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hey everybody welcome back to another
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edition of five question Friday this is
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where I cover five of the questions I
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was asked in past live shows that I
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couldn't get to we do a live show
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generally every other Monday at 700 p.m.
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eastern time our next live show I
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believe is January 6th of can you
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believe it
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2025 uh you can sign up to my newsletter
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that's how you sign up for the the news
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letter okay so our five questions today
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we're going to start with one uh that I
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get a lot and it's basically my thoughts
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on hiring folks for financial advice the
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question was what are your thoughts on
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hiring a financial adviser how do you
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think people should choose one and
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understand the cost versus value of all
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the options out there so it's a really
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good question and uh so let me give you
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a few thoughts on it first of all as
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longtime viewers know I'm I'm generally
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opposed to uh the fee structure that a
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lot of financial advisers charge where
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they charge say 1%
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of the amount of money they manage for
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you so maybe they manage your a couple
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of IAS and a taxable account and they're
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going to charge you 1% a year based on
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the amount that they manage for you so
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for example if they manage a million
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dollar that's $10,000 a year just as an
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example hang on turn down a volume there
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we go uh I'm generally opposed to that
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we we you know it 1% may not seem like a
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lot although when you actually translate
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it into a number particularly if you've
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got a fairly healthy retirement uh
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savings it's a big number and when you
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compound the cost of that over 10 20 30
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years or longer it turns into a big pile
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of cash and uh there are plenty of
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financial advisors out there that that
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will either charge just a flat fee
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sometimes it's hourly sometimes it's a
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flat fee or they may charge a percentage
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of of assets under management but it's
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much much lower than 1% I like to see it
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at least under a half percent and there
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are advisers out there that that charge
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uh that much or or less but I would say
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that the standard is 1% or more and it's
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those kinds of Arrangements that I think
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we should avoid now here if you're going
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to hire a financial advisor I think the
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first question though is what are you
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hiring them for and they're usually sort
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of two I'll call it two general buckets
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uh one is you want some sort of
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financial plan you have a specific
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question or series of questions you know
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maybe you're retiring and you want to
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know when should you claim Social
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Security should you buy an annuity
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should you roll over your 401k to an IRA
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how should you invest it these are
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generally one-time questions maybe you
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do a review every few years but of
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course once you decide to take social
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security at a particular age well you've
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made that decision it's behind you so
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these are not the kind of things that I
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think anyone should be paying 1% a year
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to an adviser for these are the kinds of
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things that you can pay an hourly or
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perhaps a fix rate advisor to do a
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financial plan for you help you
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understand these questions maybe Roth
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conversions is another one get those
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answers maybe you need a phone call
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every couple of years if something
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changes in your financial situation but
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other than that it's it's generally just
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a sort of a one-time thing with an
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occasional followup and you shouldn't be
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paying a percentage of your wealth for
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that kind of advice it just doesn't make
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any
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sense then there's Investment Management
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this is where the 1% fees often come in
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into play
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and here it's you want someone to
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actually manage your Investments now
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there are a couple of ways to do that
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you can get advice from someone they can
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actually lay out an investment plan for
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you but you still manage it you actually
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go into your own accounts you buy and
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sell whatever ETFs for example they
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recommend but you do it yourself but you
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do it with the help of this individual
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and for those kinds of Arrangements
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again it's not a percentage of assets
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under management it's usually an hourly
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or or fixed rate of fee and I think
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those can be very beneficial if you
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actually want someone to take over your
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Investments and and do all of the work
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for you and rebalance that's when the 1%
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uh advisors come into play but even
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there you can find folks that will
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charge an hourly fee or a a fixed rate
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flat fee and I think generally those are
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just better now I'll give you some
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examples in just a minute the other
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thing I would say though and this is
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part of the decision you have to make do
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you want someone who who's just down the
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street you know you get in your car you
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drive down there you look at them face
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to face you have a
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conversation or are you okay working
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through Zoom calls over the Internet
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maybe email that's a a big decision to
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make as well obviously if you want
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someone near where you live it's going
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to limit your options it could be harder
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to find someone within you know your
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area where you live depending on you
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know are you uh somewhere out in the in
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the country with not a lot of options a
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small town or are you in a big city
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where maybe you have a lot of options
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but that could could limit your options
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but I do think it's an important
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consideration because I know a lot of
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folks want the comfort of someone they
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can meet in person you know once a year
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to talk about their finances I think
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that's certainly understandable having
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said all of that I do maintain a list
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that I really want to add to it and I've
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got several that I want to add to it of
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investment advisors you'll notice
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they're all men I am looking for women
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to add to this uh I've had a few
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recommendations but I didn't find their
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fee structures appropriate they were all
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charging 1% or more but if you know a
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flat fee or lowcost advisors that you
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would recommend please email me I'll add
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them to the list I will say a couple
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things about this list one I have no
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Financial uh connection with any of
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these individuals they're not paying me
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to be listed here I don't make any money
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uh at all of any kind no compensation
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whatsoever if you hire any of these
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individuals that's number one number two
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some of these individuals I know fairly
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well I've worked with Mark Zoro I've
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known Rick Ferry for goodness a decade
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or more see him at the boglehead
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conference I know John from the
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boglehead conference some of these
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individuals I don't know I've just gone
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to the websites I see that they're flat
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fee uh and I've added them to the list
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but the point is you need to do your own
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due diligence don't don't take these as
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recommendations from Rob Burger uh take
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these as possible considerations you
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need to do your due diligence I'll leave
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a link to this page below the video the
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other thing I would say if you're going
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for investment advice whether you're
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going to continue to manage your
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Investments on your own or turn it over
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to an individual to manage uh for you
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you want to understand their investment
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philosophy what I find is that for flat
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fee and lowcost you know maybe hourly
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advisors they tend to recommend lowcost
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index funds a simple portfolio 3 four 5
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six Investments and that's it it's
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interesting to me that when you start to
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get into paying someone 1% of your
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wealth a year that's what I start to see
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portfolios with sometimes dozens of ETFs
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expensive actively managed funds what
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looks like a really really complicated
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portfolio I think sometimes this is just
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my own view that advisers do that to try
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to justify the expense if you're they're
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charging you 1% a year but putting you
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in just three or four lowcost index uh
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funds I think clients could start to
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wonder what am I what am I getting for
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the money and uh so they often put you
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in complex portfolios I personally would
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avoid that so that's sort of a quick
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answer to that question obviously
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there's going to be a lot more that
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you'll want to consider but that's my
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sort of quick take on question number
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one hiring a financial adviser a very
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important question and um as I said if
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you have other recommendations for that
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page please send them to me I'll check
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them out and add them if if I think it
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makes sense all right question number
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two most of the reasons I hear for Roth
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conversions are related to taxes would
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there ever be any reason to do a
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conversion solely for keeping future
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medicare premiums low so that's a a a
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great question and we need to sort of
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put it into some um perspective uh when
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we're considering a Roth conversion you
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know a Roth conversion effectively
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allows you to take money out of a
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traditional let's say Ira converted to a
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Roth and you'll pay taxes in the year of
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the conversion the year of that that
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conversion happens the amount converted
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assuming it's before tax dollars will be
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treated as ordinary income in the year
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that you converted it and so you'll pay
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the taxes of course you don't have to
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convert it right you could leave it
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there and then presumably you would take
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it out in retirement or when your rmds
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required minimum distribution start you
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know some number of years into the
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future and so often we're trying to
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compare what our tax liability would be
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today if we did the conversion versus
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what we think are you know our best
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guesstimate of what the tax liability
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would be you know some number of years
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down the road when you pulled the money
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out to spend in retire or perhaps
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because of required minimum
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distributions and so as a first step
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we're often comparing our marginal tax
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bracket today with what we think our
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marginal tax bracket will be some point
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in the future now the point this this
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question though is an important one
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because really ultimately what we want
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to know is not our marginal tax bracket
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that might be a perfectly fine starting
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point but what we really want to know is
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what our total taxes are going to be if
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we convert today versus if we don't and
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take the money out at some point in the
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future some will refer to that as
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marginal tax rates and say okay well
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what's the difference between marginal
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tax bracket and marginal tax rates well
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we know what our our tax brackets are
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I'll focus on the federal taxes you of
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course you have to consider state taxes
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as well but we know the federal tax
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brackets we know what they are today we
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can just guess at what they might be you
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know whatever 10 or 15 or 20 years from
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now uh those are our tax brackets but
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depending on our income there could be
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other I'll call them taxes like in the
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question here Medicare we have the Irma
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premium so if you depending on how much
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your taxable income is you could end up
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having to pay extra for Medicare uh it
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could affect uh how much of your Social
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Security benefits are are taxed and it
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could affect other aspects of your tax
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situation so what we really want to know
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are not our tax brackets marginal tax
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brackets but our marginal tax rate and
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as you can imagine that gets complicated
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but the short answer to the viewer's
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question is yes we do want to consider
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Medicare premiums among other things and
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we want to consider them both when we're
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thinking about a Roth conversion today
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now you may be too young maybe you're
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not on Medicare maybe you're not um even
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within two years of Medicare where where
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your your income could affect uh uh Irma
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uh when you start to take Medicare um so
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maybe it's not an issue today it's only
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an issue down the road or maybe it is an
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issue during your raw of conversion but
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the point is you want to consider them
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both at the time of the conversion if
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appropriate and then when you might take
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the money out otherwise in retirement if
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you don't convert today now there are
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programs that can help you uh figure
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that out Prana is one Balin is another
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I've talked about these a lot uh on the
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show I will show you briefly balen just
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so you get a flavor for it this is a
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demo account I know we're kind of going
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into the weeds but I know this is an
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important issue so I'll show you two
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things uh quickly with uh with Balon
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again prayana does does something
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similar but Bolton has a Roth conversion
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Explorer and one of the things you can
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say is okay I want to do Roth
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conversions but I don't want my total
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income to to go up to a point where I'm
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going to have to pay extra uh premiums
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for Med Medicare and you can select
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which one you want you know you could
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say well I don't want to pay any Irma so
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I want to select this first one here no
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Irma charge or you could select one of
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these others well I'm I'm willing to pay
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$70 a month per person let's pick this
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one and uh you can run the optimization
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plan and it will show you the the
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conversions it's recommending again just
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based on keeping you within a certain
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Irma
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bracket uh it'll compare your optimized
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plan with your current plan it'll show
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you your your effective federal income
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tax rate we talked about that right tax
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liability and then your Irma fees it
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shows you you do have some Irma fees
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here and then they drop off so the idea
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is these are the fees that we sort of
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agreed to when we ran this Roth Explorer
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remember we selected one that said yeah
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we're willing to pay a little bit in
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Irma
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uh but but that of course reduces uh our
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traditional retirement accounts and so
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as as a result we can see once rmds kick
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in we're not paying uh we're not paying
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any Irma now we could of course edit
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this and we could come back here and we
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could say well let's try it with no Irma
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charge and it of course reruns the
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number and it's apparently not showing
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any Irma fees of course that's based on
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the specific uh numbers I have in this
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demo uh plan uh so you could you could
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play with that if you use Balden again
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Prana does something similar the other
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thing I would mention in Balden is they
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have under insights right let me close
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all these uh under insights go down to
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Irma it will show you your current Irma
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fees based on whatever plan uh you have
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that's your modified adjusted gross
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income it's not showing any Irma now uh
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at the moment again that's just based on
00:14:23
the data I have in this plan but if you
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were going to incur additional medicare
00:14:27
premiums they would show up here so
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there you go um I you know I do think
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with this kind of calculation it's
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helpful to either use some software
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Bowen is just one example uh or perhaps
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talk to a tax or financial uh planner
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the comp the calculations can get
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complicated I find using software like
00:14:47
bolon to be helpful all right great
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question though all right question
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number three once you start taking
00:14:54
social security do you they're asking me
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personally do I plan on increasing
00:14:59
my stock allocation am I going to change
00:15:01
my asset allocation uh once Social
00:15:04
Security kicks in and I here's basically
00:15:06
how I think about this question and it's
00:15:08
it's really broader than just Social
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Security it's how I think about asset
00:15:12
allocation in retirement and and it it's
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this for me question one is how much of
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my retirement savings do I need to pull
00:15:20
out each year during retirement now of
00:15:22
course uh as I have more uh sources of
00:15:25
other income could be Social Security
00:15:27
like the viewer was asking about could
00:15:29
be an annuity a pension could be
00:15:31
part-time income but I'm going to have
00:15:33
some amount of of of income coming in
00:15:35
outside of my retirement savings and of
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course the more income I have coming in
00:15:40
the less I'll need to pull from
00:15:42
retirement savings so but that's the
00:15:45
question how much do I need to pull from
00:15:46
retirement Savings of course once Social
00:15:48
Security starts that number is
00:15:50
presumably going to go down right and so
00:15:53
for me when I think about how much I'm
00:15:55
going to pull from retirement savings if
00:15:58
I'm somewhere around I'll just generally
00:16:00
say 4 to 5% you've probably heard of the
00:16:02
4% rule uh popularized by Bill bingan in
00:16:05
the 1994 paper uh I've talked a lot
00:16:08
about that in other videos but if I'm
00:16:10
somewhere around four to
00:16:12
5% uh in withdrawals I'm going to want
00:16:15
my asset allocation to be somewhere
00:16:16
between 50 and
00:16:18
75% in equities in stock now uh is that
00:16:22
a guarantee that my money will last at
00:16:23
least 30 years as Bill ban concluded in
00:16:26
his 1994 paper no it's not uh what he
00:16:29
found is historically it would last at
00:16:31
least 30 years with an asset allocation
00:16:33
somewhere between 50 and 75% in stocks
00:16:36
there's obviously no guarantees uh for
00:16:38
the future but I think it's
00:16:40
as as reasonable uh a result as we can
00:16:44
we can sort of arrive at given what we
00:16:46
know in my case I prefer to get as close
00:16:49
to the 75% in equities as as as I'm
00:16:52
comfortable which is basically where I
00:16:54
am right now with our asset allocation
00:16:55
now to the viewer's question once Social
00:16:58
Security kicks in uh will I change it
00:17:01
well in our case it depends on just how
00:17:04
much Social Security will matter so for
00:17:08
example if let's just imagine you're at
00:17:09
4.2 uh% taken out of your retirement
00:17:12
account and it's going to drop you to
00:17:14
3.9 I'm just making up numbers it
00:17:17
probably wouldn't change a lot but but
00:17:20
let's say social security was going to
00:17:21
be a significant part of your retirement
00:17:23
income and it took you from again I'm
00:17:25
just making up numbers 4% to 2% well
00:17:28
well then that gives you a lot of I
00:17:30
think um options with your your
00:17:33
retirement portfolio because you're only
00:17:35
withdrawing
00:17:36
2% I think it it's probably safer if you
00:17:40
wanted to increase your your stock
00:17:42
allocation the idea I think there would
00:17:44
be look I'm spending a relatively small
00:17:46
percentage I'm assuming we're retiring
00:17:48
at traditional ages let's say in our 60s
00:17:50
maybe you start taking social security
00:17:52
at 70 as an example uh I'm not spending
00:17:55
a lot of our retirement portfolio which
00:17:58
means I'm really leaving it for
00:18:00
Charities or loved ones when I die and I
00:18:02
want it to grow I'm not needing much of
00:18:04
it uh each year in retirement so I might
00:18:07
be more comfortable perhaps even going
00:18:09
above the 75% stock allocation in that
00:18:13
situation yeah Social Security or other
00:18:15
forms of income that might start at some
00:18:17
point in retirement might indeed change
00:18:19
my asset allocation a bit uh but if if
00:18:23
it didn't make a big change in how much
00:18:25
I was spending out of our retirement
00:18:26
accounts then it wouldn't that's at
00:18:28
least how I think about it all right
00:18:30
great question all right that was
00:18:32
question three I think question four uh
00:18:36
how do you this comes from VJ he's from
00:18:37
Michigan I like VJ we actually got to
00:18:40
meet once in the real world okay how do
00:18:43
you uh and your spouse invest in 401K
00:18:46
Ira Roth taxable accounts if you have
00:18:49
variable or unpredictable income each
00:18:52
year that's a great question and I know
00:18:54
you know we often get that question not
00:18:55
only in terms of how do you invest but
00:18:57
how do you budget uh when you don't know
00:18:59
your income uh from month to month right
00:19:01
now my wife and I our income is variable
00:19:04
uh year to year because it comes from
00:19:06
things like this YouTube channel so yeah
00:19:07
it absolutely varies from month to month
00:19:10
uh and from year to year and here's the
00:19:12
way I think about it the the issue in
00:19:14
terms of how you invest when your income
00:19:16
is variable is that from one year to the
00:19:18
next you don't know how much you're
00:19:20
going to need to draw from your
00:19:22
Investments uh now you may have some
00:19:25
rough idea it may be a range maybe some
00:19:28
of your you don't need to draw from it
00:19:29
at all you've got a side income uh in
00:19:31
retirement maybe a a part-time job or
00:19:34
side hustle plus Social Security and a
00:19:36
pension and maybe some years you don't
00:19:38
need to take anything out but other
00:19:39
years maybe you do or if you haven't
00:19:41
retired yet uh you know you you may need
00:19:44
to pull out some money you'd saved
00:19:46
previously just to cover your expenses
00:19:47
because maybe your income is at down one
00:19:50
year as compared to the previous year
00:19:51
and so the way I think about this is
00:19:53
simply I manage it through an emergency
00:19:56
fund I think the more variable my income
00:19:59
is the bigger an emergency fund I'm
00:20:01
going to want to have saved typically
00:20:04
for me right now in t- bills uh and uh
00:20:07
you know they're they're fairly tax
00:20:09
efficient you don't pay state and local
00:20:10
income tax on on on the interest uh
00:20:13
they're highly they're about a secure
00:20:15
investment as we're going to get in this
00:20:16
life uh and uh the yields are are are
00:20:19
reasonably good certainly comparable to
00:20:21
say a savings account or short-term
00:20:23
certificate of deposit or maybe a money
00:20:26
market I think money market funds uh
00:20:28
could be a good option
00:20:29
uh as well but the more variable my
00:20:31
income the more I'm going to want to
00:20:33
save in an emergency fund and I think
00:20:35
the amount just depends on just how
00:20:37
variable your income can be from year to
00:20:40
year maybe it just fluctuates 10 or 20%
00:20:42
but maybe it fluctuates 50 or 75% you're
00:20:45
going to need a bigger emergency fund in
00:20:47
our case I'm just comfortable having one
00:20:49
year's uh worth of expenses and that
00:20:52
gives me plenty of time to prepare if
00:20:54
the income should should should fall uh
00:20:57
below you know what I expected or maybe
00:20:59
one year it goes up and I you know
00:21:00
either way I that's just sort of my
00:21:02
comfort level what will be comfortable
00:21:04
for you of course will no doubt VAR but
00:21:07
one year I think it it will give me
00:21:10
enough time to adapt uh to any changes
00:21:13
that I see in our income and once I have
00:21:16
that then I can go ahead and invest my
00:21:19
accounts in my asset allocation plan
00:21:21
without too much concern in our case
00:21:24
it's roughly 75% stocks 25% bonds and I
00:21:27
take some comfort that 25% bonds as well
00:21:30
because that's fixed income It's
00:21:32
relatively uh safe uh and generally not
00:21:35
particularly volatile and I know that I
00:21:36
could draw on that as well uh if I had
00:21:39
to so VJ that's at least how I think
00:21:41
about that question all right our last
00:21:44
question this is an easy one they want
00:21:46
to know if I plan to rebalance our
00:21:49
portfolio by selling us uh equities and
00:21:53
buying International uh stocks why
00:21:56
because US Stocks far outper formed uh
00:21:59
International stocks and I can actually
00:22:01
show you this real quick we'll take a
00:22:03
quick look here so this is let's see
00:22:08
here I'm just showing you the
00:22:11
um Apple stock app and everything's down
00:22:15
today boy this is ugly anyway uh if we
00:22:18
look at the S&P 500 year to date you
00:22:21
probably can't read that but it's around
00:22:22
25 to 26% that's US Stocks that's what
00:22:25
they're up uh we can look at vti which
00:22:28
is is the uh total Market it's up uh
00:22:31
24.5% year to date so that's you know US
00:22:34
Stocks we'll just call it 25% vxus which
00:22:37
is a total International stock fund
00:22:39
listen to this this is ugly
00:22:42
3.66% wow uh yeah 3.66% so the short
00:22:46
answer to your question is uh yes not
00:22:48
only am I going to uh effectively sell
00:22:51
us equities to rebounds I already did I
00:22:54
did it a few weeks ago when I was
00:22:56
simplifying our investments inside of
00:22:58
our traditional retirement accounts uh I
00:23:01
saw that US Stocks had grown relative to
00:23:04
my plan and so I did and this is the
00:23:06
thing to understand about being
00:23:08
Diversified uh whenever you have a
00:23:10
diversified portfolio there will always
00:23:13
always always be some asset class that's
00:23:16
underperforming some other asset class
00:23:19
in your portfolio that's just what it
00:23:21
that's just the sort of the bargain it's
00:23:23
it's what we accept when we when we
00:23:25
diversify and I think what a lot of
00:23:27
folks do particular particularly when an
00:23:29
asset class underperforms like
00:23:31
International stocks have for a number
00:23:33
of years in a a row they grow weary of
00:23:35
that they just get tired of seeing that
00:23:37
underperformance and they see other
00:23:39
people on whatever X or Reddit or you
00:23:42
know Facebook talking about how their US
00:23:44
Stocks or their Bitcoin or their tech
00:23:47
stocks are on fire and how much money
00:23:49
they're making and I think it can cause
00:23:51
us to sort of really say yeah I'm not
00:23:53
sure about Rob and his International
00:23:55
stocks this isn't making much sense to
00:23:56
me but when you take a much bigger view
00:23:59
of of of the history of stock markets
00:24:03
asset classes investing generally what
00:24:06
you realize is all of these things go in
00:24:09
cycles and yes International stocks have
00:24:11
underperformed US stocks for uh I guess
00:24:14
13 14 years now the first decade of this
00:24:17
Century International stocks outperform
00:24:19
but since you know the Great Recession
00:24:21
and a few years after that US Stocks
00:24:23
have have have beat them by quite a lot
00:24:26
but I know I believe that that's not
00:24:28
going to last forever and I'd just
00:24:29
assume be Diversified recognizing that
00:24:32
yes for some periods of time my
00:24:34
International stocks like like this year
00:24:37
don't look so good I'm I'm willing to
00:24:39
pay that price for the benefits of
00:24:42
diversification uh I would just say for
00:24:45
those that are just no I like US stocks
00:24:47
and you maybe invest in I don't know the
00:24:49
S&P 500 I would say well if you're going
00:24:52
to make an investment based just on
00:24:54
what's outperformed on the last whatever
00:24:57
decade or so why do you own the S&P 500
00:24:59
it clearly hasn't outperformed why not
00:25:01
go with QQQ or some tech stock or for
00:25:04
that matter Bitcoin I mean uh it's some
00:25:06
point we have to ask ourselves how far
00:25:10
uh how much diversification are we
00:25:12
willing to get rid of to focus our
00:25:15
portfolio on a specific asset class
00:25:18
because it's done well over whatever the
00:25:20
last decade how much risk are we re
00:25:22
really willing to take because you can
00:25:25
always just keep going don't stop at the
00:25:26
total US market go to the S&P 500 don't
00:25:29
stop at the S&P 500 go to Just Tech high
00:25:32
growth stocks right don't don't stop
00:25:34
there just go to the Magnificent 7 I
00:25:36
mean we could keep going and each step
00:25:39
we would look back over the last 10
00:25:40
years or so and see more and more higher
00:25:42
returns but of course each step we take
00:25:45
we're we're we're shedding some
00:25:47
diversification and I think setting up
00:25:49
our portfolio for pretty significant
00:25:52
loss at some point in the future now
00:25:55
some could say maybe I'm not Diversified
00:25:57
enough maybe I need to have even more
00:25:59
International stocks I guess at the end
00:26:01
of the day we have to kind of arrive at
00:26:02
a place where we're comfortable in my
00:26:04
view that that that point should be
00:26:06
where you're comfortable staying for
00:26:08
decades that's at least what I try to
00:26:10
accomplish with our portfolio well there
00:26:13
you go some great questions uh this week
00:26:16
and uh I hope you have a great week
00:26:18
there will again there will be another
00:26:19
live show January 6 and there should be
00:26:21
another five question Friday a week from
00:26:24
today hope you have a great week and
00:26:26
until then remember the best thing can
00:26:28
buy is Financial Freedom
