She’s 64, Broke, and Wants to Day Trade - Here's What I'd Tell Her (Money Q&A)

23:38Now, if they're not willing to leave whatsoever and you're making over$200 ,000 from your current home sale and you found your dream home, what you can do is a couple of different things. And here's four creative ways to do this is delay the closing is number one. So you would sell your house, you would go find a rental or stay with family for two months short term. And then you delay the closing until the new home is ready. So what you can do is either delay the closing for a couple of months. And that doesn't violate the occupancy rule. But it may not be ideal for the seller because they may want the cash now.

24:09That might be their goal overall. And the risk of interest rate changes while you wait could be the second part of that equation. Now, my assumption is that in the future, interest rates are going to go down. But Jerome Powell has kind of stated over the course of the last couple of months, that their goal is to reduce rates twice, but they do have flexibility currently, and they're not stating which way they are going to go. Originally, when the year started, their intention was to reduce rates. Right now, they are not sure what to do because of all the tariff nonsense and everything else that's going on all at the same time here.

24:38So there's a lot of things going on that could help reduce rates. But if I was a betting man, I would say they were going to reduce rates over the course of the next couple of months. Now, option two is to do a seller rent back agreement. So post occupancy agreement. So you can close on the house now and then legally rent it to the seller for a short period. This is one that I like a lot, a lot of deals I've seen done this way. And so this is common and legal, but it's only capped at 60 days to stay within those mortgage rules. And so either you can draft a post occupancy agreement where the seller becomes your tenant for a short time and they pay rent or it's deducted from the sale price, which is my favorite way to do it.

25:16And then you retain insurance coverage as the new owner. But the problem is if they want to stay more than 60 days, then your lender may not allow it under the primary residence loan. And so because of that, you would have to come up with some creative solution to make this happen maybe 40 to 60 days prior to them closing on their other house. So here's the deal is you would have basically some sort of letter of intent that states, okay, we're going to close 40 days before your home is ready. That gives you a 20-day cushion. And then you're going to close 40 days prior to they rent the home back to you for 40 days at a daily rate, and or you could do it at the rate of the entire stay.

25:53And then from there, if they breach that agreement, there is some sort of impactful penalty. Maybe they take a chunk off the price, maybe 5, 10 grand off the price if they actually breach that. And there's a couple of things that you can put into place there. Option three is you can buy it as a secondary home or investment property. Probably not the route that I would go, but it is an option. So if the seller insists on longer than 60 days, you can buy the house using a loan for a second home or investment property. The cons there are you're going to have higher interest rates and a larger down payment, and you would need to qualify for this type of mortgage.

26:24And then option four is to sell your house, rent in a short-term Airbnb and or corporate rental or furnish month-to-month apartment, and then close in a new home and move in when it's ready. And that is the one that you would have to have an agreement with first right of refusal on the home with the homeowner in order for you to even be able to do this. But you could set up the right agreement to put it into place that when the home is ready, then you can actually move into that house. Now, this is a big, big thing that a lot of people have to deal with, especially when folks are building homes and or they're trying to move into their next house.

26:54A lot of folks deal with this back and forth. Now, I asked for this. As a seller, when I was selling my home, I asked if they would rent it back to me and they said no. So you also have the power to say no. I don't know how competitive the environment is of this house that you're purchasing. But you can say, hey, I'm not buying this house unless you leave. And so then it's their job to go out and find a rental while the next house is getting done. So when they ask for this, a lot of times I would say no first and see what happens. And then beyond that, unless there's a bunch of different offers, and then beyond that, then I would go from there down the list of these options.

27:27And so the one we did was we sold the house. And then we waited a couple of months for a house to be built by staying. we actually stayed with family for two months. And then from there, then moved into our new house. But if we didn't have family in the area, I would likely have just gone out and rented a house. We had neighbors who were also building a house who went out and rented an apartment for a couple of months. They had a family of five and they just jammed into an apartment and made it work for a couple of months. It just depends on what you want to do. Because if this is going to be your forever house, it may be worth some short-term sacrifices to make all this work.

27:58So listen, I hope that is helpful. And if you have any other questions on that, please let me know. But I think that is something a lot of people have to deal with. And congratulations, by the way, on your home equity and even being able to have this option. That is absolutely amazing. All right. So the next question is from Emmy. So hi, Andrew, big fan of the podcast. I have a few questions for the next Q &A. You mentioned in your 136 method that you highly recommend a high yield savings account. Why do you not recommend keeping this in a brokerage account? The average S &P 500 returns are higher than most high yield savings accounts, which would help me hit a six-month goal faster?

28:34Or is it just to prevent needing cash in a bear market and incurring a loss? Number two is most retirement rules I've seen state that you want 75 % to 80 % of your pre-retirement income. Is this before or after taxes? And then the third question is, similarly, are there retirement tools out there that will take into consideration contributions to both Roth 401k and traditional 401k? It seems like many of these sites ask how much you're contributing, but never specify whether it's pre or post tax. Thanks so much for all the help. So hey, I mean, first of all, this is a fantastic question, three fantastic questions, honestly.

29:08And these are great that you are even thinking through this stuff. So let me go through each and every single one of these. So number one is why do I recommend a high yield savings account instead of a brokerage account for the 136 method? So the reason for this is you nailed it on your guess, is the goal of an emergency fund isn't for growth. It's for stability and access. And so because of this, the S &P 500 historically returns 7 % to 10 % annually, but it also has wild swings as we have seen during COVID or if you have looked at the 2007, 2008 recession. And if your emergency fund hits during a bear market, you can be forced to sell at a loss is number one.

29:45But number two is also your emergency fund is there for job loss, okay? Let's go back and look at the Great Recession, for example. This is an example in 2007 and 2008 where a huge portion of the U.S. workforce lost their job. And they lost their job, A, because the market was tanking. And so all of a sudden, everything started to collapse all around them. And so if you lose your job, and then all of a sudden you have a six-month emergency fund, and what happened during that time frame? Well, the market pulled back almost 50%. And when it pulled back 50%, if you had your emergency fund invested, you would only have half of your emergency fund in place.

30:20So let's say, for example, you had a six-month emergency fund. All of a sudden, now it is a three-month emergency fund. And so you have that three-month emergency fund in place, and you're going out and looking at a job when jobs are scarce because everyone else is also getting laid off and nobody is hiring. And so this is a situation that you definitely do not want to be in. And or what if a different emergency comes up during these timeframes when there are pullbacks and then you had to sell during those pullbacks. So it is definitely a risk. We always recommend, you know, if you're going to utilize emergency money, if you need to have that money available at any point in time, then you always want to keep it in a safer place.

30:55And so that's why we always talk about that, because a high yield savings account earns a safe, predictable three to four percent right now at the time recording this and ensures your money is there when you need it. No selling, no losses, no stress. It is just there. So, yes, it's about avoiding the cash crunch in a crash scenario. And that is the main reason for that. Okay, second question. The retirement rules that say you need 75 % to 80 % of pre-retirement income is that before or after taxes. So this number is based on your gross before tax income. But the idea is that in retirement, many people no longer pay for things like payroll taxes or mortgage payments or work-related expenses.

31:33So their actual spending is going to drop. But that said, your personal target should be based on your actual lifestyle costs, not a blanket percentage. And so to think about this, I would use the 80 % rule as the starting point, but then build a more personalized number using your personal real expenses. And so because of that, you got to think through what you want out of life. This is why we talk through kind of some of the dream scenarios. So you can build out a dream scenario of what my dream retirement look like. What would I be doing day in, day out, and how much money I would be spending?

32:02So I know, for example, for me, I would shift. If I was completely retired, I was not working, which I don't think will ever happen. But if I was not working and I was not doing something day to day, I know I would be spending more money in certain areas. An example of that would be golfing. I love to golf. I am a terrible golfer, but I love to do it. It is so fun for me to go out and go golfing. I don't get to golf as much as I want to. And that's because I have a lot of things going on at the same time. But I absolutely love doing it. So if I was completely retired, I know I'd be spending more money on golf.

32:31I'd be researching clubs. I'd probably be buying clubs. I'd be playing golf a lot more, which is not cheap if you haven't looked lately. It's like 50 bucks every time you go play in my area. And so that would be a scenario where I'd be spending a lot more money in certain areas. So if you have hobbies or you have interests or you have things that you know you'll be doing in retirement, make sure you're factoring some of those numbers in. Maybe you want to travel. And that's another thing that I'd probably be doing is traveling a lot more. And so if you want to travel, that's an expensive thing that you would have to add into your budget and go look at that.

33:01So look at some of the things that would shift also when you hit that retirement number, just to think through how you would have your dream retirement scenario and then see what you can leave out. Maybe you can afford anything, but you just can't afford everything. And so you just got to make sure that you understand which of those things to pull in and pull out. And then are there retirement calculators that account for Roth versus traditional 401k contributions? So most online tools are overly simplified. So my friend Rob Berger actually introduced me to one of these tools. And one is called Bolden, B-O-L-D-I-N.

33:31It used to be called New Retirement. And so Bolden will let you input types and run the clearest path that can simulate your withdrawals and tax impacts more accurately. So the thing about Bolden that I like is that it has a lot of advanced features that a lot of other tools don't. Now, the thing about Bolden is it does have a cost associated with it. And so if you want some deeper stuff, you're probably going to need to pay a little bit more. I think Bolden is about 12 bucks a month to B-O-L-D-I-N. I have no affiliation with them, but I have used them in the past before and they have some pretty robust tools that you can use.

34:06Also, another one that you can look into is Empower. And so Empower kind of helps you with a lot of this retirement planning as well. But that's the way I would think about that is kind of using some of those more powerful tools. If you're thinking about it as much as I think you are, then Bolden is more than likely going to be worth the cost for you. But I think you could test it out with a free trial and they do have a free tier as well, a basic tier, which has their retirement calculators. And it's a great way to kind of put together, you know, a mini plan there. But at their$12 tier, they have a lot more.

34:33They have, you know, detailed charts. They have Monte Carlo analysis. They have detailed budgeting and income planning. So all this stuff we're talking about right now, you can actually do inside of Bolden, which is kind of cool. So all of those things are to say, I think you're doing a great job thinking about this kind of stuff. And let me know what you decide on the emergency fund. I'd like to see if you think it's worth the risk to try to get growth faster. For some people it is, for some people it isn't, But it just depends on what you are trying to do in your current situation. So thank you again for those questions.

35:01Those are great. If you have any others, please reach out. All right. The next question is, I'm a 28-year-old and my mom is 64. And she's been a single parent focused on caregiving and survival and hasn't had much chance to build retirement savings. She recently mentioned being interested in day trading because she feels like time is running out. She's a registered nurse, started a side business as a grief coach, owns her home, and still financially supports two of my siblings. She does have a 401k and a Roth IRA, but I don't know the balances. What's your tips for someone who is older, has limited retirement savings, and is feeling pressure to catch up quickly?

35:36So this is such a powerful and important question. And first of all, kudos to you. It sounds like your mom kind of had to take the reins and as heroic as she cared for others her entire life. And so there's a lot of big things that we got to talk through here that we can chat and kind of think through for your mom to consider. One is avoid day trading. Okay. Day trading for most is not the answer. And if you've ever heard me talk about this before, I used to think day trading was the answer. When I was really young, I would day trade and I would lose every single time. And I was very well educated on the subject and still did not make what everyone promises that they would make.

36:09So day trading might feel like it's a shortcut to catching up fast, but it is one of the riskiest and least reliable ways to build wealth in my opinion. In fact, over 90 % of day traders lose money in the longterm and volatility is way too high and one mistake can permanently derail a fragile financial situation. So I remember when I was day trading, I would go out there and I would have a bunch of good days in a row. And then all of a sudden one trade just goes south and it goes south so fast that you can't control it. And so you have, oh, sure you have stop losses and those types of things in there, but you have these bigger losses that just don't make a ton of sense.

36:44What I always found with day trading was everybody can tell you when to get in and nobody can tell you actually when to get out. And so instead, I would focus on stable, long-term strategies that preserve and grow what she has, even if it's modest. Even if it's modest as a starting point, you can help preserve and grow that over time. Number two is I would get a full picture of her finances. So before making any decisions, I would help her get clarity on a couple of different things. How much is in her 401k and how much is in her Roth IRA? Secondly, does she own her home outright or does she still have a mortgage?

37:16If she owns it outright, that's a great situation to be in and a great starting point. Next is you got to figure out what her monthly income sources are and what her monthly expenses are. So she has a nursing job. Amazing. She has a side business. And what is her social security estimate? So when it comes to your social security estimate, you can go to ssa.gov and enter in your information and they will give you an estimate of how much you would make in social security. So she's already at the age where she could start taking it if she wanted to. And so that's going to give you the baseline numbers.

37:43When you know how much social security you're going to be getting every single month, then all we need to do is fill in the gap. Now, let me give an example of this. Let's say, for example, that she needs to have$6 ,000 per month. I'm just throwing a number out there. I don't know what she actually needs, but let's just say she needs$6 ,000 per month to lift. Well, if you go to ssa.gov and you log in there, and if she's been working a long time, she might have a decent amount coming in in Social Security. So let's say, for example, that she has$3 ,000 coming in for Social Security. We don't know exactly what she has.

38:14It's probably closer to like two, 1500 to 2000, somewhere in that range, maybe it's 2 ,500. But let's just say, for example, for argument's sake, to make the math easy, let's just say she's got 3 ,000 coming in and she needs another$3 ,000. Okay. So if you need another $3 ,000, then you need$750 ,000 invested. That is what the 4 % rule would state in order for you to draw down on your portfolio. That's what it would state. Okay. Now, a lot of retirees don't need that much, but it depends on where you live and your location and all those different things. So you want to get a full picture of where you start.

38:47And it's again, how much is in the 401k and IRA? If her home is paid off and owned outright, that's going to reduce her expenses. And then what are her monthly expenses and income sources? So she's got those income sources and how much is she going to have in social security? Those are big, big things to understand. Now she's able and healthy enough to work a few more years. Delaying that social security could be helpful. And if you delay it till age 67 to 70, it could boost her lifetime benefits significantly. And ssa.gov will actually show you those numbers, which is great when you log in there.

39:17And then continuing part-time work as a nurse or expanding her grief coaching business could provide income well into retirement, especially online. So that could be very, very helpful as well is you can set up things, you know, to help people with grief coaching, for example, online, and you can expand your business much more than even locally. So if She's only working locally. Doing this online could be really, really helpful. And it could turn the timeline of three to five years left into maybe 10 to 15 years of flexible income, meaning she can make her own schedule. Maybe she works one to two days a week, which will relieve a lot of pressure going forward.

39:51I think the business of the being a grief coach could be the place to kind of spend some additional time. That's the place that I would think about this is how can I make some extra income that will fill in the gaps? Because once you know those gaps, let's say, for example, we keep our example rolling. She has$3 ,000 coming in. she needs another$3 ,000. Could she make$3 ,000 per month as a grief coach to fill those gaps in? That is the big question. Now, the social security would get impacted by the income. So we just have to weigh all of these different things out. Now, number four is to keep investing consistently.

40:20So as time goes on, continuing to use things like low cost index funds and target date retirement funds inside of her 401k and IRA is a great move for most people. And then just sticking to a balanced portfolio. And maybe it is, you know, like we talked about in the earlier your question. Maybe it's a 60 % stocks, 40 % bonds. Maybe it's a 70 % stock, 30 % bonds. Or if she wants high growth short term, looking at some other aggressive portfolios is another thing that you can do, but it has to fit your risk tolerance. You have to stay invested long-term in that portfolio. And again, remember, you can withdraw at least 4 % every single month in retirement.

40:55So she's at the age where she can easily withdraw 4%, probably a little bit more, depending on what her tolerance is. So however much she has in there, let's say she has$100 ,000 between her two accounts, she can draw down$4 ,000 additional per year from those accounts to help fill in some gaps. Now, if your mom is still supporting two children, I don't know the situation there, but if there is a way, if they're adult children or if there's a way to create a transition plan, that could be great. If they're not adults, obviously, you know, she wants to continue to care for them. That is great. And she may, in her situation, she may also benefit from just talking to a fee-only financial planner, meaning someone who could set up a financial plan for her to help her through some of this transition because she has so many variables and factors coming into play.

41:39That could also be very, very helpful. But your mom's story is heroic and she's cared for others her entire life. So the next chapter is about caring for herself and doing this not through risky shortcuts, but through smart, intentional steps that preserve her wealth and can help preserve her peace of mind. She does not have to get rich quick. She still has some time here, but she needs just a plan for a clear path forward. That is going to be the big key overall and the way that I would think about this. So those are just some of my thoughts on the situation. But if you have any other questions, please reach out to me and I'll help any way I can.

42:12All right. The last question is from Jeremy. So I'm 47. I make$100 ,000 and I contribute 15 % to my 401k, which has a balance of$470 ,000. Amazing, amazing stuff there. My employer matches 6%. I have no consumer debt, a$200 ,000 mortgage, and a three-month emergency fund. I don't currently have a Roth account, and I'm worried about going into retirement with no tax-free income. Should I lower my 401k contributions to 6%, max out my Roth IRA in my 50s, and slowly bump the 401k contributions back up over time? All right, so great question, Jeremy, and this is an amazing way to think about this. And the answer is I would definitely consider it.

42:51Now, again, this is not financial advice, but I would definitely consider that because it's a smart tax-diversified move that you could be doing. So you're in a great financial position. You have no debt outside of your mortgage. You have that$470 ,000 in tax deferred savings. You have a healthy income and 15 % contribution rate, and you have that emergency fund in place. So this is a strong foundation, and now it's time to start to optimize. So right now, your entire retirement is in pre-tax money, which means it will be fully taxed in retirement. So that's one thing to consider. So this gives the IRS a lot of control over your future income, which is why I like the Roth IRA so much is because if tax rates rise, your withdrawals could cost more than expected in a 401k.

43:31Whereas in a Roth IRA, you've already paid tax on that money. You're not going to be paying taxes again. And so you thinking about this, that is a great way to think through this. So adding the tax-free bucket, which is the Roth, gives you that flexibility and control over your taxable income in retirement. Having flexibility, as you know, I talk about this all the time, is one of the biggest keys when it comes to retirement. And so this is going to give you an additional bucket of that tax-free growth. So you can research something like this, is having this phase strategy of dropping a 401k to 6 % to get the full match and then use that freed up cash to max out a Roth IRA, which is$7 ,000 at the time of recording this.

44:07If you're eligible for the thousand dollar catch up, and then you're going to be eligible for the thousand dollar catch up starting at age 50, which will allow you to start contributing 8 ,000 plus it'll probably be higher on the limits by then, uh, which would be great. And then between age 50 to 59, you can continue to max out the Roth. And since your limit will rise to$8 ,000 a year, once you hit 50, you can get more money into that account. And then you can gradually increase your 401k contributions as your income and margin allows. And so this way, you're building up a solid Roth IRA alongside your 401k to give you that flexibility when it's time to withdraw.

44:40Now, a bonus thing that you could do is you could consider Roth 401k contributions if your employer allows. So check your current 401k plan to see if it allows for Roth contributions because many of them do now. So most places have the Roth 401k options, not all, but most do. And you could split that 15 % into something like 8 % traditional 7 % Roth if you want to diversify inside of your 401k. And I would try to bump up this number. So if you could, I would try to bump that up to 20%. As most wealth builders, we want them to start to 20%. But you may be allocating dollars somewhere else as well.

45:12But that would accelerate the Roth balance without giving up employer match or contribution space. And so it allows you to kind of do both. So see if there's a Roth 401k option as a bonus. And then you can aim to access three different tax buckets. So you could think through the taxable brokerage account, which is long-term flexibility and lower capital gains. But if you plan on working until 59 and a half, then it's not completely required. Then you could think of the tax-free bucket, which is the Roth IRA, and then the tax-deferred bucket, which is your traditional 401k. If you have all three, you're in an amazing shape when it comes to retirement because you have flexibility in retirement.

45:45But amazing job so far. You are in a great spot. You're going to see all those portfolios are going to start to accelerate. And I would continue to kick up the savings rate as you get closer and closer to retirement, depending on how much you need. Also, you know, factoring in social security and thinking about that number as well is going to help you decide on what number you need to arrive at. But you still have tons of time to build wealth here. So that's absolutely amazing. And I love, I love, I love what you're doing here and how you're thinking about this. So congratulations again to you, Jeremy, on building up that wealth and you are in a good spot to really accelerate it here.

46:18So really excited to hear what you do. So if you have any other questions, please let me know. And thank you all for listening to this episode of the Personal Finance Podcast. Again, if you have any questions, please reach out to us via the Master Money newsletter. We will answer as many as we possibly can on the show. And thank you for investing in yourself because that's exactly what you're doing when you listen to this podcast is you are investing in yourself. And don't forget to check in to join Master Money Academy. We will be launching that very soon here and really, really excited for that.

46:48So if you want to join Master Money Academy, get ready for that. It is going to be the best place to learn about wealth building and having a community of wealth builders. So really, really excited for that. Thank you so much for being here and we will see you on the next episode.

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