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  • Bogleheads on Investing with Cody Garrett: Episode 61

Bogleheads on Investing with Cody Garrett: Episode 61

Post on: August 29, 2023 by Jon Luskin

For our 61st Episode of Bogleheads on Investing Podcast, host Jon Luskin interviews  Cody Garrett

Cody Garrett is an advice-only financial planner passionate about helping families refine their path to financial independence (FI) as DIY investors. Cody specializes in comprehensive financial plan development, topic research, and personalized financial education. 

This episode of the podcast is hosted by Jon Luskin, CFP®, a long-time Boglehead and financial planner. The Bogleheads are a group of like-minded individual investors who follow the general investment and business beliefs of John C. Bogle, founder and former CEO of the Vanguard Group. It is a conflict-free community where individual investors reach out and provide education, assistance, and relevant information to other investors of all experience levels at no cost. The organization supports a free forum at Bogleheads.org, and the wiki site is Bogleheads® wiki

Since 2000, the Bogleheads' have held national conferences in major cities around the country. There are also many Local Chapters in the US and even a few Foreign Chapters that meet regularly. New Chapters are being added on a regular basis. All Bogleheads activities are coordinated by volunteers who contribute their time and talent.  

This podcast is supported by the John C. Bogle Center for Financial Literacy, a non-profit organization approved by the IRS as a 501(c)(3) public charity on February 6, 2012. Your tax-deductible donation to the Bogle Center is appreciated.

Cody Garrett

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Jon Luskin: Welcome to the 61st edition of the Bogleheads on Investing podcast. Today, our special guest is Cody Garrett. I'm Jon Luskin, and I normally host our “Bogleheads Live” show for the folks of Twitter. I'm taking over for the normal host Rick Ferri while he takes a summer sabbatical.

Please allow me to introduce Cody Garrett. Cody is an advice-only financial planner, passionate about helping families refine their path to financial independence as do-it-yourself investors. Cody specializes in comprehensive financial plan development, topic research, and personalized financial education.

Some announcements before we get started on today's episode with Cody Garrett. This episode of the “Bogleheads on Investing” podcast as with all episodes is brought to you by the John C. Bogle Center for Financial Literacy, a nonprofit organization that is building a world of well-informed, capable, and empowered investors. Visit BogleCenter.net, where you'll find valuable information, including transcripts of podcast episodes. And at boglecenter.net/donate you can make a tax-deductible donation to support the mission of improving financial literacy.

And finally a disclaimer, the following is for informational and entertainment purposes only, and should not be relied upon as a basis for investment or personal financial advice. With that, let's get started on our interview with Cody Garrett.

Cody Garrett, welcome to the Bogleheads on Investing podcast.

Cody Garrett: So glad to be here. Thanks so much Jon.

Jon Luskin: I'm super excited to get to meet you in person for the first time at the 2023 Bogleheads Conference.

Cody Garrett: I'm going to be there.

Jon Luskin: And folks, as of this recording, there are roughly 60 spots left. So, if you want to register for that conference, go to boglecenter.net/2023conference.

Let's start with our first question. This question is from username “9-5 Suited”. He writes: “Does Cody have a process he uses with his clients to ensure their non-financial lives will be fulfilling in early retirement?”

Cody Garrett: What I realized is a lot of people focusing on retirement, they're really focused on what they're retiring from. This emphasis on escaping something. It's like, “I cannot wait to stop working.”

But it's really important that, anytime I'm working with a financial planning client, they're really focused on what they're retiring from. But it's my job to help them understand what are they retiring to.

I recently asked over 40,000 retirees on a Facebook group, "what's the thing that you miss most about working besides the paycheck, besides the benefits?" They missed conversations with colleagues and clients, collaborations with team members, challenges to solve, and contributions to a greater purpose.

Now you asked me about this process that I use to ensure non-financial lives will be fulfilling. I asked them, especially if pre-retirees, "hey, in which ways would you like to continue connecting and having conversations with others? In which ways will you collaborate with other people?"

Sometimes that means collaborations with other organizations, maybe a charity that they support. “Which types of challenges would you like to solve?" So, some people retire and they really want to do maybe woodworking. Or, they want to do those projects around the house. So, they can be physical or mental challenges that they want to solve in retirement.

And then lastly, how are you going to contribute in retirement to a greater purpose? Going to the Bogleheads Conference, right? That's a way that you can have conversations, you can collaborate with others. You can learn some new challenging things. Some of the mental challenges you have can be possibly solved by going to a conference like that. And then you can contribute to something bigger than yourself by just being surrounded by other people within your community.

So, community conversations, collaborations, challenges and contributions. So, start asking yourself, even now if you're not retired or you are retired, "how can I do more of those things now that I'm retired?"

Jon Luskin: And for folks who are looking to get some community, they should check out their local Bogleheads chapters. We have a great chapter here in San Diego with a lot of retirees. And it's a great forum where folks can help each other, make friends, and talk about low-cost investing.

For folks who want to get involved with the Bogleheads community locally, check out the Bogleheads Forums where we have a page that lists local chapters. I'll link to that in these show notes for our listeners.

Cody Garrett: Well, one thing I want to add to that is we think about FIRE as standing for financial independence retire early. I actually call it financial independence, recreational employment. Financial independence isn't necessarily about stopping work or escaping from work. It's really about doing work because you want to, not because you have to.

A lot people who assume they're going to retire early, they end up working once they're financially independent. So, keep in mind that financial independence doesn't mean you have to leave the work that you love. It means that you can do work that's even more fulfilling moving forward.

Jon Luskin: Cody, can you talk about what some of the folks you've worked with have done in early retirement?

Cody Garrett: In terms of conversations, I think a lot of people in retirement, they talk about spending more time with their family, And I think it's really important that when spending time with family, it's not just “travel a lot”, right? But also being really intentional about the conversations you're having with your family.

So, visualize when we go on this trip as a family together, which type of topics do we want to discuss? And people who go into retirement, some of the most valuable conversations they have is about what I call the financial family tree.

Sometimes families don't talk about money ever. But going into retirement, when you're talking with your family, right after you retired, they're probably thinking about money. You're thinking about money. This might be a good time to start talking about some estate planning, So, what are some of your expectations and their expectations financially, in terms of multi-generational wealth.

This can be a very difficult conversation to have. But I think this is the most fruitful conversation when done with grace and compassion.

Instead of having them with colleagues and clients who are used to work, maybe you could have those deeper conversations with your family. And not necessarily your kids. What are the conversations that you'd like to have with your spouse? Now you're probably spending more time at home with your spouse if you're married, Or your partner your neighbors. Maybe it's time you can actually start having conversations. You can start talking with people who live down the street, your friends that you know, that have been retired for a long time, and you can finally spend time with them.

A really good example is clients who, every Wednesday they have a morning breakfast with all the friends they used to work with who are also retired. So, think to yourself, what type of conversations do I want to have that build me up, that are energy giving, not energy draining conversations.

The second is collaborations. I think collaborations can happen a lot of different ways. Sometimes you might have a work project that you want to spend some time with. A client that I worked with, a fascinating story about what he wanted to retire to: he loves Volkswagen vans. The big vans from the sixties. And he says, "I've never had one, I've always wanted one." And he said, "when I retire, I'm going to buy my first Volkswagen van. And I want to spend most of my time fixing it up. I don't want to buy one that's turnkey. I want to buy one that's torn up and that I can work on and tinker with."

First of all, that's a challenge to solve. That would be a challenge for me working on an old van from the sixties. He said, "okay, well maybe I can invite my son to help me. Work on this van together. And, you know, once it's drivable, I can take my son. We can have a father son trip. In this van that we've really tinkered with together."

That's a very powerful way to continue building relationships with your family. We all know that you spend over 90% of the time with your kids during your lifetime before they're 18. If you're retiring, you do have kids, start thinking about what are some conversations I can have with them? What are some ways we can collaborate on projects together? Maybe we can have challenges to solve together, not just individually.

And one thing that's really important for me to mention here is that your physical, mental, spiritual, relational, and financial wellness are interrelated. Going into retirement, we're usually primarily focused on the finances. By the time we get to retirement, we realize that our physical health, our mental health, our spiritual practices, our relationships have been kind of on the back burner for a long time.

If you're listening to this and you haven't retired yet, how can you improve your physical, mental, spiritual, relational health and not just be focusing on your financial spreadsheets? Because when you get to retirement, sometimes you have all the money in the world that you need to retire, but then you turn around and all your relationships are gone or they're not like they used to be.

Building up those relationships, doing that exercise that you've always been wanting to get into, maybe hiring a counselor, a therapist to talk about some of your mental health struggles, start having those conversations when you get into retirement.

Jon Luskin: This one is from username, John Arndt from Twitter, who writes: "What's the best method for determining sustainable spending rates? For instance, how do you adjust the 4% withdrawal rate for retirees in their forties?"

Cody Garrett: The 4% rule or guideline, it's a decent rule of thumb. People using the 4% rule, they're making an assumption that they're going to be living in retirement solely off of their portfolio without other sources of retirement income, such as private and public pensions, social security, real estate income.

But the best way to visualize variable sources of income and expenses in retirement is to use an advanced financial planning software. Now there are actually planning softwares even available to consumers, non-advisors. One, for example, is New Retirement. I know there's a lot of other Excel or Google Sheet versions that people have.

Keep in mind that financial planning software, the output is only as good as the input. When you're making assumptions for rates of return, inflation, life expectancy, it's better to be on the conservative side. Conservative meaning that you're expecting to live a long time, maybe 95 plus. In terms of your age, testing out different levels of inflation, testing out really conservative rates of return.

So with that said, use financial planning software, but understand that it's only going to show you information based on a lot of user assumptions and historical performance, which we know cannot guarantee future results.

Take it with a grain of salt. But at the same time, I think that using a financial planning software for those variable sources of income and expenses could be a much better way than just saying, "I'm going to use the 4% rule just based on our portfolio.”

Jon Luskin: And that 4% rule of thumb comes from Bill Bengen who first looked at that question, "how much can I spend in retirement without running out of money?" We interviewed him on Episode #35 of the Bogleheads Live show. We also interviewed Christine Benz on Episode #37, who sought to answer that same question through her research. And then lastly, in Episode #41 we interviewed Derek Tharp of Team Kitces, where he talks about how to use retirement planning software. I'll link to all those in these show notes for our listeners.

Cody Garrett: One of the big things that accumulators miss that aren't retired yet or about to retire. They're thinking about the 4% rule in terms of multiplying their current expenses by 25. But let's say you have 10 years until retirement, the 4% rule does include inflation assumptions but only once the distributions begin, not for the 10 years between now and when you start taking those distributions. So, make sure that you inflation adjust your expenses if you are going to be thinking about the rule, even now, 10 years out from retirement.

Jon Luskin: This question is from “man_of_clouds” from Bogleheads Reddit who asks: "What percent of bond / stable value allocation does Cody recommend for someone 5-10 years from retirement?"

Cody Garrett: To manage sequence of returns risk, I prefer either a barbell approach, which would be really having equity on one side and laddered fixed income on the other side to set up typically about five years of short-term stability. Another way to do it, especially popular within the Bogleheads community is to just use a total portfolio approach. But then have maybe one to three years of short-term liquidity cash equivalent. So, you're not chasing growth and income with that portion. You're really focused on stability and liquidity with the three to five years of short-term fixed income. And on the flip side, you're going growth with the equity side of that barbell.

The second bucketing approach that I mentioned is often said to be irrational, especially people will say that during bull markets. Some people say “why would you hold onto so much cash when the market's going up?” It can be a reasonable way to sustain portfolio withdrawals while reducing that sequence of returns risk.

And as important that most people don't think about is the reduction of investor anxiety. So, when I work with a retiree or somebody who's about to retire, they love knowing that the stock market volatility will not affect whether or not they're going to order dessert with dinner tonight.

I always tell people we don't want to make long-term financial decisions based on short-term volatility. We also don't want short-term volatility in our long-term assets to affect how we spend and enjoy retirement in the short term.

Having three to five years of short-term liquidity and stability can really give you permission to enjoy your lifestyle in retirement without having to look at what the stock market does every day. Because what the stock market's doing every day is for my six plus year money, not my money that I'm spending within the next five years. And as we know, even the greatest recessions and depressions that we've seen have really not lasted longer than that. I just say having three to five years of short-term liquidity helps emotionally and also helps hedge against that sequence of returns risk, especially in the first few years of retirement.

Jon Luskin: Certainly, on average, if you hold a little bit more in cash or in short-term, high-quality bonds, the smaller investment return that you're going to get from that is going to drag on your portfolio, which means having a little bit less money that you'll be able to spend annually.

But if you can have that extra cash cushion to make you feel more comfortable with your long-term investing approach, generally, I think that can make some sense for those folks who are nervous about their long-term investments.

Now it's not the most optimized approach. But again, if you can feel better about having that cash cushion that can make you stay the course with the balance of your investments, that can often make a lot of sense.

Cody Garrett: People ask me all the time, "I'm scared about retiring, so I'm just going to work for one more year. I'm just going to work for a few more years." So, if taking some type of bucketing approach like this, having a few years of cash to make you feel a little better and make you pull the trigger on retiring earlier, right? When you can actually, quantitatively, rationally afford it. I think it's a really good way to keep people from just waiting a few more years to retire. Each year you wait to retire, that's fewer years in retirement. So, think about what you're giving up again, you have to go beyond the numbers in these conversations.

Jon Luskin: This question is from the Bogleheads Forums, "I'm looking at retiring soon in my late forties. I'm lucky enough to have a pension that is COLA protected from the military and very cheap healthcare for life. How does Cody go about calculating how much pension / healthcare that is worth in the future?"

Cody Garrett: This question often comes up when you're going to choose a pension or take the lump sum. But when calculating a lump sum versus taking a pension, there are really two steps to this. The first thing that people make a mistake on when calculating whether they should take the lump sum or the pension is they divide the annual pension amount, the income amount, into the lump sum amount to figure out kind of what their “rate of return” would be.

But, this is one thing that we shouldn't do. A few differences there is one, you're effectively looking at the annual yield of something, but by the way, at the end of life, that pension's gone, right? You don't have any more money at the end of that.

With lump sum you can take the same amount of income possibly and actually at the end of life, you still have money there that can be distributed to your heirs. Instead of just dividing the pension amount into the lump sum option, you need to use two time value of money calculations. TVM calculations, that require a few assumptions: so life expectancy assumptions, those things that we talked about earlier with rates of return, inflation over time. You talked about COLA protection, cost of living adjustments on your pension. A lot of pensions don't have that. So, you have to figure out what is the value of that pension going to be if there isn't a COLA adjustment?

There's two calculations that you would do: one is a present value calculation, which is saying "what is the present value of those future cash flows, assuming a certain life expectancy?" If I were to end that pension at 95, how much would I have received from that?

Effectively you want to understand if I took the lump sum, what type of investment return, inflation adjusted, if it's not an inflation adjusted pension that you're receiving, what would be the required rate of return needed to take that much out of the portfolio through the end of life and end with zero.

In terms of using your financial calculator, the number of periods would be the number of years between taking the lump sum, the end of life, the interest rate would be really typically your inflation adjusted return or your rate of return for your investments.

The lump sum pension calculations are effectively saying, "Hey, if I were to take the lump sum, would I be able to create effectively my own annuity that would “outperform” the pension's actuarial assumptions?"

When you're looking at the pension versus lump sum options, these weren't given to you as a challenge to say, "which one do you think is best? Hopefully you choose the right one." These were all actuarily calculated by insurance companies that are way better at math than we are.

So keep in mind that if you're comparing a lump sum versus the pension, they're actually equal in a way to them based on their assumptions, but it's up to you to figure out which assumptions do I have that would be different than the assumptions the insurance company is using.

If I know I have a chronic health condition, that probably would make the case for possibly taking a lump sum because you're not going to live long enough to take advantage of the longevity that the insurance company might be assuming for you.

Which assumptions might the insurance company be actuarily calculating? And then which of those assumptions might actually be different for me? What are the things that I could plug into those assumptions? Example, chronic health conditions, whether or not I'm married, whether or not I want to leave money to future generations. So those are the assumptions that can change whether or not you take a lump sum or a pension.

Jon Luskin: One thing I think about the annuitization versus lump sum distribution question is "Hey, should I take the lump sum or should I take the annuitization?" I am obsessively focused on that worst case. And for me, I think about how to best manage that worst case, which is you living forever.

And that annuitization option is going to do that. It's going to help manage that. Because as long as you're alive, you're going to get that annuity payment. Now, if you guess wrong, and maybe you die the next day, that won't be great. But perhaps that risk isn't as financially impactful as living forever and running out of money.

So, my approach generally is to take that annuity option because it's a risk management approach, not necessarily the way they're going to transfer the most amount of money to your heirs. But certainly can help you have a higher quality of life during your lifetime.

Cody Garrett: When you're talking about beneficiary designations, when choosing between a lump sum and a pension, you also have to think, "okay, is this money just for me or is this money that I want to last beyond my lifetime? If I have a spouse, maybe I want to think about using the joint survivor pension option versus a single life annuity."

Start to visualize what you want your retirement to look like, and also what you want your generational wealth transfers to look like. Because that can also change whether or not you choose a lump sum versus a pension.

And to add emotionally, behaviorally there sometimes taking a pension can actually give you permission to spend. So, if your only source of income in retirement is from your portfolio, you're probably going to be obsessed with your portfolio. When the market goes down, you're going to be like, "I don't know if I can afford going on that trip next year."

So the last thing you want is to let the short-term volatility of the portfolio really dictate your spending in retirement. I know it's an important thing to consider, but the last thing you want is short-term stuff to affect your desired lifestyle. So yeah, sometimes taking the pension can provide that cushion, behaviorally, emotionally for you to spend the money that you actually can't afford to spend.

Jon Luskin: I always encourage folks to try and keep it simple as well. And man does that annuitization option keep it simple. You get that deposit into your checking account monthly, every two weeks, whatever. That sure makes it easy.

Another thing that I always encourage DIYers to think is not just about what investment approach is most interesting and fun for them when putting it together. But what sort of legacy plan you're going to be leaving your possibly less interested spouse. That annuitization option, that's pretty great for that non-financially interested spouse because worst case you pass, they're still going to get those regular deposits into that checking account. That can really be a great way to plan for legacy investing.

This one is from museum, “Wannaretireearly” from the Bogleheads Forums, who writes: "I'd like to better understand planning for healthcare, managing income to maximize Affordable Care Act subsidies, and also my kids will be in college. I want to be thinking about managing income to maximize subsidies for higher education."

And for folks who want to learn more about how to manage the cost of healthcare in early retirement, we have a great Bogleheads Chapter Series video on that. I'll link to that in the show notes for folks to check out.

Cody Garrett: So, managing healthcare in early retirement before Medicare actually isn't as difficult as you might think. I know there's a lot of concern about the uncertainty of future healthcare costs. There's like seven or eight different options for healthcare in early retirement.

But since you mentioned maximizing subsidies, you're talking about this premium tax credit. So, the premium tax credit for health coverage before Medicare and student financial aid are two major forms of subsidies which may be worth prioritizing in early retirement. So if a family is able to maintain its desired lifestyle and early retirement due to control over sources of taxable income, this usually means having a pretty healthy balance between taxable, pre-tax, and tax-free accounts. People on the path to early retirement, they'd be much better off creating some diversification in their asset location.

If a family is able to maintain that desired lifestyle and have control over sources of taxable income in early retirement, it's definitely worth running those scenarios against the opportunity cost of implementing other early retirement strategies such as Roth conversions to maximize after-tax wealth.

Don't let your healthcare subsidies or the financial aid for a kid completely run your financial plan. They are important variables to consider and to plug into the numbers. But don't let that rule all of your decisions.

So your ability to maintain your desired lifestyle in retirement, I think that should be a prioritization. And then secondary to that should be any type of tax planning strategies. That's worth doing sometimes. But just make sure that's not prioritized over the things that are much more important in early retirement.

Jon Luskin: Cody, you mentioned doing partial Roth conversions in early retirement, a pretty common strategy. However, that's going to generate some taxable income. And as that income increases, that means now we're looking at less subsidies for healthcare through the Affordable Care Act. What's your preference: doing partial Roth conversions or keeping income low to optimize for subsidies for health insurance in early retirement?

Cody Garrett: Oh, that's a tricky and great question. The big thing here, one reason that you might want to consider maximizing those subsidies is that the premium tax credit is that it's a credit; it's not a deduction, A credit is a dollar for dollar return of taxes owed, taxes paid. So, this is very different from looking at the effect on IRMAA or the taxation of social security, things like that.

These tax credits are substantial. I actually just talked with a family member yesterday that is receiving $460 a month of premiums completely for free.

I think this is one of those where you, really have to understand the numbers. You need to go to healthcare.gov/see-plans to really look at what does healthcare cost on the health insurance marketplace based on where you live.

You type in your zip code, you also type in what is your anticipated, modified adjusted gross income. You know, in this case, in early retirement, it's going to show you what your estimated premium tax credit could be.

And what you can do, it's really nice on that website is you can just say, "well, okay, well what if my income is $80,000 instead of $60,000 a year? How does that affect my premium?" So, these are based on the federal poverty level. Up to 400% of the federal poverty level. They broke that ceiling at least temporarily for premium tax credits.

You have to understand what is the credit I'm going to receive? If you don't have an estimate of what those credits might be, then you want to make sure you do that first. Once you understand what those credits may be, you can start filling in those marginal tax brackets, Roth conversions.

Say, "what if I were to convert up the top of the 10%, 12%, 22%, 24% tax brackets in terms of Roth conversions? And then what would that level of modified adjusted gross income do to those premium tax credits?"

A lot of people come to me and they say, "okay, how much should I convert to Roth over the next 10 years?" Don't make 10 years’ worth of assumptions here. Take one year at a time. So, at the beginning of each year, at the end of each year, determine how much am I going to convert. And this year, am I going to prioritize premium tax credit or am I going to prioritize maximizing after-tax wealth with Roth conversions?

I do it in mid-November every year for Roth conversions. Keep it simple, one year at a time, and it'll take some of that anxiety out of the way.

Jon Luskin: Doing those calculations in mid-November certainly makes sense because you'll have a better idea closer to year-end what your taxable income is going to be for the year.

“DiploInvestor” from the Bogleheads Forums writes, "we are four to five years out from retiring in our early to mid-fifties. And we'll both have decent federal pensions. Maybe a question about what order to withdraw from TSP or Roth IRA or taxable when RMDs are still a long, long way off.”

Cody Garrett: The typical order of operations for early retirement distributions is first starting with your checking and savings accounts, taking money out of those accounts. There's no age requirement. There are no taxes to take money out.

Then you go to your taxable brokerage accounts. These are the accounts that are holding those investments that may offer qualified dividends and long-term capital gains tax treatment with no early withdrawal penalty.

Savings, checking accounts, then taxable brokerage accounts. These are all of the accounts that provide what I call cashflow flexibility, but they're taxable along the way. So that income and dividend and capital gains distributions and the taxable brokerage accounts, they're taxable along the way, even if you don't take money out of the accounts. But the good thing about those accounts is the money you actually take out of the accounts are not taxable.

Then after the taxable brokerage accounts, then we move on to the pre-tax retirement accounts. Those your traditional IRAs, traditional 401(k)s, 403(b)s, 457s, and so forth. If you are retiring early, before 59 and a half, you'd have to be using some sort of early retirement distribution strategy.

So those may include what they're called substantially equal periodic payments. Some people call it the SEPP, the 72-T payments. There's the rule of 55, which is did you retire from that employer in or after the year you turn age 55? And that's specific to that employer's retirement plan.

Some people use Roth conversion ladders. The reason they're called ladders is because there's a five-year holding period for Roth conversions before 59 and a half to avoid that 10% additional tax. Also sometimes called the tax penalty.

So after you've taken money from your savings, checking, taxable brokerage accounts and pre-tax accounts, then lastly, usually as a last resort, those tax-free accounts such as Roth IRAs or HSAs. The reason those are typically used last is because their highest and best use is long-term tax-free growth that we all love. So usually letting those accounts grow long-term as long as possible is typical order of operations.

So once your desired living expenses are met in early retirement, take going through that order of operations, then you would say, "okay, maybe we need to do some gradual Roth conversions on top of that to reduce those future RMDs", even if they're a long way off, as you mentioned in your question.

Jon Luskin: Mike Piper talks about this question at the last Bogleheads Conference in 2022. "What accounts should I spend from in retirement?" There's a great video you can check out. I'll link to that in the show notes for our listeners.

Username “Interdon” from the Bogleheads Forums writes: "I have VYM in my IRA. Does it make sense to have an investment that gives qualified dividends taxed at the 23.8% rate once RMDs kick in, as I will most likely stay in a high tax bracket in retirement?"

Cody Garrett: Since you mentioned you're in a high tax bracket, will most likely stay there, qualified dividends, if they were held within a taxable brokerage account, those qualified dividends would actually be taxed. Favorable tax treatment. but you know, for you in the high tax bracket, you're looking at either like the 15 or 20% qualified dividends or long-term capital gains tax treatment plus a 3.8% net investment income tax.

So a total 23.8% if held within the taxable brokerage account. Versus being tax deferred, but potentially taxed at a much higher marginal tax rate, which could be 24%, 32%, 35%, 37% when distributed from the IRA.

I guess the first thing is usually, you want to take advantage of favorable qualified tax, rates on those qualified dividends. Secondary to that though, I would say, for people with high income, I prefer not to purchase high income paying investments in general, whether equity or fixed income, but rather take a total return approach.

So on average, I prefer to keep the equities in the taxable brokerage accounts and Roth IRAs. Because they receive that favorable tax treatment. I know that you're in a higher bracket, but actually effectively the lowest capital gains tax rate is 0%. So, some people might call that tax gain harvesting rather than tax loss harvesting. Usually, I want to keep equities within the taxable brokerage accounts if there is fixed income, keep the fixed income within the pre-tax retirement accounts.

So based on your circumstance being in a high tax bracket, I'm not a big chaser of dividend yield to begin with. I'd most likely have my qualified dividends in the place where it's most favorable, which would be the taxable brokerage account, and then keep my IRA invested for the less favorable tax consequences.

Jon Luskin: Speaking of dividend investing, we interviewed Vanguard's Colleen Jaconetti on Episode #26 of the Bogleheads Live Show, where we talk about just this - dividend investing, investing for income. And Colleen sums it up as saying investing for income means more risk and more taxes. I'll link to that in the show notes for our listeners. They can check that out.

Jon Luskin: This question is from Dennis Lee from Facebook who asks "Should a person even bother trying to do a backdoor Roth if they have a fair amount of money in traditional IRA from a previous 401(k) rollover? I've already tried to see if I can roll these into my solo 401(k) and thus far I cannot.”

Cody Garrett: There's really two parts here. The first is, should a person even try bothering doing a backdoor Roth if they have a fair amount of pre-tax money specifically and a traditional IRA from a previous 401(k) rollover? So, if you do have access to a workplace retirement plan that's not a IRA, like a 401(k), might allow incoming rollovers of that pre-tax portion.

This question is really talking about that pro rata rule. If you do a Roth conversion, the coffee and the cream is mixed within your traditional IRA, some pre-tax money, some after-tax cost basis, you're going to have this pro rata calculation that you're actually going to end up paying more taxes to do that Roth conversion.

So first off, if you do have access to a qualified retirement plan, such as a 401(k) that allows incoming rollovers, a lot of people do rollover the pre-tax portion into that, so they're only left with their after-tax portion that can be converted tax free. That requires that pre-tax portion to be rolled into typically a 401(k) by December 31st of the Roth conversion year.

The second part of this is you mentioned that you have a solo 401(k) and that you cannot roll over your IRA into it. Actually in the last few years, some Solo 401(k) plans do allow incoming IRA rollovers. Vanguard might be one of those that now allows incoming IRA rollovers into a Solo 401(k), also called a self-employed 401(k).

But keep in mind, this is very plan specific. So, you mentioned that it's not available in your Solo 401(k), but it might be available in another solo 401(k) plan. Really look at the plan rules, verify if that's accurate.

If you cannot avoid the pro rata taxation, it's typically not worth it if you have significant pre-tax balances. Sometimes it's better to just avoid that hassle, right? We call it return on hassle.

So instead of putting money into there, trying to do the backdoor Roth IRA, go ahead and just put that money into a taxable brokerage account instead. There's a lot of great benefits to a taxable brokerage account.

I think the taxable brokerage account is just like one step under a Roth IRA. There are so many incredible benefits of a taxable brokerage account, especially for early retirees, that if you're going to be subject to significant pro rata taxation of the backdoor Roth IRA, I'd probably just say skip it.

Jon Luskin: This question comes from username, “BattyNatty” from the Bogleheads Forums who writes: “When you encounter families who are planning to stop working in about five years but already have the savings to retire now, do you put together a plan to spend more than usual over the next five years to start maximizing experiences, memories, and happiness?

Cody Garrett: Absolutely. Yes. Especially once a family is financially independent with the ability to work because they want to, not because they have to, they can significantly expand their current desired lifestyle while they're working.

This question mentions a family who has the savings to retire now, but they plan to stop working about five years. If they have enough savings to retire now, I'd really want to understand why five years? Is there something they're anxious about? Maybe a limited belief that they have, that they must do five more years because that's how long their dad worked, or their mom. So, there might be some behavioral emotional things behind the scenes to really figure out why five years, if you have enough money to retire now, why are you waiting?

But one great exercise that I do with clients, especially what you talk about here, is even while they're working, I created this blank calendar exercise to help pre-retirees recognize how they want to spend their time and energy as a family.

So imagine you have a 7-day, 24-hour blank calendar. You take it as a family and you fill it out and say, if we had a blank calendar, how do we want to spend time as a family?

They fill out that calendar. Okay, now how can we plug in the numbers to this? Some things they said, on Monday and Wednesday, we want to do a picnic at the park. We want to go pick up sub sandwiches from our favorite sub shop down the street.

The first question I ask is, "is it possible to do that even now while you're still working?" Because a lot of the things that we want to do more of in retirement, there's actually nothing stopping us from doing it now. But we somehow have this limited belief that, "oh, you have to wait till you retire before you do the things you want to do."

Jon Luskin: Cody, I love that calendar exercise. That is phenomenal.

This question is from username “AerialWombat” from the Bogleheads Forums who writes: “I'm about two years into early retirement in my mid-forties. What unknown unknowns do his FIRE clients experience 5 to 10 years into early retirement that they didn't anticipate financially or otherwise?

Cody Garrett: First of all, as I mentioned before, physical, mental, spiritual, relational, and financial wellness are interrelated. So many early retirees don't realize until they retire that they've actually sacrificed their physical, mental, spiritual, relational wellness for the sake of financial health along the way and aren't actually able to enjoy retirement as much as they expected.

So they have all the money they need in the world, but they don't have anybody to spend it with. They don't have the mental capacity to spend it in a way that provides a lack of anxiety for them, it provides joy and not just more stress.

Most people who plan to retire early don't consider the potential reality of becoming a caregiver in the future for other family members: their parents, their siblings. So, we assume that early retirement will look the same in year 10 as it does in year 2. But it's going to be so different than what you expected.

To go along with that, think about what you were like and your life was like 10 years ago. If you think about how different you were and how different life was 10 years ago, but yet, we somehow assume that 10 years from now our life didn't look very similar to what it is today, and we're going to be the same person in 10 years that we are today.

Once you realize that the way you assume you're going to be in the future is going to be completely different, in reality, the biggest, unknown unknown that you're going to realize later on is that you're going to be a different person, and you're also going to be caring differently for people.

A lot of people retiring early, their parents are actually going into traditional retirement. Somebody's retiring at 40, their parents might be, you know, in their sixties or seventies, retired. And there might be a time in terms of long-term care, in terms of cognitive decline that you might actually be spending not just your time and energy, but also your finances, helping to support other people.

So before you retire early, especially financially, think about will I need to financially support somebody in the future, including my own parents or my children? Even, by the way, when my children are adults. There are plenty of adult children who still need time, energy, and financial resources from their parents.

Jon Luskin: “WhatsIRR” from the Bogleheads Forums writes, “has Cody seen any trends with either successful or unsuccessful FIRE folks trying to get to FIRE.”

Cody Garrett: There's actually a trend within the FIRE community of discovering within one to two years of early retirement that they actually miss aspects of working. But thankfully, now that they have command over the who, what, where, when, why, and how work is done, some early retirees end up actually going back to work usually, often as entrepreneurs as well. They end up making more money when they're financially independent than when they had to work.

I've also seen patterns within the FIRE community of being financially successful, but unsuccessful in the non-financial areas. So, you talk about people being unsuccessfully FIRE, we're typically thinking about the financial part of FIRE. I've seen a lot of people who are successful financially, but they're unsuccessful in those other ways that we've talked about: that they have all the money in the world, but every other part of their life is crumbling apart.

So again, that's just one more reason that on the path to FI, it's not just the path to FI, it's the path to continuing healthy relationships, continuing health, physical and mental.

A lot of times, we've been kind of plugging our life into the numbers rather than plugging the numbers into our life. So, we're starting with the spreadsheet and saying, "how can I live given my spreadsheet" rather than how do I want to live? And how can my spreadsheet support that? So, on the path to and through early retirement, ask yourself, what do I visualize my ideal life looking like? Then only then plug in the numbers and say, “hey, is that actually possible? Rather than saying, “I have this much money, what can I do with it?”

Most of the questions we receive are financial. In reality in retirement, most of your time is spent doing non-financial things that by the way, just happen to require money sometimes.

Jon Luskin: Absolutely. Money is a tool for our personal goals. It is not the end goal.

“HomeStretch” from the Bogleheads Forums writes, and he's got a bunch of questions here, he writes, “Great topic. Five years before retirement, should one change portfolio asset allocation?”

Cody Garrett: I'm going to say yes to that. Usually, within five years before retirement, you're really starting to think about creating some short-term liquidity. Some people choose like 1, 2, 3, years of short-term liquidity as mentioned before, three to five years of de-risking, or de-risking the total portfolio if you're using that approach. You might've been 100% equity during your whole accumulation, but if you're five years until retirement, you need to start thinking about de-risking the total portfolio. Whether just changing that overall asset allocation down from 100% equity or 80%, depending on your other income sources, certainly.

Start thinking ahead in five years, how much income will I need from my portfolio to supplement my other forms of income and start really timing out - they call it asset/liability matching - what are my future liabilities going to be? How can I turn my assets into income over the next five years? So that usually means creating some type of bond ladder or just starting to put some bond allocation within your total portfolio.

So yes, five years before retirement, I would change the asset allocation, assuming that you hadn't changed it years before.

Jon Luskin: I'll link to the Bogleheads Wiki that talks about some basic considerations for investing and taking the right amount of risk. That is part of it. Five years before retirement, you certainly want to be taking the right amount of risk, not too much, not too little.

Question number two, should I five years before retirement, build a cash balance or Roth ladder for early retirement?

Cody Garrett: So, to start, if you're not familiar, a Roth ladder, they're talking about a Roth conversion ladder. So before 59 and a half, if you take money out of a qualified retirement plan before 59 and a half, there's an additional 10% tax.

When you do a taxable Roth conversion from a pre-tax retirement account into a Roth tax-free retirement account, you have to wait five years before you can take that conversion amount back out to avoid that 10% penalty. So, the government doesn't want you just, you know, converting that money and taking out right away, they want to penalize you for taking money out before traditional retirement ages of 59 and a half plus. Should we build a cash balance or Roth conversion ladder in early retirement?

First of all, there's a misconception about the Roth conversion ladder. Usually when somebody's using a Roth conversion ladder, they're usually only thinking about their future living expenses five years from now, they're not thinking about also having to cover the tax liabilities from initiating those Roth conversions themselves. So, when you're doing a Roth conversion in early retirement, before 59 and a half, you should not withhold the taxes from the conversions themselves because that portion that's withheld for taxes would be subject to the 10% penalty before 59 and a half.

So, before early retirement, you typically want at least five years of liquidity to cover not just your living expenses, but also the tax liabilities needed to pay the taxes on your Roth conversions. So, if you're going to do a Roth conversion ladder in early retirement, before 59 and a half, you need enough cash to sustain yourself for at least five years of living expenses, but also the five years of tax liabilities to make those conversions.

Jon Luskin: Question number three, while still in high marginal tax rate years, should one stop contributing to tax deferred accounts to save more cash or save in Roth accounts?

Cody Garrett: So, thinking about marginal versus effective tax rates here, marginal being, you know, what's the tax rate on your last dollar earned? That's the tax bracket we talk about, 10%, 12%, 22%, 24%, 32%, 35%, 37%. Those are marginal tax rates.

But you also have what's called an effective average tax rate. So, when you're contributing during your high marginal tax years, it's typically best to contribute pre-tax because you're either deducting or excluding that income at your highest marginal tax rate.

But in retirement, especially early retirement, you're probably distributing that income at much lower marginal tax rates or just a much lower effective average tax rate. So, in terms of this question, because we have the detail of being a high marginal tax rate year, usually you're going to want to contribute tax deferred rather than Roth. Unless you're talking about the backdoor Roth, which is for higher earners.

So typically you want to max out your pre-tax retirement accounts in high earning years, then focus on building up taxable brokerage accounts. So, the backdoor and the mega backdoor Roths are great, but only if you don't have to touch the earnings in those accounts in early retirement. Because you have to wait until 59 and a half to touch those earnings without tax or penalty.

The taxable brokerage account, again, is so undervalued within the FIRE community. So, once you max out those pre-tax accounts, think twice about whether or not you want to put money in Roth or just build up some additional flexibility and cash in your taxable brokerage accounts, which have no 10% penalty for withdrawal before 59 and a half.

Jon Luskin: Credit to Jeff Levine for sharing something during a webinar he did for Team Kitces once, and Jeff made the point that sometimes it's just simpler to pay a 10% tax “penalty”.

So if this guy is in that higher marginal tax rate, let's say the 37% bracket, he makes that contribution today gets that 37% deduction. Now he's in retirement, he's going to be in the 0% bracket. So, 0% bracket plus 10% penalty, that is still a 27% savings compared to when he put that money in. Compared to saving at the 37% rate today.

Cody Garrett: Yeah, and to add to that, I think a lot of people start getting really excited about Roth at the end of their working career and they start Roth conversions too early or they start contributing to Roth too early. I would say that you're in your highest earning years and you're planning to retire early and you're going to have lots of years to spread out the taxes of those conversions, you're much better off doing a traditional pre-tax contribution, not a Roth contribution.

Jon Luskin: And then a huge question for number four from “HomeStretch”. How to plan for claiming Social Security, early retirement healthcare, Roth conversions, minimize IRMAA and higher marginal tax rates in later retirement, after the start of RMDs.

I feel like we can do a whole episode on just that one question.

Cody Garrett: I love it. So, first of all, I want to note here is that the start of RMDs would usually happen after claiming Social Security. But just to make it a simple answer here: if you retire before paying into Social Security for 35 years, you'll likely see decreased retirement benefits versus what your Social Security statement says before you retire. Your Social Security statement assumes that you continue earning what you did last year through the age you claim benefits, whether it's 62, 67, full retirement age, 70, et cetera.

In terms of IRMAA, IRMAA is an increase in your Medicare Part B and D premiums. Do not let IRMAA be the tail that wags the dog. If you're paying increased Medicare premiums through IRMAA, that's a good problem to have because that means that your modified adjusted gross income is pretty high. You can definitely afford the IRMAA if your income is that high. It is one of those shelves, right? Where if you don't want to go just a little bit over, one of those shelves. But yeah, don't let IRMAA be a big concern in retirement.

And then lastly, early retirement healthcare, as we mentioned before, the health insurance marketplace, healthcare.gov/see-plans, plus the use of those premium tax credits if you can control your modified adjusted gross income in early retirement. That is really the best way to start with thinking about healthcare in early retirement.

Jon Luskin: And Cody mentioned if you're looking at your Social Security statement for the benefit you may expect when you retire, he pointed out you've got to work until that year. To get a better idea of the ultimate Social Security benefit you might expect if retiring early, you want to check out SSA.tools. It's a pretty neat tool that helps you determine your future social security benefit amount, where it lets you toggle your future income and how long you plan to work for. Then it shows you what benefit you can expect at different claiming ages. Pretty neat tool to check out.

And then lastly, five years before retirement, should one update estate planning docs?

Cody Garrett: Simple answer here. I think that you should review these documents every few years and when any significant change occurs, such as a birth, a death, a move, a marriage, a divorce, or a changing family relationship. Once you have, let's say, your wills, your powers of attorney, your trust in place, review those every few years if life is normal.

But if any of those significant changes happen, that's when you should at least review your estate documents to figure out whether or not they should be updated. So, it's not necessarily five years before retirement to update your estate documents. Just, you should be doing this regularly throughout your life.

Jon Luskin: Absolutely. Well said, Cody.

“PrivateID” from the Bogleheads Forums writes: “When to start Social Security for the lower earner?”

Cody Garrett: So, I'm assuming you're saying a lower earner means that there's spouses, one was a higher earner, which means that they're going to have a higher benefit and a lower earner, which means they're going to have a lower Social Security retirement benefit.

In general, the lower earner typically is going to claim earlier, if they do claim earlier. That's because once one of the spouses dies, the surviving spouse will continue the higher of the two benefits. So, the lower earner will typically claim earlier.

But with that said, there are many variables that exist here, including life expectancy, age difference, other income sources, multi-generational wealth objectives, charitable giving intentions. There's a lot that goes into this question. But just to tell you in general, yes, if anybody is going to claim earlier, it's typically going to be the lower earner.

Jon Luskin: And unsaid by this question and unsaid by Cody is that generally for the higher earner you're going to delay until 70. That's going to give that lower earner, if they live longer than the higher earner, that higher earners benefit.

Cody Garrett: That's a great point, Jon.

Jon Luskin: So that begs the question, when does the lower earner claim? Mike Piper and I talked about this on Episode #23 of the Bogleheads Live show. You can check that out. I'll link to that in the show notes.

And then Mike Piper has a pretty tool - Open Social Security - that allows you to play with different claiming strategies. One to have that lower earner claim earlier versus later, and that could show you the dollar amount difference you might expect for claiming earlier versus later.

That'll help your household decide what might be the right strategy for you. I'll link to that open social security calculator by Mike Piper in the show notes as well as that podcast episode for folks to check out to learn more.

“PrivateID” goes on to say: “Question number three: insurance, my company's retirement plan or ACA with potential subsidies?”

Cody Garrett: Yeah, so continuing coverage through your, company's plan. Sometimes they might offer COBRA, up to 18 months typically. Usually that group plan may provide better coverage, but is typically really expensive. Because not only are you paying the employee side that you were paying before, but now you're taking over the employer premiums too. So, you're typically paying 102% of the combined employee employer premiums.

So some people stay on COBRA for a little while. Maybe they've already hit their max out of pocket or their deductible for the year. They want to continue at least rest of that year with their current health plan. But otherwise, if you do have control over taxable income in early retirement, especially the Affordable Care Act, the ACAs they talk about, that's the healthcare marketplace with those premium tax credits is usually the better bet.

Just keep in mind that it's not just about the money. Think about your healthcare needs. Think about your prescription drugs. Also don't just jump to doing a high-deductible health plan just because you've heard that's a thing worth doing, A high-deductible health plan with an HSA is a great tool, but only if it actually makes sense for your health specifically and your family's health.

One benefit to using workplace plan is that you don't have to worry about keeping your income low to maximize those ACA subsidies, which leaves you a better opportunity for those partial Roth conversions.

Cody Garrett: Yeah, that's a great point also. Just another reminder that some people wish COBRA could last forever, but typically, again, it's only limited to 18 months.

Jon Luskin: This question is from “WorkToLive” from Bogleheads Forums who writes: “My question is how do plan for and estimate tax expenses in retirement given those of us who have been placing retirement assets in a diversified basket of tax-free, tax-deferred, and taxable accounts, I have no idea to even begin planning for my tax expenses.”

Cody Garrett: I recommend learning the difference simply between marginal and effective tax rates. The difference between adjusted gross income and taxable income. So that's really understanding how the standard deduction works. And the benefits of taxable brokerage accounts. So, including the qualified dividends, the long-term capital gain tax treatment, tax optimized charitable giving, for example, itemized deductions, the use of donor-advised funds, things like that.

Once you understand the tax formula and consider your distribution order of operations that we covered earlier. That typically is going to include the taxable, pre-tax, and then tax-free accounts. Then you can gain some clarity around your average effective retirement tax rate.

Most of the assumptions that we make will actually not come true because most of the things that we optimize for are out of our control rather than things that are within our control, So, try not to over optimize and estimate what your electricity bill will be in 30 years from now. For example, don't optimize for the 20%, leaving the 80% on the table. So, visualize your long-term projections, but then step back again, take one year at a time.

Most of the decisions we make in retirement aren't permanent. So, you don't have to have a plan for estimating how much taxes you'll owe over the next 20, 30 years. Just continue to improve your education. I know the Boglehead Forum, for example, that you wrote this question on, has great educational insights and resources. Just continue learning and give yourself some grace and compassion that you don't have to know everything.

Jon Luskin: This one is from username “USAFPerio” who writes, “I'm four and a half years out for my military retirement. I'll be 51, and with my pension with a COLA and my portfolio, I'll be financially independent and not needing to work again for money. The only big downside is we haven't owned a home in many years, and therefore we have no home equity. Can you comment on what I should be considering as I plan to finally purchase a home, such as paying in full versus taking out a mortgage in retirement. I could pay for a home outright from my brokerage account, but it would be a big capital gains tax. Although I'm enamored by the idea of having no mortgage payments.”

Cody Garrett: Interest rates have been really going up. Mortgage rates are now at a place where people are starting to think, maybe I pay off my mortgage early. You're enamored by the idea of having no mortgage payment, but you're worried about capital gains tax hit.

It could make sense for you to finance a mortgage but pay it off more aggressively than minimally. So, looking at a 15 year versus a 30 year, I'm actually a fan of a 30-year mortgage, but paid off within 15 years. I actually have a mortgage flexibility calculator, showing if you get a 15-year mortgage or a 30-year mortgage, or scenario three is what if I get a 30-year mortgage but paid off in 15 years? Because of the change in interest rate between a 15 year and a 30-year mortgage you might be paying for that opportunity cost, but it provides some breath and flexibility in your payments moving forward, because it's very hard to turn a 15-year mortgage to a 30-year mortgage. But it's very easy to return a 30-year mortgage into a 15, it probably makes sense to get the longer mortgage, but pay it off aggressively, especially given your situation.

Jon Luskin: Yeah, I think about, "I'm enamored by the idea of having no mortgage payment, but it would be a big capital gains tax hit." I just go back to, money's a tool. It's not the end goal. If you're going to feel good about having no mortgage payment, and I won't even go down the nerd rabbit hole of sequence risk and borrowing at 7% to invest in bonds paying four and a half percent. But again, money is a tool if you can use money to feel better and certainly it's not unreasonable in this scenario, that's certainly something worth considering. Taxes aside.

Cody Garrett: I love that you mentioned their preference for not having no mortgage. This could also mean getting a mortgage, but paying off the house within one year, but splitting that capital gains tax hit into two years rather than just one.

Always learning more from the forums writes, “Does Cody help folks develop a backup plan to reenter the workforce in case of a FIRE failure? That is a big portion of their budget for conferences to maintain skills or at least advise to keep up their professional context?”

Cody Garrett: So, both risk management and flexibility are fundamental tenets within the FIRE community. If you're retiring from a profession that requires a lot of continuing education to avoid losing your license, you may want to spend the money and continue your education just to keep that license just in case you have to go back to work.

By the way, not just financially, but you might be three years into early retirement and realize, you know what, I really miss my career. I actually love to do that career.

Jon Luskin: We've got another question from “Wannaretireearly”.

How to avoid the regret of waiting too long to retire, and what are the telltale signs? How to partner with your spouse. So, you are on the same page for early retirement.

Cody Garrett: So, in terms of regret of waiting too long to retire, what are the signs? First of all, know your numbers. Consider how you'd manage risk. And, this is a big part, embrace uncertainty and self-compassion.

So the fear of retiring usually isn't about the money. There are deeper cognitive issues and opportunities there. One way to regret waiting too long is, if you're on the fence of like, I don't know if I'm ready to retire or not, this is actually a good time to hire a counselor or a therapist. Having a mental health professional in your life is just as important as hiring a financial planner or listening to a Boglehead podcast.

So part of your education should be not just learning about money, learning about your money, but learning more about yourself. So, invest in your mental health.

By the way, if you don't already invest in your mental health, in terms of your time, energy and finances, just really, really consider that. And also, if it helps just go beyond the stigma of that, I go see a counselor once a week, and I think it's really important for us, even the profession to be vulnerable about the need for mental health services.

So the telltale signs are when financial planning software says 100% “probability of success”, even with conservative assumptions. But yet, pre-retirees, they don't want to believe it. They're like, there's no way that's true. There's no way that I can retire. There must be something wrong with the software.

And not only that, a telltale sign is with confirmation bias. Pre-retirees, they're often seeking out fear-driven financial and political media. I'm sure we all know that person who, you know, they're on the fence of retiring or not, and they're spending all their time watching investment news, reading every article they can about, “this is how much you need to retire.”

So if you see yourself going down a rabbit hole, almost having confirmation bias of trying to find something that supports your fear of not retiring, if you're reading articles about how you need $4 million to retire no matter who you are, that's a telltale sign you’re not just going too deep, but you're also, you're probably ready to retire.

Cody Garrett: And lastly, take away the numbers for a minute. So, talk about and visualize your family's ideal life together. And then only then should you explore how your current and future financial situation can support that mutual vision.

You talk about your spouse. This conversation usually goes sideways when one spouse wants the other spouse to be on their page, not on the same page. So, I hear all the time people say, "hey, like, how can I get my spouse on the same page in terms of being on a path to early retirement?" When you say same page, what you're really saying is, how can I get them on my page?

And it really takes stepping back and understanding that they have a vision of their ideal life as well. So let them create a vision for their ideal life. Only then plug in the money, plug in all the ideas you have about how to get on the path to early retirement, and it'll help.

And by the way, "listen, don't talk" is the best advice I can give when trying to get a spouse on the same page.

Jon Luskin: Great advice, Cody. Well, I can't say that my wife and I did early retirement. We did do a sabbatical, a gap year. We took roughly a year off to do some traveling, and that just started with us having a conversation about it. Making a couple dates to talk about what that would look like. So just talking about it. That was the first step.

Cody, thank you so much for joining us today. Any final thoughts before I let you go?

Cody Garrett: I've got to say, I actually have a trademark this phrase. It's "keep finance personal." We're all personal finance nerds. We're all listening to all the podcasts, we're reading all the articles about “personal finance.”

But keep finance personal. What this means is when you think about the advice somebody else is giving you, even the stuff I said today. I do not understand your personal situation. Most people giving you advice are only giving advice based on their circumstance and how they think about things and their biases.

So when you're making financial decisions, when you're gaining financial education, keep finance personal. Always think about whose financial plan is this? Is this the financial plan of the person writing the article? Really think anytime I consume financial information, how does this actually apply to me?

A good example of this. So, Jon, you live in California, right?

Jon Luskin: Yep. San Diego.

Cody Garrett: So, if I ask you, Jon, hey, where should I go to lunch today? You might say, "oh, you should go to In-N-Out Burger," and I would be like, well, I don't have In-N-Out Burger where I live. You gave me advice on where to go to lunch based on where you could go to lunch, not based on where I could go to lunch. So, keep in mind that when people are giving you financial advice, they're saying what they would do, not what you should do based on your own.

There's two parts to this. Your comprehensive financial ecosystem and your unique values and desired outcomes as a family. Recognize, understand the numbers, understand your values and desired outcomes before you start asking other people for advice.

Jon Luskin: Wonderful. Thank you, Cody. Cody, I'm super excited to meet you at the Bogleheads Conference this year. Folks will get to meet Cody and all sorts of amazing guests. We're going to have this year at the 2023 conference. It's going to be in Maryland, October 13th through the 15th. Boglecenter.net/2023conference. We've got around 60 spots left to register as of this recording. So, make sure to grab your spot before we are full up. Cody, thank you so much for joining us.

Cody Garrett: Absolutely. Anytime.

Jon Luskin: And that wraps up our interview with Cody Garrett.

And depending upon how long it takes for the last few spots of the conference to fill up, you might still have a chance to register for the 2023 Bogleheads Conference. Go to boglecenter.net/2023conference for more information.

I'll be back next month, returning as guest host for the Bogleheads on Investing podcast. It'll be my final month covering for Rick Ferri before I return to our live Twitter series for the Bogleheads.

Until next month, you can check out a wealth of information for do-it-yourself investors at the John C. Bogle Center for Financial Literacy at boglecenter.net. And check out bogleheads.org. Bogleheads Twitter, Bogleheads Wiki, the Bogleheads YouTube channel, Bogleheads Facebook, Bogleheads Reddit, the John C. Bogle Center for Financial Literacy on LinkedIn, and local and virtual chapters.

And a thank you to all the folks who helped make this possible, including Nathan Garza, our podcast editor, and Jeremy Zuke our podcast transcriber. I could not do it without their help.

And finally, this is my plea. We had over 20,000 downloads per episode over the last few months. If we could just get some of those folks to leave a review, subscribe, and to rate the show, that'll help more folks find this resource for do-it-yourself investors.

Thank you again for checking out this episode of the Bogleheads on Investing podcast. Until next month for our next show, have a great one. 

About the author 

Jon Luskin

Board member of the John C. Bogle Center for Financial Literacy


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