Q&A: Retirement Investing for Entrepreneurs, Medical School Debt, & Our Favorite Books and Podcasts

0:00Hey everyone and welcome back to the Rich Habits Podcast question and answer edition brought to you by public.com. And first and foremost, we are wishing you a very Merry Christmas, a happy holiday, a whatever you and your family and friends are celebrating and gathering together for. Whatever that reason might be, we hope it is awesome, cheerful, joyful, peaceful, full of health and wealth and every other cool adjective and adverb out there that describes an incredible time at this time of year. 100%. It's been an incredible year for everyone here in the Rich Habits Network and the Rich Habits Podcast.

0:36And we are sharing that cheer and joy and everything with all of you for the rest of the year and into 2026. So we're just wishing you a very warm, wonderful day. You guys are the best and we're super, super grateful. Now, as you all might remember, these Thursday episodes are very much focused on answering your questions directly. If you have a question for us, you can email us at richhabitspodcast at gmail.com or you can DM us on Instagram at richhabitspodcast. We have a ton of questions for you today. We think they're pretty good, if we should say so ourselves. But before we jump into the actual questions, got to give a shout out to Public, the investing platform for those who take it seriously.

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2:00So go to public.com forward slash rich habits and earn an uncapped 1 % bonus when you transfer your portfolio. Again, that is public.com slash rich habits. Paid for by public investing. Full disclosure in the podcast description. And Robert and I pulled together some fun generated asset strategies here. And they are all completely unlocked and offered to everyone inside of the Rich Habits Network. So if you join the Rich Habits Network or you're already in the Rich Habits Network and you've not yet seen some of our generated asset strategies specifically built for our rich habits network go give that a try there's 13 of them in there and the best performing one i'm looking at it right now robert when you back test it over the last 10 years with the s &p 500 is founder-led ownership champions which might be skewed with nvidia and meta but one that actually surprised me was r &d heavy investors defined as companies spending more than 15 of their market cap on research and development.

2:56Very interesting strategy on that one. A little freebie for y 'all here listening. Yes, all of these strategies from public are in the Rich Habits Network. So if you want to treat yourself on this holiday, check out the seven-day free trial in the show notes below. Now let's jump into our first question. So our first question comes from EC. EC says, hi, Austin and Robert. Your podcast is awesome. My name is EC. We're a couple of 49 and 46-year-olds with two kids, seven and five. We started our more stable professional life and family in our mid to late 30s. I work in high tech with a yearly salary of$210 ,000.

3:33I have$160 ,000 in cash,$50 ,000 in stocks. My wife is a college professor making$75 ,000 a year. And between our Roth IRAs and traditional 401ks, we have$650 ,000 invested. I also have a brokerage account containing $125 ,000 invested mostly in the stock of the company I work for. And of course, we're doing some 529 action for our kids. We still owe$400 ,000 on our mortgage at a 2.6 % interest rate. We have seven years left of payments over there. But besides that, no other debt. The house is worth$900 ,000. So my main question for you all is what can we do in order to maximize our financial stability as we work toward an early retirement.

4:16Considering that the tech industry is very volatile, should we keep investing into our retirement funds, including our backdoor Roth IRAs, knowing that we can't access this money until 59 and a half? Do we maybe do some real estate investing? We live in the state of Washington. Real estate is very expensive here. I'm just not too sure what to focus on, knowing that we're optimizing for financial stability. What a really good question from EC and congrats EC on being a wonderful earner. You and your wife together here making almost$300 ,000 a year. That is absolutely incredible. A couple of kids, you're doing the 529.

4:53You all are definitely trending in the right direction. So Robert, let's talk about maximizing financial stability because financial stability is very different than financial outcome or financial growth or financial wealth, right? It's stability. So I'll let you kick this one off. Yeah, I think the key word here is stability. And I really like it because obviously EC and company, they're crushing it. They've done a really good job and they've laid the groundwork. They have the 529, they have the 401ks, they have all of this stuff rocking and rolling. But when it comes to stability, I think you want to have further diversification, but again, not so risk on with all of the big tech and all of these things that do have a lot of volatility.

5:34So I like where your head's at. I do like the idea of adding some real estate. It could be through REITs. It could be through Fundrise, someone like that. We do a lot of work with them, but I think it is good to consider more diversification in case we do go into a bear market for 18 months or something like that to where you have more stability, but don't go so diversified that you get yourself in harm's way and lose that comfort that you've already built for the future because you guys have a long investing window ahead to continue to grow your wealth while still being stability in it. So I like real estate.

6:10I like precious metals, some of these other things without being so risk on in big tech. I love where you're going. I think that's a good start for sure. Tactically speaking, a couple of ways to create some financial stability EC in your situation. You mentioned you have a brokerage account with $125 ,000 invested in the stock of the company you work for. If I were you, I would consider cashing out the majority of that and reallocating that to just general index funds and ETFs or maybe something even more of a low volatility like a real estate, like a precious metals, something of that nature.

6:46I think having so much of your money tied up in one single stock is not financially stable. That is financially unstable, right? That's very aggressive. So clarification here. Actually, I read this wrong and I just realized it. In the email, you said I work in high tech with a yearly salary of$210 ,000. That's total compensation of$210 ,000. You actually make$160 ,000 in cash and$50 ,000 in company stock. So I messed that up. Sorry. You don't have$160 ,000 in cash just sitting in a high yield savings. You get that as a salary. Okay, so between you and your wife, you're actually making closer to$230 ,000,$240 ,000 a year, not the closer to$300 ,000 like I thought.

7:22So my bad. All that to say, though, I would make sure that you've got four, five, six months of your expenses in a high-yield savings account. You can open up a high-yield cash account on public.com and earn your 3.5%, 4.5%, whatever it is right now. I know the Fed's cutting rates, but get your couple percentage points regardless. The thing I wouldn't do, you know, if we're optimizing for financial stability is I wouldn't pay off this mortgage. I know some people get excited about paying off a mortgage to encourage financial stability. I get excited about that knowing that the interest rate is 5, 6, 7%.

7:56But at 2.5%, I don't think it makes any sense in the world to do that. However, maybe if you were someone that's really trying to optimize for financial stability, you can recast your mortgage. Because when you bought the house, I'm sure you probably borrowed$700 ,000,$800 ,000, I guess, maybe depending on what the house was worth at that time, maybe$500 ,000,$600 ,000,$700 ,000, something like that. But now that it's down to$400 ,000, maybe you can put a little lump sum of like$5 ,000 or$10 ,000, which would then allow you to do something called a mortgage recast. And you have to put down a lump sum, unfortunately, to recast the mortgage.

8:28So yeah, you would be paying it down a little bit. But regardless, what that would do is it allows you to reset your amortization on your new mortgage balance without refinancing. So you keep the 2.6 % interest rate. Your monthly payments might go from the$3 ,500 a month or$4 ,000 a month that was back when you borrowed the$750 ,000,$800 ,000. But now that it's half that, your monthly payment might be able to come down to$2 ,500 or$2 ,000 or something different, right? $400 ,000 at 2.5 % I'm sure is just a couple thousand dollars. So if you're really trying to optimize for financial stability, knowing that, and you called this out, tech industry is volatile, which means like, hey guys, I might lose my job.

9:07I don't know what's going to come the next year. Having that low monthly payment for your mortgage could be a really good idea. So I would consider learning more about a recast. Now, if you have an FHA, a VA loan, and I think one other type of loan, you can't recast the mortgage. At least that's my understanding. Robert, you're the mortgage guy. Yeah, I don't know which ones you can and can't recast, but I do want to click back on this because I think it's a great thing for us to touch a little bit further on. And that is so many people want to be debt free, but you have to always understand if the positive arbitrage of borrowing money is in your favor, like in this instance with a 2.6 % mortgage interest rate, I would never pay that off.

9:46I would keep it as long as humanly possible because the goal is always for you to make the most money you can with your cash, not by paying off assets that you already have a low interest rate mortgage. So I just wanted to click back on that for a second because so many people want to pay it down to get rid of it. And I understand it emotionally, but I think it's really good to keep it because it's so low interest. You see, we're rooting for you. We think you're in a really good spot here. I think we called out a couple things to do, right? Diversify away from the single stock of the company you work for, maybe consider recasting the mortgage, beef up that emergency fund.

10:21You guys are gonna be just fine. So our next question comes from John N. John says, I love your show. I'm a farm manager and recently my boss told me that I should look into starting an LLC and essentially he would pay my LLC, then I would pay myself from my LLC. He mentioned paying myself a lot of salary, then at the end of the year, I pay myself the rest in the form of dividends. He said my LLC could take up to 25 % of the money and put it into a SEP IRA. Hooray. Is this something you think would be beneficial for me? Does it really reduce taxable income? Have you heard of people doing this?

10:53Any thoughts or advice is very much appreciated. Thanks again. God bless and Merry Christmas, Jonathan. Well, Jonathan, Merry Christmas back to you because this episode is getting published on Christmas. So what a timely time to say that. Robert, why don't you walk through for John here how the S-corporation election works and how the sort of tax advantages that the S-corp with the LLC can allow John here to do in a situation? Yeah, I think this is a great question, John N., and I think your boss is right. The only thing distinction-wise that I want to make sure everyone understands is that I don't recommend someone get an LLC with an S-election if they're not making over$80 ,000 or$100 ,000 a year because it does cost more to operate an S-election and it does take more work to do your filings and everything else.

11:39Now, here is one other distinction I wanna touch on. You can open an LLC and make it an S selection later on once you start making more money, but you can't open an S Corp and then move it over to being an LLC. It just doesn't work out that way. So make sure everyone understands that as well. So for me, I think it's a great strategy. If you're making over$100 ,000 a year, there are a lot of benefits to this. And he is spot on with paying yourself first and then paying yourself the rest in dividends at the end of the year because it does get you into a better overall tax situation for your end of year tax benefits.

12:15So I definitely think that's a great strategy. If you're making$100 ,000 a year plus, I really like this. So let's keep going on that. Assuming you are making$100 ,000 and you've got this profit, right? This is 100 ,000 of profit paid to your LLC. You can put yourself on a modest, reasonable salary, which in your situation might be 40, 50,$60 ,000 a year. You know what that number is, not me. That will come with some payroll expenses like on Gusto. I mean, you are going to pay some stuff, right? So the reason why Robert said$100 ,000 is because it costs between$2 ,000 to$4 ,000 a year to operate one of these LLC S Corp elections, right?

12:54But let's walk through this even more. So right, you got the$100 ,000, you're putting yourself on this modest salary,$40 ,000,$50 ,000,$60 ,000. Let's assume$60 ,000, right? Let's say that's a good salary for a farm manager with this LLC. And the other$40 ,000 is now paid to you in those dividend distributions that you had mentioned here. So the$60 ,000, you're going to pay all your normal taxes, Medicare, Social Security, federal income tax, all that stuff is tied to the$60 ,000. but only federal income tax is tied to the 40, which means you're saving about 15.5 % in taxes on that$40 ,000, which is just over$6 ,000.

13:31Now of that$6 ,000 that you're saving, of course, you have to pay$2 ,000,$3 ,000,$4 ,000 in operating expenses, which is what Robert had alluded to with those extra costs to operate a S-corp. So you will net a couple thousand dollars more per year by running this through an S-corp. That makes sense. And then And you had mentioned the SEP IRA, which is essentially a way for like a small business owner, solopreneur to kind of invest toward their own retirement. Because I'm assuming what's happening here is your employer at this farm, it does not offer a 401k, but he's trying to help you figure out how to get money in your retirement.

14:04With that specifically, you're actually allowed to contribute up to 25 % of your compensation or up to$69 ,000, whatever is the lesser value there. So 25 % of your$60 ,000 salary is actually$15 ,000, right? This is W-2 wages only, does not include the other 40 ,000, right? And you can actually ride off that$15 ,000 contribution against your business's income. So, right, essentially you're thinking this$100 ,000, it's now 85 that you're taxed at because you contributed$15 ,000 there. And then, of course, the same distributions and all this stuff. It really makes a lot more sense when you're making hundreds of thousands, right?

14:43So for me, for example, I make a lot of money every year. I do the S Corp thing. I pay myself a wonderful salary, but then I do all these distributions. On top of that, I save tens of thousands, if not well over a hundred thousand in sort of double taxation here because of the way that I'm running it through. But at just this hundred thousand level, you got to really find and figure out what those numbers are for you. It might not be worth the squeeze. However, if you're really trying to figure out how to invest toward a retirement account because your guy's not offering you a 401k, I would consider this S Corp election with your LLC and run it through this way.

15:18So you can contribute to something of that nature. I love that breakdown, Austin. And I think it's just really important. And I do this with a lot of my employees across the country is to have a boss. It's really cool if you have a boss that is sharing these strategies that has helped him build wealth and help him be successful with his employees and people that he about. So I just wanted to kind of click back on that for a second because, you know, so many people are so concerned with their own money that they're not trying to help those that help them. And so I really enjoyed this question. Yeah.

15:49I mean, that's a great message for small business owners that are listening to this episode right now. If you have employees that are contract workers, 1099, like people of that nature that you are paying more than$100 ,000 a year, make sure that they know about the S Corp election and how they could potentially save on taxes and even turbocharge some retirement investing with this way of compensating them through an S-corp. Yeah, I remember a couple months ago when I was in Toledo, Austin, I was sitting at a lunch table with two new 1099 workers that worked in the construction company, and they were asking me about how to get started.

16:24And I literally helped them at the table, get their public.com account set up. I showed them how to buy crypto in there, get their high yield. And they were like, just so appreciative because even though they're not big earners and wouldn't qualify to do all these other strategies, it was good to see them do their first investment and get started. So our next question comes from Jay. Jay says, hi, Austin and Robert. I'm hoping to stay anonymous. So please just call me Jay. Huge fan of the show. Love listening to every episode. I'm hoping I can get some advice and I'm sorry. I'm trying to be brief, but I know it's a lot to unpack.

16:56My wife and I are 33. We're debt-free besides our mortgage. We have$65 ,000 each in our Roth IRAs, $320 ,000 combined between our two 401ks, and my wife is maxing hers out every single year. $100 ,000 is sitting in a money market for our emergency fund. This is significantly more than what we would need for a four-month emergency fund, and I realize that. And I have$425 ,000 in a bridge account in everything you guys talk about. Jay says, I'm a 20 % owner in an S-Corp, and my distribution this year was$400 ,000 free and clear of taxes. This is double than any previous distribution I have received.

17:31So last year I received a$200 ,000 distribution and we were able to take that money and invest a ton of it and it felt amazing being able to do that. So now I'm wondering what your thoughts would be on using some of this$400 ,000 distribution I got this year to pay off my mortgage where we owe$175 ,000 on it at a 3 % interest rate and then I would invest the other$225 ,000 minus funding some trips and funding a donor advised fund. I know it's a low interest debt and the$175 ,000 will return more than the 3 % being invested in the markets, but emotionally I simply cannot get over the idea of being debt-free, including our mortgage and having over$1 million in the market at$33 ,000.

18:12So time can still be on our side and we can still invest a huge chunk of the money into the markets. Thanks for all your help and I appreciate your perspectives. Listen, Jay, if you are emotionally attached to this idea of paying off a 3 % mortgage because you want to be debt free, then do what's best for your emotions. At the end of the day, it's your mental health. It's your life that you're living, right? We're just two guys on the internet trying to help you understand money. And if your understanding of money plus your mental emotional feelings and all the things that come together mean Jay is most happy with no mortgage and a million invested, then do what makes you most happy.

18:51Robert says it seven times an episode, personal finance is personal. So, and I'm surprised he hasn't said it yet in this episode, but like this is literally the definition of that. Your personal financial situation is personal to you, your emotions, your relationship with money, your relationship with your family, how you want to be a provider, how you want to navigate life. And if that means paying off low interest debt, like your mortgage, then congrats. You have money. Do what you want to do. If it means keeping it around. Cool. Do what you want to do. Like it's totally up to you. Would I do it?

19:21Probably not. Would Robert do it? Definitely not. But again, it's it's all it's your money. You figure it out along the way and you do what you want to do. That's a great breakdown. And look, the math is not in your favor to do this. But again, if your emotions get the best of you and you just want to feel that that house has paid off and feel better about it, go for it. But here's the challenge and here's what I want you to do. I want you to take the$400 ,000 and I want you to put it into chat GPT or whatever you use. And I want you to ask it at an 8 % annualized return for the next 25, 30 years, whatever timeframe you want to put in, what would that money turn into?

20:00So let's say the 400K gets invested in the S &P 500 and you guys are 33 years old. So you say for 30 years, what is that outcome. Then I want you to do the same thing with the difference. If you paid off the house, see what the difference is. So you can understand that arbitrage in your favor and against you to make sure that that number that you come up with is enough of a difference that you understand it's the better move to not pay off the house and keep the low interest. Or if it's not enough to change your mind and you want that peace of mind, pay off the house. You guys are crushing it.

20:37You're young. You have a very long window ahead of you to continue investing. And it's all about what makes you feel happy. Some people love paid off assets. I get it. Totally fine. But when you have low interest rates like this, you have to always understand the arbitrage difference that if the S &P makes 8, 9, 10, 11, 12 % a year, and you can borrow money for 3%, I'm always going to borrow money and keep chunking away into my investment portfolios. so I have more money at the end. That would be my take. I agree with Austin. I wouldn't do this. I would keep the mortgage and invest all the money.

21:13And at the end of the day, Robert, it seems like our friend Jay here is going to continue to get these big distributions as a 20 % owner in this S corporation. And yeah, I mean, here's the deal. Jay, you can invest this money. You could use this money to pay off your house. You could probably burn this money. You will still be a multimillionaire in your 60s. If you're making$400 ,000 in these distributions, you already have hundreds of thousands invested. You guys are going to be multimillionaires regardless. Now it just comes down to what's going to help you feel the best and sleep the best in the mornings when you wake up and in bed when you go to sleep.

21:50Is it a paid-off mortgage? Is it more money on your computer screen in a brokerage account? Is it whatever? If it's the more money, then it's the more money. If it's the paid-off mortgage, it's the paid-off mortgage. Only you know the answer to that. I don't think either of these is going to materially impact your ability to have millions of dollars in retirement. So that's a cool place to be because now you get to make an emotional decision versus a mathematical one. And for everyone else out there, understand this. We always say personal finance is personal. There you have it. I said it. But nobody is perfect.

22:21No investment strategy from anyone on earth, from billionaires down to people like Austin and myself. No one is perfect. Do what works for you. As long as you understand the math of your decisions and how it affects your future, you're going to be just fine. So our next question comes from Max B. Max B says, hi, Austin and Robert. I hope this message finds you well. I have a question regarding my unique financial position and some different investment strategies that may be pertinent to me and other listeners. For context, I'm 25 years old in my last year of medical school, and I'll be joining the military afterwards on a medical scholarship.

22:56My expected yearly compensation will be$150 ,000 for the next three years. I have$60 ,000 invested across my Roth IRA and my individual brokerage account. 80 % of this is in the S &P and the NASDAQ, and then 20 % is in individual stocks, gold, and Bitcoin. I have$100 ,000 in student loans, and I'm paying the monthly minimums on those. I have no credit card debt, my car is fully paid off, and I have$30 ,000 in a high-yield savings account that I'm using as a three-month emergency fund and a potential new home fund. I'm looking to purchase a home sometime in the next year or two through a VA loan.

23:28I plan to live in this home during my military service, then rent it out after I exit the military. Since it is a VA loan, I don't need to save for a down payment, but I am slowly setting funds aside for realtor fees, due diligence, and other first-time homebuyer expenses. My question is this. I met with a certified financial planner recently, and he introduced the idea of separately managed accounts, SMAs. I've been investing on my own, but I feel like this could be a really good idea as I start to make an actual big high income salary. I understand I have a lofty goal of purchasing a new home with a limited amount of capital and high amount of student loan debt, so I'd like to keep as much money in my pocket as possible by limiting my taxes, which is why the SMA could be important to me.

24:11At the same time, I could settle for renting over the next several years if it doesn't financially make sense to buy a home. Either way, do you recommend opening up an SMA or is my current strategy sound? Oof. Okay. So kind of weirded out that a CFP, a certified financial planner, right? They're definitely not fee-only fiduciary if they're over here trying to pump you into an SMA. So the separately managed account, the SMA, it's essentially a high fee account that is manually managed by some smart investor that's charging you 1.5 % on your money to hopefully outperform him the S &P 500. Like that's what it is, right?