How to Build Your Investment Portfolio (The Portfolio Pyramid!)

22:59You can make a lot of money with copper right now. Now, copper is very interesting to me because of the amount that is needed in data centers. Now, this is something that I think for a lot of folks out there, when you're looking at commodities or you're looking at what you understand, maybe you're interested in Forex long term. I don't like day trading Forex, but I think long term it's very interesting. There's a lot of things that you could do and a lot of assets that you could add into the speculation tier. But I call it the speculation tier for a very specific reason. That's exactly what it is.

23:25It is not something that is backed by intrinsic value. It is something that you know is higher risk, could have higher reward, but in reality, there's also the possibility that you lose money on that asset. And so you want to make sure that over time, and obviously with any of these, there's a possibility of losing money in these assets. If anybody tells you otherwise, you need to write them off. But when it comes to speculation, the higher risk speculation is going to be something that you want to think through. For example, I know people who buy land deeds on properties. It's people who are way behind on taxes.

23:54And whether or not they actually are going to get the land from that deed is not actually guaranteed by the way in the structure that they do it. And so when they do these types of things, there's a lot of risk there, a lot of risk involved. They could lose all of their money, but at the same time, they could have a very high return. And so I think that needs to be a small percentage of your portfolio. But you also need to get to a certain amount of assets before you can even consider doing this. Then once you do consider doing it, it should not be more than that 5 % to 10%. And so this is the speculation tier and why we are thinking about this as we go forward.

24:28So those are the three tiers in the portfolio pyramid. That is how the portfolio pyramid works. But what do you need to do next? Well, first, you need to assess your risk tolerance before you start to allocate your dollars. For some of you out there, your risk tolerance isn't high enough to even go into tier two or tier three. So you must make sure that first you have the risk tolerance or the tolerance available. If the market goes down, you need to be able to stay in there or you need to be willing to buy in the second two tiers. If you're not, then you probably are just well made up for the foundation.

24:59And building a foundation is an incredible way to build wealth. You can become a multi-millionaire with the financial foundation. So you want to make sure that you have that foundation first. And so you may be saying to yourself, well, how do I figure out what my risk tolerance is? We're going to do an entire episode on that. So make sure you're following this podcast. But I'll give you a couple of questions here to ask yourself when you get started. First, what is your investment time horizon? How long do you plan on holding these investments? Is it 5 years, 10 years, 20 years, 30 years? In my opinion, you should not even consider an investment unless you're willing to hold it for 10 years or longer.

25:31And so if you're not willing to hold it for 10 years or longer, then you most likely are making a short-term financial decision. Wouldn't go with that whatsoever. Two, how do you react or how would you react if the market had a 20, 30, or 40 % drop? For some of you, you think to yourself, Oh my goodness, this is amazing. I'm going to buy more because whether it's stocks or stocks, I like things on sale. And so when the market drops, you see that as stocks on sale and you want to buy more. Maybe you're someone out there who says, oh my goodness, I'm going to pull my hair out. I'm going to panic and I'm going to be checking my investment app every single second when the market drops.

26:07Let me give you an example of this. RDMs, every single time there has been a pullback over the course of the last six years, our DMs or our email box has flooded with people saying, what should I do? The market is dropping. What should I do with my money? Should I pull it out? What should I be doing? If you do that, if you are the type of person who panics when the market goes down, I want you to then make sure that you stay in the foundation as all of your portfolio until you become better when it comes to your risk tolerance. Next, do you have a fully funded emergency fund? Do you have that six-month emergency fund?

26:40That's going to help you with your risk tolerance and be a little more comfortable. And are you carrying high interest debt? That is another one that needs to be paid off over time. And the closer you are to retirement, the more you need to lean towards this foundation tier because it's really, really important. Now, step five. The next thing you need to know is understand the right accounts for each of these tiers. So when it comes to the foundation, doing your retirement accounts with that foundation is really, really important. Your retirement accounts should be filled up with foundational assets.

27:09It should be filled up with assets that are going to help give you that foundation for your retirement. Index funds, ETFs, target date retirement funds, those investments that have been proven historically over time to be great assets for those who are retirees. When it comes to some of the growth stuff, you can look at a Roth IRA or a taxable brokerage account for the growth stuff. Why? Because Roth IRAs have tax-free growth. And so if you are looking at dividend stocks or you're looking at stuff that you think could grow faster, that is an option. For me, I still like index funds and ETFs in my Roth IRA.

27:40My basic rule is I keep the foundational stuff in my retirement accounts. And then when I add some extra things, then I'll put it in a taxable brokerage account. Then I play with the money that way. So that's the way I have it in my foundation is having the speculation. That's going to be a taxable brokerage account. Maybe you open a crypto account, something like a Coinbase account or whatever else you like to use. Maybe you open up a trading account if you're interested in looking at gold or silver or some of these other things. Or maybe you go in and actually buy the physical asset, like I was talking about with sports cards.

28:08You can go buy physical gold. You can buy silver coins. You can buy all these different things that would help you overall when it comes to this. So an interesting way also to buy gold, by the way, as a lot of people don't think about it this way, you can buy gold jewelry, for example, then sell it when the price goes up. It's wearable if you're interested in having something like that. Obviously, the opportunity cost of losing that could happen. But at the same time, that is another interesting way to think about that. Now, step six is once you start to set up some of this tier, you want to automate the process, meaning automatically contributing to your investments every single month.

28:39And you should be automatically contributing to your foundation with the majority of your money. And then as time goes on, then you can start to shift and add automations toward the growth layer and then the speculative layer as well. Those are going to be the areas that you can look. And then I want you to adjust this pyramid as life changes. So how do we adjust the pyramid as life changes? We're going to think about this in two different phases. and I'm going to think about three different investors, okay? So for most people out there, when you are investing your money, you need to focus on the two core foundational ways to invest your dollars.

29:10One is to invest for growth, meaning you are trying to grow your money and you are in the growth phase when it comes to building wealth. Most people who are working a nine-to-five or who are working building a business, they are in the growth phase. They are trying to build a foundational portfolio so that when they become financially independent, they can then move on to the next phase, which is preservation. So you have the growth phase and you have that preservation phase. And when you are growing and accumulating, that's where you want to be more aggressive. And so you want to have more stocks in your portfolio, most likely, unless your risk tolerance is really rough.

29:43Then you want to make sure that you have more stocks in your portfolio. As you get closer to the accumulation phase, you're going to add in more bonds. So for example, we just did this with my parents. I talked about this in the Master Money newsletter. If you are not subscribed, make sure you check the links down below in the show notes. and subscribe to the Master Money Newsletter. We give you a five-minute tip every single week to help you with your money. It is gonna be high value for you, I promise. But when we go through this, we just talked about this. I set my parents up with a 70-30 portfolio.

30:09They're in their late 60s, and so we set up a portfolio for them based on their risk tolerance of 70 % of stocks and 30 % of bonds. And so we set this portfolio up. They were comfortable with it. They fit their asset allocation. Maybe for you, when you get to the preservation phase, you wanna be 50-50. You wanna be 50 % stocks, 50 % bonds. Maybe you want to be 40-60 because you have a really, really low risk tolerance. If that's the case, no problem. But your portfolio just isn't going to grow as much. But when you hit the preservation phase, you do want to add in either bonds, cash, or some people stay invested in all stocks.

30:40Nothing wrong with that whatsoever. And especially if your portfolio is large enough, you can absolutely do that. So those are some things that I just want you to think through as we go through this step by step. Now, as life changes, if you're a young investor, pushing speculation slightly higher, up to 10%, and reducing bonds in the foundation could be something that you're interested in doing. Getting closer to that 10 % number is going to be much more enticing for you, but you got to have the core foundation of your first 100 to 200K before you can even get to that realm. Secondly, as investors with 10 years left in retirement, you may want to start adding a little more bonds in your portfolio and reducing the overall speculation that you hold.

31:19that may be a move that you want to make. And then if there's major life events, if you have marriage or kids or a job change, those are good trigger points to revisit your asset allocation because some of my young investors out there who then get married and have kids, you want to make sure that you're looking back at your asset allocation. You don't have your whole allocation in crypto or whatever else. You want to make sure that you are building a foundation for your family that can be a wealth building foundation. That's the big core of this that I want most people to think about when they are building out their asset allocation.

31:48Perfect. Now, I'm going to talk through some of the common mistakes of each and every single phase. But for anybody out there who is interested, we are going to do a live masterclass with me on the call that will walk you through step-by-step the portfolio pyramid. We're going to go through the portfolio pyramid. I'm going to put a link down below. It is completely free. If you want to join that, it'll be live with me after you can ask me questions about the portfolio pyramid and about building out portfolios if you have them. But we're going to put a link down below in the show notes for you so that you can check that out.

32:20First, let's talk about mistakes on the foundation tier. The foundation tier, again, should be 80, 85 % of your portfolio. And this should be where we are thinking through, you know, making sure we have a foundation. Now, the number one mistake that I see people make is they start at the top instead of the bottom. A lot of people will start by investing in gold or investing in cards or investing in Bitcoin. And this is very common for young investors. They start with the wrong thing. And I am guilty of this. When I was 20 years old, I started buying penny stocks and I lost all my money in one day.

32:53So I don't want that for any of you out there. And I am so thankful for that experience. The reason why I'm thankful for that experience is because if it was successful, if it ended up being successful, that would have probably been more detrimental to me than the fact that I lost all my money in one day because I didn't have a lot of money at that time. So it wasn't that big of a deal. And so index funds don't make for exciting investing. And for young investors, you want some excitement. I get it. You want that thrill. You don't really have a lot of responsibilities and you want to buy some of those investments.

33:19But in reality, you need to build up your core. This is going to be the area and the foundation that helps you long term the most. And this is really where your wealth is going to be built because you have the longest time horizon of anybody else. So you have the greatest asset of all, which is time. So I would rather you invest your extra dollars or your fund money into things that are going to help you grow your income so that you can fund more of this foundation and get to the point in time where then you graduate on to some of these other tiers. like the growth phase and the speculative phase.

33:47Next is picking actively managed funds with high expense ratios in the foundation tier. You want to make sure that you're looking at the expense ratios and how much these funds cost because if you have a higher expense ratio, they can underperform the S &P 500 dramatically just because of how much you have in your expense ratio. Now, expense ratio is not the only reason not to invest in a fund. You need to dive deeper into what the fund has done historically, but I want you to make sure that you are looking at this because if they are charging five to 10 times the fees, that is going to be pretty, pretty high.

34:18Now, a good expense ratio is anything above 0.30 % or less, 30 basis points or less. That is going to be the point in time where you want to look at this and go from there. Not investing in the foundation during debt payoff. Now, the third one is not investing in the foundation when you have low interest debt. I have seen too many people prioritize low interest debt and not invest whatsoever. Maybe they're trying to pay off their mortgage or they're trying to pay off their car loan, but it's a 3 % to 4 % loan. No, you want to make sure that you are still investing your dollars for your financial future in the foundation especially.

34:51And then the last one is holding too much cash in the name of being safe. Now, anything outside of your core emergency fund and your SWAN number, if you're just holding cash to hold it, or you're holding it for the right time to buy into the market, that is a ridiculous thing to do. You want to make sure that you're getting your dollars invested so they are working more for you. Now, let's talk about some of the common mistakes I see within the growth tier, which is going to make up about 15 % of your portfolio or less, this is going to be overloading on a single sector. So I have seen too many people who are not diversified enough in their growth tier portfolio, and they start to end up overemphasizing their portfolio.

35:26Maybe you're investing too much in healthcare, or if your day job is in healthcare, and then you're investing in other healthcare companies because that is what you know, well, you are pretty heavily weighted in healthcare, and you don't even know it. Also, is letting the growth tier creep above 15 %? I see this happen a lot. unless you're really good in some specific area, or let's say your strategy going forward is you think you want to double down on dividend growth investing. Well, that's completely fine. And you can move that as part of your foundational portfolio, but you want to make sure that you know what you're doing.

35:55If you creep outside of this, you know, 15 % range, that is going to be something that really doesn't make a ton of sense for most investors out there. Now, for some, it does. We can talk about this with individual stocks. We can talk about with some of these other ones, but this is something that you just want to make sure that you're watching out for and you understand what percentage your portfolio is in this growth tier. Also, chasing last year's top performers. I have seen a lot of people chasing gold right now, chasing silver, or chasing Bitcoin at its highs. How many of you bought Bitcoin at 120 ,000 because you saw everybody else getting in there and all of a sudden now, at the time recording this, it's at, you know,$66 ,000.

36:27Well, if that's the case, you felt this pain before, where you're chasing last year's top performing sector instead of looking for the next thing, especially in the growth tier, you got to be able to identify some of the things that are worth investing more in. And then the last thing is confusing growth with speculation. Too many investors invest in things like Bitcoin or gold or silver too early. I think this needs to come later on in the line. That is my opinion. You could do your own research, but that is my opinion. Now, what are the biggest mistakes with the speculation tier? Again, remember, this is your Bitcoin, gold, silver, those types of things, 5 % to 10 % of your portfolio.

37:00Well, starting here instead of the foundation is number one. Most people, again, like I talked about, start in the wrong order, especially when they're young and they don't know what they're doing. Do not start with the speculation phase. You got to start with the foundation first. You got to put in your dues. You got to earn your stripes before you can get to the point in time where you can invest in some of these. Now, treating speculation like a savings account is something that I've seen a lot of people do. They've saved their money in a speculation account thinking that over time they can utilize this as their emergency fund because they have a longer time horizon.

37:28Do not do that. Making sure you have this in the right spot is going to be important. Also, three is people who use sports betting as part of their speculation percentage. Do not do that. Betting or gambling is not part of speculation. It is not part of investing whatsoever. That is not investing. You're just gambling. And so you cannot use that as part of your speculation tier. That is very important. Four is not going over 10%. Do not go over 10 % if you're trying to look at speculative assets. It just doesn't make sense with a lot of folks. Now, if you can come up with a good reason that you can put into your investment plan, that is completely fine.

38:04But for me, it doesn't make a ton of sense. And in the speculation tier, the last thing I'll say is emotional trading. I've seen a lot of people get emotional. And the reason why they get into these speculative assets is because they got emotional. They feel like they missed a boat. And so they try to get in these too late. And a lot of times for most of you, this is an emotional area to invest your dollars. And so that's one that I want you to make sure that you are not making as well. Now, the universal mistake that I see people make across all sectors is not having the foundation fully funded before they move on to the next steps.

38:35The foundation needs to be fully funded before you can move on to some of these other steps. It needs to be what you truthfully have in place for your first few hundred thousand dollars. Then you can move on to some of these other steps. Until then, spend all of your time trying to build up that foundation and then you can add in some diversification as time goes on. All right, so that is the portfolio pyramid. You're gonna hear me reference this a lot of different times throughout the podcast because this is the foundation of how you need to think about constructing your portfolio. If you guys have questions on the portfolio pyramid, let me know and we'd be happy to dive deeper into any of those.

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43:50Go to shopify.com slash pfp. That's shopify.com slash pfp. All right, perfect. Question one comes from Christopher. I'm going to be debt-free at 25 with a master's degree and a low income. What can I do beyond a high-yield savings account emergency fund to start building long-term wealth? And how much per month should I ideally be putting towards that emergency fund? So, Christopher, this is a wonderful question, and I'm so glad you were thinking about this moving forward. And congratulations to you on getting your master's degree. I think that's absolutely fantastic. And you're going to be starting with a low income.

44:24I think that's the first thing that we need to note. And to understand why we are starting with a low income, we can talk through that. Maybe you are someone who is going out into an industry like social work where you're not going to make a lot of money or you're going to be a teacher. And so maybe your income is capped. But if it's not capped, I would first consider how can I increase that income over time to make sure I am really building a powerful growth engine here. But if that's not the case and you are passionate about teaching and you're going to be a teacher, then let's talk through some of the options and the ways that I would think about this.

44:53Number one is your emergency fund is going to be the core foundation of where you want to start. You want to make sure that you are getting dollars into your emergency fund, especially if you have a low income, because you want to make sure that you have that foundation in place to protect you against life. So doing the 1-3-6 method, meaning one month of expenses first, paying off any high interest debt, which you won't have, then three months of expenses, and then getting eventually two, six months of expenses. And so that's going to be the starting point when it comes to the emergency fund is building that up and just taking a portion of your income every single month.

45:23You could start with 10 to 20 % and starting to send it over to the emergency fund. Next, if I were in your shoes, I'd be looking at a Roth IRA. So the Roth IRA obviously has money that goes in that's already been taxed. It grows tax-free, and you could pull the money out tax-free. Now, if your employer is going to offer a Roth 401k, even better, because you can get more money into that account. But you want to make sure that at a barriot minimum, even if you are someone with a low income, you're trying to at least max out that Roth account, because this can be a tremendous benefit for you long-term.

45:51We have something, if you go to mastermoney.co slash resources, we have an investment calculator there, where if you just put in the Roth contribution limit every single year of$7 ,500 in that thing, and you look at how much you can compound over the course of the next 40 years for you, let's say you retire at 65, over the course of the next 40 years, it is millions of dollars that you can have inside of your Roth IRA. So it is a wonderful place to do this. If you're wondering where to open up one, you could do Vanguard, Fidelity, Charles Schwab. There's other great places too now, like public that do 1 % matches.

46:21There's places that are really, really powerful there. Now, if your employer offers a 401k or if they offer an employer sponsor plan, I want you to also make sure that you are getting the match. The match should be the first thing you do when you invest your dollars is getting that employer match because it is 100 % rate of return and it is free money. It is free money that you can use to build wealth over time. And for most people out there, getting the employer match can make a huge difference in retirement, especially when you don't make a lot of money. Even if it's 100 bucks, 200 bucks, 300 bucks per month that you are investing, it is going to make a huge difference because you have a long time horizon.

46:56Those who don't make a lot, they really need to get started investing early, and they are going to have a huge competitive advantage to even folks who do make a lot that get started when they're 40 or 45. You could outperform a lot of people out there just because you are starting early, which is why it's so powerful that you're asking this question. Now, beyond retirement accounts, you have your traditional 401k, if that is available to you, or a traditional IRA, which would be next, but also looking at a taxable brokerage account. Let's say even on a low income, you could do this. Let's say you want to retire early.

47:25Well, let's look at our taxable brokerage account and make sure we're getting a few dollars in there as time goes on to bridge ourselves if we want to retire early. Let's say you want to retire in your 50s and you want to have some money get you over the hump over the course of the last five years of your retirement. Well, if that's the case, the taxable brokerage account is perfect for that and why it is such a wonderful account for most people. Now, one big key is if you're not making a lot is to keep your lifestyle modest. So modesty, living like you do while you're in college for as long as you possibly can, can be one of the best superpowers because it's going to help you build up the foundation that we talked about here in the portfolio pyramid where you can start to build out that foundation.

48:03And I would try to go after things like Coast Fi, for example. So when you are first starting out, getting as much money invested, trying to pursue Coast Fi, which is a point in time where you have enough money invested that will carry you to retirement. and that way you don't have to worry about anything else out there, especially on a low income. Avoid consumer debt. Avoid any type of debt that is going to make you fall backwards. Try to avoid taking on big debt when it comes to cars. Try to avoid the massive mortgage with a high interest rate. Those are the types of things that are really going to get you into trouble.

48:33It's food, transportation, and it's going to be obviously housing. So those are the three that I would really, really make sure that I'm focusing on and resist the urge to upgrade everything. If you try to upgrade every single thing within your lifestyle because you have a low income, it is much more detrimental to you than it would be for someone with a high income. And you can't compare yourself to people with high incomes if you are starting off with that low income. It's very, very important to make sure that you are step-by-step thinking through this as we go about this. So congrats to you.

49:03Congrats to you for getting out in the real world. Congrats to you for thinking about this stuff. This is one of those things that for most people, they haven't thought enough about it. And I cannot thank you enough for sending this question in because I love, love, love the way your thought process is. So really good question. If you have any other questions on that, though, please let me know. But those are the things that I would start doing. Let's jump to the next question. All right, the next question. We're going to dive into that next. And again, reminder, if you want to get your question answered on the show, you can absolutely do that by joining the Master Money newsletter and responding to any of those newsletter issues that come out every single week.

49:39and you'll have a higher chance of getting your question and answer on the show. The other place you can ask your question is on the Personal Finance Podcast Instagram page. You can shoot us a DM there and we may be able to answer your question down below. Or a lot of you have been asking questions on Spotify down below in the comments there and we have been answering those. I know Apple Podcasts is about to launch a video as well. And so when they do launch a video, I'm assuming they will have comments that you can ask under there or on YouTube. So all these are great places to ask your question and we will compile those questions.

50:07But the ones that we prioritize are the ones on the Master Money newsletter because that's our community of people who are really, really taking this seriously. And also, by the way, just a reminder, Master Money Academy, you can ask these live every single week to me and I will answer your questions. We've had some great conversations in Master Money Academy as of late. All right, next. This is a good question. So I am part of the Georgia Teachers Retirement System. I currently make$165 ,000 and will retire at 52 with$99 ,000 per year guaranteed for life, plus 2 % added every year I work beyond 30.

50:41That's absolutely incredible. Does having a pension like this change how I should approach my 401k or other retirement accounts? What else should I be doing? So the first thing I want you to understand, because as I look at this, my jaw dropped the first time I read this. A guaranteed$99 ,000 per year for life starting at 52 is an exceptional. I mean, there is nothing else out there like that retirement foundation. In fact, that is the same thing. Just thinking about this for a second. If you use the 4 % rule, that is the same thing as having$2.5 million invested in a portfolio drawing down at 4%.

51:15That is an amazing starting point to be in. at your current salary at$165 ,000 per year, your pension will replace about 60 % of your income currently from day one in retirement. So before any other accounts are factored in, about 60 % is already covered if you want to continue spending$165 ,000 per year. Now, every additional year you work beyond 30 unlocks an additional 2 % more, which compounds the value of staying even longer. I mean, this is the kind of perk That would be a perk where I would take a job in and you'd be able to do some really, really cool stuff. So I think that is absolutely fantastic and what a perk that is.

51:56Whatever county you're working in, I think the people are gonna start flooding over in that direction at some point in time. Now, does having a pension change the way you think about your 401k? Yes, it absolutely does, especially when it is a guaranteed pension because some pensions are not guaranteed. Maybe you have to have a certain percentage vested before you actually get that pension. Now, you can think about your 401k in a different way. Because a lot of your basic survival needs are covered with that$100 ,000 per year, you can think about your 401k as this is going to add in flexibility, or this is going to add in more wealth or lavish lifestyle, or this could also be for legacy.

52:32If you have kids or you have people in your life that you want to leave a legacy to, this can be part of that as well. Now, if you want to spend more than$100 ,000 per year, plus the 2 % increases, and I would do the math to make sure you understand where that's going to land and when you want to retire, but I would make sure that at age 52, if you do decide to retire at 52, I would make sure that I have the rest of these dollars covering what the rest of my lifestyle is because it's going to reduce the overall amount that you need in retirement because you have that pension in place, which is why it's so beautiful.

53:01Now, for those of you out there who don't know this, we have something called the retirement calculator. If you go to mastermoney.co slash resources, the retirement number calculator is going to give you exactly this scenario. What we do is we actually walk you through step-by-step exactly what you need to do, and you put in your income that is going to be in retirement. So in this case, you could put in$99 ,000 as your income, and it will spit out exactly how much you need in your portfolio based on how much you want to spend every single year. It is such a cool tool. I'm so proud of it. So make sure you check that out if you have not.

53:33Go to mastermoney.co slash resources, and we'll link it up down below in the show notes as well per usual. So if you are thinking about this, what you want to do is figure out, okay, how much first do I want to spend in retirement? That's number one. Number two, you want to then think through, okay, well, am I going to have debt in retirement? If you're not going to have debt in retirement, that's fantastic. This calculator does this, by the way. Three is healthcare. So healthcare is going to be the biggest gap in your overall target right now, because retirement at 52 means you have 13 years before you can have Medicare eligibility.

54:07And so because you have this 13 year gap here, you want to make sure that overall you are thinking through that gap and how it's going to be funded. So that should be part of your retirement plan. And the cool thing about our retirement calculator is it actually will walk you through this too, and also add in the average inflation rate of healthcare inflation over the course of the last couple of years. But this is one of the most important things to plan for is that 13-year gap and how you're going to fund healthcare during that timeframe. Now, if you get the benefit of healthcare along with this pension, because you're already getting so many amazing benefits, I wouldn't put it past them.

54:38That is wonderful. But if not, then we want to make sure we plan out for that. But then also consider what you want your retirement to look like. Because I want you to think through and dream big. Do you want to travel a lot? Let's make sure we have enough money every single year for you to travel. So we need to put that in our portfolio expenses. Do you want to do certain things or join a country club? Do you want to have time to drive a nicer car than other people? Do you want to make sure you have your house paid off? How are you thinking about retirement? What's that going to look like? Because we will ultimately want to get to the number that we are spending every single year.

55:06So let's say we're going to keep using the amount that you make right now. And let's say you want to spend$165 ,000 per year in retirement. Well, 100 of it is already covered. So that would mean if you use the 4 % rule that we need right around an extra $1.5 million invested in our portfolio. Well, you can fully fund your 401k over the course of the next couple of years and probably get pretty close to that depending on what you're invested in. But if you want to spend less than that, or you're okay spending less than that, then it could be less of a need. Now, because you're retiring early, one other consideration I would say is the 4 % rule was based on, you know, holding your portfolio over the course of 30 years, you may want to reduce the amount that you're withdrawing by three and a half percent or 3.7 percent or get to that round, nice rounded 4 percent because 4 percent is actually very conservative.

55:53For most folks now, they're looking at 4.7 or even closer to 5 percent drawing down in their portfolio based on kind of recent and updated events. Bill Bangen, the creator of the 4 percent rule, actually updated in his recent book, that the 4 % rule is really closer to 4.7%, 4.9%. So a lot of people are reevaluating their retirement based on that. And we'll dive deeper into some of those withdrawal strategies in some future episodes, but just want to make sure that we make note of that. And so here's how I would consider this, is if you're thinking about spending a lot more than $100 ,000, I would max out the 401k or look deeper.

56:25And if I were in your shoes, I would max out the 401k. I would get some money in a Roth IRA as well, try to fill up those contributions. But also, So if you're going to retire early, if you're going to retire in that 52 range, I'd fund a taxable brokerage account pretty heavily. Meaning I'd put a lot of my portfolio in that taxable to give me a bridge account so that over the course of the last 8 to 13 years, I have enough money to cover healthcare and the rest of my expenses. And so that's going to give you more flexibility and eligibility as time goes on in this phase. So really, really cool stuff.

56:55Thank you so much for sending in your question. That's the way I would think about this. This is why your plan changes, because you can actually subtract the amount that you're going to spend every single year by the pension amount. And so all you need left is that portfolio gap, which is the difference between your pension and the amount that you spend every single year in retirement. Now, this number may change on a yearly basis. So that's why we created that retirement number calculator so that you can track your retirement number on a yearly basis. I think that's imperative for every single person, no matter how young you are.

57:21Great question. And congratulations on A, your income and B, that pension. That is absolutely phenomenal. And question three, and I'm loving these questions. These advanced questions are wonderful. So question three is from Miguel. I am retired with a$1 million plus 401k rollover, and I earn$110 ,000 a year in retirement income. My taxes are high, and so are my Medicare costs. What are the best ways to lower my tax burden in retirement? Miguel, this is a wonderful question, and I think for a lot of folks out there, this is something that is going to be helpful to them as well. So number one is I want you to understand why your taxes and Medicare costs are both high.

57:57A$110 ,000 retirement income means that you're likely in the 22 % or possibly the 24 % federal tax bracket, depending on your filing status and your deductions because of where you are and some of those things like that. And so Medicare uses a system called IRMA, which is the income-related monthly adjustment amount formula, which charges higher premiums to retirees above certain income thresholds. And so for a lot of folks out there, the more taxable income you report, the higher your Medicare Part B and Part D premiums become. So reducing your taxable income actually has a double benefit. Now, for you specifically, one of the most powerful tools that are available to you are going to be Roth conversions.

58:38Because since your money is sitting in a traditional 401k rollover, every dollar you withdraw is taxable. So a Roth conversion means that you can move a portion of your money into a Roth IRA each year, paying taxes on it now. and so you may have a big tax bill in that first given year, but all future growth and withdrawals are completely tax-free. And so that's going to help you tremendously in the long run when we think about this. But the goal is to convert this strategically. So we want to fill up your current tax bracket without jumping into the next one to reduce your RMD. This is where someone to be in your corner like a CPA or an advisor is going to really, really help you when you're starting to think about this.

59:14And so then the third thing I want you to consider is being strategic about your RMDs, your required minimum distributions. at age 73. For those of you out there that don't know what an RMD is, the IRS requires you to start taking withdrawals from your traditional 401k rollover, whether you need the money or not. See, Uncle Sam said, hey, you have not given me my tax money yet. I want to get it at some point in time. So I'm going to get it right now and force you to withdraw money from there. And so the larger your traditional balance, the larger your RMDs will be. And this is going to push your income and earn a cost even higher in your specific scenario.

59:47And so doing Roth conversions now before the RMDs kick in are going to help you tremendously just on that tax front as well. Now, once you reach age 70 and a half, you could consider things like a qualified charitable distribution if you wanted to, and you could donate up to$105 ,000 per year directly from your IRA to a qualified charity. That's one thing that you could consider if you are charitably inclined, but that is not for everyone. If you're not charitably inclined, that's not something you have to do. Now, I would highly encourage you to kind of look at your income sources and how they are taxed as well because not all income sources are taxed the same way.

1:00:19Social security, for example, may be partially taxable depending on your combined income and managing how much you pull from taxable accounts each year can affect how social security gets taxed. So social security could be taxed pretty heavily if we're not careful about where we're pulling from these accounts and don't have a strategy in place. So here's what I would do is I would A, have a conversation with your CPA or a fee-only financial advisor to make sure that we are doing a couple of different things. I would consider one to look at your current income and asset level with your CPA and say the tax decisions that you make today over the next several years are going to have a significant impact on the long term and how long your money lasts over that time frame.

1:00:57And so I want you to make sure that you are talking to someone to kind of help you through that process. Now, you can talk to someone in a couple of different ways. A CPA is just going to be a fee that you have a conversation with them. If you already have someone in your corner, that's great. You can ask them a couple of these questions. A fee-only advisor, you can do it a couple different ways. One, you can find someone who just charges a flat fee to put together a plan for you or have a conversation with you. You can talk to someone who charges an hourly fee, and or you can actually decide to hire an advisor to be in your corner to help you through a lot of this stuff to move that stuff over.

1:01:26So there's three options there, but they can really help you when it comes to some of this stuff. And with tax projection, they can help you identify how much to convert, when to convert these money, when's the optimal time to convert those dollars. And it's really important to have these folks in your corner when you're doing this. Now, if you don't want to have them in your corner anymore, you don't want to pay somebody after you complete all this stuff, you can absolutely make that shift, but you need to make sure that somebody is helping you through this process because it can get complicated based on individual folks' financial situations.

1:01:53So that's another big one that I just want you to think through as you're planning out your retirement. But really good question, and you are in a wonderful position to make some good moves like that. Hey, having to do Roth conversions is a good thing. It is a good problem to have, and it's a good problem to have to think through, and having that income coming in kid is absolutely fantastic. So congrats to you on this because I think Miguel, you are in a wonderful, wonderful spot, but it's just making sure we do some tax optimized things to ensure you do not overspend on taxes when it comes to RMDs and some of that stuff coming up.

1:02:24Perfect. Let's jump into the last question. All right. Last question is from Matt. So as I near retirement, I'm thinking about how to manage my portfolio through retirement, how to protect myself if my mental faculties decline and if someone takes advantage of that and how to take care of my kids in a world of enormous government deficits and rapid technological change. How do I plan for all of this? Well, Matt, this is a great question and a common concern that a lot of people have. I know this is stressful for a lot of folks out there. And I just want to talk about managing your portfolio through retirement first, and then we'll kind of go through protecting yourself as time goes on here.

1:02:57So the biggest shift in retirement is going to be going from the accumulation stage that we kind of talked about up front in this episode to the preservation stage. That is going to be much more difficult than I think most people realize. And you need to figure out how to mentally get over that block. Now, a common framework for a lot of folks, and we've done an episode with this with Jesse Kramer. It was the first episode when he came on talking about the bucket strategy where you can think through or build out a strategy where you have a couple of years of cash on hand that you are using and spending those dollars.

1:03:27What this approach does by having a couple of years of cash on hand is it allows you to sell stocks during optimal times. It reduces your sequence of return risk and allows you to sell stocks and you can live off the cash. If there's a downturn, you can wait an extra year and you have some cushion there so you don't have to worry about some of those downturns. And then you can make sure your asset allocation reflects your income needs and things of that nature. Now, protecting yourself from financial exploitation as you age is a really important thing to do because I think a lot of people underestimate how often this can happen.

1:03:59And so you want to make sure that you first start by assigning a trusted person as the durable power of attorney within something like a trust to manage your finances that can act on your behalf if needed. So if there is someone in your life who you feel as though is the most trustworthy person or someone you absolutely trust, then setting up a trusted contact can be really, really important. Now, if there's nobody in your family that you trust, you can also set up something like a contact person from your brokerage who can work on your behalf. Or you can simplify your accounts as much as possible to make this a lot easier for someone else to manage if they are your overall durable power of attorney.

1:04:37And you could look at something like a revocable living trust, which keeps your assets kind of managed and organized, even if you're not able to continue to manage them going forward. And so this is a great way to look at this, and it helps assign people to give them the ability to manage this portfolio if your cognitive ability declines. So that's going to be something that I think could be really important for you. But I would build that estate plan now. I wouldn't wait too long to build an estate plan. A will, a durable power of attorney, health care directive, beneficiaries, all those different things are really important.

1:05:08You can go to a place like Trust and Will and get it done for cheaper. I went to an attorney in my area. It cost me about$6 ,000. We put together a trust. And in that trust, we were able to kind of set up all of this kind of stuff and be able to have the ability to direct where this stuff is going to go if my cognitive ability declined. But once you have a plan in place, especially when you're going to draw down these portfolios, you can put it up in your trust or will that this is exactly how it works. This is how much I'm going to draw down. This is where it goes if something were to ever happen to me.

1:05:36And this is how my money is going to be set up. Now, taking care of your kids in an uncertain world is a really important question to ask. We could have an entire podcast episode talking about this, but the best financial gift that you can give your kids overall is having a financial education. That's the most important thing that you can give them because if they know what to do with money whenever it hits their bank account or whenever it touches their hands, they are going to be much better off than someone who has just handed money. So that's the first thing I would definitely recommend you doing.

1:06:04Beyond that, one of the best places to pass on your assets is actually the Roth IRA. Most people, and this is not talked about enough on this show, but the Roth IRA is a wonderful way to hand down money to some of your heirs. But your trust is going to help you through that process. Your trust is going to be the way that you can figure out exactly how much money goes where, and you have that durable power of attorney to help you manage that. Now, planning for things like government deficits or things like that and technological change are really important. One is government deficits raise the real possibility of being taxed more in the future.

1:06:35This is why I like the Roth IRA so much. I am uncertain of where taxes will be in the future. And so because of that, we would have to rely and trust politicians to make the right choices going forward. And I just want to focus on the things that I can control, which is why I try to get as much money into a Roth as I possibly can. But diversifying across different account types is going to help you hedge against this risk, especially when there's policy uncertainty right now, you know, within the government and a bunch of things that are happening. Now, as technology advances, we're seeing AI advances for sure.

1:07:04And so preparing your kids for that is going to be really, really important. Even with my young kids, I've already started having conversations with them about AI. I've started to teach them how to use it. My son and I, like I talked about in the episode, we are working on a business idea where we're using AI for sports cards. And just getting them involved and starting to work through some of this AI stuff can be really important. But I want you to know this because I think this is the most important thing overall, Matt, is I want you to understand that you cannot plan for everything perfectly.

1:07:32It's not going to go perfectly, but you can do the best that you possibly can with just some of the stuff we just chatted about here. Getting some experts in your corner, making sure they can help you through this process is money well spent. It's going to give you peace of mind. It's going to give your family peace of mind because now they know exactly what's going to happen moving forward. So a trust is a great way. If you're worried about this stuff, a trust is a great way to make sure your dollars go to the right place. And education is a great way to make sure that your kids know exactly what to do with money, what to do with technological advances, and how to think about money going forward.

1:08:03The most important thing that you can do right now is getting the foundation in place, making sure you have the right accounts in place, and the structures in place. And that's done with a CPA, having an attorney in your corner, so that you can get this stuff done correctly. Retirement planning is really about three things all working together. and you are already thinking about this in the right way where you get your psychology in place, you get your investments in place, you get your spending and your trust in place. And when you get the stuff in place, it's very, very important. Now, I would again, highly encourage you to check out our retirement number planner.

1:08:33That's gonna help you just think through a lot of this stuff too, if you haven't used it already. It's at mastermoney.co slash resources if you have not checked that out yet. Listen, thank you guys so much for sending in your questions. Again, if you wanna send in your questions, join the Master Money newsletter by going to mastermoney.co slash newsletter. letter. And if you are looking to get your questions answered live like this every single week on our coaching calls, I would highly encourage you to join Master Money Academy. This is our community of people who are wealth builders who are working together for one common goal.

1:09:00We all want financial freedom. And so we're working together with people asking questions in there about their financial scenarios. We are sharing each other's wins. We are celebrating those wins. But also we have all of our courses in there. We have all of the coaching with me in there. And we give you a seven day trial in this podcast. If you want to check it out, you can check out the link down below in the show notes where you get a seven-day free trial. Join one of our calls. Check out some of the courses and see if it's right for you. If it's not right for you, you get to see behind the curtain.

1:09:27No hard feelings, no worries whatsoever. I am there to bring you as much value as I possibly can. Again, thank you so much for being here, and we will see you on the next episode. An employee's email signature might not seem like a big deal until audit season. Outdated legal language, missing disclaimers, unapproved edits. If If signatures aren't centrally enforced, you cannot control regulatory exposure. And the more your organization grows, the more that exposure scales. Exclaimer is email signature management built for IT. One dashboard. Centralized control. Audit trails. Visit exclaimer.com to start your free trial.