the woman and women already live longer than men. So I will literally, you know, once there's rapport in the relationship, I'll mock up like, hey, let's say that, you know, you kick the bucket at 80 and you live till 97. What does that look like? Do we have a plan in motion that ensures that, you know, your spouse is covered for in the event that there's a big difference in life expectancy? And having those answers and that peace of mind ahead of time can be very valuable.
Amy: Yeah, that's a fantastic point. You know, another major change, and this is, you know, a really exciting one, you're having a new baby, right? Your family is expanding. You know, have you thought through a 529? Have you opened up a 529 to help pay for college expenses? You know, one of the best pieces of advice, this is from Brian James, you know, one of our colleagues, he got a credit card when they were pregnant with their first child and the benefit, the rewards of that credit card were that any kind of cash balance went to a 529 that was invested. They paid for that kid's college years later with that credit card. It made so much sense. The money was there because they had a credit card with the rewards tied to a 529. Would you have thought of that on your own? Maybe not. That's why...
Steve: I would have.
Amy: Well, you're so smart. Of course, you would.
Steve: Thank you, Amy.
Amy: You don't miss a thing.
Steve: You would have thought of it too, wouldn't you?
Amy: Yeah, well, I would have now because I know, but, you know, these are the things that I think the average person going through your life may not know. Another time, speaking of children, is when the bank of mom and dad just doesn't close down. Either you've got several children that keep coming back to you or you've got one that just, you know, for whatever reason, failure to launch, it's not happening. I want to be able to talk through with you the implications of you continuing to support that child and I want to make sure that it's not to the detriment of your own retirement. And sometimes, and I say this often to clients, listen, if the bank of mom and dad is open and it's going to affect your retirement, walk your children into this office. If you can't have that conversation with them yourselves, if you're not comfortable with it, I am happy to walk your children through your financial plan and show them the impact of it, which would likely mean that at some point you as the parents are then living on their couch in their home, in their guest bedroom when they are adults and they have their own families. And oftentimes that's enough for that kid to be like, actually, I will figure out a way to figure this out on my own.
Steve: You can certainly light up a fire underneath people to take action or make changes.
Amy: Eye-opening.
Steve: Some other life events, what we've talked about today has been some really big changes. There's some smaller ones when it makes sense to work with an advisor, just looking for a state planning guidance, starting a business, inheriting money before making some kind of a large purchase decision about social security, things like that. It makes sense to have somebody in your corner to help navigate how some of these changes could impact the longevity of your money, making sure that of course, it lives longer than you do.
Amy: Here's the Allworth advice. The people who achieve prosperity, they rarely get there accidentally. It takes planning, goal setting, and your constant vigilance to get where you want to be. And sometimes it takes partnering with someone that can help you get there. Coming up next, if you want to stop working before you hit that age of 65, what are your options for health care? We'll talk through the pros and the cons of those. You're listening to Simply Money presented by Allworth Financial here on 55KRC, The Talk Station.
You're listening to Simply Money presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby. If you can't listen to our show every night, you don't have to miss a thing. Any of the brilliant advice that we're giving you. We've got a daily podcast, just search Simply Money. It's right there on the iHeart app or wherever you turn to to find your podcast. Coming up at 6:43, you've got money questions and we certainly have answers. We are asking the advisor.
You know, Steve, I think it's pretty often that people will come into our office and, you know, they'll say, gosh, I'm done with my boss. I hate Mondays. I get the Sunday blues. I'm just done with this. I would love to retire early. And for many, you look at the assets that they have and you're like, okay, you probably could be okay. But for many, the biggest barrier, the biggest obstacle is what are we going to do about health care before you reach the magical age of 65 where you're eligible for Medicare?
Steve: Yeah, you better believe when we build financial plans for folks that we have inflated expenses for health care.
Amy: Yes.
Steve: Especially if they are planning on retiring early or we are building scenarios that mock up what early retirement looks like. Not only does health care inflate at a much higher rate than everything else, but it can also be very surprising to folks how much it actually costs. And you said something I really like, because when people come into my office and they don't exactly know what they're looking to accomplish, we'll say it's in a first meeting or something. I think a good way to summarize what most people want is understanding if they have a really, really bad day at work, can they never go back? Do they have the financial...
Amy: Can they tell the boss to take the job and shove it?
Steve: Yeah. Do they have the financial freedom that gives them the luxury of being able to walk away from work and just not having to care? In order to have that, typically, it does help to have a financial plan to make sure that you can show your money living longer than you do. And in the event that you're looking at pulling the trigger early on retirement, that's where we need to talk about the options for paying for health care. First, that a lot of folks will leverage is COBRA. This is where you can stay on your employer's health insurance plan for up to a year and a half after you leave your job. It is an easy way to maintain the coverage that you've grown used to. But it is also very expensive. You'll come to realize that your employer had been usually paying a significant portion of the premium. So, I mean, sometimes I've seen what you pay your premium go up five times what it is now with COBRA.
Amy: Absolutely. You know, it's like you want so badly, right, to say take this job and shove it to your boss. And then you have a new appreciation for your boss on the other side of it once you realize how much your employer was actually covering your health care expenses. So I think this whole way of thinking of retiring early, you have to do some research. You have to explore this first to make sure that you're going into it with eyes wide open. If you are within that window of 18 months, right, if you're 62, COBRA isn't going to get you to 65. After 18 months, you're going to have to find another option to get you to 65. But yeah, you probably have no idea how much your employer is covering in those health care expenses. So COBRA could be an option. It is often a much more expensive option. I think this one is eye-opening for a lot of people, just that the total cost of health care coverage when you're, most of the time, only paying a small fraction of that.
You know, another place that you can turn is the health insurance marketplace, right, the Affordable Care Act. Some people still call it Obamacare is another option for those who are retiring under 65. They're available for individuals. They're available for families. Certain income levels. You can get certain ranges of coverage. This can work for some people. Anecdotally, those who I have spoken to who have gone this route are sometimes a little frustrated by their options. They're a little more limited.
Steve: Yeah. On the flip side of that, too, there are people that are already on it because they are 1099. They're contractors or people that didn't have health care benefits through their employers. So it really depends on your individual financial situation. If your retirement income falls below certain thresholds, you could be eligible for subsidies that can reduce the premium that you pay. That really depends, though. If your income is too high, then you're getting kicked in the teeth with premiums, depending on the range of coverage that you're electing, because there's high deductible plans. There's plans that have low deductibles, but, you know, higher benefits paid up at the premium is higher.
Amy: Yeah. Another option that you have is private health insurance. So you're getting this directly from an insurance provider. And oftentimes there's more flexibility in terms of the coverage. Maybe you can keep your current doctors, your current plan, but they also can come with a lot higher premiums. So there's pros and cons to all of these options. And that's why I think, you know, several years before you get to the point, if you are seriously considering retiring early, you should look at all of your options and have an idea before you get there of which one makes the most sense for you so that there aren't any surprises.
Steve: COBRA is great for closing short-term gaps. You know, if you're knocking on the door to Medicare enrollment, for example, and you got four months to deal with before you're eligible, you know, sure, pay the higher premiums. You don't need to make any changes. You don't need to worry about potentially changing your doctor because all of a sudden the plan is in a different network. So your head's not spinning with all those choices. You know, it is, like you said, beneficial to sit down and build out that plan. My favorite one, here's a great one. If your spouse is still working and you have a particularly bad day at work and you decide you never want to come back, maybe you could just switch to your spouse's coverage. Done.
Amy: And I think that for most people is the best option. Right? If you have a spouse who's still working for the foreseeable future and they have good health care coverage, it's like a no-brainer. Recently met with some clients and he was like, I was like, Okay, what do you think about retiring? And he was like, well, that's kind of up to you. You know, based on this plan today, you know, when we walk through the numbers, I wanted to see what you thought. He really wants to retire in January. And so we ran the plan and I was like, yeah, you absolutely can do that. I mean, there's significant money left there at the end of plan, which for him would be 93, for his wife would be 95. And the reason why he can even consider retiring at 62 is she's got great health insurance and she's actually planning on working till 67. So he's got several years of her health insurance. So we're not having to say, okay in addition to the fact that you're not gonna have an income coming in, we're also gonna have this additional outflow of health care expenses. And we need to talk through this.
Here's the Allworth advice. Just make sure you're working with a qualified financial advisor to plan for health care costs if you are looking or dreaming about retiring early before you hit that age of 65. Coming up next, we're talking about the specific steps to take to achieve the career you've always wanted. You're listening to Simply Money, presented by Allworth Financial here on 55KRC, The Talk Station.
You're listening to Simply Money. I'm Amy Wagner, along with Steve Hruby. When you think about how happy you are in life at any given moment, a lot of that has to do with how you feel about your job, right? You don't like your job, usually, everything else is kind of meh. You love your job, everything else also kind of falls into place. So joining us tonight is our career expert, Julie Bauke. Julie On The job. And Julie, you've written a book about this, seven steps to the career you want. And first of all, I want to talk about the title of this book because I love it. It's like how not to pee on your shoes.
Julie: Yeah. So the reason I wrote that book, and I wrote that book several years ago, but everything in it is absolutely still relevant. I spent nine years working with people who just lost their jobs and they made seven common mistakes that derailed their search, made their search longer, really created a lot of confusion and difficulty that didn't need to be created if they'd just done it right the first time. And so I wrote the book after I left the company I was working for, where I worked only with people who just lost their jobs because I thought if I could... because people were asking me, you know, I don't know how to do a job search. And I'd say, okay, I wrote this book, read it, follow it, and you will be on track to do a job search that is more likely to land you where you want to land.
Steve: So where do you start? Outside of reading the book. What's the first step?
Julie: The first... So, you know, when you get in the car and you pull up Google Maps and you are trying to get to a certain place, Google Maps will take you there. If you take that analogy, any good job search should start with the destination in mind. What type of job are you looking for? How will you recognize it when you see it? And I swear, like almost everybody starts looking before they know what they're looking for. And it just doesn't make sense. They sort of like, well, you know, I'm just looking for something that's not this. Or any job will do, or I'll know it when I see it. And that kind of language makes me cringe because I know that without some sort of plan and a destination in mind, that you will land much less than you would have. So you have to start and figure out what is it I want next? You know, and the big mistake people make...
Steve: It feels like financial planning a little bit because without...
Julie: Yes, exactly.
Steve: ...coming into it with a goal, without an expectation, what are we really working towards? What is the end result that we're aiming for?
Julie: Exactly. Yeah, you know, a friend of mine that had this great quote one time, and I always tell her I'll give her a nickel every time I use it. But she said, what you're really saying is that waiting until you lose your job to think about what you want out of your career is like waiting until you declare bankruptcy before you decide to think about what you want out of your money. And I think it's just so relevant. It really is a different type of thinking. It is really about what is my next best move? Because if you've been at a job for two years, three years longer, you've changed professionally in terms of what you want, and your capabilities and skills have changed and enhanced hopefully. So how do you want to take that forward and land on your next job? So if you start... so a good job search is think, plan, execute. And my seven mistakes are really about the mistakes people make that I don't want you to make. And so I teach you kind of how to not make those mistakes. But overarching, a good job search is think, plan, execute, just like your finances or planning a great party, is think, plan, execute. And so the temptation, though, especially when we lose our job, is to get into action immediately. We don't value or really take time to sit and think about now that I've been handed this opportunity to move and do something different. Let's make sure it's something better. But I have to know what that looks like for me.
Amy: The whole component of like intentionality, right? It's like, gosh, you feel like you don't have control if you lost your job. You're not choosing to start this search. And so what I can control is that I'm going to blow up everybody's LinkedIn accounts that I know trying to network, or I'm going to fill out 85 different applications for jobs today, even if none of them fit I'm not going to be able to do that. I'm going to be able to do that every day, even if none of them fit what I really want to do. So Julie, I like that your point is give yourself a minute to breathe, think through what you really want to do, and then you kind of figure out next steps.
Julie: Yeah. And you know what? In my nine years of working with people who just lost their jobs, I was astounded, maybe I shouldn't have been, by the number of people who said to me, I really wasn't that happy in that job anyway.
Steve: It's a shame.
Julie: And I probably should have left a long time ago. And now I'm like, man, so what is it? Why do we let ourselves get to that point? There's a lot of reasons why. But if you're starting to feel like this is not for me, I don't think... I'm not happy anymore. Figure out why and then put together a plan to do something about it. And it doesn't mean that you have to leave your company. It could mean a different role in a different part of the company. So it's not necessarily always about quitting and changing jobs, but it's about getting smart and intentional about what you want and then putting together a plan to get it without just kind of waiting and dilly-dallying and, you know, hiding under your desk every time there's a layoff and considering hating your job normal because it isn't. It shouldn't be. Let's put it that way.
Steve: So let's say there's an unexpected job change, something that you didn't sign on for. Where, in your opinion, is the best place to search for the next opportunity? Because there are many options. There's the Internet, partnering with recruiters, reaching out to your network. Where would you say is the best place to go?
Julie: There's a lot... so when job boards became a thing, when Indeed and back in the days of Monster and when all that stuff was starting, people said, okay, you know, this is a game changer. Everybody is going to get their jobs this way. What's so interesting is that even back then, two-thirds or more of people got their job... before the internet was so prolific in terms of job search, two-thirds or more of people got their jobs through people they know or people they meet through the search. It is still true today. So two-thirds or more people get their jobs through someone they meet and they might meet them online, but it's a human to human connection. And so that's where you want to focus. But I really, really want to make sure that we address something you said and that's partnering with recruiters. That's not a thing. I think people really need to understand what recruiters, what their role is. They don't work for you. They work for the company that hired them. And so to expect them to be looking for opportunities for you or be, let's call it an agent like athletes and celebrities have, that's not a thing. But a lot of times recruiters will make you feel that way. Now, they've got away...
Steve: So they don't necessarily have your best interest in mind. They're trying to fill an opportunity on behalf of the employer.
Julie: That's right. Now, it doesn't mean that a recruiter might not have a great opportunity for you, but you have to remember, I always say follow the dollars. If a recruiter says... You know, I've talked to people before like, yeah, I'm going to change jobs. I've got a recruiter working for me. Like, no, no, not how it works. That is not how it works. And what you do is if you think you have a recruiter working for you and what they're doing is sending your resume around to everybody they know, they've just put a 25 to 30% price tag on you...
Amy: Marker.
Julie: Because they... Yeah. And so really, in my opinion, this is something that you have to drive yourself. Doesn't mean connecting with recruiters can't be a part of your strategy. But I'm just telling you understand the role of recruiters and act accordingly.
Amy: Great advice, as always, from Julie Bauke. If you find yourself in an unexpected situation looking for a job rather than just doing, doing, doing, step back, think about it, be really intentional and you can actually end up in a far better situation than you were before maybe you got that unexpected call. Julie On The Job with great insights as always. You're listening to Simply Money presented by Allworth Financial here on 55KRC, The Talk Station.
You're listening to Simply Money presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby. Do you have a financial question that's keeping you up at night? We can help you out. We can help you get some sleep. There's a red button you can click on while you're listening to the show. It's right there on the iHeart app. Record your question. It's coming straight to us. Speaking of questions, we've got several to get to. The first one is from Henry in Boone County.
Henry: I have a 401K question. I can make after-tax contributions to my 401K, but what does that mean? Isn't this the same thing as a Roth 401K?
Steve: That's pretty cool, Henry. I really love this feature in a 401K plan. It enables you to do something called a mega backdoor Roth conversion. It's a little bit confusing the first time you do these. But once you get the hang of it, it becomes second nature. So keep in mind that your typical limit, I'm going to assume Henry here is under the age of 50 based on his voice. You're able to save pre-tax and or Roth into your 401K up to $23,000. This is the maximum limit for deductible contributions via pre-tax and or Roth. There's a higher limit that exists. It's actually much higher. And what that number is, is the most money that can enter your plan in a year. Now, this is a combination of your pre-tax, your Roth, money that your employer puts in via company match or company contributions, plus an after-tax non-Roth contribution. This is what you're asking. What it is, is non-deductible contributions. You do not get a deduction. Also, those dollars do not grow tax-free like Roth. They are taxable gains. Now, here's the catch. The Roth mega backdoor conversion is where you take those after-tax non-Roth contributions and you convert them to Roth either inside the plan or by pulling the money out of the plan. So it's enabling you to save more in Roth than you ever should be able to via an interesting loophole inside your 401K.
Amy: This is for super savers, right? This is for those of you who are maxing out your 401Ks. If you have a health savings account, if that makes sense to you with the high deductible health care plan, you're doing that as well. And you're like, I have more dollars that I want to save for retirement. I mean, I've always said this for years. It's so frustrating. And I understand why. But that our government, when we have a country that has a retirement crisis, is giving people limits on how much that they can save. You know, and so this is a way that you can kind of bust through those upper limits and actually save more. These can make a lot of sense for those of you kind of higher income earners.
Steve: You could potentially be doing $23,000 Roth and then another, I don't know, $20,000 or $30,000 Roth via those after-tax contributions, but you have to convert it. Work with an advisor on this one, please. It's very easy to make a mistake.
Amy: Next question from John in Fort Thomas.
John: Hey, guys. Well, I got this letter in the mail from a company asking to buy my non-traded REIT. What question should I consider before deciding whether to sell it?
Steve: Well, does it make sense in your portfolio in this day and age? You know, a non-traded REIT, it's not going to have the same level of market volatility. You could see this thing... you could count on it being a little bit more stable because it is registered with the SEC, but it doesn't trade on exchanges. So it's not going to have that same implied volatility of something that is available to trade on the open market. So does it still fit in with your overall strategy that you had when you bought the thing? If you do sell the REIT early, it can result in some fees that lower the overall return. So you'd have to look into the details on the information about that REIT because you might lose out on some potential benefits that you acquired when you originally bought into it.
Amy: Yeah, and just keep in mind, a REIT is a real estate investment trust, right? Lots of people who just feel better. It's like when you own a stock, it's like piece of a company. You can't touch it. Lots of people just like that idea of real estate. You know, you can see it, you can touch it, you're owning parts of these buildings, often commercial buildings and things like that, you know, and there's traded REITs and non-traded REITs. And non-traded rates are less liquid, so when you want to get out of them, it's harder. So someone asking you to buy it can give you that option before you would normally be able to liquidate it. But Steve, I think you bring up lots of good points about what you need to think through first.
Steve: Then we have Daniel in Westwood.
Daniel: My tax planner always gives me estimate forms to pay federal and state taxes every quarter. Some years I pay them, some years I don't. Am I better off paying it?
Amy: For those of you who are like, wait, what? An estimate form? It's probably because you have regular W-2 income, right? You're working for an employer and your taxes are withheld from your paychecks. But think about it, there's lots of people out there who freelance, who are independent contractors, think Uber drivers, Lyft people. You run your own business. And so you're not getting a regular paycheck where money is withheld. And so what happens if you don't use one of these estimate forms is the end of the year comes and you owe major, right? And that kind of a tax bill all at once can be very overwhelming. So these estimate forms give you the ability to pay throughout the year. So you're saying specifically some years you opt into that and some years you don't pay it. I kind of recommend paying it because I don't like major tax surprises. And that's what you could be in for if you're waiting. I think if you're not paying these, you have to be super intentional with money in a separate account for taxes that are going to be due for everything you've made over the course of the year. It just makes me a little bit nervous.
Steve: And there's thresholds that you have to pay or else you could actually be penalized. So if a tax planner is telling you to do something, I would suggest listening to them.
Amy: Yeah. Next question from Sandy in South Carolina.
Sandy: I'm from Westchester, but now live in South Carolina. I listen to your podcast as much as I can. When it comes to auto and home insurance, do you typically recommend high or low deductible plans?
Steve: Oh, this really just depends on the individual, because if you have a high deductible plan, then you are paying a lower premium. But honestly, it puts you in a position where you should probably address that inside of an emergency fund. Reflecting on the fact that if something were to happen, you would need to come up with the higher payment before your insurance benefit actually kicks in. So it's a question that ties more closely to cash flow, what you can afford, what you need, how comfortable you are keeping a certain amount of money liquid.
Amy: Coming up next, a little Wagner wisdom for you. You're listening to Simply Money, presented by Allworth Financial here on 55KRC, The Talk Station.
You're listening to Simply Money, presented by Allworth Financial, I'm Amy Wagner, along with Steve Hruby. We recently needed a car in our house, and this might surprise you, but my husband and I have very different approaches to how we deal with big-ticket purchases. He likes to get the nicest thing as possible. Right? And I'm like, what is the out-the-door cost? He's like, well, I can get the monthly payment down, you know, as low as this. And I think this is great. And I'm like, yes. And we will be paying that car off 12 years from now, 7 years after it's like been sold for parts. Right? And so...
Steve: So you took a seven-year loan. Is that what we're getting at here?
Amy: No, we didn't, because that's... but I think lots of people, what you want to focus on when you're making major purchases is how much this is going to cost if I finance it over time. And I just want to remind you that probably the best way to approach this is what is the overall out-the-door cost, right? With taxes and everything. And listen, they try to add on all kinds of bells and whistles at that point of sale here. So be ready for that. I'm sure we've all kind of seen that before. But look at the total cost. Ask for that upfront when you're deciding whether or not you can truly afford that car. If that total cost makes you nauseous, you cannot afford that car, regardless of how low they tell you they can get those monthly payments down.
Steve: Yeah. When you're buying a car and, you know, maybe I'm the minority here, but I really enjoy having those negotiation meetings with car dealerships.
Amy: I do too.
Steve: I have a great time with it. The number you really want to focus on is the price that you're paying for the vehicle. That's what you want to get down as low as possible. Not the monthly payment, because they have all kinds of games they can play to make that payment small and manageable for you. But really what they're doing is stretching out the financing for most situations where they're just getting more interest from you over the long term. But yes, your payments are being lowered.
Amy: Some more advice along these lines is to figure out what that total cost that you can afford before you ever leave home. And then you hold yourself to it, because here's what happens. You walk into that showroom and you find the car and you test drive it. And you fall in love. Right? And then it's like, oh, this was several thousand dollars above what I wanted, but I love it. Or I'm going to go home and work the numbers. No. If you know what the number is, you work it into your budget first. Right? We say you should be able to put 20% down. No more than 10% of your entire monthly budget should go to that car. And that means the insurance you're paying on it, taxes, upkeep everything. And then do not finance that car for more than four years or that $30,000 car you're actually paying like $38,000 for. You know, whatever the math works out on that, go into it with eyes wide open. You've been listening to Simply Money here on 55KRC, The Talk Station.
Steve: Yeah. One to look at is as your income increases while you're still working and you have more money coming in than you did before, this could also be expenses falling off, like children no longer being on the bank of mom and dad or maybe you're debt free now, you've paid off some liabilities and you just find yourself with more cash flow. It could be a yearly bump in salary, a bonus, some kind of job change that just gives you more money. There are decisions that you need to make on how to save your next dollar as most tax efficient as possible.
Amy: On the flip side, there could also be a negative change with work, right? You were planning on retiring at 67 and all of a sudden you got papers, marching orders and you're 59 or 60. Wait, that was not part of the plan. What do I do? You took a pay cut. You lost your job, right? All of those things are changes from what you had expected, whether it's for the good or for the bad. And yeah, I think having someone whose job it is to process these things for lots of people and saying, okay, let's take a deep breath, right? Many times these things are emotional, right? You either got more money than you expected, which is a great thing or less. And then it's like, what is the next step that makes the most sense? You may not know what that is, but someone who's been helping other people make these kinds of decisions can certainly help point you in the right direction.
Steve: I want to focus for a couple of minutes here on those that are now making more money than they ever had or have more money to work with than they've ever had before, because there's actually a name for that in the industry. It's a HENRY, high earner, not retired yet. These are individuals that all of a sudden have more cash flow, but they don't know what to do with it. And they're looking at ways to save so there's always kind of a hierarchy that we would look at as financial advisors to focus on tax efficiency first, because there's only so many tax-efficient vehicles that you have that can defer taxes until you're probably in a lower tax bracket later on.
If you're making a half million dollars a year, for example, your effective tax rate is pretty high. So we're exploring things like the 401k up to the 402g limit, which is your $23,000 if you're under the age of 50. Beyond that we're looking at things like a health savings account, maybe Roth-Backdoor conversions, flexible spending accounts. Are you putting money into a 529 to get a state tax deduction? And then there's even opportunities out there like non-qualified deferred compensation plans for highly compensated executives or individuals that... you know, I'm working with somebody now that's in medical device sales. Obviously, I've had a history of working with people that are in medical device sales, but a lot of these folks make tons of money and they're like, what do I do? What do I do with my next dollar to be tax-efficient with it? And that's something that I'm helping guide somebody through right now, is taking advantage of this plan that is available to them. It's called their Top Hat Non-Qualified Deferred Compensation Plan.
Amy: Wow. You know, and I think, yeah, I think for many people, you know, when you first get out of college and you're working and you're kind of building, it's like, I don't know, I don't have a lot. I'm going to sock away whatever I can in that 401k. Sometimes you do it in a target date fund, which is just, you know, hey, I'm going to retire in the year 2040 or whatever. So I'm just going to throw the 401k proceeds into this fund. And then at some point you wake up and all of a sudden you realize like, wait a second, this is real money. You check that statement and you're like, there's more money in this than I ever would have imagined I could have. Or to your point, you're highly compensated and all of a sudden your bank account is like, wow, I never expected this. How do you be as intentional as possible with maximizing those assets, but then also shielding as much as you possibly can from Uncle Sam? I think at some point it's like I've taken it as far as I can, and now I realize, like, I'm in a little bit over my head and maybe to your point in a good way, what are my next steps? And I think that's when, okay, it makes a lot of sense then to reach out for a financial advisor.
And for those of you who have never done that, because you hate the idea of paying the fees, this is where there is real value, I would say, in hiring someone. I mean, when you look at what can be saved in tax efficiency and maximizing those assets, it's going to more than make up for those fees, right? Most of the time. So this is where I think lots of times it can make sense.
You're listening to Simply Money presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby. As we're kind of talking about major steps in your life, major changes, some of them feel like they're steps forward. Some of them can feel like steps backwards, but in either way, we would say one of the first calls you should make maybe to your parents, say this is going on, and then next to your financial advisor, what do I do? And some of those have to do with your career, right? When you're making more than you thought you would, and sometimes they're just a step backwards in your career. You lost the job. You were laid off, whatever that looks like. And then I would say there's also some kind of family changes. You're getting married, you're getting divorced.
Steve: Yeah, absolutely. Because if you're getting married, for example, this is where finances are being combined. Financial goals are being combined, financial resources. You need to have open and honest conversations with the other planning partner, so to speak. And oftentimes sitting down with a financial advisor can be eye-opening. I've sat in meetings with people that have been married for a long time, and it's clear that they had never had the conversation about what their shared goals and dreams are ...
Amy: Uh-huh, happens often.
Steve: ...as far as the requirement is concerned. You'll see two opposite ends of the spectrum. I want to get a place in Florida and live there. Or I want to rent all over the place and travel the country. And it's like, uh-oh, these people got some work to do.
Amy: Right. Have you two ever met each other?
Steve: Yeah, these people got some work to do.
Amy: And on the flip side, when someone gets divorced, this is something that I have been through on my own. And I was just really grateful that I had the financial background that I do. One of the things that I know is to not fight for the house. So many times, that's what the couple does. They inherently go to, this is where we raised our children. We have so many memories in this house. I want it. You want it. And I think what you have to do is step back and take a non-emotional look at it and say, okay, hold on. Can we afford, right? Can I afford on one income a house that we likely bought on two incomes and the upkeep of that? And that's where a financial advisor can kind of talk you through those things in a very unemotional way.
I recently had a client who emailed me over the weekend and it just said, hey, like, listen, we're going to go through a divorce. I want to talk about this. And the way that it kind of played out for them is that she's going to leave the house. He's going to buy her out. But her monthly expenses are going to go up because, hey, the cost of rent is insane. It's more than they were paying for the mortgage. And so we had a conversation about it. I plugged the new numbers into the plan and the plan no longer works. And when I say it no longer works, it means she's likely out of money when she's still here right before the age of 95. And so I said, hey, let's talk about this. Let's walk through your plan. I want to, you know, I want you to come into the office and sit face to face. Let's go over this so we can talk about the implications. Maybe that means you ask for a little more, right? Out of that house or some other assets in order for you to be okay. If she had never called a financial advisor, she would have just gone to paying the rent. She would have never looked through the implications of that decision down the road. And maybe she would have gotten to 78 and all of a sudden realized, wait a second, there's not enough money in this account. That's why I think, you know, working with an advisor, especially during these major life changes, can honestly be a game changer for you.
Steve: Yeah, I've worked with people over the years that have actually had those questions to me ahead of time. Like, "Hey, Steve, we have this plan together, but I would like to talk to you about what it would look like if it was a plan all by myself." And, you know, that's a place that we as advisors can provide some unbiased, non-judgmental feedback, pull the curtain back, look at the finances and talk about the feasibility of living on your own and answering big questions like that obviously provides a lot of values. Same thing with planning ahead of time for, you know, end of life. You know, these are tough conversations to have, but there's plenty of folks I work with who are, you know, the man is significantly younger than the woman and women already live longer than men. So I will literally, you know, once there's rapport in the relationship, I'll mock up like, hey, let's say that, you know, you kick the bucket at 80 and you live till 97. What does that look like? Do we have a plan in motion that ensures that, you know, your spouse is covered for in the event that there's a big difference in life expectancy? And having those answers and that peace of mind ahead of time can be very valuable.
Amy: Yeah, that's a fantastic point. You know, another major change, and this is, you know, a really exciting one, you're having a new baby, right? Your family is expanding. You know, have you thought through a 529? Have you opened up a 529 to help pay for college expenses? You know, one of the best pieces of advice, this is from Brian James, you know, one of our colleagues, he got a credit card when they were pregnant with their first child and the benefit, the rewards of that credit card were that any kind of cash balance went to a 529 that was invested. They paid for that kid's college years later with that credit card. It made so much sense. The money was there because they had a credit card with the rewards tied to a 529. Would you have thought of that on your own? Maybe not. That's why...
Steve: I would have.
Amy: Well, you're so smart. Of course, you would.
Steve: Thank you, Amy.
Amy: You don't miss a thing.
Steve: You would have thought of it too, wouldn't you?
Amy: Yeah, well, I would have now because I know, but, you know, these are the things that I think the average person going through your life may not know. Another time, speaking of children, is when the bank of mom and dad just doesn't close down. Either you've got several children that keep coming back to you or you've got one that just, you know, for whatever reason, failure to launch, it's not happening. I want to be able to talk through with you the implications of you continuing to support that child and I want to make sure that it's not to the detriment of your own retirement. And sometimes, and I say this often to clients, listen, if the bank of mom and dad is open and it's going to affect your retirement, walk your children into this office. If you can't have that conversation with them yourselves, if you're not comfortable with it, I am happy to walk your children through your financial plan and show them the impact of it, which would likely mean that at some point you as the parents are then living on their couch in their home, in their guest bedroom when they are adults and they have their own families. And oftentimes that's enough for that kid to be like, actually, I will figure out a way to figure this out on my own.
Steve: You can certainly light up a fire underneath people to take action or make changes.
Amy: Eye-opening.
Steve: Some other life events, what we've talked about today has been some really big changes. There's some smaller ones when it makes sense to work with an advisor, just looking for a state planning guidance, starting a business, inheriting money before making some kind of a large purchase decision about social security, things like that. It makes sense to have somebody in your corner to help navigate how some of these changes could impact the longevity of your money, making sure that of course, it lives longer than you do.
Amy: Here's the Allworth advice. The people who achieve prosperity, they rarely get there accidentally. It takes planning, goal setting, and your constant vigilance to get where you want to be. And sometimes it takes partnering with someone that can help you get there. Coming up next, if you want to stop working before you hit that age of 65, what are your options for health care? We'll talk through the pros and the cons of those. You're listening to Simply Money presented by Allworth Financial here on 55KRC, The Talk Station.
You're listening to Simply Money presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby. If you can't listen to our show every night, you don't have to miss a thing. Any of the brilliant advice that we're giving you. We've got a daily podcast, just search Simply Money. It's right there on the iHeart app or wherever you turn to to find your podcast. Coming up at 6:43, you've got money questions and we certainly have answers. We are asking the advisor.
You know, Steve, I think it's pretty often that people will come into our office and, you know, they'll say, gosh, I'm done with my boss. I hate Mondays. I get the Sunday blues. I'm just done with this. I would love to retire early. And for many, you look at the assets that they have and you're like, okay, you probably could be okay. But for many, the biggest barrier, the biggest obstacle is what are we going to do about health care before you reach the magical age of 65 where you're eligible for Medicare?
Steve: Yeah, you better believe when we build financial plans for folks that we have inflated expenses for health care.
Amy: Yes.
Steve: Especially if they are planning on retiring early or we are building scenarios that mock up what early retirement looks like. Not only does health care inflate at a much higher rate than everything else, but it can also be very surprising to folks how much it actually costs. And you said something I really like, because when people come into my office and they don't exactly know what they're looking to accomplish, we'll say it's in a first meeting or something. I think a good way to summarize what most people want is understanding if they have a really, really bad day at work, can they never go back? Do they have the financial...
Amy: Can they tell the boss to take the job and shove it?
Steve: Yeah. Do they have the financial freedom that gives them the luxury of being able to walk away from work and just not having to care? In order to have that, typically, it does help to have a financial plan to make sure that you can show your money living longer than you do. And in the event that you're looking at pulling the trigger early on retirement, that's where we need to talk about the options for paying for health care. First, that a lot of folks will leverage is COBRA. This is where you can stay on your employer's health insurance plan for up to a year and a half after you leave your job. It is an easy way to maintain the coverage that you've grown used to. But it is also very expensive. You'll come to realize that your employer had been usually paying a significant portion of the premium. So, I mean, sometimes I've seen what you pay your premium go up five times what it is now with COBRA.
Amy: Absolutely. You know, it's like you want so badly, right, to say take this job and shove it to your boss. And then you have a new appreciation for your boss on the other side of it once you realize how much your employer was actually covering your health care expenses. So I think this whole way of thinking of retiring early, you have to do some research. You have to explore this first to make sure that you're going into it with eyes wide open. If you are within that window of 18 months, right, if you're 62, COBRA isn't going to get you to 65. After 18 months, you're going to have to find another option to get you to 65. But yeah, you probably have no idea how much your employer is covering in those health care expenses. So COBRA could be an option. It is often a much more expensive option. I think this one is eye-opening for a lot of people, just that the total cost of health care coverage when you're, most of the time, only paying a small fraction of that.
You know, another place that you can turn is the health insurance marketplace, right, the Affordable Care Act. Some people still call it Obamacare is another option for those who are retiring under 65. They're available for individuals. They're available for families. Certain income levels. You can get certain ranges of coverage. This can work for some people. Anecdotally, those who I have spoken to who have gone this route are sometimes a little frustrated by their options. They're a little more limited.
Steve: Yeah. On the flip side of that, too, there are people that are already on it because they are 1099. They're contractors or people that didn't have health care benefits through their employers. So it really depends on your individual financial situation. If your retirement income falls below certain thresholds, you could be eligible for subsidies that can reduce the premium that you pay. That really depends, though. If your income is too high, then you're getting kicked in the teeth with premiums, depending on the range of coverage that you're electing, because there's high deductible plans. There's plans that have low deductibles, but, you know, higher benefits paid up at the premium is higher.
Amy: Yeah. Another option that you have is private health insurance. So you're getting this directly from an insurance provider. And oftentimes there's more flexibility in terms of the coverage. Maybe you can keep your current doctors, your current plan, but they also can come with a lot higher premiums. So there's pros and cons to all of these options. And that's why I think, you know, several years before you get to the point, if you are seriously considering retiring early, you should look at all of your options and have an idea before you get there of which one makes the most sense for you so that there aren't any surprises.
Steve: COBRA is great for closing short-term gaps. You know, if you're knocking on the door to Medicare enrollment, for example, and you got four months to deal with before you're eligible, you know, sure, pay the higher premiums. You don't need to make any changes. You don't need to worry about potentially changing your doctor because all of a sudden the plan is in a different network. So your head's not spinning with all those choices. You know, it is, like you said, beneficial to sit down and build out that plan. My favorite one, here's a great one. If your spouse is still working and you have a particularly bad day at work and you decide you never want to come back, maybe you could just switch to your spouse's coverage. Done.
Amy: And I think that for most people is the best option. Right? If you have a spouse who's still working for the foreseeable future and they have good health care coverage, it's like a no-brainer. Recently met with some clients and he was like, I was like, Okay, what do you think about retiring? And he was like, well, that's kind of up to you. You know, based on this plan today, you know, when we walk through the numbers, I wanted to see what you thought. He really wants to retire in January. And so we ran the plan and I was like, yeah, you absolutely can do that. I mean, there's significant money left there at the end of plan, which for him would be 93, for his wife would be 95. And the reason why he can even consider retiring at 62 is she's got great health insurance and she's actually planning on working till 67. So he's got several years of her health insurance. So we're not having to say, okay in addition to the fact that you're not gonna have an income coming in, we're also gonna have this additional outflow of health care expenses. And we need to talk through this.
Here's the Allworth advice. Just make sure you're working with a qualified financial advisor to plan for health care costs if you are looking or dreaming about retiring early before you hit that age of 65. Coming up next, we're talking about the specific steps to take to achieve the career you've always wanted. You're listening to Simply Money, presented by Allworth Financial here on 55KRC, The Talk Station.
You're listening to Simply Money. I'm Amy Wagner, along with Steve Hruby. When you think about how happy you are in life at any given moment, a lot of that has to do with how you feel about your job, right? You don't like your job, usually, everything else is kind of meh. You love your job, everything else also kind of falls into place. So joining us tonight is our career expert, Julie Bauke. Julie On The job. And Julie, you've written a book about this, seven steps to the career you want. And first of all, I want to talk about the title of this book because I love it. It's like how not to pee on your shoes.
Julie: Yeah. So the reason I wrote that book, and I wrote that book several years ago, but everything in it is absolutely still relevant. I spent nine years working with people who just lost their jobs and they made seven common mistakes that derailed their search, made their search longer, really created a lot of confusion and difficulty that didn't need to be created if they'd just done it right the first time. And so I wrote the book after I left the company I was working for, where I worked only with people who just lost their jobs because I thought if I could... because people were asking me, you know, I don't know how to do a job search. And I'd say, okay, I wrote this book, read it, follow it, and you will be on track to do a job search that is more likely to land you where you want to land.
Steve: So where do you start? Outside of reading the book. What's the first step?
Julie: The first... So, you know, when you get in the car and you pull up Google Maps and you are trying to get to a certain place, Google Maps will take you there. If you take that analogy, any good job search should start with the destination in mind. What type of job are you looking for? How will you recognize it when you see it? And I swear, like almost everybody starts looking before they know what they're looking for. And it just doesn't make sense. They sort of like, well, you know, I'm just looking for something that's not this. Or any job will do, or I'll know it when I see it. And that kind of language makes me cringe because I know that without some sort of plan and a destination in mind, that you will land much less than you would have. So you have to start and figure out what is it I want next? You know, and the big mistake people make...
Steve: It feels like financial planning a little bit because without...
Julie: Yes, exactly.
Steve: ...coming into it with a goal, without an expectation, what are we really working towards? What is the end result that we're aiming for?
Julie: Exactly. Yeah, you know, a friend of mine that had this great quote one time, and I always tell her I'll give her a nickel every time I use it. But she said, what you're really saying is that waiting until you lose your job to think about what you want out of your career is like waiting until you declare bankruptcy before you decide to think about what you want out of your money. And I think it's just so relevant. It really is a different type of thinking. It is really about what is my next best move? Because if you've been at a job for two years, three years longer, you've changed professionally in terms of what you want, and your capabilities and skills have changed and enhanced hopefully. So how do you want to take that forward and land on your next job? So if you start... so a good job search is think, plan, execute. And my seven mistakes are really about the mistakes people make that I don't want you to make. And so I teach you kind of how to not make those mistakes. But overarching, a good job search is think, plan, execute, just like your finances or planning a great party, is think, plan, execute. And so the temptation, though, especially when we lose our job, is to get into action immediately. We don't value or really take time to sit and think about now that I've been handed this opportunity to move and do something different. Let's make sure it's something better. But I have to know what that looks like for me.
Amy: The whole component of like intentionality, right? It's like, gosh, you feel like you don't have control if you lost your job. You're not choosing to start this search. And so what I can control is that I'm going to blow up everybody's LinkedIn accounts that I know trying to network, or I'm going to fill out 85 different applications for jobs today, even if none of them fit I'm not going to be able to do that. I'm going to be able to do that every day, even if none of them fit what I really want to do. So Julie, I like that your point is give yourself a minute to breathe, think through what you really want to do, and then you kind of figure out next steps.
Julie: Yeah. And you know what? In my nine years of working with people who just lost their jobs, I was astounded, maybe I shouldn't have been, by the number of people who said to me, I really wasn't that happy in that job anyway.
Steve: It's a shame.
Julie: And I probably should have left a long time ago. And now I'm like, man, so what is it? Why do we let ourselves get to that point? There's a lot of reasons why. But if you're starting to feel like this is not for me, I don't think... I'm not happy anymore. Figure out why and then put together a plan to do something about it. And it doesn't mean that you have to leave your company. It could mean a different role in a different part of the company. So it's not necessarily always about quitting and changing jobs, but it's about getting smart and intentional about what you want and then putting together a plan to get it without just kind of waiting and dilly-dallying and, you know, hiding under your desk every time there's a layoff and considering hating your job normal because it isn't. It shouldn't be. Let's put it that way.
Steve: So let's say there's an unexpected job change, something that you didn't sign on for. Where, in your opinion, is the best place to search for the next opportunity? Because there are many options. There's the Internet, partnering with recruiters, reaching out to your network. Where would you say is the best place to go?
Julie: There's a lot... so when job boards became a thing, when Indeed and back in the days of Monster and when all that stuff was starting, people said, okay, you know, this is a game changer. Everybody is going to get their jobs this way. What's so interesting is that even back then, two-thirds or more of people got their job... before the internet was so prolific in terms of job search, two-thirds or more of people got their jobs through people they know or people they meet through the search. It is still true today. So two-thirds or more people get their jobs through someone they meet and they might meet them online, but it's a human to human connection. And so that's where you want to focus. But I really, really want to make sure that we address something you said and that's partnering with recruiters. That's not a thing. I think people really need to understand what recruiters, what their role is. They don't work for you. They work for the company that hired them. And so to expect them to be looking for opportunities for you or be, let's call it an agent like athletes and celebrities have, that's not a thing. But a lot of times recruiters will make you feel that way. Now, they've got away...
Steve: So they don't necessarily have your best interest in mind. They're trying to fill an opportunity on behalf of the employer.
Julie: That's right. Now, it doesn't mean that a recruiter might not have a great opportunity for you, but you have to remember, I always say follow the dollars. If a recruiter says... You know, I've talked to people before like, yeah, I'm going to change jobs. I've got a recruiter working for me. Like, no, no, not how it works. That is not how it works. And what you do is if you think you have a recruiter working for you and what they're doing is sending your resume around to everybody they know, they've just put a 25 to 30% price tag on you...
Amy: Marker.
Julie: Because they... Yeah. And so really, in my opinion, this is something that you have to drive yourself. Doesn't mean connecting with recruiters can't be a part of your strategy. But I'm just telling you understand the role of recruiters and act accordingly.
Amy: Great advice, as always, from Julie Bauke. If you find yourself in an unexpected situation looking for a job rather than just doing, doing, doing, step back, think about it, be really intentional and you can actually end up in a far better situation than you were before maybe you got that unexpected call. Julie On The Job with great insights as always. You're listening to Simply Money presented by Allworth Financial here on 55KRC, The Talk Station.
You're listening to Simply Money presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby. Do you have a financial question that's keeping you up at night? We can help you out. We can help you get some sleep. There's a red button you can click on while you're listening to the show. It's right there on the iHeart app. Record your question. It's coming straight to us. Speaking of questions, we've got several to get to. The first one is from Henry in Boone County.
Henry: I have a 401K question. I can make after-tax contributions to my 401K, but what does that mean? Isn't this the same thing as a Roth 401K?
Steve: That's pretty cool, Henry. I really love this feature in a 401K plan. It enables you to do something called a mega backdoor Roth conversion. It's a little bit confusing the first time you do these. But once you get the hang of it, it becomes second nature. So keep in mind that your typical limit, I'm going to assume Henry here is under the age of 50 based on his voice. You're able to save pre-tax and or Roth into your 401K up to $23,000. This is the maximum limit for deductible contributions via pre-tax and or Roth. There's a higher limit that exists. It's actually much higher. And what that number is, is the most money that can enter your plan in a year. Now, this is a combination of your pre-tax, your Roth, money that your employer puts in via company match or company contributions, plus an after-tax non-Roth contribution. This is what you're asking. What it is, is non-deductible contributions. You do not get a deduction. Also, those dollars do not grow tax-free like Roth. They are taxable gains. Now, here's the catch. The Roth mega backdoor conversion is where you take those after-tax non-Roth contributions and you convert them to Roth either inside the plan or by pulling the money out of the plan. So it's enabling you to save more in Roth than you ever should be able to via an interesting loophole inside your 401K.
Amy: This is for super savers, right? This is for those of you who are maxing out your 401Ks. If you have a health savings account, if that makes sense to you with the high deductible health care plan, you're doing that as well. And you're like, I have more dollars that I want to save for retirement. I mean, I've always said this for years. It's so frustrating. And I understand why. But that our government, when we have a country that has a retirement crisis, is giving people limits on how much that they can save. You know, and so this is a way that you can kind of bust through those upper limits and actually save more. These can make a lot of sense for those of you kind of higher income earners.
Steve: You could potentially be doing $23,000 Roth and then another, I don't know, $20,000 or $30,000 Roth via those after-tax contributions, but you have to convert it. Work with an advisor on this one, please. It's very easy to make a mistake.
Amy: Next question from John in Fort Thomas.
John: Hey, guys. Well, I got this letter in the mail from a company asking to buy my non-traded REIT. What question should I consider before deciding whether to sell it?
Steve: Well, does it make sense in your portfolio in this day and age? You know, a non-traded REIT, it's not going to have the same level of market volatility. You could see this thing... you could count on it being a little bit more stable because it is registered with the SEC, but it doesn't trade on exchanges. So it's not going to have that same implied volatility of something that is available to trade on the open market. So does it still fit in with your overall strategy that you had when you bought the thing? If you do sell the REIT early, it can result in some fees that lower the overall return. So you'd have to look into the details on the information about that REIT because you might lose out on some potential benefits that you acquired when you originally bought into it.
Amy: Yeah, and just keep in mind, a REIT is a real estate investment trust, right? Lots of people who just feel better. It's like when you own a stock, it's like piece of a company. You can't touch it. Lots of people just like that idea of real estate. You know, you can see it, you can touch it, you're owning parts of these buildings, often commercial buildings and things like that, you know, and there's traded REITs and non-traded REITs. And non-traded rates are less liquid, so when you want to get out of them, it's harder. So someone asking you to buy it can give you that option before you would normally be able to liquidate it. But Steve, I think you bring up lots of good points about what you need to think through first.
Steve: Then we have Daniel in Westwood.
Daniel: My tax planner always gives me estimate forms to pay federal and state taxes every quarter. Some years I pay them, some years I don't. Am I better off paying it?
Amy: For those of you who are like, wait, what? An estimate form? It's probably because you have regular W-2 income, right? You're working for an employer and your taxes are withheld from your paychecks. But think about it, there's lots of people out there who freelance, who are independent contractors, think Uber drivers, Lyft people. You run your own business. And so you're not getting a regular paycheck where money is withheld. And so what happens if you don't use one of these estimate forms is the end of the year comes and you owe major, right? And that kind of a tax bill all at once can be very overwhelming. So these estimate forms give you the ability to pay throughout the year. So you're saying specifically some years you opt into that and some years you don't pay it. I kind of recommend paying it because I don't like major tax surprises. And that's what you could be in for if you're waiting. I think if you're not paying these, you have to be super intentional with money in a separate account for taxes that are going to be due for everything you've made over the course of the year. It just makes me a little bit nervous.
Steve: And there's thresholds that you have to pay or else you could actually be penalized. So if a tax planner is telling you to do something, I would suggest listening to them.
Amy: Yeah. Next question from Sandy in South Carolina.
Sandy: I'm from Westchester, but now live in South Carolina. I listen to your podcast as much as I can. When it comes to auto and home insurance, do you typically recommend high or low deductible plans?
Steve: Oh, this really just depends on the individual, because if you have a high deductible plan, then you are paying a lower premium. But honestly, it puts you in a position where you should probably address that inside of an emergency fund. Reflecting on the fact that if something were to happen, you would need to come up with the higher payment before your insurance benefit actually kicks in. So it's a question that ties more closely to cash flow, what you can afford, what you need, how comfortable you are keeping a certain amount of money liquid.
Amy: Coming up next, a little Wagner wisdom for you. You're listening to Simply Money, presented by Allworth Financial here on 55KRC, The Talk Station.
You're listening to Simply Money, presented by Allworth Financial, I'm Amy Wagner, along with Steve Hruby. We recently needed a car in our house, and this might surprise you, but my husband and I have very different approaches to how we deal with big-ticket purchases. He likes to get the nicest thing as possible. Right? And I'm like, what is the out-the-door cost? He's like, well, I can get the monthly payment down, you know, as low as this. And I think this is great. And I'm like, yes. And we will be paying that car off 12 years from now, 7 years after it's like been sold for parts. Right? And so...
Steve: So you took a seven-year loan. Is that what we're getting at here?
Amy: No, we didn't, because that's... but I think lots of people, what you want to focus on when you're making major purchases is how much this is going to cost if I finance it over time. And I just want to remind you that probably the best way to approach this is what is the overall out-the-door cost, right? With taxes and everything. And listen, they try to add on all kinds of bells and whistles at that point of sale here. So be ready for that. I'm sure we've all kind of seen that before. But look at the total cost. Ask for that upfront when you're deciding whether or not you can truly afford that car. If that total cost makes you nauseous, you cannot afford that car, regardless of how low they tell you they can get those monthly payments down.
Steve: Yeah. When you're buying a car and, you know, maybe I'm the minority here, but I really enjoy having those negotiation meetings with car dealerships.
Amy: I do too.
Steve: I have a great time with it. The number you really want to focus on is the price that you're paying for the vehicle. That's what you want to get down as low as possible. Not the monthly payment, because they have all kinds of games they can play to make that payment small and manageable for you. But really what they're doing is stretching out the financing for most situations where they're just getting more interest from you over the long term. But yes, your payments are being lowered.
Amy: Some more advice along these lines is to figure out what that total cost that you can afford before you ever leave home. And then you hold yourself to it, because here's what happens. You walk into that showroom and you find the car and you test drive it. And you fall in love. Right? And then it's like, oh, this was several thousand dollars above what I wanted, but I love it. Or I'm going to go home and work the numbers. No. If you know what the number is, you work it into your budget first. Right? We say you should be able to put 20% down. No more than 10% of your entire monthly budget should go to that car. And that means the insurance you're paying on it, taxes, upkeep everything. And then do not finance that car for more than four years or that $30,000 car you're actually paying like $38,000 for. You know, whatever the math works out on that, go into it with eyes wide open. You've been listening to Simply Money here on 55KRC, The Talk Station.
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