The Best Retirement Account, Making Investment Changes, and More!
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There are no shortage of questions when it comes to navigating and planning for retirement. How much do I need to save? How do I optimize my tax bill and avoid overpaying the IRS? When do I take social security? What should I invest in? Better yet, what investments should I avoid? The list goes on. And while you've likely read or heard helpful answers to all of the big questions, it never hurts to revisit them or get a different perspective.

In fact, some studies suggest that it can take hearing something seven times before you retain it. Welcome to Stay Wealthy Podcast. I'm your host, Taylor Schulte. And today I'm answering listener questions with the retirement answer man himself, Roger Whitney. Questions like what account type is best to invest in after you've reached your retirement savings goals? And what's the best process for making changes to your investments after learning that your portfolio isn't invested properly?

To grab the links and resources referenced in this episode, just head over to youstaywealthy.com forward slash 215.

All right, let's get to some questions. Our first question comes from Sophie. Sophie says, I've been a listener for over a year and love your show. My question is about how to choose between investing in a Roth 401k or a non-retirement investment account. And so some context there, she says, my husband and I have been maxing out our traditional 401ks for many years.

and have accumulated more than we need for retirement. I think that's probably a key point. She retired a few years ago, and he now invests in his 401k as a Roth option.

Obviously, our understanding is that he can convert his Roth 401k into a Roth IRA, which is not subject to RMDs. He is 57 and a half. But I think the core question here, Taylor, is how do you make a decision between contributing to a Roth 401k or after-tax assets? Within the context, it sounds like they already have enough funding for their retirement. Yeah. To me, it's less about retirement being fully funded than

And more about your current tax bracket versus your future expected tax bracket in retirement. So, you know, if you're in a higher tax bracket today, then you will be later on in retirement when RMDs kick in and Social Security and other income sources. If you're in a higher tax bracket today, well, the textbook would say, go ahead and contribute to a traditional 401k now and take the deduction.

That said, you might want to improve your tax diversity of your accounts. You don't want to have all of your savings in one account type. So even though that might be the textbook answer, you might opt for a Roth 401k or a non-retirement account to improve your tax diversity.

I always like to say, you know, that there's the textbook answer and then there's your answer. So it sounds like their answer might be, yeah, we've put a lot of money into traditional 401ks. We want to diversify outside of that. So now we're thinking Roth 401k or a non-retirement account. To directly answer the question, Roth 401k versus non-retirement account, with all of that in mind, my personal preference, and this is obviously not advice, but my preference would be

to fund the Roth 401k. You know, it's hard to get money into a Roth. So if I've determined that a Roth is appropriate for me, or I just want to get money into it and I have the ability to, well, I want to take advantage of that. I'd rather my savings grow tax-free than be subject to capital gains taxes and taxes on interest and dividends.

And by the way, if I really needed the money back, if I put money in the Roth 401k because I was excited about the tax treatment, but I needed the money back, well, I can always get my principal out. There's, of course, some unique five year rules for getting earnings out, but I can get my principal contributions out.

So if I max out my Roth, I have the ability to save more above and beyond that. Well, then I could look at a non-retirement account, a plain vanilla brokerage account. But that's where I would stand with this. Now, to be clear, this is under the optimization pillar of the four pillars of a good retirement plan. You've got vision, a feasible plan, a resilient plan. So this is the bling. This is a bling question. And the essential question, I think, Sophie, is, okay, you have the money to save, but

Do you pay tax on it and save it in a brokerage account where you'll have taxes on dividends and interest and capital gains ongoing? Or do you save that same dollar that you're already going to pay taxes on in a Roth account where it's tax free? I think probably the Roth account makes the most sense with the facts that you gave us. It's an interesting quandary. I know for me, I don't know what you do, Taylor. For myself, I'm in my high earnings years. You're younger than me, so you haven't gotten there yet.

I'm getting there, Dad. Well, at least I'm not funding you anymore. I'm in my high earnings years, and we have a Roth option in our 401k, and I'm 57. I actually actively switched to the Roth 401k option rather than the pre-tax option. So it was a little bit different than what you're dealing with, Sophie. And it hurts because I'm in a very high tax bracket. And I'm like, phew.

It probably, the textbook would say, I should defer, defer, defer. And my logic behind it was that I wanted that tax diversity, which is essentially what we're talking about there, for those of you who aren't familiar, is after-tax assets, pre-tax assets, like a traditional IRA, and then tax-free assets.

I was already building up a lot of pre-tax assets and didn't have any tax-free assets. And while I'm working, I can afford to pay the taxes, even though I whine and moan about it. But it sounds like you're on the right track, Sophie. And I think it makes sense, probably the Roth option, if this is really extra money and you're just trying to be efficient with it. Yeah. Yeah, I would agree. It's definitely a tax optimization question. And part of this is we don't know exactly what future tax rates are going to be, right? It's an assumption that we're making. So

So I can understand, especially when retirement is fully funded, you're in the driver's seat here. Maybe you just want that certainty. You just want to pay the tax bill now and just squash it and be done with it. That certainty can be comfortable as well. One last thing I'll say is in retirement, as you get close to retirement, you have to start thinking about different versions of yourself.

And here you two are, you feel like you got the savings down. You've created the wealth. Now it starts to become a question of what gifts do I give my 70 or 80 year old self?

And that was how I answered the question of the Roth. I was like, I'm probably going to be really happy I did this, even though it sucks now. Yeah, yeah. Our next question comes from Arthur. And Arthur says, hey, Roger, I hope this email finds you well. I wanted to express my gratitude for your incredibly informative and engaging podcast. It's so much better than Taylor's. He actually wrote that. No, he didn't. How dare he? Okay.

Having absorbed a wealth of information from your discussions, I am now contemplating a strategic reallocation of my portfolio, which is currently comprised of both equity and bond mutual funds. My objective is to transition all my funds to index-based mutual funds or ETFs. My primary motivation being a reduction in brokerage fees.

Given the current market downturn, we've had some recovery here, I'm uncertain about the optimal timing for this reallocation. Would it be advisable to proceed now or might it be prudent to await a partial market rebound? My apprehension stems from the concern that in the market downturn, some of my existing mutual funds may have experienced a more significant decline compared to the indexes.

I would greatly appreciate your insights on how to navigate this strategic reallocation. This is a hard one, Taylor. I think, Arthur, what I would start with is build out what should be. Like in our planning process, when we start with a client, I don't even really want to know what they own. Yeah.

I just want to know the values of different accounts and then build a retirement plan of record of what should be if we had a clean slate and then go back and look at the current state and see how do we reconcile that from a tax perspective or a market perspective.

My suggestion first, Arthur, is go through that process and build exactly what you would like if you had a clean closet and you were building a wardrobe. Then you can go look at your old wardrobe and figure out what do you keep and what do you throw out from a portfolio perspective. And then I have a hard time with this one, Taylor, and Arthur, in that speed is a force. Mm-hmm.

taxes are definitely a concern if you have after-tax brokerage accounts. And I have clients that I've had for years where we've been slowly cleaning that portfolio closet from a tax perspective. But if we assume all of this is in an IRA or in tax-deferred accounts, I would argue, Arthur,

that doesn't matter where the markets are, get to where you want to be. It doesn't matter if one's down more than the other. It's not like you're moving out of the market. You're creating a portfolio that's going to serve you moving forward.

And that's, I'm guessing, in decumulation. If you're like most people, you're vintage or stage in life, you're probably structured for accumulation where you just grow, grow, grow, grow. How you get to a decumulation standpoint, I would say speed to force. And I would do it sooner than later so you can get on with your life. Yeah. Yeah. I'm in total agreement. I've got a lot of thoughts on this. I don't know how much time we have, but just stop me. So yeah, to directly answer the question,

To me, the current market environment, the current market conditions should not influence your action plan. I like thinking about investment decisions like a prescription, just like your retirement goals should drive your investment decisions. A doctor's diagnosis drives their prescription recommendation. So if you're taking a prescription that you've determined is no longer helping you or has bad side effects,

Would you continue to take it and just like wait it out to see if you eventually somehow feel better? Or would you go talk to the doctor immediately? To your point, Roger, like take action now, talk to your doctor immediately and create a plan to get off that medication entirely and introduce something more fitting.

So again, if we think about our retirement goals like a diagnosis here and you've determined that your goals have changed or you've determined that your current investments are no longer suitable for your stated goals, well, the textbook answer would be develop an action plan now to make those appropriate changes.

Now, keep in mind, if an investment has declined more than the funds that you're considering as a replacement, who's to say that those funds have to recover, right? Who's to say they can't keep going down for an extended period of time? So with that in mind, sometimes in these situations, and Roger, maybe we went through this last time we were on the show together, but sometimes in these situations, I like to play this what's worse game. So what's worse? You make all of the changes to your portfolio today.

and a few of your legacy positions that you sold off, they spike in value in the coming weeks and months, causing you to lose out on some of those gains. Or option two, you decide to hang on to some of them for a longer period of time.

You're waiting for them to recover, but they don't recover. They just continue to go down or they continue to underperform for a long period of time. What would sting more? What hypothetical scenario there would be worse for you? And I think answering those questions should help you arrive at an answer that's best for you, for you personally. And also maybe more importantly, that exercise would help set proper expectations

expectations as you go through this transition. For example, if you sell all those legacy positions at once tomorrow and then they proceed to spike in value over the next few weeks after you've sold them, well, you should be more prepared for that given that you factored that into your decision. You thought about that scenario and you knew it was a possibility, so it shouldn't catch you off guard.

So that's how I would think about it. And Roger, to reiterate your point, yes, I think you nailed it. Identify that target allocation. Where are we trying to get to? And then what's most important here are the taxes. And we don't have that information on us here. But if there are tax consequences to making those changes, be sure you know what those are. And in some cases, Roger, I'm sure you've been through this.

It's a multi-year plan because the tax consequences are so large that it might take us three years to get from the current portfolio to the target portfolio. So be sure you understand the tax consequences and what it might take to make this transition. You know what? You haven't been on the show in a while, Taylor. And one reason why I like having you on the show is because I know casual, crazy, silly Taylor, and I forget how good you are. So it helps me remember that. Okay. I'm glad I could help you remember that. Yeah.

Our next question comes from Jeff. I am recently retired and been listening to your show for about two years. I find it invaluable resource. Oh, thanks, man. I point my friends and families to the podcast as well. Is there a good detailed retirement calculator that you're aware of that is low or no cost? I know you have one in the RRC, but for many, that may be a steep yearly cost. It seems that it would be an invaluable resource.

detailed entry of projected expenses. So essentially the question is, if I'm doing this on my own, what is a low cost or no cost quality retirement podcast?

I think you and I agree on this one, Taylor. But I do think I want to throw this in before I'll let you answer that part of it. But if you have an account at Vanguard or at Fidelity or Schwab, a lot of times they will give you access to at least a limited version of some of the most robust retirement calculators out there. So I would check that out. But absent related to an investment company, I think we probably agree on the same one, right, Taylor? Probably. Yeah.

One, two, three. Go ahead. Yeah, I was going to say new retirement. New retirement. Yeah. We both know Stephen Chen, the founder of it, and we've used it off and on as an experiment. Hmm.

And I also think we know the spirit of what they're trying to build and why they're building it. And I think from a consumer perspective, it's the best one. Yeah, I would agree. You know, sometimes I hesitate to recommend it only because you can go really deep down the rabbit hole. It sounds like this person is looking for something that allows for more detail, which I can appreciate, of course, being a planner, but...

So sometimes we think we need all this detailed information. We need this really nerdy analysis and it just causes more problems, right? And sometimes we just don't need that much. But yeah, if you really want something more robust, that's low cost, they have a free version as well. I think new retirement is a good option. So I'm going to ask you this question, Taylor, and I think this relates to you as well, Jeff, on what you want to use is retirement planning software.

I have tested them all. We just went down the rabbit hole in Q4 of last year of testing all the Roth conversion calculators out there. All of the software is really good at the vision, getting your goals and categorizing them as needs, wants, and wishes. Software is really good at organizing your financial resources and doing long-term projections to do a feasibility test.

So is this a feasible journey given all the variables? Where software really starts to lose its utility is in how exactly does this work? And if you want, and I find people, when they try to make software, even the software I use or we have in the club, when they try to take software and make it get down to the high resolution detail of the next five years, it falls apart. Yeah.

Yeah. Even with Roth conversions. So what we do, and I'm interested with you, Taylor, is we switch when we after the feasibility testing, we switch to a spreadsheet. We build a five year cash flow estimate. And so we can get very detailed cash flow estimates.

And it's a lot easier to manipulate. Do you do something similar or do you use software all the way through? Yeah, we do use a number of different things. But yeah, to your point, so we'll use the planning software that is really robust and for financial professionals. We'll use that as the starting point for like the broad, long-term outlook. To your point, like five years, 10 years, 20 years, these projections, I mean, there's so much that's going to happen in your life between now and that end point. But like, we can't project these things. The second we put it up on the screen, it's already outdated.

But it is nice to use as a starting point for like the broad, long term plan to identify that there may be an opportunity for something. And then if there is like Roth conversions, then we go to the spreadsheet and we analyze the Roth conversion opportunity in isolation for that year. I also like to use planning software to compare different options.

Should we do option A, option B, or option C? And let's compare those against each other, not necessarily like the long-term health of the plan. Just like we're considering these three things. Let's put them up against each other in the planning software. That's probably one of the most powerful things, right? Here is my plan of record. Mm-hmm.

What if I buy that lake house? Yeah. How does that look compared to my current plan? Yeah, that's a good point. I'm glad you brought that up. Yeah. This last question, Taylor, and I gave you a little bit of background, but for those of you that maybe didn't participate in last year's Retirement Plan Live...

We did a case study with Rosie, a listener, who retired at the beginning of 2000. I guess it was 22. Went through the bear market, had a financial planner. And in that retirement plan live, we analyzed, well, after this bear market, is her plan still feasible, her and her husband? And it wasn't. And we explored on the results webinar. You can find all this in the archives. Maybe we'll put a link to it in Six Shot Saturday.

We explored what steps she should take to get back on course. And part of the issue there, I think, was that her financial planner was more of an investment advisor that called themselves a financial planner, so it didn't get really deep. They were either consciously or unconsciously incompetent in some way. That seems a little harsh, but the term isn't meant to be harsh.

And then we had an update with her in December, and there wasn't really a lot of actions being taken. So this question came from that update. And it says, I forget who this is from, so I'm sorry. Hey, Roger, enjoy the podcast. I'm curious as to why Rosie doesn't just hire you to establish her plan going forward.

The conversation is a bit painful to listen to. The update that she gave in December, you know their finances and you sure have the strategy to prudently move forward. If they hired you, you could get them on the right track. Maybe it's not as simple as that. I thought that was a very interesting question, and it's a little uncomfortable question to answer publicly. So when we think of you as an individual and considering hiring a retirement planner or a

financial planner? Is it worth the money? Are they going to add value? What are they solving for? On the flip side, for planners that are real retirement planners that really take their craft seriously and have a business, we have the same kind of calculation. Can we help with the issues that they're dealing with? Do they have the spirit to take advice and work in a collaborative way? The

And are they able and is it reasonable for them to afford the fee that we have in our practice? Because that is part of our calculus because we can't help everybody because we have capacity constraints in order to do our craft. In Rosie's case, I think there was a combination of those. One, our fee is too expensive for

And two, I'm not sure she's in the place to have the spirit to be collaborative enough to take our counsel, her and her husband. I feel even weird saying that because you want to be able to help everyone. That's one reason why we have the club and we have the show, but we can't work with everybody. I don't know how you navigate that. If you have any thoughts on that, Taylor. Yeah, I just go back to...

I'm a neurologist and Rosie might need a heart surgeon. Every single one of my clients, and this is where my expertise lies, all of our clients have over-saved for retirement. Like their plan is healthy. They're not coming to us saying, oh my gosh, can I retire? Have I saved enough money? They've over-saved for retirement. Their biggest pain point is...

taxes in retirement. I've saved so much money. I know I have a giant tax, but I have a tsunami of RMDs coming up. Like, how do I manage all this? How do I get ahead of this, this tax bill? That's our expertise is helping them manage and reduce taxes in retirement for those that have over-saved for retirement. I truly don't have the expertise. Like,

I have enough expertise to provide some tips and some resources for someone like Rosie, but I truly don't have the expertise to help fix a plan that's broken. I don't have that expertise. I don't have the expertise to help teach somebody how to budget and accumulate money for retirement. Again, like I know enough to be dangerous here, but my firm doesn't have the service model and the processes and the expertise to help someone in that situation. So to me, I would

be doing them a disservice. And so I would just go back to who is the right, you know, if Rosie truly wants professional help, I mean, she was just begging for professional help. She has a certain amount she can afford to pay an advisor and she's looking for the right person. Like let's help her find the right person. But to your point, you know, you can't force someone to do that. Like she has to want to want to get that help.

But yeah, I just go back to the expertise of the planner. And I think part of the problem in our profession and maybe where this question stems from is we've long held ourselves out as generalists, right? We just kind of help anybody with money.

And that's obviously changed a lot in recent years. And that's something that means a lot to me to just really own my lane and do really good work for one type of person. When it comes to people in Rosie's position, my take on this is an investment advisor or a generalist financial planner may not be the best person to go to.

Right. And our industry has constantly tried to solve for normal people, not wealthy people, people that are, you know, need help. And they've never figured out a way to do it where it's not focused on the investments and it's a business model that's viable. Yeah. My thought is where it's really going to get solved or where it needs to be resolved is in relationships.

retirement and financial coaching. Because the decisions and the budgeting and behavioral stuff, and it's not about investments and tax optimization. It's about blocking and tackling on a lot of things. And I think retirement coaching doesn't have the same structure as the regulated industry in terms of the profit motive, etc. And I think New Retirement, who has very approachable

service models could be an answer to, but it's a tough question. I don't feel comfortable talking about it, but I'm a specialist and I want to stay in my lane because that's where I think I do the most good. Yeah. Well, I think you bring up a good point there with coaching too. Like when I hear coaching, I think about accountability, right? I hire a coach to hold me accountable to things.

sure they have some knowledge and can help provide resources and advice and things like that. But at the end of the day, like I hire a coach, whether it's a golf coach or a personal trainer coach or a life coach, like to hold me accountable to making these hard changes. Like Rosie probably has to make some hard changes. So having somebody to hold her accountable to those changes is probably the best person to help her go forward. All right, Taylor, thanks for hanging out with us. You can find Taylor at define financial. What the heck's the name of your podcast again?

Definefinancial.com or youstaywealthy.com, the Stay Wealthy Retirement Show. Go subscribe. Unsubscribe from Roger's podcast and subscribe to mine. All right. With that, let's go on to our next segment.

I hope you enjoyed today's episode, which was a segment that aired on the Retirement Answer Man podcast last month. And while I don't publish mailbag type episodes often here on the Stay Wealthy Retirement Show, I am working on one right now that will air in the next four to six weeks. So if you have any big unanswered retirement questions that you'd like me to consider answering, send me an email at podcast at youstaywealthy.com. That's podcast at youstaywealthy.com.

Once again, to grab the links and resources mentioned in today's episode, just head over to youstaywealthy.com forward slash 215. Thank you as always for listening, and I'll see you back here next week.