Think Differently. Solve the Impossible.

 

 

Show Notes

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Transcript

 

My guest today is Jeb Jarrell.

Jeb has a master's degree in financial planning.

He's a certified financial planner and the founder of Plentiful Wealth, a financial advisory firm with a focus on retirement planning.

Over the last decade, Jeb has had the privilege of working with diverse clientele, ranging from college students to ultra-high net worth individuals.

His mission is to demystify the world of finance.

He does this by breaking down jargon filled complicated topics into easily understandable concepts.

Concepts he says you need to be able to understand if you're going to be financially successful.

Please welcome Jeb to my show.

Welcome Jeb.

Daniel, thanks for having me.

I'm excited to be here.

So we talked a little bit before we got started about why I wanted to have this episode.

And I know people who are wanting to retire and they're in their 50s.

They have kids, some of them in college, but they're making good money.

They've saved their money well.

But how much money do I need and when can I do it?

When does it stop?

So let's work backwards by starting with them.

And then we'll also wheeze in some of the tips for younger listeners on how you can plan for the future.

Absolutely.

I'll just jump in and say finance is this really kind of weird world where it has this opacity to it.

And over the last 20, 30 years, my industry has made it so that we love using jargon, we love throwing out big words, all these different terms that frankly most people don't need to worry about.

Most people need to worry about exactly what you're talking about, and that is, have I saved enough to retire?

Am I going to be comfortable?

Do I have a plan for after I retire?

How am I going to spend that time?

And that's all they need to know.

And so to your point and to your question, the first thing is, how much are you going to need to to retire comfortably?

Start out by looking at what you're spending now.

And a lot of people don't have a budget.

I understand that.

There's no judgment.

I don't use a budget either.

I'm actually kind of anti-budgeting, but we can talk about that in a minute.

Start out with where you're spending now.

And I would always say, okay, look at how much money do you have coming in at the beginning of the month?

What's deposited into your account?

And how much is going out?

So real quick, I'm putting myself in their shoes.

It's easy for me.

I'm getting the paycheck.

You know how much is coming in?

How much is going out?

I think the question is, now I retired, so I'm not getting a paycheck.

How much money do I need in the bank and in IRA?

And still know what?

That's the question.

Totally.

But the thing is, you have to start by, to answer that question, you have to know how much you're spending.

Because how much you need in the bank is predicated on, you're spending $25,000 a month, you're going to have to have more save than if you're spending $2,000 a month, right?

And so you really need to have at least the start of knowing what you're spending per month.

You know, what I typically see on average is folks in retirement spend, and this is really a wide range, but between $4,000 a month to $10,000 or $15,000 a month, and that's after taxes, right?

$50,000 a year.

$15,000, $15,000.

No, not $50,000.

If you're spending $50,000 a month in retirement, I don't know what you're buying.

A year.

But, yeah.

$60,000 a year, about.

Yeah, right around there.

That's pretty average.

And so if you know how much you're spending per year, then there's a couple ways you can take that, or monthly or yearly.

You can back in from that number to what your savings needs to be.

I like doing it monthly, because I think the math works out a little easier.

Sorry, I do it this way.

For round numbers, if you're spending $10,000 a month, right now, while you're still working, and if you have kids in college, if you have any big expenses like that, that are going to change in retirement, back those out, right?

So say you're spending $10,000 a month now, and you're spending $2,000 a month supporting your kids, their early 20s in college, but you expect they're going to be out to payroll here in the next couple of years by the time you retire.

So that takes you down to $8,000 a month after taxes.

From there, you want to look at how much Social Security will you get.

Again, for round numbers, I want to say $2,000 a month.

So that takes us down to $6,000 a month, is what you need to cover from your savings, whether that's maybe you get a pension, maybe you have a VA disability, maybe you have something like that that's guaranteed, maybe you have rental income, maybe you have an annuity that's already paying out, whatever that is.

If you have income, that you would say is solid cash flow, you're going to subtract that out as well.

But going back, we're still at that $6,000 a month number, and say you're like many, many folks out there and you've saved well, all your money is in your 401k.

That's totally normal.

You're going to take that $6,000 a month, and you're going to multiply it by 12, you're going to get to $72,000 per year.

That's how much you're going to have to withdraw from your account to hit your spending goal.

From there, you can multiply it by 20 or 25, and I'll go into that in a second.

20 is easier to do in my head.

So for $72,000 a month in, sorry, $72,000 per year in after-tax spending, you're going to need to have right around $1.4 to $1.5 million saved in your retirement accounts.

So essentially, start out with what is your spending, subtract out guaranteed income.

That's where you're going to have to withdraw.

Multiply that by 12 and multiply that number by 20, and that takes you to what the lump sum number is that you need.

Perfect.

So about a million to a million and a half.

Yep.

And there's some benefits and some penalties to when you actually retire, but mostly maybe just in the social security, right?

Because if it's only the social security you're waiting to retire, it's really that number, the one, the one, one and a half.

That's really the, really the factor, right?

That really is what drives it.

As long as you get to the number where you're comfortable.

I mean, the other way of looking at it is saying, OK, and this is more common for someone who's, sorry, say 60 or 62, and they come in and they say, hey, Jeb, I want to retire tomorrow.

This is what I have saved.

This is what my social security is.

How much can I take out per year, per month, and not worry about running out of money?

And that's kind of taking the opposite approach, because if you take the first approach, where you're actually backing into how much you need, that's a better approach if you're, say, five to ten years out.

You still have some saving left, and you have more control over what that final number ends up being, right?

Whereas the second approach is just saying, I have what I have, and I want to make sure that I can get as much as I can out of that, but I want to do it safely.

I don't want to run out.

I don't want to have a great retirement until I'm 86 years old and 37 days, and then all of a sudden my account goes to zero, right?

In that case, you can look and again, you start out by looking at what's your guaranteed income.

Social Security is going to be the basis of your spending.

Then this goes into what's called safe withdrawal rates.

Safe withdrawal rates come from this Trinity study, I could nerd out about that, but I doubt anyone really cares.

What you really need to know is, you can take between 4 and 5% of your portfolio every year, pretty much indefinitely, around 30 to 35 years and not worry about running out of money.

That's the big takeaway.

And that's because you're probably going to make between 5% on average in the market wherever you have it invested.

You're taking out the gains.

Pretty much, yeah.

So you're saying if you're starting out with a portfolio, you're probably going to average around 6% to 7% on a balanced portfolio.

You're going to have stocks and bonds.

You don't want to be overly aggressive, but around 6% to 7%, call it 7%.

If you're taking out 4%, that's going to leave 3% left over for inflation.

And if you're making 4%, then you're essentially, like I said, taking out what you've gained.

The inflation is going to make your actual balance grow a little bit each year.

That way, what you're able to take out still matches inflation.

Let's talk about health care.

Because there's an age you can retire where you still have to pay your own health insurance, and then there's an age after which you get benefits from the government such that you really don't need to have health care in your budget in terms of insurance and getting hurt.

How does that affect the age, mostly I think the age when you retire?

Yeah, that's a huge part of it because you're exactly right.

So once you turn 65, you're eligible for Medicare.

Medicare, there's parts A, B, and D.

They all cover different things.

Part A is it covers your inpatient hospitalizations.

Part B covers if you're going to the doctor.

Part D covers prescriptions, that sort of stuff.

But once you're 65, you have to apply for it.

You're good to go there.

I will say there are some expenses along with that.

Some people decide to go for a Medicare supplemental plan.

There are some other options there depending on if you want to get the very base care or if you want to upgrade it a little bit.

But no, you don't have the same premium that you necessarily did while you were working.

Is it premiums almost nothing compared to your other expenses, right, at that point?

I mean, it can be a couple hundred dollars per month.

I mean, again, it depends on what level of care you want.

And then it also depends on how much medicine you need.

That's one of the big expenses that can come up.

But let's say you're not 65, let's say you're 60, then what?

That is a great question.

That's one I've been answering more and more often.

Because folks are getting to 59 and they're like, you know, I'm just tired of working, but they see health care because, you know, in America, we have this system and right or wrong where your health care is being changed.

You need to go in and reach into the self-employed, I get it.

Yeah, it's very frustrating and it's very convoluted.

And it's, I mean, I had a health insurance license for several years, and I never felt like I fully understood it.

I don't have it anymore.

I've never sold a single policy, but if I was licensed to sell it and I didn't feel like I understood it, I don't know how anyone should be expected to walk out and say, oh yeah, this is the right plan for me.

That's a whole nother thing, but...

Cost-wise though, mine is about literally $1,000 a month.

Yeah, it can be significant.

And if you're in that situation, really you have a couple of options.

When you leave, when you leave your employer, you have the option for COBRA for 18 months.

Typically, that's not a great option, though.

You know you have it.

You can check and see how much it's going to be, especially if you have a family, though.

It is exceedingly expensive because what you usually don't see, what most employees don't see is that their employer has been subsidizing the care over the last however long they've worked there.

So when you're on COBRA, you are paying the full price yourself.

And it's not necessarily the best policy for you.

It just happens to be whatever your employer has.

And so it typically ends up being way more expensive than what you need.

But if you're worried about insurability, that can be a way of continuing your coverage for that 18 months.

So basically, could you just figure out, okay, I'm going to have to pay $1,000, $1,500 for five years, because I'm retired in 60, I got five years, and just plan that into the budget and eat it?

Yeah, absolutely.

That's usually what I do for most clients early on.

Okay.

Or the flip side of that is we'll look at, depending on what their income is or what we expect, because it all comes down to the plan.

I talk about plans a lot, knowing the goals, knowing how much you're going to spend, and then figuring out, okay, for age 60 through 65, we're going to take money from these buckets, because tax wise, it's going to save some money.

We're going to keep their taxable income down.

But where that comes into health insurance is, since Obamacare came around the Affordable Care Act, there's some more options out there, and depending on your income level, you can actually get some really good subsidies.

So I've pointed a lot of clients in the direction of saying, hey, let's make sure that we're keeping your income level below the amount that you need to get a subsidy.

No, I hadn't thought about that one, because with the Obamacare, usually you think of low-income people, and these are people with a million dollars in the bank, and yet technically, at that year-

They're still low-income.

Yeah, the year they retire, they're taking out just enough to live.

Now, actually 50, correct me if I'm wrong.

If you take out 50, if you have 50,000 of taxable income, you won't qualify for Obamacare.

I think that's around 35,000 where it caps out.

I would have to look at the numbers.

It's a sliding scale.

And so what I typically do is there is a startup actually here in Louisville, and I'm blanking on its name right now, but I just go to their website, and they work here in Kentucky, and they work in some other states as well.

And you can put in your income, and you can put in basically some general health information, and they'll give you an estimate of what your credit will be.

And so we just kind of back into the number, knowing what they need to spend and knowing what levers we have to pull, and we just keep it so that we're, so that they have an affordable option.

The reason I know about the Obamacare is being self-employed and having my own insurance.

I broke my hip rock climbing, so it couldn't work for six months.

So I have no income for six months.

So that next year I could apply for Obama.

It was great, Obamacare, low $300 a month, health insurance premiums, good health coverage.

Then I went back to work because I decided I'm not going to claim disability and just sit at home and only have to be poor.

I have a lifestyle I want to support.

So went back to work, killed it, made a lot of money, and then I got my tax bill and had to pay $5,000 back.

And the Obama credit.

Because you can only make, it seemed to me at the time about, of course this was pre-COVID, pre-inflation, the way things are going, about 35 at the time.

So I think you'd have to check the numbers.

I think 50 might be pushing it.

And even if you could, you're not really getting as much.

I don't know if that's going to help you bridge the health care coverage gap that much.

But good idea, anyhow.

Well, no, I do this for my clients.

It actually does work.

So you take it like that.

Take it from the numbers you said.

So let's use the 50 number.

Are you single or married?

Single.

Okay.

So for a household, you're looking at 100,000 in income.

And if you're pulling money from non-taxable accounts, then you're only paying capital gains taxes.

It's honestly pretty easy to keep income under 100,000.

Especially if you're saying, okay, well, you have cash that you save back, we're going to cover one year of spending from cash.

We're not pulling from retirement accounts yet.

And so yes, you might be pulling 100,000 out, but of that, only 10% is actually capital gains.

And so your actual taxable income is still way below that threshold.

So that's where the tax planning comes in, that you need to make sure, okay, I have this spending need, but how can I pull that money out in the best way possible to meet that spending need?

And so keep my actual taxes low.

Perfect.

So let's transition into bringing the younger people into the conversation.

So you can see I need that million, million and a half number, and that's the number today.

By the time you retire, it's probably gonna be a little bit higher.

So what can they do?

Everyone will say, save your money, just put it in an IRA.

That sounds great as we've been discussing, but say now make it 100,000.

Also you have an auto payment.

Now you have a house payment.

You have student loans.

Student loans, which I'm gonna interject if any way possible.

I'm not a financial planner, but it seems to make common sense.

Try not to take those.

Am I correct in that logic?

Depending on the degree you're going after.

So that's my general approach is if you are going after something, if you want to be a doctor and actually, I even split it out and say this.

If you want to go to med school and you want to go into a high demand career with radiologists, if you want to be a cardiologist or specialty, absolutely.

If you want to go to med, if you want to go and become a dentist, dentists make 150 to 200,000 a year, but they still have three to four years of school or law school.

Law school is a terrible investment.

Average lawyer graduates with 150,000 in law school debt and they make $60,000 a year when they graduate.

Don't do that.

But if you're going to go to school and become an electrical engineer or a nurse or something that has immediate hireability that you have a solid career, it can be okay, but you just also have to be judicious with how you use it.

Just because you're...

In that line, let's say I was going to be an engineer, and I know the market's good for my...

Which actually, ironically, right now, software is not as...

It goes up and down, it goes up and down.

But long term, it's like financial planning.

You know it's got to come back.

Yeah.

So I'm in a career I know I can count on.

Should you, when you start to graduate, rather than put your savings into an IRA, pay down that student loan as fast as possible?

That depends on a couple of things.

So on my website, I actually have a basically a flow chart for how to approach this.

Couple steps there.

First thing, whenever you graduate, you want to make sure that you have some kind of emergency fund.

Start out a couple thousand, five thousand, whatever is comfortable, but you need to make sure that if a big bill comes up, that you're going to be okay because we all have flat tires, we all have that sort of issue.

So that's first before you worry about student loans or saving for retirement.

Next up is kind of looking at your what options you have for retirement.

So if you have a 401k through your work, they're probably going to provide a match.

You should definitely take advantage of that.

No question, match it 100 percent, max that out.

I would.

Exactly.

Yeah, exactly.

So get that full match.

Then that's when the real question comes in and you say, okay, I've made my contribution and so I have some money left over, which way do I go with it?

Then you look at what you consider your expected return.

This is the mathematical way I look at it.

If you're paying off a student loan, most federal student loans are somewhere in the 7-8 percent interest rate range.

That's high.

I didn't realize it was that steep.

Dang.

It's ridiculous.

If you have subsidized loans, it can be a little cheaper, but you know, that's a whole other thing.

But yeah, they're they're very expensive.

If you had...

To me, I'm an engineer.

Math.

Percentage.

It's easy.

That's 8 percent.

Even in the stock market, you're gambling if you expect 10 percent.

So that seems a no-brainer then.

I'm sorry to interrupt, but I would...

No.

No, that's where it comes back to the expected return.

That's exactly where I was going to go.

They'll pay it off.

Guaranteed 8 percent.

They'll pay it off.

Yeah.

But there are also other considerations there too, because it's not just pay it off.

Depending on what your time frame is, depending on what your cash flow is, sometimes it makes sense to go ahead and refinance from a federal loan to a private loan.

Sometimes, especially three or four years ago, when rates were super low, you could go from that 6 to 8 percent federal loan to a 2 to 3 percent private loan.

Now, you lose some protections there.

Neither of them can be discharged in bankruptcy, but you lost the protection of being able to some of the forbearance options there.

But the big thing is, if you're going to go ahead and try to aggressively pay it off, and you refinance to a lower rate, and you just try to pay it off just a bunch of money into it over five years, that interest isn't going to accrue nearly as quickly.

And overall, you're still going to end up paying a whole lot less.

Let's say I'm not an engineer.

I'm not working for a company that has a 401k.

I have to go to someone like you, Jeb, a financial planner, or do my own investing.

How should I invest for the future then?

I'm still going to go to the bank of a financial planner and open my own IRA, right?

Something like that.

How do I decide how much money to put in it?

We've got the student loan covered.

What else do I need to consider besides my rainy day fund and my lifestyle?

I guess maybe, could I ask you this?

Should we work the numbers backwards from that one, one and a half million backwards with the same scenario, but with somebody self-employed with half that amount of income, say $50,000 a year?

Yeah, absolutely can.

No, I don't have a financial planning calculator in front of me, so I'm not going to be nearly as good at this part.

But put it this way, I ran the numbers not too long ago.

Essentially, if you're looking at a Roth IRA, because especially early on in your career, when your income is going to be relatively lower, you're going to be a lower tax bracket, you want to go ahead and you probably want to use a Roth IRA.

What you're doing there is-

What's that?

Oh, Roth IRA.

Roth IRA.

Essentially, you're going to be paying the taxes now.

You're not going to get a tax deduction.

But the great thing is you leave that money in, and when you're ready to retire, it's going to grow.

All that growth is going to be tax-free.

Tax-free growth over the next 30 to 40 years is a pretty great thing.

Now, quick interjection here.

Direct me or tell me, the risk with the traditional IRA is if rainy day funds runs out, you get laid off, you need the money, you take the money out, you're doubly taxed on that heavily.

You're going to be paying, so there's a penalty.

It's not really double tax, but you will be paying regular, ordinary income tax just like you got it from your job.

And then if it's coming from a traditional IRA, then yeah, you're going to have a 10% penalty on top of whatever you're already paying, 22, 24, 32.

But not with the Roth IRA.

No.

So with the Roth IRA, as long as it's been in there for five years, you can take back anything you've contributed.

You can't take the gains out, but you can take your contributions back out.

You can also use those.

There's some exceptions for down payment for your first home.

There's also exceptions for education.

Nice.

That's basically a way to invest.

Instead of a savings account, that's where you put your money if it's really for retirement.

And you can take it out without getting penalized if you really need it.

So it's optimal.

The downside is you have to pay taxes on it first.

But you can also go with a regular savings account or a brokerage account.

I mean, so this is what I've done for some clients because right now, going back to student loans, they're in kind of a precarious place, right?

We'll see how the election goes, but it's not exactly straightforward as far as what's being forgiven and what isn't.

And so I have some clients that they have student loans, but they've also been saving really well.

And they're actually asking the exact same question.

Should we go ahead and just put all of our money towards that?

But we're afraid that we're going to do that.

And in six months, we'll get a call that said, hey, everything's forgiven.

This is why it's political because, hey, he got it for free.

How come I had to pay?

This is the problem with politics.

I mean, it's a good thing if you're one that gets debt forgiven, but if you're the one that's been paying it all off and your friends suddenly didn't, you're going to be at odds with them a little bit.

Totally.

So we're having a conversation.

Honestly, what we're doing for them is we're just taking that money, putting it in a brokerage account, investing it, and they're making monthly payments into that just like they would have been otherwise.

The difference is if they get it forgiven, and there's also a question because they're working in public service, they're thinking about going into public service.

Public service loan forgiveness is very unlikely to be going away.

Some of the other stuff that's come up in the last couple of years, that's a little more hit or miss, but public service loan forgiveness, you work for 10 years for a qualifying 5.1c3, or for the government, or for a charge, something like that, your loans are forgiven.

Essentially, what they're trying to do is maximize their optionality.

If they go to work for a public service position, they'll get it forgiven, they're fine.

If they don't, then they still have that lump sum, they have that account that all they have to do is just go ahead and take that account and pay the balance off.

Either way, they're in the best position, and there is an opportunity cost.

Don't get me wrong, they're making minimum payments on the loan now as opposed to completely paying it off quickly.

But having the optionality to know, I can go either way and your overall expected return is going to be higher, it's not a bad place.

Real quick, I want to talk about Social Security.

For the people with a million and a half in the bank, it's not a huge issue.

They can live or not live without their Social Security.

But let's say you're back down to the $50,000 a year income people, don't have an IRA, they're counting on the Social Security.

I'm just going to throw a couple of things out there maybe people haven't thought of.

For hypothetical, let's say I want to do Obamacare, not claim income, not make a lot of money, or I'm a small business owner, I don't want to report a lot of income, I'm going to claim everything as an expense, not make any money, so I can get Obamacare, not pay taxes.

I think what they haven't realized is, then they're not going to get Social Security because Social Security is based on how much income you report and are taxed on every year in your life.

So if you're always never making money when you're young working because you're doing that kind of side hustle, not reporting all your income, or you do, but it's after expenses so that it looks like you don't make enough money, you can't really count on Social Security because on paper, you put nothing in it, correct?

Yeah, absolutely.

And honestly, there are quite a few drawbacks to that.

And let's be real, business owners, I'm a business owner.

We all have seen the gig where it doesn't matter what happens, you basically break even at the end of the year, right?

But there are a couple of problems with that.

The one you pointed out as far as social security goes, that's a huge one.

That can be a pretty big surprise when you look at your Social Security Earnings Report.

And then you have no IRA.

You're still like, I didn't have an IRA.

And now, oh, because everyone's like, you have Social Security, don't worry about it.

I'm like, yeah.

Yeah, maybe you marry someone that has it.

I don't know.

You get half of theirs.

But the other thing there is being able to get loans.

If you want to buy a house, if you want to buy a car, and you show, you know, you might have lived really well for the last five years, but you show essentially, you know, three dollars a year of income, and a bank's going to look at you and say, why are we going to loan money to you?

And so that's another issue for young entrepreneurs that, I'm not saying overpaying taxes, but it is a worthwhile investment to make sure that you are, you're paying everything, that you're recording your income.

Report it fairly.

Just report it fair.

Exactly.

And then you could still be in a conundrum if you reported it fair and you just didn't make as much, but something to be aware of, you can't count on social security like some people will, some people are, some people get two thousand a month in social security.

You can't count on that unless you're making a hundred thousand a year your whole life, and you're also paying taxes on a hundred a year, right?

Yeah, and so that's where you also see once folks get in to say they have two hundred thousand in income per year from their job, from their corporation, from their company.

At that point, and this is a tax question, talk to your tax advisor, I'm not giving advice here, but they go to an S Corp setup, so that way they're splitting apart what's their W2 income from their job, and then what is their actual ownership, dividend, payout, bonus, essentially.

The benefit here is, though, you can set your income from the job on the W2 side around $120,000, $130,000.

You're going to pay in, max out your Social Security on that, and you will have to pay self-employment, or you want to pay self-employment.

You'll have to pay all the Social Security taxes, but on the remainder that you're taking as your ownership draw, you're not going to be paying the FICA, FUTA, all that stuff, all the self-employment stuff there.

So that's once you get to the point where you do have a pretty decent income coming from a side hustle, coming from just being self-employed, you want to make sure that you have someone looking at your taxes and saying, hey, okay, yes, we can minimize your taxes this year, but there are ramifications on down the road, and these are what those are.

So know that there's a cost and a benefit to each of them, and that way you can make a fully-informed decision with knowing the long-term ramifications.

And that decision would be to form an S-Corp?

An S-Corp operation?

It can be an S-Corp, it can be an LLC, it can be taxed as an S-Corp.

Well, an LLC, you would still have to pay taxes as a normal individual.

But with an S-Corp, it sounded like that was a good idea because then...

Well, LLCs can be taxed as S-Corps.

It's an election.

At that point, it's not a legal entity.

You're actually just filing, it's an IRS filing.

And then you're electing to be taxed as an S-Corp.

So yeah, you can call it LLC sub-S, just anything like that.

You don't even have to set that up special.

You just tell your tax person to file you as an S-Corp.

Yep.

They will file the election form and you will be paying taxes as an S-Corp going forward.

Wow, that's cool.

I figured you had to actually transition your LLC into an S-Corp or C-Corp, which is kind of confusing.

I forget the differences, but we're going to stick with S-Corp.

Yeah.

Totally agree.

Okay.

What is veteran reintegration?

Veteran reintegration is how do we take folks who have served for to be as short as a year or two, maybe they did one tour, they did one enlistment, or it could be someone who served for 30 years.

How do we get them reintegrated back in society and say, hey, thank you for your service and we want to make sure that you have the skills that are ready to jump into whatever job you want for that next chapter of your life?

Because the military is a really weird place.

I say weird because it's set up that you're kind of micromanage, you're told when to be aware, wearing what uniform and what you're going to be doing.

And don't get me wrong, there are times when you have to think outside the box.

But for the most part, some people joke about being institutionalized.

And it's kind of fair, right?

As a microcosm of the overall society, it's an interesting place because, for example, I remember I only did a couple of years, but I was sitting in an office one time and at the time I chewed tobacco.

And I'm sitting there, I'm a private, private first class and I'm talking to a colonel.

And I'm just chewing and spitting the entire time.

And I didn't think anything about it.

You didn't see his insignia, his rank.

Oh, no, I knew, I knew his rank.

But it was okay because, you know, in that time and place, tobacco use was okay.

It wasn't a big deal.

Whereas if I had tried that at a corporate job, I don't know, it would have been really awkward for a little bit because it's just a very different environment, right?

So reintegration is taking someone that was in the service and you want to make sure that they have the skills that they need, whether that's from a technical standpoint, or maybe it's a soft skill, and it's just making sure that they are comfortable and ready to jump in because again, it's totally okay to be, abrasive is not the right word, but be very direct in the military.

Then financially, how does, is there something special with veterans in terms of bringing them?

It depends on their situation because everyone's different.

A lot of folks that come out have some VA disability because they were hurt during their time in.

That can range from a couple hundred dollars a month or they can be fully disabled at, I think it's around 3,000 a month.

There's that.

There's also looking into health care.

If they are retired, then they're eligible for tri-care, and so they're not going to have to pay for health care for the rest of their life.

There are different things to think about there.

Where is the majority of veterans these days?

What's the demographic, and what are the issues they're facing in terms of financially, and what you might on the show suggest for them?

I think financially, the biggest thing is when a lot of veterans get out, because the average person gets out after two, four, six years, but most people don't spend an entire career.

They're getting out.

Take someone who spent six years in the military, they join when they're 18, they're getting out at 24.

They have the GI Bill, so they can go back to school and they can do that.

But it's hard because I was in this place for a bit, that I looked around and I saw my peers that I graduated high school with, had already spent two or three years in employment.

They already had jobs, they already had, it felt like I was running a race to catch up.

I think that's where a lot of veterans feel like, I'm behind because I see where other people my age are, and I have to catch up to that.

I hadn't thought, I can completely put myself in those shoes.

I think if I was a veteran, I would try to remember for myself, you know what, man, you worked for it, take a break, take a year off.

Like the saying in college, people used to go backpacking for a year after college, and just release and get rejuvenated.

I was like, man, take a year off and don't worry about it.

My biggest regret was that I went immediately back to college, and I should have taken a year.

So I left, left the army.

I was stationed in Monterey, California.

I was really lucky.

Whenever I got out, I left there on a Thursday morning.

I got back to Kentucky that Saturday night, like midnight.

Monday morning at eight o'clock, I had a job interview.

And from there, I've been working ever since.

It's been 10 or 12 years.

Yeah.

And so it's been good.

I mean, I finished up my school.

I did all that.

But I regret, my biggest regret there is not taking a year or even six months and living out of my car and just, you know, kind of boondocking and going from crag to crag, chasing the seasons.

I got into climbing my last, probably my last semester.

And, you know, we talked about this via email, but I'm two hours from the Red River Gorge.

I mean, go down there, spend the fall, spend October.

You know, as it gets colder, go down.

I hit some of the Chattanooga or somewhere, you know, further south.

Like, I regret not doing that.

And so I think that's where a lot of veterans are, just like you said.

And you have to really step back and say, you know what?

It doesn't matter.

It doesn't matter what someone else is.

You're lucky to be alive.

You're lucky to be healthy.

Maybe some of you aren't.

And mentally, I'm sure health wise, we could all use some help.

But let's say you take the year off, you ride your bike around, sleep by your car, back to the financial planning.

OK, now what do I do with the rest of my life?

Maybe I go to school.

What's the rest of the picture for them to get to that one and a half million number?

Or do they need to worry so much because they can subtract?

They don't have to worry about their health care.

What else do they not have to worry about?

And what do they need to really still go?

OK, maybe I need an IRA again.

Now I'm back in society.

Yeah, I mean, the biggest thing there is just figuring out what's your career going to be?

Are you taking skills that you learned in the military?

Or do you need or do you want something different?

Do you want to completely change?

And then, you know, just like anybody trying to figure out a career, you have to figure out what's the intersection between what I want to do, what I can do, and what I'll get paid to do.

And so you figure that out.

And then at that point, honestly, financial planning is not much different from anybody else.

It's just it is kind of the same as other than health care.

But even then, most folks that get out of the army or the military in general, they don't have health care.

They don't have the tri-care.

That's if you're retired.

So if you spent 20 years in or if you got a medical retirement, then yes, you have that.

But if you served for two years and you got out, you don't have that.

But what you do have is you have great educational benefits.

You've got vocational rehab.

If you happen to have some disability, you have the GI bill.

If you just had your normal enlistment, and the GI bill is an amazing, amazing opportunity.

You can go to school and pay for my master's degree.

It will pay for undergrad.

It will pay for, depending on how efficient you are using it, you can use it for undergrad and part of a master's.

It's going to pay you while you're in school, and it's tax-free while you're in school, tax-free income.

And so there's a lot there that you can do to make sure that you're going to get as much as you can, because let's be real, the government is going to get, they're going to get their dollars out of you, they're going to get their value out of you.

They always do.

You want to make sure that you're getting what you earn back.

And so in that case, yeah, I mean, find what you want, find what you love, find what you can get paid for, and then study that.

But before we close out, the last thing on my mind is credit card debt, and of course auto payments, which these days is getting staggering, how much, not even as insurance, but just the cost of buying a new vehicle.

Real quick for most people all over the demographics we've spoken of, what's the, is there a general advice for auto loans?

I guess it's relative to your income and credit card debt, which is probably the same for no matter what your income, right?

What's your take on credit card debt?

So for just looking at debt in general, you want to make sure that your debt to income is typical, typically under 30% of your income.

And so whenever I say that, I'm talking about housing, student loans, credit cards, cars, all of it.

Whatever your monthly payment is, you want to make sure that it's essentially a third of your overall income.

And then your rent's probably the other third or half these days, right?

Well, that was taking into account housing.

So if you have a mortgage, P&I, that sort of thing.

But yeah, I mean, rent, typically you want to keep rent under a third.

Same thing.

So you can kind of back into that number again.

Credit card debt, you want to get rid of that as soon as you can.

I mean, zero is better.

The best is zero.

Why is zero credit card debt the best?

Because credit cards are expensive.

When you're paying 25 or 30 percent interest per year, I mean, that adds up quickly.

So you get the idea of talking to someone who pays your credit card down every month.

I keep zero balance and pay everything off.

So I never have to look at what the percentage is because I'm not paying any.

Yeah.

People ask me why I do that and why I use a credit card.

Well, it's convenient and it's given me credits, building my credit score.

30, 20, 30 percent?

I thought that was a penalty percentage.

That's the number?

There is.

So there are some that are going to be 15 or 18 percent.

Don't get me wrong.

But yeah, you can absolutely see plenty that are in the 20, 25, 28, 29 percent range.

I mean, it's not unheard of.

That's hundreds of dollars a month when you start getting out there.

What about at this point, just putting it in perspective, you are not, if you do nothing else, you're not paying, but if you're just taking 30 percent per year, in two and a half years, your balance is going to have doubled.

Exactly.

Okay.

So that's an easy one, people.

Zero, no matter what your IRA, no matter if you're a veteran of the military or retiring or young, zero credit card debt.

But I do want to emphasize, because you made a really good point, there are really good reasons to have a credit card and to use it.

But keeping the zero balance is the important thing.

But you're building your credit, that's always great, because if you want to go and get more credit later, if you want to buy a house, or if you want to buy a car, you're going to figure out your credit score.

A big part of that is showing history of credit use, on time payments, all that stuff.

You also want to make sure that you aren't missing payments, because if you have one missed payment, that's going to make a big difference.

Oh, that's the biggest thing.

They're really tricky about that.

Even my new car loan I just got, when I'm at the dealer, I'm asking them, when can I expect in the mail, the payment booklet to make the first payment?

I mean, I want to know right now.

Like, oh, you get it in the mail.

The first payments do a month, and the first payments not do for like two months, no worries.

I literally got it in the mail the week before it was due, and I had been out of town, so what I did was actually called on the paperwork, I called the dealer, I'm like, you have to tell me who's got my loan, and who I call, I just call Bank of America.

I'm like, I just call Bank of America.

Yeah, and actually that worked, Jeb, because I told, because they found me.

Then I made a payment, my first payment using my checking account routing number, which fortunately when I travel, I always carry one check, so I know my routing number in case I have to do something like this, make the payment on time.

I've got mine memorized, so I understand.

Then it also goes to when you have credit, actually using a credit card is more protective for you if your number is stacked or stolen or hacked.

Because let's be real, that's part of life these days.

It's not fun, but when you use it online, when you use it in gas stations, skimmers happen.

There's so many credit breaches that we have no control over.

By putting that on the credit card company, you have a lot more protection if you're using a debit card there.

Then finally, it's just credit card points.

I mean, if you're smart about it, you can, especially if you're paying it down, honestly, that's free money from the credit card company.

One percent.

One percent a year, yeah.

But you're not going to, you will still get that one percent because the way it works even, because I use points for my Southwest and my REI card.

I pay it off every month, but if I spend $100 or $1,000 a year, REI, sometimes I'm a client or whatnot.

I'm getting that one percent back even though I paid my card off.

I still get the bonus.

The way it works on the back end is, a lot of people don't know this, the credit card companies are charging REI and your merchant.

Wherever you use a credit card, it's the people you buy stuff for that actually pay that extra fee.

We won't get into the banking department.

Now we are because so many places are pushing that off on the customer.

Everywhere you go now, oh, there's a $3 credit card fee or 3% processing fee.

They think that the merchant is trying to just milk them for 3% when in fact, the merchant, and it's actually 5% by the time you take in to all the other, it's like FedEx, you mail something and all the surcharges.

So when you use your credit card, this is why the coffee shop, a small coffee shop doesn't like it.

They're paying 5% on that, on what you just, they have to pay it.

But if you're using a card, oh yeah, I get 1% back at the end of the year, you're happy.

That's the way the world goes around.

I'm not trying to change it on the show.

But just, so pay off your credit cards.

What about auto loans?

Tell me about how big of auto loan, I guess that's the third of your budget maybe, is that how you model it and one is too much?

No, so that still falls under that third that's going towards housing and all debt.

So that's all debt, any of it.

Honestly, the biggest thing there, there's not a hard and fast rule.

It really comes down to building in what you're comfortable with.

So there's a couple of things when you're looking at buying a car.

You've got your down payment, you've got how much you're going to finance, and on that part you're financing, and you have your whatever you're paying in interest per year, and then you have the term for how long that loan is going to last.

So make sure that if you can, make the biggest down payment that possibly you can.

So it's going to minimize how much you're financing, that's going to minimize how much you're paying in interest.

The other thing there is figure out how much per month can you afford.

You don't want to take an 84 month loan on a car.

I think it's fine to finance for 60 months, 48 months or shorter.

Those are, that's okay.

That was going to be one of my big questions to you.

If we can nail down at least not how much money, the length, the maximum length you should borrow for, like, can you just say 60 months?

Yeah.

I mean, a lot of that goes back to how long do you plan on keeping the car.

But I want to actually say that all of it goes back to that.

But if you plan on keeping the car for five years, and personally, that's about where I am.

I'm okay with financing it for that time.

But again, that goes back to what's the interest rate.

My last car, I think I had a 1.6% interest rate, and so I didn't put an extra dollar towards that because I knew, essentially, inflation was outpacing the interest on my car loan, making it cheaper year by year.

Whereas now, interest rates have changed.

I think I've got a 7% interest rate on my car now, and I don't want to have that loan anymore.

So situations change, it depends on where you're at.

But big picture, you know, for your payment, how much are you comfortable paying?

You know, 20% of car loans these days have a payment of over $1,000 a month.

And that's crazy to me.

That's more than my first house, first house payment, like significantly more than my first house payment.

And you're buying a depreciation, depreciating asset that's going to be worth less in the future than it is when you buy it.

And so why do you want to do that?

You could be putting that money into your IRA.

You could, or you could just be enjoying it, because let's be real, the enjoyment you get out of a car that you paid 40,000 for versus the car that you paid 80,000 for is not twice as much or half as much.

So it's just kind of figuring out what's comfortable for you, what fits in your budget, and what's not going to stretch you, because if you get a bigger, nicer car, you're going to have increased insurance costs.

You're going to have, if you buy that big SUV, you're going to have more gas that goes into it.

And so you have to take all that into account and figure out what am I comfortable with and what is not going to stretch me, because you don't want to be car poor.

You don't want to be sitting there saying, man, I got a really nice car in the driveway, but I can't afford to put gas in the truck.

I don't have gas, right.

So.

Nice.

Well, we've covered a lot, and I still have questions.

How can we vet a financial advisor?

We have more questions.

And learn about the difference in the types of investing, and there's different types of advisors out there too, right?

How do we do that?

So first thing I would look for if I was looking for an advisor, and you know, when I'm ready to retire, I'll tell you, I will be because I'll even kind of back up before I answer your question.

And it's a good one.

It's figuring out, you need to figure out, do you want to handle things yourself or do you want an advisor?

Because honestly, a lot of people can handle their stuff themselves, especially if you're working and you're essentially just saving.

You're not making any decisions on the distribution side.

It's not that big of a deal.

I mean, you can really just put your money in the S&P 500 or, you know, my friend got me to go on Charles Schwab and open account.

And I put just a few thousand dollars in there for a year.

Just sit in there and finally, Dan, you have to do something with it.

It's a little fun, but I'm only playing with, you know, a few thousand dollars.

But I'm doing it myself.

Yeah.

I mean, people absolutely can.

It's not rocket science.

There's one rocket scientist on this podcast right now, and it's not me.

So it's nothing that you can't learn.

If you have the time, you have the inclination, and you have the ability, you can absolutely do it yourself.

If you say, you know what?

I don't have any of those three, because you have to have all three of them.

But if I've got kids and a mortgage payment and student loans and I'm married and, you know, I've got...

It's time.

Yeah, I just don't have the inclination.

You need somebody to help you with that.

I don't have the inclination to do it.

I want to hire an advisor.

A couple of things you want to look for there.

First, you want to make sure that they have the education to actually give advice, because one of my biggest issues with my profession is that it doesn't take a lot to call yourself a financial advisor.

There's actually no regulation on who can call themselves one.

I mean, you want to be a financial advisor?

There you go.

No, giving advice, you can't do that without being licensed, but even getting licensed, it's one exam.

It's not that hard.

I mean, it's fine.

I studied online for like a week beforehand.

No, since then, I went, I got my Certified Financial Planner designation.

I received my Master's in Financial Planning.

I've done a lot more beyond that, but just because someone calls themselves a financial advisor doesn't mean that they actually have the knowledge to do that.

So you want to look for the education.

You want to see that they have actual education, whether that's being a CFP, whether that's being a CPA, CFA.

There are a whole lot of designations out there.

I've got a lot of them on my website and breakdowns.

You want to make sure they...

Show notes, by the way, your contact information will be in the show notes.

Perfect.

You also make sure they have experience because you don't want someone learning with your money, right?

That's the scary thing that you've worked for the last 40 years.

30 years saving that money.

There's a lot of blood, sweat, and tears that goes into that, and it's a big responsibility to manage money for someone.

If someone's 23, fresh out of school, and they're still listening to the...

Whatever wholesaler came into their office yesterday on how to best invest that money, that's not a great option for you.

You want to make sure that in the past, I would always say, ask if someone's a fiduciary.

That just means that legally, they have to act in your best interests, but frankly, that doesn't really matter as much anymore.

Doesn't everybody have to act in your best interests?

There's a special certification for that?

It is a bit of a gray area.

Some of the rules change.

Up until three, four years ago, no, they didn't.

Some advisors worked under a fiduciary standard.

That's what I work under.

Others worked under what's called a suitability standard.

The difference there is suitable just means that if someone's going to, so a good example would be insurance salesmen that are pushing annuities.

They don't have to sell you the annuity that's the best for you or the best investment at all.

Wow.

So this is a big one.

This is a no-brainer.

You look for a prediction, a preditionary.

A fiduciary, but that's why this has changed is the law changed.

So now everyone is officially a fiduciary.

Doesn't mean they always act like that, but legally, they're supposed to.

So even if you ask if someone's a fiduciary now, they're going to say yes, and so it's like asking for references.

Doesn't really matter.

But yeah, education experience, I would, I look for someone's fee only.

Fee only means they aren't going to be getting commissions.

They're not selling an insurance policy that gives a commission.

They're not selling an annuity or even a mutual fund that has an upfront commission.

The reason why I say this is it gives you better alignment and less conflict of interest.

Conflict of interest is less.

Plus, you can just go online to the Charles Web and do your own trading for free.

So totally.

So advice is what you're paying for is advice.

Yeah, absolutely.

All the information you could ever want or ever need is out there.

Go on Wikipedia, go on investopedia.com, any of those.

What you want is advice that is tailored to your situation, and that's telling you how to get from where you are to where you want to be.

The only advisors are going to be better at providing that.

That's all it comes down to.

Nice.

Anything else you want to add?

We've talked about a lot, so.

Yeah, we covered a lot.

No, I think that's really about it.

If anyone has any questions, I'm always open to a conversation.

I love nerding out about tax planning and retirement and investing in general.

Economics, we're talking economics.

I'm your guy.

So thank you very much.

Thanks, Jeb.

Thanks for being on my show.