01.06.26 Ask An Advisor With Wes Moss

Welcome to Ask an Advisor. Happy New Year, Wes Moss. Happy New Year. Good morning and welcome. We're happy to be with you. Good afternoon, wherever you are. Maybe you're on your walk with your dog. We're excited to be with you. Yes. Thanks for coming back, Wes. What second year? We're starting the second year of Ask an Advisor. Well, today I wanted to start out the new year with just a big picture goal. You know, when it comes to retirement planning, I think about the retire sooner method. I'll talk a lot about this year. How do we get to a financial green zone? How do we get to a place where we are no longer worried about running out of money and have financial freedom? And it gets us to a point where we can do the things we want to do. So it's a good place to start to talk about wealth in America. What is the wealth picture? I had a family I work with I've known for a long time, let's call it 20 years, and will ask me every year, hey, how am I doing relative to, do other people have this much money? Like, how am I doing? And I think there's just this natural inclination to want to understand what the rest of the world, how are we doing in this long marathon of getting to a place of financial freedom and comfort? And then after you talk about that, We also have your questions, which you can submit at clark.com slash ask those questions. You can say if you want them posed to Clark Howard or to us. So we're going to start with this. And then our second topic we're going to do, I call this the next gen millionaires. Okay. It's a lot. We learned a lot from the Clark audience over time. And I think there's a younger group of our audience that are going to get to a good spot knowing what the longtime listeners and viewers have been doing. So let's start with wealth. It's a good first topic here in the new year. And first of all, where does this info come from? The Federal Reserve does a study called the Study of Consumer Finances. And they only do that every three years. And the last one came out. It was really, it sounds old, and I think the data will change, but we have a long way to go before we get the next round of this. We've got the, this came out in 2023. three, we also get much more updated information from places like Vanguard, Fidelity, Empower that regularly report how many people have X amount in their retirement plans. So the next survey of consumer finances will come out. Evidently, it's as of the end of last year, but it won't come out to the end of this year. So we have a whole year before we can get that new data set. And I think the numbers will go up at least some, but let's start with where we are in America. What percentage of families have net worth, we're talking not liquid money, but net worth of 500,000? The answer is about one in three. Wow. So a third of Americans have a net worth of a half a million dollars. Pretty encouraging. And I think it's probably even a little bit more than that. But again, this is based on what we know today. About one in five households have roughly called 18 to 20% has a net worth in America of a million dollars or more. So one in five are technically millionaires. So that doesn't mean you feel like a millionaire. You may have a lot of that tied up in home equity and other areas, but those are the numbers. To be in the top 10% of net worth in America, you've got to be at about $2.7 million. So about a $3 million net worth. Now, that is heavily skewed because we've got some billionaires and near trillionaires in the United States. So the average gets pulled up. But the middle, middle of the road in America, middle of the road household sits at just under $200,000. So that's where we stand from a big picture perspective. Now, what about more liquid money? How about people that have a million dollars or more in their retirement accounts? Now, to be clear, not investment accounts, not brokerage accounts, but retirement accounts. And the sum of those accounts, 401k, IRA, 403b, all together, they're about 1.9 million accounts, which translates to about 1.3 million households have a million dollars in liquid retirement savings in their retirement accounts. do the math there, 1.3 million of about 130 million households where it's one in a hundred. So only about one in a hundred people have a million dollars or more in retirement accounts. Those are the numbers. Now where those numbers intuitively maybe don't match up, if you think about it, one in five are millionaires, but you only have one in a hundred that have an account that's worth a million. It's because a lot of our wealth in America is outside of our retirement accounts. We of course have brokerage accounts, after tax accounts. We have rental real estate. We have business ownership. We have home equity, which is really the big driver right now of wealth in America. And I think when we get our next data set next year, that'll only increase over the last several years. So that is the wealth picture in America. Median net worth in the country, right smack dab in the middle, that's $200,000. Net worth of greater than 500K, about 33% of households, more than a million, about 20% of households. But to be one in 10, the top 10%, close to $3 million. To be in the top 1%, I'm going to let you guess. What does the net worth have to be to be in the top 1% of households? I'm not going to guess because you already said it in front of me. 11.6 million. I said that already? I thought you did. You're just reading, you're reading my mind. Maybe I read your notes. But again, as far as an accounts, IRA accounts of over a million, only one in 300, 130, et cetera, et cetera. So that's the data to start out the new year. Okay. You're ready to start with some questions in the new year. This one came in from Joanna in Virginia. I'm 45. My husband is 50 and we're trying to figure out how best to manage our savings with completely hypothetical, but also totally plausible, potential job disruptions due to AI. My husband is so good at his job involving data analysis, and I love my job in higher education as a librarian. We both see trends that threaten our job security, and that could involve years of trying to pivot into new careers. And of course, we're old enough to know that life throws all kinds of curveballs, and most of them you don't see coming. We'd love some practical advice for how best to strategize our savings in a way that soothes our risk-averse, overthinking souls. We have a 50K emergency fund in high-yield savings. We have $600,000 in 401Ks that are in target date funds and some Roth 401K. We are not maxing out, but with employer matches, we now contribute $50,000 a year. We would like to increase our retirement savings, but are concerned about not being able to access those funds if we hit some hard years. With extra savings, would it make more sense to start Roth IRAs or funnel more money towards our high yield savings? I believe we could pull our Roth IRA contributions without penalty, but what if the stock market sinks when we need to reach for it? Is there another sensible option I'm not considering? I'm a new listener and I can't tell you how much Clark Kristen West brightened my dog walks. I love that. We were just talking about dog walks. Yeah, you mentioned if you're walking your dog. That's where I see most people listen. I see a lot of podcasts. I listen to podcasts on my dog walks. I walk my dogs at least three miles a day and I listen to podcasts the whole time if I'm not talking to friends. Do you ever listen to this podcast? I don't. I do not. I hear it enough. I really hope that Joanna is out walking on a walk and hopefully with her dog that she gets to hear this. And I would, she's nervous. She's nervous about AI. I get it. First of all you are not alone Joanna Your husband is in it sounds like he already in technology he data science and you in higher education And you right I think that we all a little bit worried about where AI goes, what happens to jobs. We don't know. You are worried about a Hunger Games type situation. I get it. And the world is going to be full of people with no jobs. And that's a really scary thought and you need to access your money. And I think that that is very unlikely, but it's possible. It's possible. I think it's much more likely that we just see a ton of job evolution and humans integrating artificial intelligence and raising the level of problems that we're able to solve. But that's for another day for you. I appreciate what she said, though. She said, you know, they could have a period of time where they're trying to pivot to new careers, which maybe are AI driven or something else, but it can take time. And I can see how it would make you so nervous, especially when you're like not at retirement age, but you feel like you're older than the average worker. You're right. So the answer is access. The simple answer here is you need access to your money. And at 45, you've got a long way with retirement accounts. Your husband's a little closer to that so that I would be looking for his 401k to continue to be funded because that he could potentially have access to the rule of 55. So you're five years away from that one. You're only 45. So access means use the Roth. Max out your Roth IRAs because your contributions are free for the taking. And if the world does go the way of Hunger Games or just your career has some disruption, you are going to be able to access that money. If you don't lose your job and things do end up being okay, you get your tax-free growth for the next 30 and 40 years. So that's why I think the Roth is really smart. And then yes, some high yield savings in an after-tax account, absolutely. But you need some access. You need access to your money. You guys already have $600,000 in 401ks, you're already on a really good track for your young age, Joanne. Okay. Jamie in Florida says, we're considering buying a condo near the college campus where our first child attends college and our second child plans to attend as well. This would be used to house the college kids as well as an investment to rent or sell when they graduate. Our emergency funds, retirement funds, and monthly cash flow are in a good place and our primary home is paid off. what do we need to consider when making this decision? Should we buy a smaller place that we can pay for with cash or maximize the rental income opportunity, but take a mortgage? Jamie in Florida, I would love to know where you're doing this, but I assume it's a great college town with a really good market. So maybe it's Gainesville? Maybe. University of Florida. So I think of the great college towns in America, and there's a lot of them. Gainesville, Athens, Penn State State College, Birmingham, South Carolina. Just there's so many great schools that have an environment that you can not only buy. And I've seen a lot of families do this. My kids aren't. I haven't done this yet, but I don't know where they're going to all end up at school. But I would just say that I've seen this work. So I like, Jamie, what you're doing. I would be careful about having to get too inexpensive of a place that maybe you just say, look, it's our place, kids. It may not be their ideal place, but you can pay cash for it. That might sound good today. But I really think you want this thing to be highly rentable, even if it's not your kids. Because if it's highly rentable, it means it's highly sellable. And I'd look at this as an investment. I know we tend to think, well, I'm going to spend the money on this condo, but really you're not. You're investing in the condo. You're just changing your balance sheet. So you don't want it to be a ho-hum place. It needs to be a cool rental that your kids would be renting even if you didn't buy it. That means somebody else will want to rent it. So it's got to be in a good location. Can't be too, too far away from the campus because if you can rent it, that means you can sell it. and it just becomes an investment, not a spend. And then, of course, there's like, you have to decide, is it worth doing, right? Like if, I don't know how old the second child is that plans on going to the school, but say if you only have six years until that child graduates, would you think that would be okay to have an investment that you just hold for six years? Or should they plan on holding it longer to make sense? You know, if the rent, and the rent has to more than pay back the mortgage. I mean, there's a percentage that you use to calculate what, if it makes sense, right? It does. And it's important, right? The rental calculation on how much you're having to pay for it and what the mortgage payment is. But really, if you don't buy a condo, you're paying rent, you know, you never get back. If you do buy the condo, even if it's a break even, the money's still to some extent coming back to you as the family. Right. Or maybe there's really, well, there'd be no rental payment because it'd be your kid. So you're saving that money and you're going to be having to pay a mortgage likely. And I think that's okay. And yes, five, six years is not too short of a time period to buy a property. But again, if it's rentable and the kids graduate and you're not in a great environment, let's say real estate is not great at that particular school, then it's okay because it's highly rentable. Yeah. Keep running it. Okay. Jeffrey in California says, this question's for West regarding a fiduciary selection. Considering an annual fee of approximately 1% of assets, what specific services, expertise, and deliverables should be expected from a fiduciary to justify this significant cost? You're right, Jeffrey. The wealth advisors, that's not an atypical fee to be around the 1% range. And then typically will be a little less than that or somewhat less than that as your asset levels go higher. But it's for a very broad scope of services. It is not just for asset management. Asset management will be part of that, asset allocation, diversification, where exactly your money gets invested. But there's a lot more to it than that. So I think of it in maybe six categories. I think the retirement planning is the first one where you would need to do cashflow planning, whether it's a timeline, it's a software product that will show you where you will end up in five, 10, 15, 20 years. So that's the retirement planning side. The tax strategy side, We talk a ton about tax planning here on Clark's show, Ask an Advisor. Charitable giving can get complicated throughout the year. And as you go into the end of every year, people are asking lots of questions about what makes sense from a charitable giving perspective. Do I do a charitable gift annuity? Do I do a donor advised fund? What's the best way, big picture for me to do that? And then legacy and estate planning is enormous with a financial advisory team. And that's a conversation that you can have and you could very well sit down and be talking with your advisor and an estate professional, estate attorney, to make sure that your legacy is planned for your will planning, your trust plan, your asset protection. Insurance coordination is another piece of the equation. That can be property casualty insurance, but it can also be healthcare insurance. there were a lot of conversations I know that the end of last year that we had with families about getting the right plan through open enrollment and your financial advisor may not be a healthcare consultant but he should have an understanding of helping make sure that you're in the right position there and then when Irma comes Irma is paying for healthcare but also goes back to taxes so that's a tax planning thought and then if you're a small business owner there there are a lot of different things that an advisor can be helping you with on a small business Put all that together is really the idea and rarely will you ever be doing working on all of those six areas all at the same time but you be always working on two or three of them at any given time. And the whole point of having an advisory team is to make sure all of those balls spinning in the air are not just going into outer space. They're well-contained, they're organized so that you have the peace of mind to have financial security, know exactly where you're headed. And maybe you shave off a couple of years worth of retirement, put all that together. And that's what an advisory firm should be doing for folks. Okay. All right. We're going to take a quick break. We come back. You're going to talk about the next generation of millionaires, The next gen of Clark millionaires. Welcome back to Ask an Advisor. I'm Wes Moss, along with the great Krista Divias. You're the Clark Howard Show. Ask an Advisor edition. Yep. Isn't that how we say it? 2026. 2026. We're in year two of this. Love getting your questions. And I thought we'd start out this new year. First, we talked about the wealth statistics in America. I get asked a lot, like, hey, how am I doing? I've got X amount of money. I've got this. And what do other people have? Are other people, part of it is curiosity. The other part is, Hey, are other people able to be retired with this amount of money? Like, am I, am I in good company here? So I think there's a lot of curiosity around it. So we talked about those numbers. And one of the most popular features we have at Clark.com is our retirement calculator. So I know people are very interested in that and figuring out whether you're using the Clark retirement calculator or drawing a financial timeline out on your own or working with an advisor and it's a more, let's call it a 50 page retirement plan. It's so helpful to do that. I think it's a little bit like going to the dentist. People don't really want to do it, but you really, you're so glad that you did. And the clarity around it is incredible. And it actually is one of the traits of happy retirees. Happy retirees are folks who have a retirement plan are two times more likely to be in the happy retiree camp than the unhappy retiree camp. Now, what I have learned, this is about next generation millionaires. This is for the younger group of our listenership. And it's because of what we've learned from the more senior group of our listenership. Because I've now done this for a year here with this audience, I think that what I have seen is an inspiration to our younger audience and they can learn from let's call it the half that's been around the longest and I think that group is that they already did it group and I want to talk to you and I think they're an inspiration for the we'll do it next group and so the Clark Howard audience is a I think of it as it's a financial force of nature. And I know that from the hundreds and hundreds of questions over the last year that we got, it's, hey, I have 600 here and 800 there and a million two here and a million here. Then folks that listen to this show have a really serious amount of savings. And they've done that not by accident, but through stewardship and tenacity and frugality and the habits they have and steady saving and being investors and avoiding debt, all the things that you guys teach for so long. And they've made smart term decisions. They've avoided, you've avoided getting ripped off and it's, you've, you've stayed alive in what is kind of a minefield to get to a place of real financial security. You've thought about this again, let's call it the more senior group of listeners here, and I've seen this, they have pensions, big social security payments, rental properties. So there's a lot of people listening that have done it. And I think that the other half of our audience, the next generation millionaires can learn from that. And I think that if you see somebody that actually has done it, it makes it feel like it's more possible to do replicate as well. And we know how hard it is from our first segment, but it's hard to get to accumulate wealth in America. One in a hundred Americans have a million bucks in retirement accounts. One in a hundred. Now, one in five have a net worth of a million dollars. And I think that I would be willing to bet that our audience, the ratios are probably higher than that. So one, I want our younger folks, if you're in your twenties and your thirties, I think you can learn from the questions that we're answering here, those people did save a million, two million, $3 million. We hear it here on the show every single day. So that is one, but we're all, you, if you're listening to this show, you want to get to a place of financial freedom. You want to get to a million or 2 million or $5 million, depending on what it is, depending on what your spending needs are. But the million dollar blueprint, I would say Krista is about patience and it's about repetition and it's about simplicity. It is not magic and it's not impossible. It's just a, it's a long, long run. And just as a reminder, some of these simple round numbers, a thousand bucks a month in an S and P 500 fund, which over time can be very volatile. Of course, over 20 years, you've contributed how much? 240 grand, a thousand bucks a month, 20 years, $240,000. If it has been in the S&P 500 for a full 20 years, now this is the last 20 years, that would be worth a million dollars. That's a million dollars in 20 years at a thousand bucks a month. Now we may go through the next 20 years and the S&P doesn't have quite the rate of return and a thousand bucks a month isn't something just to sneeze at. But that is the reality of what has happened over the last 20 years. And there's no reason it shouldn't continue over longer periods of time. Now imagine this, just do some simple math. What's the new max 401k contribution? It's 24,500. That's about two grand a month to max out your 401k. So you do that over 20 years and we get a similar return that we've gotten in the S&P 500, you end up with $2 million in 20 years. That means if you're 25 today, by 45, you've got some serious, serious cushion and capital. So it's possible. I've seen people do it over and over again. This community has shown that it is doable. So for the younger group and the newer listeners, you can do it too. You want to be the tortoise, not the hare, for sure. Slow and steady. Slow and steady wins the race. All right, we'll go to your question. Steven in Texas sent this one in. Hey, Wes, what are your thoughts on buffered ETFs? They appear to offer a downside protection, helping to reduce losses during a downturn in the stock market. In exchange, your upside is limited, and you pay extra for these special features with a hefty expense ratio. Does that about sum it up? I'd love to hear your perspective and thoughts on the pros and cons. It's another financial burrito. It's a, you have a, have a zero coupon. Well, it's a little more complicated than a buffer note, which is a essentially a zero coupon bond and you know, it'll expire or it'll mature at a certain amount with an option in it. Buffered ETFs are actually a, usually a ladder of options all within one ETF. and the simple premise is great, but they don't quite work in practice the way you want them to work On the surface it sounds like this S 500 returns with a 10 downside buffer Like on the surface doesn that sound pretty good Yeah So if the market down 10 you're still flat. Sure. But do I also get the S&P 500 return if it's up? Oh, wait a minute. No. and it doesn't quite work just go to yahoo finance or cnbc where you can you can put in one of these buffered etfs and look at that relative to the s&p 500 if you just look at a chart you will see that for example in in april when we were down almost 20 for the s&p 500 these buffered etfs were not down quite as much but they were still down pretty significantly but what you give up on the upside is really significant. So if you have an up 15% year, maybe the ETF is up 10 or 11. That doesn't sound that bad. But if you have a really good S&P 500 year, like up 30 or up 40%, which can happen, you may get limited dramatically. And now your return may be more like cut in half. And there are a lot of different versions of these buffered ETFs are all but different. I like to keep, make things simple. I want my equities to be equities. I want my bonds to be bonds. And I don't like these products that are somewhere in between. Okay. And if you're new to the show, Wes does make a lot of references to food and a lot of analogies, I'd say. Oh, we did one there. Yeah. The burrito. Yep. Okay. And you want things in the slow cooker sometimes, not the crock pot. Yeah. That's an IRA. It's all within one pot. It stays in there, but there's a little hole and there's some steam that comes out. So you can, that's for the RMD. I think one of our new year's resolutions should be to come up with more food analogies. Cause I love them. As long as they involve apples, I'm happy. Okay. Bailey in Texas says my husband and I co-own a home in Texas with my sister and her husband. It has a 30 year mortgage with a rate of 4% with 20 years left on the mortgage. The approximate value of the home is $1 million. The remainder of the loan is approximately $350,000. We want to buy them out and pay them off for their 50% share. We've thought about a new mortgage, but then we could lose the 4% interest rate, so we're going to keep the current mortgage. To buy them out, should we use a home equity loan or HELOC or take out a personal loan or use cash? If cash, we don't have enough in savings or dry powder, so it should be pulled out of our investment accounts. Thank you for all you do to help and empower others. Hey, Bailey, you're buying this home from your sis, right? It's a million dollar home. You've got a nice low 4% mortgage on it. But if you're going to buy it and it's probably very unlikely you can assume the mortgage or your sister will finance your portion, that's all possible. You could ask your sister to finance her portion, but it's super unlikely. and it's family, I think you want to keep it clean because it's already a family member. I think you just want to keep this clean. And you're going to need to assume the debt of $350,000 and the house has $650,000 in equity. Half of that is $325,000. So you need $675,000. And I think that in this situation, would you want to do a HELOC on your current home? No, So if mortgage rates are, call it six and a quarter approximately, a HELOC is going to be seven and a half percent. So that's no good. And that's a lot of debt on your current house, which I don't think you want to do. Can you pay for this from brokerage money? That seems like it's too much to do that. Then you're selling too much and probably paying capital gains on that. If it were me, I would just keep this because particularly you're buying from family, which is even more important to keep this clean and simple. You're just going to have to take out your own mortgage and finance the whole thing and take out a loan for $6.75 and assume the new mortgage. Bailey, this is a second home. It's a $1 million second home. So again, maybe Clark has a heart attack listening to this. But if you can afford it, fine. But let's not forget, You're buying a $1 million second home. Yeah, you feel like you're only kind of easing your way into it because you already own half of it. But in the end, you have a million dollar second home. And you are going to obviously have to have some debt to do that. It's not an easy 350 with a 4%. It's going to be a 675 mortgage at more like 6, 6.5%. because even if her sister were willing to mortgage back to her the amount she owes for the equity and keep the first mortgage if you're doing a quick claim deed of taking her sister off the deed a lot of mortgage companies won't allow you to keep that original mortgage the four percent exactly yeah like you won't be allowed i was thinking a private mortgage but then it's still on her balance sheet yeah it's too convoluted i think you got to keep it clean you're going to have to just in my opinion you don't want to use a heloc just use a regular traditional mortgage. And then here's the other thing, Bailey, is it sounds, if you have a million dollar second home, it sounds like it might be the home you want to retire to. So it may not be forever that you have this mortgage because your other house, I think, is paid off, you said. When you sell that, then you get to be mortgage-free in a house that sounds like you love for retirement. And the mortgage may not have to be for that many years. Okay. This question came from Thomas in Georgia West. I specifically wanted to ask you what you think about long-dated bonds. Bond prices fall as interest rates rise, and this is much more so especially for long-dated bonds. Since the Fed started dropping rates in 2024, I personally expected long-dated bonds to increase meaningfully over the past few years, and this hasn't really been the case. How do you think about them, and what are your thoughts moving forward. Thomas, it's because long-term bond rates have not gone down. That's why you're thinking, wait a minute, rates are down. My long-term bond should go up in price. Remember, bonds are a big seesaw. The further out you are in the seesaw, the greater the movement of the price, the greater the duration. So if a bond has a duration of three, it's near the fulcrum of the seesaw and rates move 1%, let's call it down, you may see plus 3% on your prices. If you're way out on the seesaw and you have a duration of 15 and 15 year bonds move 1%, well, you'll see a 15% change in price. What's happened is the short-term area of the yield curve, short-term bonds have come down, long-term bonds haven't come down. So there really hasn't been a big, there hasn't been a big interest rate change. So duration matters. The next step of that, Thomas, is that the duration of the bonds that you own changing matters. So if long-term rates have essentially stayed where they are and you've got long-term bonds, you haven't seen a lot of movement on the seesaw in price because again, there just hasn't been a lot of movement. Remember the yield curve is upward sloping and the Fed is only controlling the short-term rate and that's come down, long-term rates have stayed about the same. Okay. Well, that is it for us for this episode of Ask an Advisor. Remember, you can submit your questions at clark.com slash ask. Thank you for all your questions. Thank you for listening. Thank you for sharing this episode with a friend. If you learned something, we truly appreciate it. Have a great day. you