Q&A: She Has $884K Saved — So Why Can't She Retire?

24:09Paula Pant:That's not generally this community. That's going to be some people that finally found us. We're glad you're here. And you know what? It's easier to get on track than most people think, which is really exciting when you hear these success stories. but for most of our community, I think we hyper-focus on the long-term things and optimizing and then this, oh my goodness, all of a sudden this thing came out of the blue and I don't have money in the right place. What do I do? We want to make sure that we're looking at all of the goals, not just hyper-focused on the thing that's in our brain. So I take this, we have to give her a name.

24:48I can't just keep saying this wonderful woman. I have an idea. Yeah. I don't know if you know this Paula, but there is a soccer tournament going on right now. Oh, I I've heard there's a globe and a drinking vessel. That's right.

25:05Paula Pant:Yes. A big drinking vessel. Holy cow. Yes. I believe it's called the world cup. And the stories I, I hear about the world cup are so wonderful. And of course, this is the men's world cup, but I'll get, we'll, we'll bridge that gap in a minute, but I love like the stories of the Japan team. Have you seen the Japan fans with the big blue, they get these big blue things that they beat during the game. They fill them full of air and they beat them during the game and they look like big plastic blue bags. Uh, no, but Ikea has some big plastic blue bags. They do. Yeah. That's what I imagined. Well, let me tell you what I'm imagining them with the Ikea bags.

25:45They shake them and they beat on them. You can go look up on YouTube or TikTok or wherever, Instagram, look up these videos of the Japanese fans.

25:54Paula Pant:And I love the different ways that different fans celebrate their teams, but not only do they use them to cheer. And so the whole Japanese section is all this blue, the sea of blue. Afterwards, they turn them over and they are trash bags and they pick up their section. Oh, wow. Isn't that cool? Oh, that is cool. Wow. That's so community responsible. It is so awesome. And the Scottish fans do two other cool community things that we've heard about. The Scottish fans, number one, the rumor is that they drank so much beer in Boston that Sam Adams had to get more. So I want to party with the Scottish fans.

26:35Paula Pant:But number two is they also clean up after themselves, which is really, really cool. So, you know, we have a big party at the end of the party. We make sure everything goes back where it is. Just some neat traditions. I saw a bunch of Norwegian fans. Norway hasn't been to the World Cup in a long time. A bunch of Norway fans going up an escalator. They all have those famous Viking horn helmets on, and they're sitting on the escalator all rowing as they're going up the escalator. Oh, that's great. Yeah. Yeah. So just looking at all these traditions around the world, I thought who is maybe one of the top soccer stars of all time?

27:14Paula Pant:And it's got to be this wonderful woman, Mia Hamm. It's got to be Mia Hamm. Oh, yeah. Yeah. So American soccer star, Mia Hamm. So we should call her Mia. Mia. Okay. In honor of the World Cup, Mia. Anonymous, your name is Mia. So we draw a line. So we draw a timeline. All right. And again, you can download all of this. We're going to have it all mapped out at affordanything.com slash cornerstone. And we'll also have a synopsis of everything that we talked about there. So you'll remember what goes in what quadrant, how to think about all of that. We'll have the double line between the top, which represents the goals we live by, and the bottom, which represents what we grow by.

27:55Paula Pant:On the timeline. And by the way, the timeline is the part of my book where we take a part of the Afford Anything podcast. And it's actually in my book. Yeah. Because we illustrated timelining before here. In timelining, we draw Mia as a stick person on the left. And then we draw a line. And that line represents the timeline of her life. And then we start setting out these goals. So the first goal, we're going to put a big half moon somewhere around age 60. It is this big bag of money she's going to need to get her from 60 through the rest of her life. And this is financial independence. And one of her questions is, I want to retire early.

28:38Paula Pant:I don't know when I can. I would put it around 60 to start with just to see, you know, you put it 55. I don't care where you put it. Just put it 55, 60, 62, wherever. Then inside of this ball, you put a question mark, unless you already know how much money it is. Because my first question when I was a financial planner was, okay, Mia, your goal is early retirement. Let's say you retire at 60, question mark. How much money do we need in this ball? You've got all these assets. How much money would you need? And Paula, you already know what the answer was 99 % of the time. Well, if her expenses are around$100 ,000 a year, then she would need about$2.5 million.

29:16You overestimate the average person. 99 % of the time, the answer was, I have no idea. And actually, Mia needs less than that because she has a pension. That's right. She has a pension. Yes. And she also has Social Security. We don't know how much, but she will have some social security. Yeah. So the question is, we've got to figure that out. If we just set a year, so Mia and you and I would agree on a year to start with, just

29:42Paula Pant:to put a point down, if I'm going to get minimum viable retirement, what age do we want to start at and how much money we're going to spend per year? And then we need to know what that number is. A lot of calculators to do that. you can either be back of the envelope to start off with, or you can get really granular with a great calculator or with a financial planner. But we need to know that number. And then we've got these short-term things. You have the house fund, the repairs. What repairs is she talking about? What maintenance? What years does she want to do those? And how much are the individual repairs?

30:19Again, we plot that on the timeline. I want to redo all my windows in the house. It's going to be$15 ,000. It's going to be two years from now. Boom. I've got this ball of money,$15 ,000. I've got care of my mom. What does care of mom look like financially? That's going to obviously last a good amount of time. I actually put a second little arc line below the timeline for this, where I know something's ongoing, an ongoing expense. And so you're recreating mom's reasonable timeline where you're helping mom from now until the end of her lifetime. So help out mom, ongoing expense during this timeframe.

31:06Because now you can already see, now we have helping mom and we have house repairs in different buckets on the same piece of the timeline together. These goals are going to create friction against each other because you're going to want to make sure you have money for both to help out on both sides. You have the surgery, which is, sounds like it's right now. It's happening very soon. Surgery date, any amount of money that you're going to need for ongoing expenses over and above the 0 % surgery payback. Is there any other expenses, if there are, that goes on the timeline? I would then continue to quiz Mia about other things coming up.

31:49Oh, when I retire, I want to take a trip around the world. that very specific amount of money that she has. People say, I want to buy an RV. I want to buy that rental piece of property. Whatever it is, you put a ball on the timeline. So we're going to fill up as many of the knowns as possible. And by the way, at this point, Paula, be happy to dream.

32:10Paula Pant:Can I do something else? And Mia has a dream, right? How early can I make that? I started her at 60. Can we move that up? And if we do move it up, what does that take? So now I have these two things. I can look at the goals against each other, which I love because then it becomes a cage match. It becomes this really cool goal friction against each other. And then we have these valuable conversations about if I can't have them all, what comes before what, which is really a great conversation. This isn't about money. The Afford Anything show is not about money. It's about what do I value and getting, what do I really, really want to afford and what am I going to let go?

32:56Paula Pant:And the timeline is your vehicle that does that. And to make sure it's not a mess, you've got the four cornerstones to help you just keep it all separate in your brain. And then I can begin applying these four cornerstones into the timeline. And now with these two things working together. Now we're actually ready, Paula, to start answering Mia's questions. Well, let's take a moment to hear from the sponsors who allow us to do the initial setup work so that we can answer Mia's question. If you felt stuck trying to lose weight, you're not alone. Enter Weight Loss by HERS. It's designed to help support you in reaching your goals.

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36:36Welcome back. All right, so we've drawn the four cornerstones. We've created a timeline. You followed along, affordanything.com slash cornerstone. Now it's time to answer Mia's question. So let's go back and begin parsing out then, Paula, her initial questions. My questions are, do I consider investing more in my taxable and tax exempt accounts? If yes, what is the best ways to determine how much to invest in these accounts? So question number one is, do I put more in my taxable and tax exempt accounts? In order to build out that tax triangle? Yes, because she has 744 ,000 in the tax deferred accounts and only 68 ,000 in tax exempt and only 50 ,000 in taxable.

37:19The thing that I like about the tax exempt accounts, let's start there. The thing that I like about that, Paula, two things. Number one, she's talking about how on the tax exempt front, if she takes time off work, my first question would be, does that mean she's not getting paid during that time? Like as she's recovering from surgery? Yeah. If she's getting money from a disability, as an example, if she gets disability payments, or maybe she's not being paid at all. If she's not, then her income's going to be lower. We don't need the pre-tax burden in the hand right now as much. Burden in the hand, meaning she gets a tax break immediately.

37:56It makes it even easier to put money into the tax-exempt side anyway, because there's going to be less of a tax burden. I would like it from that standpoint as well, not just from the tax triangle standpoint, but the second thing I like, which I think I like even better, is the fact that she's either going to have to wait till 55 or 59 and a half to get at her pre-tax money. And that tax exempt money, the money she puts in initially, the contribution she could take out whenever she wants.

38:31Paula Pant:So she gets more flexibility toward her FIRE goal, as she put it, her retire early goal. So if she is able to retire early, it'll also help with that, Paula. The major thing that I like about tax-exempt accounts, well, two things. One is I love the fact that all gains are tax-free. And given that she's only 50, she's very young. If we're planning on this money existing until she's in her 90s, a portion of it will, then that's 40 years of growth. And to have 40 years of tax-free growth or even 30 years, right, for the bucket of money that she's going to be spending at the age of 80, 35 years at 85, you get the picture.

39:10That is an incredible amount of growth. The contribution is going to be negligible relative to the growth that will accumulate in that account over the span of 30 to 40 years. That's one of the two reasons that I like it. The other is as she's tax planning, And we don't know over the span of the next 40 years what tax rates are going to be, where the band between different tax treatments is going to exist. We don't know in the future what's going to trigger IRMA and what's not. We don't know what's going to affect Medicare Part B and D in terms of tax issues that could impact that. Like, we don't know where those lines are going to exist over the span of the next 30 to 40 years.

39:55So having a pile of money in tax-exempt accounts gives her flexibility to tax plan as tax law changes, which it will, which it always does, as tax law changes over the span of the next three to four decades. matching on her money is automatically added as more pre-tax as well. So she's still going to be putting money in the pre-tax portion, the company will. So loading up more on the tax exempt works. Our answer, you can see already, Paula, through the work that we've done, just laying this out, the answer about the taxable brokerage question really depends on a few things. What are we talking about in terms of help with mom?

40:42Right. What about additional surgery expenses?

40:45Paula Pant:What are the housing expenses that she has? And then how is she doing overall based on what her goal would be? Is it to live a similar lifestyle as today? Is it live on less? Is it live on more? Some people feel very comfortable living on$50 ,000 a year in retirement. They don't spend a lot of money. Other people feel horrible spending$200 ,000 a year in retirement. So we don't know that. But based on what type of retirement vision she has, then she looks at that number. How is she doing now? Meaning how much, if she really is not going to be able to retire before 55 and the other goals are handled, then I think staying in tax advantage accounts makes a lot of sense.

41:36Paula Pant:if there's a real possibility that she's going to move that needle forward and have a lot of need for funds before 59 and a half, and especially if it's pre-55, then by all means, we want to use the taxable brokerage more. Right. And this is where that exercise of laying out the cornerstones and then timelining that out comes in handy because that arc, Joe, that you described, the arc that you draw at the bottom of the timeline that shows, you know, she talked about family emergency fund, right? It shows caretaking for her mom across the span of her mom's life. How much does caretaking for her mom cost?

42:18What is the dollar figure that we're going to associate with that? Is that a fixed amount or is it a dynamic amount? So for example, are there going to be certain one-time expenses that she'll need a plan for? And how long reasonably does she expect that arc to run? And I love that while we can't answer the question, you can already see how this is going to help her zero in on the answers. It helps you get very, very clear on the answers in a hurry to those questions. So use the Roth. Yes. Taxable brokerage depends on how she answers those. I agree. But definitely, definitely tax exempt. Mia, I'd like to see you significantly grow the portion of your assets that's in tax exempt accounts.

43:08Ready for her next question? All right, let's do it. What's her next question? At what point do I minimize my contribution amounts for my work for 3B? How much do I need to have in cash for my own emergency fund versus my family's? Lastly, I wanted to retire early, but considering my circumstances, that might not be possible. Overall, I want to focus on financial flexibility. I think we just answered most of those questions. However, let's dig in more. Well, in terms of reducing the amount of money that she's contributing to workplace tax deferred accounts, I would put as much as possible into tax exempt.

43:47I mean, the employer match has to go to tax deferred. That's the law. There's no choice there. Everything besides that, put it into tax exempt. Assuming that she has enough money, and this is the assumption we're making that we don't know the answer to, I really want to dig into what these housing costs are and how much money she needs to help mom. But assuming that those are under control and she has those mechanisms in place, that she may or may not be okay there. I see the amounts of money that are in place now, and they look like nice sums. Over$10 ,000 in her current emergency fund is a nice emergency fund.

44:33And then$17 ,000 in the house account is a nice amount of money. What I don't see right now, Paula, is any mechanism to replenish those. Her money's going into VTSAX, which for me is the FIRE account, right? Is the financial independence account. I think financial independence is what you're talking about, continuing to put money in tax exempt and not slowing that down, which is a question she asked, but keeping it going, but making it all tax exempt as much as possible.

45:03Paula Pant:I may move VTSAX, stop that, and have that be the money that replenishes her housing fund. VTSAX is a horrible fixing house problems in the next five years fund. The reason is it's going into the stock market, which over short periods of time is incredibly volatile. We don't want it to go there. You want it to go to that Vanguard money market plus fund. Instead of$200 going to VTSAX, I'm not sure what the number is, but we can figure it's a knowable number if we ask the question, what's the rate at which we're going to be spending down the house fund and helping them? But I may change the VTSAX over, Paula, to something more like the money market instead.

45:53Do we want to talk through her asset allocation?

45:56Paula Pant:We do, because then the next question is, are these assets the way they are in the right place based on where they're at in the timeline? Right, exactly. Because, well, I'm thinking two things. There's asset allocation and there's asset location. So what you just talked about when it comes to VTSAX and its current location, right? VTSAX is a great, great index fund. I mean, big, big portion of my net worth is in VTSAX, but for her, it's not in the right place. Yeah. When I heard going into a fund that I might spend, well, she called it her fire fund. So right now she's funding this thing that might be seven, eight, nine years out, 10 years out.

46:43So if she continues to do that, that's fine. But I didn't hear any money going in to replenish all these short-term issues that she has. And I think that's going to get rid of some of the stress between these competing goals on the short-term end. So in terms of what she told us her goals are, I think it's in the wrong place. Based on what she told us she wants to use it for, Paula, I think it's a fine place to put it. Yeah. Well, the unknowable question is when does she want to fire? And when can she realistically? And when can she realistically fire? Yeah.

47:18Paula Pant:But let's go into this because the house fund, number one, individual stocks in a fund that you're going to be spending in the next couple of years. Yep. That's a no. Bad idea. Too volatile. Absolutely too volatile. And I want to make the point, this is for the sake of everybody listening. I've been having this debate with a friend of mine recently because I have a friend who is completely financially illiterate and he recently asked me for some help. I took a look at his very meager retirement account, and it's all in individual stocks. I ordered him to sell out of everything and to put it all into index funds.

47:57He sold out of a bunch of stuff. And then, lo and behold, a week later, I go to check in on like, hey, how are you doing? What did he do? He bought the SpaceX IPO. He bought it at$170 a share,$171 a share. He sold it at like$191 a share. And he was like, look, look, I made a bunch of money. He was like, look, I made. And based on the quantities he bought, I think he made like four or five hundred dollars. He was like, I made that much money in a couple of minutes, just a couple of minutes of work. And I made all of that money. Huge risk for non life changing returns. Yeah, exactly. It's frustrating speaking with him because the idea that I cannot break him of.

48:42you know, he sees the result, the outcome. He sees that he made a few hundred dollars for a negligible amount of work in a very short time period, in a couple of days. And he's like, wow, look at how much money I made in just a few days with almost no work. And that's what he sees, right? He sees what's on the surface. oh the spacex ipo is a whole different thing there's so much fomo going on i wrote about it in my newsletter we did an episode at the end when i share what we're doing on stacking benjamins people can go listen to our whole episode where we break down the spacex ipo and how ipos work and all that stuff here's the thing about spacex ipo they raised 75 billion dollars there were 71 other

49:32Paula Pant:IPOs this year. There's been so much press around the SpaceX IPO that people may draw one or two conclusions. Either A, I feel like I missed it, so I got to get the next one. I got to get the next IPO because I missed this one. AKA all IPOs are the same. You just print money, right? The second thought is it went well. This is your friends. That one went well. So you learned the wrong lesson, which is I'm going to do the next one. That IPO raised$75 billion. Get this, there were 71 other IPOs since January 1st. Combined, they raised$35 billion. One IPO doubled the amount of the other 71 IPOs. All IPOs are not built like this.

50:23it's not the same thing. And it's going to be so easy for people to learn the wrong lesson from the SpaceX IPO. He definitely learned the wrong lesson. That's where it gets tricky because sometimes it works out, but that doesn't mean that it was a good idea. Anyway, we started talking about this because we got onto the topic of individual stocks. Yeah. And the other positions, we would want to look at where they're at along the timeline. So as an example, let's take VPU. VPU is the Vanguard Public Utilities.

50:58Paula Pant:It's the Vanguard Utilities Index. Utilities aren't known for growth. Utilities are known for paying a dividend. So what we have is a high dividend, it's throwing off dividends, which means it's also throwing off tax liabilities. And we still have some volatility. Now for a five-year goal, VPU might be great. So if she can begin allocating this fund into what buckets serving which of these house goals, then it's going to be easy. Because VPU might be great if it's five years out, Paula, but if it's a year out, again, she's got too much volatility in that spot. She has now a bunch of VTSAX. VTSAX is rotten in this account.

51:46Paula Pant:It's horrible in the lower left. It's great in the lower right when it comes to the four corners. Vanguard high dividend yield is something that sounds like something we want, Paula, but carries a lot more risk than most people think. When something pays, these are high dividend paying stocks. In some cases, maybe high dividend paying bonds. When you look at something that pays high dividend, that sounds awesome. until you start thinking about why does it pay a high dividend? It pays a high dividend either A, because it's a utility and it can't grow. Right. Or it's something risky like a high dividend payers include shipping container ships, which if you buy a container ship and something bad happens to your container ship, there it goes.

52:41If it's on the bond side, they change the name, I think, to make it more marketable.

52:47Paula Pant:This is Joe's conspiracy theory. They changed the name to make it more marketable. What used to be called junk bonds, and they now call them high yield bonds. Same thing. But the reason a bond is a junk bond is because if Paula has such bad credit, she can't get credit from anybody else. She has to offer this very high repayment. It's the same thing for any person. When they go get a loan, if they can't get a loan from anywhere else, they go down to the payday lender. and the reason they go to the payday lender is because it's the only place they can turn high yield junk bonds are not high yield because these people are givers they're high yield because they have nowhere else to turn which inherently tells you that it's has a little risk built into it and here's the thing paula those aren't specifically for the house fund that's just in the taxable brokerage and so my question is the taxable brokerage where are we putting it emergency fund in the upper left house, take care of mom stuff, or is it lower right?

53:49Paula Pant:Which quadrant is the taxable brokerage in? What are we doing with it? That will determine whether VTSAX fits. Currently, I don't think any of this fits because I think it's going to be lower left. If it turns out that it's lower right, then my question is, is inside a taxable brokerage, if it's in the lower right, why do I have these high dividend payers? Because all we're doing is throwing off taxes. I want it to grow. I want the brokerage account, but I want less tax. And I know that I've got a long enough timeframe that I'm not going to throw off those things. In the house fund, we have utilities.

54:24Paula Pant:We have the individual stocks that we mentioned earlier. And we also have a fund that has a fund manager. It's not an index. It's the Fidelity low price stock fund. It's a really good fund. It is a really, really, really good fund. Fidelity Investments has a management team that goes out and finds stocks that they consider using a lot of mathematics, why they think the stocks are underpriced. The fund gets five stars because it's a managed fund. It has a high expense ratio. It's earned its high expense ratio, I mean, 0.89. So almost 1%. But the results have been there, Paula. There have been great results.

55:07But when we talk about a house fund and I'm buying low price, can-do stocks in a fund that I might spend in the next five years, it's a great fund that I think is misappropriated. I think that part of the plan just needs to be reworked. It does. Begin with the timeline. Forget about the assets you have. Think about the bottom line, Paula, and then start building it according to the timeline. And I say that because people fall in love with what I already have. Yeah. Yeah. There is the endowment effect. We ascribe added value to things that we already own. Like my daybed, for example, this thing that I got from Wayfair, because I own it, I have a huge emotional attachment to it that goes way above and beyond its actual value.

56:03right but we do that with everything that we own we do it with shoes we do it with stocks we do it with everything this is why we like index funds because they're hard to fall in love with it's so hard to say oh my goodness that's the best index but as an example you know to an extent some people do do that with vtsax there's a little bit of a cult following around vtsax that you don't get with even VTI, which is the ETF wrapper for the same thing. I know. Try saying it's sloppy out loud like I have, and then watch the reaction people give you. What are you talking about? Yeah.

56:37Paula Pant:But as an example, I mentioned that this Fidelity low price stock fund, if me and I were sitting across the table from each other and I let her know that this is a five-star fund, Morningstar is a scale one to five stars. It's a five-star fund, well-managed fund, great management team, been a rock star for a long, long time. And then I say, we need to get rid of it. It's like, but that's a great fund. It's a fantastic. The individual stocks, Paula, are harder, right? Do you know how long I've owned General Electric? We can't get rid of General Electric. So hard. Or God forbid, it's like NVIDIA.

57:15Paula Pant:You know what that stock has done? how can I sell it? Yeah, I'm with you. I think we just reworked this from the bottom up, beginning with the timeline. Right. And that was why we started this exercise by mapping out the four corners and the timeline, because everything flows from that. I have one last piece on my end before we say goodbye to Mia, which is the question that I would get when I'd walk through the strategy with clients that were in Mia's situation. Because sometimes we would add risk to a portfolio. We would add in risk. We talked about unintended consequences, Paula. People would tell me, I'm afraid of the stock market.

58:01That's why I keep all my money, my 401k in cash. The unintended consequence is I'm very safely

58:09Paula Pant:never going to reach any of my goals. Inflation is going to eat my money alive, all these unintended consequences. So in this community, we can see that. We get that, right? Unintended consequence for a lot of people that are doing a lot of the tax work. I mean, Mia, to some extent, already has tax diversification. She already has a great start there. She has great emergency funds. She has a good to great savings habit. She has the pension, which is fantastic. So she's got all these things going on. The question Mia may wonder, which is why at this point in the discussion, I take on the role of Sun Tzu from the Art of War, that the best battle is the one we don't fight.

58:56Paula Pant:And I'm going to tell her what the battle, I'm going to anticipate the battle. Mia, if you do what we're telling you to do, will you make more money? The answer is no, you won't. We're actually telling you that based on the number of short-term things, it looks like you'll probably want to de-risk your portfolio, which means we're getting rid of some of the upside. So if the market goes up, you won't go up as quickly. What we're doing though is we're also getting rid of the volatility on the other side. With your short-term goals being the way that they are, we're going to make sure that you have money in the place where you need it when you need it, which I think is far more important.

59:42Now, knowing that, this is the cool

59:45Paula Pant:thing, knowing that we're not going to make as much money, but we're going to get rid of some of the risk. You know what we can do now in that lower right quadrant, Paula? What's that? She didn't get into the asset allocation in her long-term goals. We can now notch that up. We can actually take more risk there because we're confident that the short-term stuff's covered. Now we can press on the gas in the lower right quadrant because I'm not as worried about these short-term goals like I was in the past. Right. That makes sense. And in fact, many people often ask, they look at lower returns in the short-term bucket and then they'll say, hey, wait a second, why am I getting these lower returns when they're zeroed on the short-term bucket?

1:00:30Why am I accepting these lower returns if I could be making more money elsewhere? But sometimes by virtue of having lower returns in that short-term bucket, you set yourself up to be able to be aggressive in the long-term bucket. And if you're aggressive and as we talked about earlier, it's in a tax exempt account, it's in Roth accounts. Cool. Bam. Now you are aggressively going after high growth in a bucket where all of that growth is tax exempt, tax free. It's a beautiful thing. One more random thing as I look over Mia's stuff one more time that I'd like to comment on. When Mia said she had an annuity, she has a 403B as well.

1:01:21So for people that don't understand the difference between a 403B and a 401K, it's just the type of entity that you work for.

1:01:27Paula Pant:but many 403Bs have annuities as the structure inside of the 403B. So I would have said the annuity is misplaced. The annuity probably is misplaced still. My question is, is the annuity inside of a 403B? Is it actually just the device of choice that the administrator uses for their 403B? So is it a 403B annuity or is it just an outside annuity? The reason I ask that is, if it's inside of a 403B, if she no longer works for the employer or she has other options that are non-annuity, she needs to look at what the cost is going to be. A lot of annuities have back-end fees to get out. What's the cost?

1:02:08And then is it worth it to get out of that annuity? Because she's probably paying fees through the nose inside of that annuity. And even if she takes a short-term hit, it's going to be easy for her to see the crossover point between the fee she pays with index funds versus the fee she's paying for the annuity. It might only take her a couple of years to get back any surrender charge she would have.

1:02:32Paula Pant:If it's on the outside, she has a bigger problem, which is if you pull money out of annuity before you're 59 and a half, then you run into some tax issues. You're going to run into some tax issues anyway, because annuities are what are called LIFO, last in first out, meaning any money the annuity has made is going to get taxed before you get to the principal that got paid in. So annuities are a tax trap. I may set up a strategy after 59 and a half to eliminate the annuity, but I might wait until then to do it if it's outside of the 403B. But either way, with that pension in place, She has lifetime income coming in that she doesn't have to worry about, Paula.

1:03:16So an annuity really can be turned into a pension. She already has a pension. So that leg of the stool, so to speak, is already taken care of. So I think the annuity can safely go. Just when you do it and how to do it safely depends on whether it's 403B or not. Well, Mia, I hope that gives you a deep dive into what to do next. Thank you for providing so much detail. Best of luck with your surgery. And I hope you use the downtime to set up the structures, the systems that will allow you to glide into this early retirement. We're going to take one final break to hear from the sponsors who make the show possible.

1:04:02When we return, we're going to hear from an anonymous caller who says that their biggest financial regret is buying into an HOA. We're going to hear why right after this. Thinking about refreshing the carpet in your home? Now's the time to do it. For a limited time at the Home Depot, get 10 % off installed carpet projects on trusted brands like LifeProof, LifeProof with PetProof Technology, Home Decorators Collection, and Traffic Master. Plus, with installation starting at just 49 cents per square foot, upgrading your space is more affordable than ever at the Home Depot. Offer valid June 11th, 2026 through June 28th, 2026.

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1:05:27Welcome back. Our final call today comes from Anonymous. Hi there, Paula. Love your podcast. I was recently listening to one of your older episodes on financial mistakes. So I wanted to share a big regret financially that I have, which is that I bought into an HOA just as a means of sharing these mistakes with others so that they don't end up making the same mistake. I lived in the property for about a year and then ended up having to move, so I rented it out. At one point in time, the HOA assessed, made a special assessment of$15 ,000, no payment plan. And this was not even for an emergency. The board just decided that the siding on all the units had to be changed.

1:06:26And it had to be done all at once. We found out about the assessment sometime in the spring, and all the money was due by fall of that year. I even emailed the board asking for a payment plan and it was denied. I'm in Texas and the HOAs here are completely unregulated, as are the property management companies that the HOAs end up hiring. So just a word of warning that if you do end up buying in an HOA, down the line, there may be a hefty special assessment that comes your way. And it can knock you off your feet because one of the other homeowners had lost her job and she was SOL because she still owed that$15 ,000.

1:07:21And it's not like these properties aren't worth millions of dollars. They're somewhere in the, I would say,$200 ,000 to$300 ,000 range. So anybody who purchases in that range,$15 ,000 is a lot of money. Just a word of warning, your podcast episode brought to mind the biggest financial regret that I have. Just be wary when you buy into an HOA. And I think this is a topic that's not discussed enough in the financial world. So again, thank you for your time. Anonymous, thank you for the comment. Thank you for sharing that story. I'm sorry to hear about the stress that that caused. Oh, it's horrible.

1:08:03Yeah. And the lack of a payment plan is really bothersome. That to me, that is the, you know, special assessments happen, but the lack of a payment plan, that in particular is just incredibly insensitive. Most people don't have 15 ,000 just sitting around. We had a$15 ,000 assessment during the two years that I lived in Michigan. The road hadn't been paved in our neighborhood for 40 years. I lived there for two years and right at the end, they decided to pave it just so I could be on the hook. Yikes. It's great. But to your point, Paula, they didn't have an inside payment plan, but they did list out a bunch of resources for people to create payment plans.

1:08:50So they listed out all the options. They went through exactly why it happened. I agreed it had to happen. I just thought it was bad timing for me, but the road definitely needed to be redone. I understood ahead of time that there could be an assessment, but I felt like our HOA was far kinder and gentler than this poor woman's. Yeah. Yeah. My dad actually, he owns a condo. They also had a big special assessment, but in that particular case, they allowed a payment plan. I believe it was a monthly payment over the span of a year. So it was fairly, they gave everyone a fairly long runway. Yeah, that's great.

1:09:29What's particularly frustrating, you know, when you're a homeowner in an area that is not governed by an HOA, you sometimes get hit with these huge unexpected bills, but But you have full control, full agency, full authority to decide what's an emergency and what's not. I mean, there are certain things if a tree falls and crashes into your roof, that is an obvious emergency. But then homeowner's insurance steps in and you pay the deductible. But maybe it's a high deductible. If a tree falls into your roof, it's a true emergency. It's an act of God and you're on the hook for the deductible or for anything that insurance won't cover.

1:10:13By contrast, if there's some form of deferred maintenance, like the siding needs to be replaced or the windows need to be replaced, as a homeowner, you have the control, the authority, the agency to say, all right, I see that the siding needs to be replaced. and I'm going to do it this year or next year or in two years, right? Like I see that this has to happen, but I as the homeowner get to set that timeline. And we were just talking about timelines, right? Like timelining your goals, timelining your big ticket expenses, timelining that home maintenance as we just talked about with Mia, that's part of financial planning.

1:10:55And when you get to exercise agency over that, yes, you might still end up spending the same$15 ,000, but it feels very different because you were in the driver's seat the whole time and you get to set that timeline and plan for it. It's a very different feeling than that being imposed onto you by some outside authority. I do some questions for you, Paula, as somebody that knows far more about that than I do. My first thought is she and other people that this happened to, you're not without recourse, I feel. I mean, should she contact an attorney and maybe have a strongly written letter to her HOA?

1:11:39Because if there's an issue with, I mean, knowing what the covenants and the contract before you go into a community with an HSA, I think that's really important? HOA. Did I say HOA? You said HSA. I said HSA? Well, it's important on both fronts then. That's funny because obviously I'm at HOA, but I think it's important to know that before you go into the neighborhood, when I found out our neighborhood had an HOA, I wanted that document before I bought the house. I want to know exactly what I was getting into and how that worked. But it also seems to me that you may be able to, I don't know, is there an opportunity here?

1:12:15No, in most cases, no, there's not. Great. Because the thing is, and this is what I tell all of my students, is if you're going to buy into a building or a community that is HOA governed, you have to carefully read all of the documents and understand what the risks are. And actually, AI can really help with this because AI can read a lot of the fine print and can help highlight some of those risks. You yourself should also do an old-fashioned read, but you can double-check it with AI. Well, especially if there's areas that seem very much written like an attorney and you're not sure how to parse it.

1:12:53I've done that before where I read it myself and I'm like, hey, AI, I don't know what this means. Can you spell this out for me? Right. What are the potential pitfalls of this section of the agreement? Exactly. Yeah. What are the risks? What are the unknown unknowns? If that's the agreement, then that's the agreement. You know, the law is contract enforcement. Okay, next question. It seems to me, we hear these horror stories about HOAs, but at the end, an HOA is an association made up of people. And you might end up with people that are power hungry or just jerks or want to rule the neighborhood.

1:13:31But I also feel like finding a way to make a connection with people that are part of the HOA and then appeal to people's humanity? Is that worth your time? I think that's definitely worth your time. I think running for a position on the HOA, you know, running for a seat, if you want to influence the decisions that the HOA make, run for one of those seats. Not a lot of people vote. A very, very small minority of homeowners vote for their HOA members. So you just need to drum up a little bit of support and given the low voter turnout, a small amount of support can give you a seat. This reminds me of one of my favorite documentaries is called Join or Die.

1:14:22And it's about how we increasingly no longer know our neighbors and we don't participate in our local governments. And we scream at each other about what's going on in Washington. And what is happening in your backyard, you can have a much more direct effect on. And in terms of happiness, if we're solving for happiness, there have been the scientific

1:14:44Paula Pant:studies that show you are generally happier if you are involved in your local community. Right. And HOA in particular is one of those areas where you become aware of what it takes to run a community. the power washing, the landscaping, the snow removal, the variety of contractors who don't perform or who raise their prices or who go out of business or who sell to, you know, there's a lot to manage. And frankly, that's the reason a lot of people don't run for their HOA board. It is a lot of work. It's a lot of administration. It is truly the rolling up your sleeves, low glamour, high effort, day-to-day grind of running a community.

1:15:42But if you want to be influential in decisions such as, do we give our residents more advance notice prior to a special assessment? Do we offer some type of a payment plan? I mean, a payment plan, like sufficient advance notice with enough sufficient advance notice, you can set up a payment plan because you've just given them so much advance notice that you give them notice in the spring, you start accepting payments in the fall, and then you accept those payments from fall through the following spring. And then the following spring, you begin the work. Boom. There's your payment plan right there.

1:16:21Yeah. We didn't have a payment plan, but we have plenty of advance notice and resources so So the people could set up their own payment plan or they could prepay ahead of time themselves. Try to prepay. They were invited to prepay the assessment on their own accord if they wanted to. But that's what I'm saying. So a prepay mechanism. So if you give sufficient advance notice, it's a de facto payment plan. So let's say that you make the announcement in the spring, but the money isn't due until the following spring. Well, then you can just start paying early. Yeah, you can just decide to allow people to start paying in the fall.

1:16:57Yeah. And then that de facto sets up a six-month payment plan, right? Yeah. So if you give sufficient advance notice, that does the work of essentially setting up a payment plan. And you actually benefit as the HOA because you, by virtue of setting that up, collect the money early. Are HOA meetings open? They are open to homeowners. So they are not open to the general public, but they are. They're open to the members. Yeah, they're open to all of the members. Gotcha. For some people, they think, join the board, I don't even go to the meetings. Maybe it starts off with just going to the meetings.

1:17:36Yeah. I am on a board of a group that builds walking trails.

1:17:41Paula Pant:And we will just have people, Paula, that are interested in trails that just come to our meeting. Yeah. And what's cool is they end up participating in the meeting. Like they end up, we recognize them because they're sitting right in front of us and they tell us, oh, I really like that project. I want more trails over here. And when you hear this from real people, it's super. And I think in this case, maybe that would have helped the board to do something that was a little more human. Right, right. To recognize that there are going to be some homeowners who are unemployed, who've just lost their jobs, right?

1:18:16So yes, if you are a member of the HOA, if you're paying dues to the HOA, you can go to any of their open sessions. Now, they do have some closed-door sessions as well, just executive meetings, but they've got plenty of open sessions, and those are open to all members. Okay. Thank you. Should we give Anonymous a name?

1:18:38Paula Pant:Is it too late? It's never too late to give. I mean, imagine calling in and being anonymous but not receiving a name. Like, what is going on? Right? What else do we have going on? I know something else on the calendar this week, Paula. It is Meryl Streep's birthday. What? This week. Wow. Wait, you just happened to know that? I'm part of the Meryl Streep fan club, Paula. Her birthday was yesterday. Yesterday, June 22nd. All right. Well, in honor of Meryl Streep, anonymous from Texas, you will be Meryl. Big fan of the show, by the way, both Meryls, this Meryl and Meryl Streep. Well, thanks to all of you for being part of the Afford Anything community.

1:19:20If you have a question, please go to affordanything.com slash voicemail and leave your question there. That's affordanything.com slash voicemail. Again, remember you can download our four cornerstone exercise for free at affordanything.com slash cornerstone. Oh, wait, Joe, I haven't asked you what's going on in here. I'm running ahead of myself. She's getting all excited. What's going on in your world?

1:19:48Paula Pant:I think I mentioned it earlier, but yesterday we went over the SpaceX IPO. I like going through and taking that apart, mostly for the same reason we talked about it today. But if you want to know more, A, how IPOs work, B, why you shouldn't have FOMO around the SpaceX IPO. Also why major media talked about how the stock went up 20 % on day one, you did not get 20 % unless you were an insider. You didn't get 21%. How does that work? How can they say that people got 20 % and I didn't or individual investors didn't? We talk about that. We also talk about how this may be changing the game with indexes because the NASDAQ index is a lot of people know, change the rules.

1:20:34Change the rules. Fast-tracked it. 15 days. And what's cool is we have two more of these coming up. Soon we're going to have an OpenAI IPO coming and we'll also have an pair company, Claude Anthropic. Yeah, thank you.

1:20:50Paula Pant:I know the name. Yeah, so we have those coming. So it's a good primer. So that's yesterday on Stacking Benjamins. Amazing. Well, Joe, thank you for joining us. Thank you for being part of the Afforder community. Thanks for the great questions. And by the way, thanks to Meryl for us being able to talk about HOAs and being a part of your local community. And it really stinks. And I love the cautionary tale, but huge thanks to Mia for sharing so much data that we were able to dive into her question. Absolutely. And thanks to all of you for being afforders. I'm Paula Pan. I'm Joe Celcija. And we'll meet you in the next episode.