November 24, 2024 • 33 mins
Spending small amounts of money can help you avoid spending bigger bucks on more expensive upgrades.
Ask HTM: Trent wants to know about taking a future monthly pension or grabbing the lump sum insead.
Travel Tuesday deals are on the way. Not only can you save on TVs and toys right now, but it can be a great time to buy travel too!
Ask HTM: Sam has a classic personal finance question. She wants to know about where to put money for a home down payment.
Ask HTM: Trent wants to know about taking a future monthly pension or grabbing the lump sum insead.
Travel Tuesday deals are on the way. Not only can you save on TVs and toys right now, but it can be a great time to buy travel too!
Ask HTM: Sam has a classic personal finance question. She wants to know about where to put money for a home down payment.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Kf I AM six forty. You're listening to How to
Money on demand on the iHeartRadio app.
Speaker 2 (00:08):
Do you want to live well without drowning in debt?
Joel and Matt have you covered?
Speaker 1 (00:14):
This is How Too Money with Joel Larsguard and Matt
All makes KFI AM six forty live everywhere on the
(00:55):
iHeartRadio app.
Speaker 2 (00:57):
This is how to Money. I am one of your
hosts Joel larst Card and I in that all mix.
Speaker 3 (01:02):
By the way, you can always find more money saving
information over at howtomoney dot com.
Speaker 2 (01:07):
Uh, what you want to talk about first, Joel?
Speaker 1 (01:09):
Okay, so we got an email from a listener this
week and we're I guess we were talking recently about
are the older cars that I've my accurate in, particularly
the two thousand and five. I can't really listen to
music in there. I like literally just play it for
my phone. Oh yeah, instead of like playing it through
my sound system because it's so antiquated.
Speaker 3 (01:28):
Well, you're literally using your your phone speakers. Yes, when
you said, okay, I'm play it from.
Speaker 2 (01:33):
My car too.
Speaker 1 (01:33):
No, I'm literally playing it through the speaker on the phone.
And you may as well just like keep your earbuds in.
I know I probably should that. Well sometime I've done
that before too, but I don't know if that's a stage. Yeah,
probably there's so Listener Matt he emailed and he said,
actually what you should do is just get basically a
new head unit for an older car.
Speaker 2 (01:51):
It's a couple hundred bucks, especially stereo system.
Speaker 1 (01:53):
Yeah, especially this time of year, some of those discounts
for Best Buy kicking in, and you maybe get a
free install or something like that. And yeah, I don't
know if I'm going to or not, but I do
think that's a good recommendation. And I think for some
people in seat because that is one of those things
where like, ooh, that upgrade and make a big difference
in my life, And maybe you keep fixating on that
and maybe maybe you if it.
Speaker 3 (02:12):
Moves the needle for you, maybe that's enough to keep
you from getting a new vehicle exactly.
Speaker 1 (02:15):
And I think some people would say that's so important
to me, I think I'm going to kick this one
of the curve and get a new one. But there's
a whole lot more cost involved with upgrading your vehicle.
Speaker 2 (02:23):
Than there is just putting in that new head unit.
So yeah, are you going to do it? Are you
going to keep an ee out for some deals over
the next one.
Speaker 1 (02:29):
I might look around, because honestly, being able to play
my favorite music through the car speakers would be a
big win.
Speaker 2 (02:36):
And I don't know how long I'm going to have
this car.
Speaker 1 (02:38):
That's like the thing. I'm not trying to necessarily run
it into the ground, because do you.
Speaker 3 (02:41):
Get a Bluetooth speaker and just set it up on
your dash and just kind of blast it.
Speaker 2 (02:45):
Through, then I would look real ratchet.
Speaker 3 (02:47):
Then you can plug it straight into the cigarette lighter
power unit as well, so it'll never run out of power.
Speaker 2 (02:52):
Well, that's the ultimate frugal hack.
Speaker 3 (02:54):
Instead of getting something a stereosystem it looks a little
ridiculous that you can only use while you're in the car.
Get you something that you can take with you all right,
like like on a picnic.
Speaker 2 (03:04):
I don't know.
Speaker 1 (03:04):
That doesn't interest me because I think it would look
a little ridiculous and it wouldn't provide quite as good
as soundy you could.
Speaker 3 (03:09):
You don't have to set it up on the dash,
you can set it down there, you know, next to
the shifter or whatever.
Speaker 2 (03:16):
I'll consider that the problem I totally hear what you're saying.
Speaker 3 (03:18):
That you're talking about not wanting to make that upgrade
because of how much value residual values left in the vehicle.
Speaker 1 (03:25):
If I'm just like, oh, I'm going to try to
own this car for the next five years, I'd be
willing to drop in the two hundred bucks, get three
hundred bucks even and say great baby, yeah.
Speaker 2 (03:33):
Because you think you could get for it right now
the vehicle, I'm gonna say thirty five hundred bucks.
Speaker 3 (03:37):
So you're talking like almost ten percent of the overall
cost of the.
Speaker 2 (03:41):
Vehicle in the stereoss. But if I'm holding on to
it for for five years, to hang on to it,
I'm with you one hundred percent.
Speaker 3 (03:46):
But that also means making all the other repairs on
it that you're probably neglecting, like the windshield.
Speaker 2 (03:51):
You got some hate mil.
Speaker 3 (03:52):
For that talking about how you need to get that
windshield replaced because it's got that big, old.
Speaker 2 (03:56):
Nasty crack, but it's not.
Speaker 1 (03:56):
I don't know, maybe I'll take a picture and post
on Instagram or something like that. But people or like
somebody in the in the in the Facebook group said
something like dude with his net worth.
Speaker 2 (04:05):
Like he could be doing that, But the whole way
you grow your net worth is by not doing it
and stuff.
Speaker 3 (04:09):
But it just depends, Like I totally agree, because if
you are going to keep the thing around, if you
are going to drive it into the ground, if you
are in it for the long haul, you gotta you
gotta get the new tires. You may as well go
ahead and get the brakes turned or whatever. That way
you're not eating into the rotors. Get the timing belt.
Was the last time the timing belt's been changed?
Speaker 2 (04:26):
Question?
Speaker 3 (04:27):
If you don't do that, you'll literally total the vehicle
because of the cost to repair the engine. Sure if
it goes out, and that's not I mean, that's crazy expensive,
but worth it if you want to keep driving. I
say that because how much was it. It's like eleven
hundred bucks, I think, and that included an old change.
I did that last month. Not cheap. But now I
know that, man are audio, it's going to be good
(04:47):
for another seventy five one hundred thousand miles.
Speaker 1 (04:49):
I just think I think, more than anything, this is
not just a good recommendation for car owners, Like, what's
the thing you can do to enjoy that car for longer?
So that keep prevents you from buying something newer and
maybe like stops you from looking like browsing. But there's
got to be other things in life like that too,
Or is there something you can do.
Speaker 3 (05:09):
There's something that rises to the top top bothers you
the most.
Speaker 1 (05:12):
Yeah, what can you upgrade in your life at a
reasonable price that prevents you from making a more expensive upgrade?
So I like Matt's suggestion and I think maybe we
can take that to another degree and say, what else
in your life can you upgrade in a small way
that prevents you from upgrading in a massive way.
Speaker 3 (05:26):
The problem is it's a bunch of little things typically,
because what would you say if you had to make
some upgrades.
Speaker 2 (05:31):
To your van? What would it be?
Speaker 3 (05:33):
Because we were recently talking about that grill piece on
the front of your van that pop off and you're like, oh,
give me because mine did as well, but the mechanic glued.
Speaker 2 (05:39):
It back on.
Speaker 3 (05:41):
But I was like, it's only sixty bucks, and you're
telling me to get one for you as well, so
you can slap it on there. It's all the small
things all added up together that oftentimes I think makes
it difficult to pinpoint one single thing. But if there is,
but I find it a few small things to my
van and just literally put in a few hundred bucks,
I'd probably be like.
Speaker 2 (05:57):
You know what, you probably feel a lot I feel
a lot better. Yeah, but it's just what is it
about it?
Speaker 1 (06:01):
There's a scratch on the side that my dad put
on it, and I'm like, oh, if I repaired that
in the exterior.
Speaker 2 (06:06):
Little out maybe yeah something.
Speaker 1 (06:08):
So I don't, but I think like maybe sometimes you
hear what those things are. You might see that and
you say, time to kick this into the curve, And
that's what we don't want exactly.
Speaker 3 (06:16):
Heyf I am six forty. You're listening to how to
Money on demand on the iHeartRadio app.
Speaker 1 (06:22):
Don't forget to sign up for the how to Money newsletter.
You can find that up at how tomoney dot com
slash newsletter. Let's get to a question, the question you
have been waiting for, Matt, about whether or not to
take a pension or to grab that lumps home.
Speaker 4 (06:36):
Hey, Matt and Joel, this is Trent from Urian Washington.
I was so excited to hear you guys talk about
the lump sum versus pension options on last week's show,
as as my number one retirement question currently. I thought
about sending this question to my other podcast friends, but
when I heard how crushed Matt was that he didn't
get to help run Joels numbers, how can I not
send this question to Matt?
Speaker 2 (06:57):
Okay?
Speaker 4 (06:58):
So here's my options for my monthly pension. I have
the option of two thousand, one hundred and twenty nine
dollars a month, and that is with a seventy five
percent survivorship to my wife. My lump sum option would
be five hundred and sixty seven thousand, one hundred and
forty seven dollars and I would run that out to
about the mid nineties, so let's say age ninety five.
(07:20):
If you guys could tell me how to calculate this
or run the numbers and give me your opinion, I
sure would appreciate it. As far as other retirement assets,
I have a little bit over two million dollars and
some investments such as roths, traditional iras, hsas and the
majority being in a four to zer one K. And
then I have about one hundred and fifty four thousand
(07:40):
dollars in cash that I plan to live on my
first year in retirement and possibly buy a used car.
I plan to retire hopefully next year at the age
of fifty five. So again, if you guys can give
me your opinion, I sure would appreciate it. Have a
great day. Woo.
Speaker 2 (07:56):
Finally somebody that trusts me. Trend do you want to
be my best friend? I trust you, all right? Yeah?
Speaker 1 (08:05):
And I don't know, maybe I'll get your recheck to
my numbers if if you're interested, well.
Speaker 3 (08:09):
And it's I love people'll see if we arrived at
different answers to to Trent's questions, and you might be like, oh,
actually I didn't think about that'sights I thought about that.
Speaker 1 (08:18):
Well, I'm glad you finally have a lump sum versus
like pension questions serve up to you, Matt, like you
deserve this question.
Speaker 2 (08:24):
The numbers man, that's what it's all about.
Speaker 3 (08:25):
I love it because there's no bias when it comes
to numbers, like is it's just black and white when
it comes to numbers.
Speaker 1 (08:31):
Obviously, even that there's still a lot, there's a lot.
There's a lot of numbers that need to be considered here.
I'm gonna say there's the numbers are important, But then
how those numbers impact your lifestyle, how you live, and
the risk reward ratio, and how the factors into your psychology.
Speaker 2 (08:46):
That's important too.
Speaker 3 (08:47):
Right, numbers just give you a solid foundation to work
from though, right Otherwise it just feels like you're building
an argument or making a case on squishy, swampy ground
as opposed to something that's rock solid, where you know that, like, Okay,
at the very least, we know whatever it is that
these numbers say that we can count on that.
Speaker 1 (09:01):
The numbers are informative. And if you don't run the numbers, yeah,
you're liable to make a gut reaction.
Speaker 2 (09:06):
That's not good.
Speaker 1 (09:07):
But if you run the numbers then I think it
can in factor in those other things. Then it can
help you make a wise decision. Yeah, And massive congrats
by the way to Trent on being able to retire
at fifty five. That's incredible. He's obviously got his money
stuff together. He's made a lot of smart decisions over
the course of many years to set himself up for
this ability, and I just appreciate his optimism. Also, Matt
(09:28):
on life expectancy, Trent plans on getting pretty close to
centenarian status.
Speaker 2 (09:33):
I dig Itz.
Speaker 1 (09:33):
He living in a blue zone there. I don't know
if state of Washington is in a blue zone. But Trent,
I hope you get there, hope you achieve it. He
wants to live with mathusla Age, that was the oldest
person in the Hebrew Bible and the Old Testament. So yeah, well,
I don't think he's actually going to get to I
think he was like nine hundred and something years old,
So I don't think Trent's actually going to make it
that one.
Speaker 3 (09:51):
By the way, did you notice that Trent this multi millionaire,
He's planning on buying a used car. I don't know
if if you heard that. Trent is obviously our kind
of guy. I actually do think I could be friends
with Trent. But let's get down to the numbers. Let's
get down to business. There are so many different elements
that factor into this decision, and five hundred and sixty
thousand dollars in one lump sum specifically, I think he
(10:14):
said five hundred and sixty seven one hundred and forty
seven dollars. Gotta be specific here. That is a massive
chunk of money. But the certainty of two one hundred
and twenty nine dollars a month in perpetuity for potentially
four decades. That is, that's that's pretty sweet as well, true,
especially if he lives beyond that that ninety five you live. Yeah,
(10:37):
but which one makes the most sense? Well, when you
run the numbers. And by the way, so Trent, he
actually sent along a site called honest Math, which looks awesome.
I read up on it, and it was started by
somebody who's in the industry and was looking for a
product that was out there that was non biased, that
wasn't trying to sell people things, and so, which is
why they called it honest Math. I could see that
(10:59):
being a great resource for a lot of folks. But
also Schwab, they've got a great calculator where I didn't
have to create an account.
Speaker 2 (11:05):
To access the calculators. I just did that.
Speaker 3 (11:08):
But when you crunch the numbers, you find that the
lump some it makes sense if you think you can
snag every turn that's greater than five point three seven percent.
So and you know, the question kind of boils down
to whether or not you think that that is likely
what you would expect to see from the market with
that lump sum where you to go ahead and invest it.
Speaker 1 (11:26):
Yeah, and that might sound kind of easy. I mean,
if you look in a recent history, save these accounts
and CDs, they were paying in that neighborhood, right, so
you're like, oh, five plus percent, I can get that
a zero risk taken. Or you just look at the
last two years in the stock market and you're like
earning more than five percent. Mean the stock market this
year's up like thirty percent, right, So this sounds very doable.
(11:47):
But I think you have to not just look at
like the most recent history, but also kind of take
a larger window in order to make a good decision here. Sure,
if rates continue to decline, we're talking about having to
take on more risks in order to achieve those returns
that you need, which means putting a decent bit of
that lump sum that you would get into the market.
(12:08):
And this will be wise considering how many decades you're
trying to fund anyway, right, like four decades of retirement here,
But there's still risk when it comes to making that decision.
I think it's important also to mention that age is
a factor.
Speaker 2 (12:22):
In Trent's decision, right.
Speaker 1 (12:24):
Like when I'm running the numbers, Matt, I'm forty years old,
Trent is almost fifty five and he's planning on retiring soon,
and so we're in kind of two different situations here
where Trent can and should be taking some market risk
if he takes to lump sum, but he might not
be able to have as market heavy of an investing
focus as I can be, given the extra one and
(12:45):
a half decades that I have to endure potential downturns, so.
Speaker 2 (12:49):
Some swings in the market.
Speaker 1 (12:50):
Yeah, I think it's just important for Trent to realize, Hey,
we're kind of in different scenarios here, and that guaranteed
return and the facts on the ground, they are the
similar in some ways, but they're also different in others.
Speaker 2 (13:02):
That's true.
Speaker 3 (13:02):
Yeah, I'll point out as well though, that Trent he
did he mentioned he's got over like two million dollars
in other accounts. I think he said he's got like
over one hundred and fifty thousand dollars in cash that
he's looking to uh to spend as well, And so
that tells me, I mean, that puts me more in
the camp of maybe invest a little bit more aggressively
because of the fact.
Speaker 2 (13:20):
That he's going to be able to weather downturns in
the market. That's a good point.
Speaker 3 (13:23):
He's got a little more I don't know, there's a
little more slack in the leash. If the market dives
to the left, it's like he's got time to basically
respond to that and maybe brace a little bit. Yeah,
I guess if it's a big dog you're saying, it
sounds like based on the way he lives, and I'm
based on what he's been able to amass as an
st egg over time, he's got more flexibility than the
average person. And so if you're this was his only
(13:45):
source of thin margin, it would be different.
Speaker 2 (13:48):
That's right.
Speaker 1 (13:48):
You almost like are forced to take the guaranteed pension
because you don't have that ability to take on additional risk.
Speaker 2 (13:54):
That's that's exactly right. And I guess the other factor too.
Speaker 3 (13:57):
He mentioned some of the different assets that he has,
but he did I don't think he shared what his
cost of living was, like how much he's looking to
spend every single year, and so I don't know, maybe
that one hundred and fifty k that could last you
or between six months actually, I mean it could last
you one month depending on your lifestyle, or it could
last you like five years.
Speaker 2 (14:16):
He's popping bottles at the club. We'll see all night
every night.
Speaker 3 (14:18):
Bottom lie, like you are making an educated guest right
that this is a strategic bet when you make this decision,
like you're even making a prediction about how long you're
actually going to live and not everything comes down to
the numbers.
Speaker 2 (14:31):
Wait say that again, because I don't think I've ever
heard you say that before. Joel.
Speaker 3 (14:35):
You got to take behavior, You got to take your psychology,
what you're willing to endure int account as well.
Speaker 2 (14:40):
You're taking my point of view.
Speaker 3 (14:41):
Well, part of the decision does come down to your
risk tolerance. You know, how much of a financial buffer
have you built up? How flexible do you plan on
being with your spending in retirement. Because if your goal,
if you simply are only looking at the numbers and
your goal is to maximize those dollars to the absolute fullest,
Let's say you've got a higher risk appetite, will taking
the lump sum and investing those dollar in the market.
Speaker 2 (15:01):
That can make sense.
Speaker 3 (15:02):
If that were to be the case, you could certainly,
I think you can see your network grow more quickly,
offering you more optionality. And those numbers too that we
mentioned that needing to see a five point three seven
percent return in the market. That's also assuming that your
pension has a cost of living adjustment built into it,
and not all pensions do. Most government pensions do, but
(15:24):
not all of them do. And so basically, if you
don't include that, we run those numbers based on two percent,
then you can count on needing to earn less than
that two percent, less than five point three to seven percent.
So you're looking at three point three seven percent returns
from the market in order to earn more than what
you would without pension.
Speaker 1 (15:41):
Yeah, so, Matt, this comes down to whether or not
how much risk you feel like you could stomach, and
or if you prefer certainty, and there is a lot
of certainty that the monthly pension check provides, right, it
would provide a solid benefit for your spouse as well,
if you don't make it to ninety five and she does,
and if that feels like a security blanket for you two,
(16:02):
and I think that's something that needs to be discussed
between the two of you. That's understandable that choice can
make sense. And if you offer the lump sum, right,
you've got to be ready to take a massive potential
tax hit alongside the risk in the year that you
take it. Right, So if twenty percent is withheld from
that lump sum for tax purposes, unless you roll it
into an IRA, and that would really be I think
(16:24):
the only way that taking the lump sum makes sense
is sticking it into an IRA. I mean, otherwise this
single year tax bomb would probably be too much to bear.
Speaker 2 (16:32):
Yeah, it would be massive.
Speaker 3 (16:34):
So most pension issuers take that twenty percent off to
be compliant to the IRS. But it's likely, I mean,
assuming you're still earning money from your job, your effective
tax rate is going to be more than twenty percent.
For much higher than that, I guess, not much higher.
Speaker 1 (16:48):
Your marginal tax rate is going to be much higher,
most likely in the throll of the dollars get in
the lump sum above and beyond what you make in
your day job will be taxing a much higher rate.
And so that's why taking the lump sum as a
cash payment, Yeah, it's like really scary from a tax perspective.
Speaker 2 (17:03):
Totally agree.
Speaker 1 (17:05):
This is Joel Larscard and Matt Altmis and you're listening
to KFI AM six forty how to Money on Demand
on the iHeartRadio app. By the way, if you're looking
for the right credit card for your wallet, well you
want to be able to use it responsibly. But if
you do that, if you pay your credit card on
time and in full every single month, well check on
our credit card tool. You can find that up on
(17:25):
the website at howtomoney dot com.
Speaker 3 (17:27):
Joel, it's the time of year where retailers are discounting
in order to win your spending dollars. Is talk about
some of the deals that we're going to come across.
Because it's not just TVs and toys. Travel is getting
on the price cut action as well, and in the
coming weeks you might find some sweet travel deals coming
your way. Specifically, if you are looking to book on
travel Tuesday, this is a way for travel companies to
(17:50):
boost their bookings at it's time that tends to be
a you know, there's like a lull in the.
Speaker 2 (17:54):
Market, similar to a Black Friday.
Speaker 3 (17:57):
It's now more of an extended event as opposed to
just actually taking place on Tuesday. But that being said,
if traveling more is a part of your twenty twenty
five budget, and if it's something that you want to
do well, booking during the week of in the week
after Thanksgiving, it can help you to snag a deal.
And so the best deals, according to a recent piece
over on McKenzie's websites, are of course flights, but then
(18:20):
cruises as well as package travel deals too.
Speaker 1 (18:23):
Yeah, we're already seeing some of those travel bargains rolling out,
even though travel Tuesday isn't actually doesn't come about for
a couple of weeks.
Speaker 2 (18:30):
And Matt, you.
Speaker 1 (18:30):
Mentioned package deals. Some of those can be really good deals.
But then there are other things that kind of sound
like they might be a great package deal and they're
actually exploitative, and they could be like the worst deal
you've ever encountered. And I'm talking about something called vacation clubs,
and they are a twist on times shares, a kind
(18:51):
of a new twist on timeshares, because boy, if you
call something a timeshare now, people are kind of tipped off.
Speaker 2 (18:56):
Red flag.
Speaker 1 (18:56):
Wait a second, I've heard something bad about timeshares in
the past, But if you call it acation club and
you rebrand it, people are saying, oh, vacation clubs sound
so much better. I haven't heard bad things about this,
but you're gonna hear something bad about it now. There
was this New York Times report, and it found that
people are paying tens of thousands of dollars to join
these vacation clubs based on a sexy pitch and using
(19:20):
name brand recognition from a company like Hyatt. Oh, come
get this Hyatt vacation club. I've heard of Hyatt. The
wouldn't steer me wrong. They wouldn't completely steal my money,
would they. Well, these pitches are being made while they're
also applying the people who are receiving the pitch with
lots of alcohol, and we know that alcohol harm decision making.
Speaker 3 (19:39):
I like drinks, yeah, but maybe not combined with like
tens you're saying all the things I like, Joel.
Speaker 1 (19:43):
Maybe not combined with the decision that could cost you
tens of thousands of dollars.
Speaker 3 (19:46):
Right.
Speaker 1 (19:46):
And then consumers they're finding that the fine print after
they've signed up for one of these vacation clubs, it
makes the investment that they've made. I use investment loosely.
It's made it worthless. And so the pristine promised it's
been delivered in the pitch, it doesn't live up to
the reality that you encounter on the back end. If
you buy into a vacation club. You don't actually really
(20:08):
own anything. You don't own any real estate. You're buying
discounts for future stays, but blackout dates and other unfulfilled
promises diminish the value to being almost worthless. So timeshares
are a problem because they're really expensive, they're hard to unload,
they're basically worth nothing after you buy them. It'd be better,
you'd be better off buying a used timeshare for very little,
(20:32):
because people will sell them for literally pennies, and you
might hear a pitch for a vacation club. It's eerily
like a timeshare, and it will similarly cost you big bucks.
Speaker 3 (20:40):
I think oftentimes what you're paying for is like the
access right, Like people are allured by the exclusivity of
some of these different clubs, and you kind of get
sucked in that way. It makes me think of there's
been a trend I've noticed recently two of smaller businesses
doing like these small business pop ups, and they charge
an upfront costs or upfront fee to even shop at
(21:01):
a pop up, and I feel like it's drawing on
like the same sort of like limited time only the
exclusive nature of the ability to shop here, even if
you know, like you may not even buy anything, but
also it includes a drink, and so it's a similar tactic.
And I don't like, I'm all for small businesses. But
what's great is that the market will decide whether or
(21:21):
not these things are going to be successful or not.
Speaker 2 (21:23):
But I think it's just.
Speaker 3 (21:24):
Important to highlight some of the marketing tactics that are
going into whether you're talking about a purchase with you
know that's five digits versus one that maybe is only
two digits, right, Yeah.
Speaker 2 (21:34):
Well there's this takes our pattern.
Speaker 1 (21:35):
Yeah, and some of the maybe cute marketing is one thing,
but kind of predatory tactics that some of these vacation
clubs take is another.
Speaker 2 (21:44):
And you might be We don't want you to be
an unsuspecting victim.
Speaker 3 (21:47):
So while we're talking about traveled man, it's not been
a good week for Spirit Airlines.
Speaker 2 (21:51):
Huh, that's true.
Speaker 3 (21:52):
We recently talked pretty glowingly about the Spirit effect and
how by it's just mere existence that they're able to
help lower fares for all of us. But the airline
has been struggling financially. They've entered bankruptcy. So what does
that mean for everyone out there who already has the
trip booked with Spirit. Well, if you're traveling in the
near future, like over Thanksgiving, it shouldn't change pretty much
(22:14):
anything for you. And you can even still book future
flights with Spirit if you're so inclined of maybe getting
the absolute lowest price and you're not looking to take
anything with you, just your phone in your pocket. But
if you have Spirit points, however, you might want to
consider using those sooner than later. It's not completely known
what the fate I guess, of those points or the
Spirit Airlines as a whole, will be, but it does
(22:37):
make it just given the more business friendly administration coming
to ALLUS next year, it does make it more likely
that they will exit bankruptcy via a merger with one
of the other airlines where those mergers have gotten shut down.
Speaker 1 (22:49):
What they were trying to trying to merge with Jet
Blue or Jet Blue is trying to take Spirit over,
and that kind of got the Frontier was trying to
get in on the action to at some point, and
I could just see that happening, because what's than reduce
competition via merger, well, reduce competition.
Speaker 2 (23:04):
Probably via bankruptcy of Spirit.
Speaker 1 (23:06):
So I think You're probably right, and I think we
could see Spirit brought into the loving arms of one
of these other low cost airlines. But yeah, Spirit not
being around anymore would be a loss for all of us.
Speaker 3 (23:16):
This is Matt Altmix and Joe lars Guard and you
are listening to KFI AM six forty How the Money
on Demand on the iHeartRadio app.
Speaker 1 (23:24):
Matt, We've got a question from a listener who is
a ridiculously good planner.
Speaker 2 (23:29):
Hi, Matt and Joel.
Speaker 5 (23:30):
My name is Sam and I'm from Saint Paul, Minnesota.
I found this podcast back during COVID and I love
the content and advice you share. My husband and I
are planning on buying a house in the next three
to four years. We're in our early twenties and right
now we love the apartment living, but we know eventually
we'll want to settle down. Right now, we are lucky
(23:51):
enough to have great jobs we love and very low expenses,
so we are able to save half our income each month.
Knowing interest rates will likely be falling soon, We're not
quite sure where the best place to save our money is.
I've been recommended going through my local credit union and
doing a CD or money market, but I'm not sure
(24:11):
what the pros and cons are to each. Please let
me know your thoughts and what you would do in
our situation.
Speaker 3 (24:17):
Sam, I'm so glad you found how to money back?
Did she say, back during the pandemic twenty twenty? I
feel like those were years that we all needed a
little bit.
Speaker 2 (24:24):
Of additional guidance as to what was going on in
the world. Gosh.
Speaker 3 (24:27):
But Sam, you use the phrase lucky enough, and I
think that's really important, because I think luck is a
significant factor in.
Speaker 2 (24:34):
All of our lives.
Speaker 3 (24:36):
But you have also made choices that have set you
up for success. Not many folks are able to save
fifty percent of their income. That is a tall order.
That is a sick That is a very nice savings
rate right there. And I want to just encourage you
that the choices that y'all have been making are absolutely working,
and they're going to make buying a home, you know,
(24:57):
in your case, three or four years.
Speaker 2 (24:59):
It's going to make that a reality. Yeah.
Speaker 1 (25:00):
I was just talking to one of my buddies, Matt,
and he was saying he's got a friend who makes
six hundred thousand dollars a year and is kind of
consistently living paycheck to paycheck and doing like.
Speaker 2 (25:11):
Some of these stupid things. Oh my god.
Speaker 1 (25:12):
And I was thinking, if you put that money in
my hands and told me I had to spend it,
I wouldn't know what to do. Like I would, I'd
be like, how what am I going to spend it on?
Speaker 2 (25:20):
I don't know. It would take some work, but you
would find a way.
Speaker 1 (25:22):
Maybe my vision feels like it doesn't quite exist for that,
so I don't know. I think Sam needs to give
herself some credit because there's a lot of people out
there who make a whole lot more money than she does,
who are.
Speaker 2 (25:33):
Spending the bulk of it.
Speaker 1 (25:34):
Yeah, they're spending it all and so you're having a
fifty percent savings rate is nothing to see it.
Speaker 3 (25:38):
I think that's a part of it. Like it made
me think how like I said, it would take some work,
and I think that's exactly what it would take, because
you get used to doing the things that you do,
and so you get like, if you're used to spending money,
you just get better at spending money, and you just
as you earn more money, you're like, well, I'm pretty
good at spending money.
Speaker 2 (25:51):
Watch this. Yeah, And then they go off and buy this,
they bend it down.
Speaker 3 (25:55):
But like when it comes to being frugal and finding
ways to question the things that you're spending money on,
like you get better and better at that. I think
oftentimes you find yourself drawn to one or the other.
It's almost polarizing. I don't know, it's difficult to find
somebody who's living in a sort of balanced way, or
are they able to connect some of the sacrifices they're
making in the here now to some of those in
(26:16):
this case, medium term, short term goals.
Speaker 2 (26:17):
Yeah, I love how far they're planning ahead. Right.
Speaker 1 (26:19):
They're content with apartment living, but they know that owning
the home is a medium term goal. And there's just
way too many folks out there who decide, you know what,
this year feels like the year for home ownership. I think,
I think I want to try to buy one in
twenty twenty four. Yeah, exactly, You're it's like, you know what,
it's November spring buying season. That's what I'm going to
jump in on this thing. And then they start thinking
(26:40):
about how to a massive down payment, but they haven't
given themselves a long enough timeline.
Speaker 2 (26:45):
They don't have enough runway. It means they.
Speaker 1 (26:46):
Don't have enough to put down, they have to settle
for a home that they wouldn't otherwise opt the purchase,
or they take on a mortgage that's beyond their means.
Right they they're like, Okay, I'm going to put three
and a half percent down instead of ten percent, and
so my moreage is a little out of control. And
guess what it's even on Like this starter home that
I don't really love and I don't plan on being
in for very long. I think figuring out those goals
(27:08):
in advance, well in advance, and then saving diligently it
makes that endeavor joyful instead of being just fraught with peril.
Speaker 2 (27:16):
Totally.
Speaker 3 (27:16):
Yeah, I think a part of the reason for saving
so dang much of their income, the reason that this
is such a big win at this point in time
is that Sam and her husband can be reaching not
just a new home, but I think they can be
reaching multiple goals at once.
Speaker 2 (27:29):
Yeah.
Speaker 3 (27:29):
With the savings rate that large, for sure, I'm guessing
that they're investing a decent chunk of that massive savings
rate while also having plenty of money left over to
funnel into savings for that down payment. And I think
if their savings rate was just more typical, right like,
even if it was just like twenty percent instead, I
think they would they might have to end up scrimping
on one goal or the other, you know, where they're
(27:50):
maybe delaying financial independence further down the road, or maybe
they're really focused on financial independence and soad they're gonna
forego home ownership. Saving fifty percent is it's admirable, and
it's not easy. It's not easy, and then they may
not be able to keep it up for you know,
for forever. It makes me think of our buddy Jordan
grummot aka dot G that he always talks about front
(28:13):
loading the sacrifice, and that is what Sam is doing.
And I think certainly in three or four years from now,
I think they will be glad that they did so.
Speaker 1 (28:21):
Onto Sam's specific question, where should she save those dollars?
I think a CD can make a lot of sense
right now, a certificate of deposit. And that's particularly true
I think when it looks like and we don't know
how much, how far, or how fast, interest rates are
going to decline, but it does look like they will
decline more in the coming months or years. If you're
(28:43):
locking up those funds for twelve to eighteen months, it
ensures that you're going to continue to receive a higher
payout right as the high old savings accounts rates go down.
So right now still pretty solid, but those are likely
to get worse and worse because right when the FED
cuts rates, guess what goes down. Not the rate to
borrow money oftentimes, but the rate on your savings typically
(29:04):
goes down immediately. And so this is particularly true because
the liquidity it's not a concern for your dollars right now.
It's not like you're saying, oh, but I might need
to tap some of those just in case. You have
a kind of a targeted window of three to four years.
So as a known timeline, Yes, I think locking it
up should shouldn't cause really any angst. And so one
of the things I think she mentioned was going with
(29:25):
her local credit union. Well, that might or might not
make the most sense, right because rates on CDs and
savings products can vary wildly. Is your credit union competitive
in that space? I mean, maybe, but maybe not. I
think the best place to compare CD rates in highlight
sav mus accounts rates too is a site like doctor
Offcredit dot com and we're likely talking about here, Matt.
(29:48):
When it comes to a lump sum down payment, we're
talking about a big start chunk of money. So the
extra half percent or one percent it really matters on
something like this. Where As we're talking about, Oh, I've
got three thousand bucks in savings, should I go from
the four percent of the five percent account? No, it's
probably not worth jumping through those hoops, but it is
worth opening up an account at another institution if we're
talking about a significant bump in interest rate on a
(30:10):
big chunk of money that they're holding onto.
Speaker 3 (30:12):
Yeah, and specific to their timeline. I did a quick google,
and depending on how quick you are to get out
there and get searched, but I saw a three year
CD at a credit union up in Michigan that all
it takes is a five dollar donation to like some
sort of local charity, and boom, you have access to
this three year, four point three five percent certificate of deposit,
(30:33):
which might be like totally perfect for them for them
a three year window. But on top of that, I mean,
I think chances are that she's going to have new
savings flowing in every month, and so I think she
could open up a CD with the bulk of her
current savings pile, but then funnel additional incoming dollars into
just like a basic Hygeld savings account or even a
money market account, the best of which are still at
(30:54):
this point at least paying north of like four and
a quarter c It's platinum savings account. It is been
an upper echelon account four years now, and we need
to kind of go this approach, like you are protecting
the bulk of your dollars from declining interest rates, and
then you're getting the best current rates for these new
savings dollars that you don't have on hand. The only
(31:15):
other reason I would sort of question this is one
other thing that you mentioned was that you love and
this is this stood out to me because not many
people love living in an apartment, but you said that.
You said that we love apartment living right now, and
so I would ask you how flexible are you when
it comes to buying a home in three to four years,
because if you have a little bit of flexibility when
(31:35):
it comes to your timeline, man, I would be so
tempted to invest those dollars as a like straight up
in the market. So I have some numbers to illustrate it. Joe,
I'm going to crunch them numbers again.
Speaker 2 (31:44):
Do it. The media, it's.
Speaker 1 (31:44):
Gonna say, yeah, three year window, it's too risky. But
if you can bump bump that window out to five
or six years, investing might make the most sense.
Speaker 3 (31:50):
And yeah, like even four to five years, because so
the media. According to the FED, the median home today
is four hundred and twenty thousand dollars. So you're looking
at a down payment of eighty four thousand dollars. And
let's just say, because they've been saving fifty percent of
their income right now, they might already have that cash
in the bank. And so if you were to just
stick that into a high yield savings where you're earning
let's say four and a quarter percent, well, that eighty
(32:11):
four k is going to grow to one hundred thousand
dollars in four years.
Speaker 2 (32:15):
That's solid. Yeah, that's really nice.
Speaker 3 (32:17):
But were you to invest that in the market in
historically speaking, you're looking at ten percent in the market.
You're not just looking at one hundred thousand dollars in
four years, you're looking at one hundred and twenty three
thousand dollars.
Speaker 2 (32:27):
A lot more buying power. Yeah, Like that's a trick, whether.
Speaker 1 (32:30):
You can afford maybe slightly more house than you thought,
or you can reduce that mortgage payment significantly.
Speaker 3 (32:36):
Gain more favorable terms, Like I would be so tempted,
especially again given the fact that you're it sounds like
you're all about an apartment living. You know, You're like,
don't threaten me with a good time living in apartment
where I don't have to keep them with any maintenance.
And so for you, just in your specific case, Sam,
I wonder if you know, were you to experience declients
in the market for y'all to say, all right, we'll
(32:56):
just keep hanging out here, it's a blast. Just punt
the home ownership timeline a little bit longer down the
road a year or two and wait for the market
to return. If you've got that flexibility and you can
change the timeline, then investing makes a good better sense.
Speaker 2 (33:07):
I love it.
Speaker 1 (33:08):
You've been listening to How to Money with Joel Larscart
and Matt'll Mix, and you can always hear us live
on kf I AM six forty twelve to two pm
on Sunday and anytime on the iHeartRadio app.
Kf I AM six forty. You're listening to How to
Money on demand on the iHeartRadio app.
Speaker 2 (00:08):
Do you want to live well without drowning in debt?
Joel and Matt have you covered?
Speaker 1 (00:14):
This is How Too Money with Joel Larsguard and Matt
All makes KFI AM six forty live everywhere on the
(00:55):
iHeartRadio app.
Speaker 2 (00:57):
This is how to Money. I am one of your
hosts Joel larst Card and I in that all mix.
Speaker 3 (01:02):
By the way, you can always find more money saving
information over at howtomoney dot com.
Speaker 2 (01:07):
Uh, what you want to talk about first, Joel?
Speaker 1 (01:09):
Okay, so we got an email from a listener this
week and we're I guess we were talking recently about
are the older cars that I've my accurate in, particularly
the two thousand and five. I can't really listen to
music in there. I like literally just play it for
my phone. Oh yeah, instead of like playing it through
my sound system because it's so antiquated.
Speaker 3 (01:28):
Well, you're literally using your your phone speakers. Yes, when
you said, okay, I'm play it from.
Speaker 2 (01:33):
My car too.
Speaker 1 (01:33):
No, I'm literally playing it through the speaker on the phone.
And you may as well just like keep your earbuds in.
I know I probably should that. Well sometime I've done
that before too, but I don't know if that's a stage. Yeah,
probably there's so Listener Matt he emailed and he said,
actually what you should do is just get basically a
new head unit for an older car.
Speaker 2 (01:51):
It's a couple hundred bucks, especially stereo system.
Speaker 1 (01:53):
Yeah, especially this time of year, some of those discounts
for Best Buy kicking in, and you maybe get a
free install or something like that. And yeah, I don't
know if I'm going to or not, but I do
think that's a good recommendation. And I think for some
people in seat because that is one of those things
where like, ooh, that upgrade and make a big difference
in my life, And maybe you keep fixating on that
and maybe maybe you if it.
Speaker 3 (02:12):
Moves the needle for you, maybe that's enough to keep
you from getting a new vehicle exactly.
Speaker 1 (02:15):
And I think some people would say that's so important
to me, I think I'm going to kick this one
of the curve and get a new one. But there's
a whole lot more cost involved with upgrading your vehicle.
Speaker 2 (02:23):
Than there is just putting in that new head unit.
So yeah, are you going to do it? Are you
going to keep an ee out for some deals over
the next one.
Speaker 1 (02:29):
I might look around, because honestly, being able to play
my favorite music through the car speakers would be a
big win.
Speaker 2 (02:36):
And I don't know how long I'm going to have
this car.
Speaker 1 (02:38):
That's like the thing. I'm not trying to necessarily run
it into the ground, because do you.
Speaker 3 (02:41):
Get a Bluetooth speaker and just set it up on
your dash and just kind of blast it.
Speaker 2 (02:45):
Through, then I would look real ratchet.
Speaker 3 (02:47):
Then you can plug it straight into the cigarette lighter
power unit as well, so it'll never run out of power.
Speaker 2 (02:52):
Well, that's the ultimate frugal hack.
Speaker 3 (02:54):
Instead of getting something a stereosystem it looks a little
ridiculous that you can only use while you're in the car.
Get you something that you can take with you all right,
like like on a picnic.
Speaker 2 (03:04):
I don't know.
Speaker 1 (03:04):
That doesn't interest me because I think it would look
a little ridiculous and it wouldn't provide quite as good
as soundy you could.
Speaker 3 (03:09):
You don't have to set it up on the dash,
you can set it down there, you know, next to
the shifter or whatever.
Speaker 2 (03:16):
I'll consider that the problem I totally hear what you're saying.
Speaker 3 (03:18):
That you're talking about not wanting to make that upgrade
because of how much value residual values left in the vehicle.
Speaker 1 (03:25):
If I'm just like, oh, I'm going to try to
own this car for the next five years, I'd be
willing to drop in the two hundred bucks, get three
hundred bucks even and say great baby, yeah.
Speaker 2 (03:33):
Because you think you could get for it right now
the vehicle, I'm gonna say thirty five hundred bucks.
Speaker 3 (03:37):
So you're talking like almost ten percent of the overall
cost of the.
Speaker 2 (03:41):
Vehicle in the stereoss. But if I'm holding on to
it for for five years, to hang on to it,
I'm with you one hundred percent.
Speaker 3 (03:46):
But that also means making all the other repairs on
it that you're probably neglecting, like the windshield.
Speaker 2 (03:51):
You got some hate mil.
Speaker 3 (03:52):
For that talking about how you need to get that
windshield replaced because it's got that big, old.
Speaker 2 (03:56):
Nasty crack, but it's not.
Speaker 1 (03:56):
I don't know, maybe I'll take a picture and post
on Instagram or something like that. But people or like
somebody in the in the in the Facebook group said
something like dude with his net worth.
Speaker 2 (04:05):
Like he could be doing that, But the whole way
you grow your net worth is by not doing it
and stuff.
Speaker 3 (04:09):
But it just depends, Like I totally agree, because if
you are going to keep the thing around, if you
are going to drive it into the ground, if you
are in it for the long haul, you gotta you
gotta get the new tires. You may as well go
ahead and get the brakes turned or whatever. That way
you're not eating into the rotors. Get the timing belt.
Was the last time the timing belt's been changed?
Speaker 2 (04:26):
Question?
Speaker 3 (04:27):
If you don't do that, you'll literally total the vehicle
because of the cost to repair the engine. Sure if
it goes out, and that's not I mean, that's crazy expensive,
but worth it if you want to keep driving. I
say that because how much was it. It's like eleven
hundred bucks, I think, and that included an old change.
I did that last month. Not cheap. But now I
know that, man are audio, it's going to be good
(04:47):
for another seventy five one hundred thousand miles.
Speaker 1 (04:49):
I just think I think, more than anything, this is
not just a good recommendation for car owners, Like, what's
the thing you can do to enjoy that car for longer?
So that keep prevents you from buying something newer and
maybe like stops you from looking like browsing. But there's
got to be other things in life like that too,
Or is there something you can do.
Speaker 3 (05:09):
There's something that rises to the top top bothers you
the most.
Speaker 1 (05:12):
Yeah, what can you upgrade in your life at a
reasonable price that prevents you from making a more expensive upgrade?
So I like Matt's suggestion and I think maybe we
can take that to another degree and say, what else
in your life can you upgrade in a small way
that prevents you from upgrading in a massive way.
Speaker 3 (05:26):
The problem is it's a bunch of little things typically,
because what would you say if you had to make
some upgrades.
Speaker 2 (05:31):
To your van? What would it be?
Speaker 3 (05:33):
Because we were recently talking about that grill piece on
the front of your van that pop off and you're like, oh,
give me because mine did as well, but the mechanic glued.
Speaker 2 (05:39):
It back on.
Speaker 3 (05:41):
But I was like, it's only sixty bucks, and you're
telling me to get one for you as well, so
you can slap it on there. It's all the small
things all added up together that oftentimes I think makes
it difficult to pinpoint one single thing. But if there is,
but I find it a few small things to my
van and just literally put in a few hundred bucks,
I'd probably be like.
Speaker 2 (05:57):
You know what, you probably feel a lot I feel
a lot better. Yeah, but it's just what is it
about it?
Speaker 1 (06:01):
There's a scratch on the side that my dad put
on it, and I'm like, oh, if I repaired that
in the exterior.
Speaker 2 (06:06):
Little out maybe yeah something.
Speaker 1 (06:08):
So I don't, but I think like maybe sometimes you
hear what those things are. You might see that and
you say, time to kick this into the curve, And
that's what we don't want exactly.
Speaker 3 (06:16):
Heyf I am six forty. You're listening to how to
Money on demand on the iHeartRadio app.
Speaker 1 (06:22):
Don't forget to sign up for the how to Money newsletter.
You can find that up at how tomoney dot com
slash newsletter. Let's get to a question, the question you
have been waiting for, Matt, about whether or not to
take a pension or to grab that lumps home.
Speaker 4 (06:36):
Hey, Matt and Joel, this is Trent from Urian Washington.
I was so excited to hear you guys talk about
the lump sum versus pension options on last week's show,
as as my number one retirement question currently. I thought
about sending this question to my other podcast friends, but
when I heard how crushed Matt was that he didn't
get to help run Joels numbers, how can I not
send this question to Matt?
Speaker 2 (06:57):
Okay?
Speaker 4 (06:58):
So here's my options for my monthly pension. I have
the option of two thousand, one hundred and twenty nine
dollars a month, and that is with a seventy five
percent survivorship to my wife. My lump sum option would
be five hundred and sixty seven thousand, one hundred and
forty seven dollars and I would run that out to
about the mid nineties, so let's say age ninety five.
(07:20):
If you guys could tell me how to calculate this
or run the numbers and give me your opinion, I
sure would appreciate it. As far as other retirement assets,
I have a little bit over two million dollars and
some investments such as roths, traditional iras, hsas and the
majority being in a four to zer one K. And
then I have about one hundred and fifty four thousand
(07:40):
dollars in cash that I plan to live on my
first year in retirement and possibly buy a used car.
I plan to retire hopefully next year at the age
of fifty five. So again, if you guys can give
me your opinion, I sure would appreciate it. Have a
great day. Woo.
Speaker 2 (07:56):
Finally somebody that trusts me. Trend do you want to
be my best friend? I trust you, all right? Yeah?
Speaker 1 (08:05):
And I don't know, maybe I'll get your recheck to
my numbers if if you're interested, well.
Speaker 3 (08:09):
And it's I love people'll see if we arrived at
different answers to to Trent's questions, and you might be like, oh,
actually I didn't think about that'sights I thought about that.
Speaker 1 (08:18):
Well, I'm glad you finally have a lump sum versus
like pension questions serve up to you, Matt, like you
deserve this question.
Speaker 2 (08:24):
The numbers man, that's what it's all about.
Speaker 3 (08:25):
I love it because there's no bias when it comes
to numbers, like is it's just black and white when
it comes to numbers.
Speaker 1 (08:31):
Obviously, even that there's still a lot, there's a lot.
There's a lot of numbers that need to be considered here.
I'm gonna say there's the numbers are important, But then
how those numbers impact your lifestyle, how you live, and
the risk reward ratio, and how the factors into your psychology.
Speaker 2 (08:46):
That's important too.
Speaker 3 (08:47):
Right, numbers just give you a solid foundation to work
from though, right Otherwise it just feels like you're building
an argument or making a case on squishy, swampy ground
as opposed to something that's rock solid, where you know that, like, Okay,
at the very least, we know whatever it is that
these numbers say that we can count on that.
Speaker 1 (09:01):
The numbers are informative. And if you don't run the numbers, yeah,
you're liable to make a gut reaction.
Speaker 2 (09:06):
That's not good.
Speaker 1 (09:07):
But if you run the numbers then I think it
can in factor in those other things. Then it can
help you make a wise decision. Yeah, And massive congrats
by the way to Trent on being able to retire
at fifty five. That's incredible. He's obviously got his money
stuff together. He's made a lot of smart decisions over
the course of many years to set himself up for
this ability, and I just appreciate his optimism. Also, Matt
(09:28):
on life expectancy, Trent plans on getting pretty close to
centenarian status.
Speaker 2 (09:33):
I dig Itz.
Speaker 1 (09:33):
He living in a blue zone there. I don't know
if state of Washington is in a blue zone. But Trent,
I hope you get there, hope you achieve it. He
wants to live with mathusla Age, that was the oldest
person in the Hebrew Bible and the Old Testament. So yeah, well,
I don't think he's actually going to get to I
think he was like nine hundred and something years old,
So I don't think Trent's actually going to make it
that one.
Speaker 3 (09:51):
By the way, did you notice that Trent this multi millionaire,
He's planning on buying a used car. I don't know
if if you heard that. Trent is obviously our kind
of guy. I actually do think I could be friends
with Trent. But let's get down to the numbers. Let's
get down to business. There are so many different elements
that factor into this decision, and five hundred and sixty
thousand dollars in one lump sum specifically, I think he
(10:14):
said five hundred and sixty seven one hundred and forty
seven dollars. Gotta be specific here. That is a massive
chunk of money. But the certainty of two one hundred
and twenty nine dollars a month in perpetuity for potentially
four decades. That is, that's that's pretty sweet as well, true,
especially if he lives beyond that that ninety five you live. Yeah,
(10:37):
but which one makes the most sense? Well, when you
run the numbers. And by the way, so Trent, he
actually sent along a site called honest Math, which looks awesome.
I read up on it, and it was started by
somebody who's in the industry and was looking for a
product that was out there that was non biased, that
wasn't trying to sell people things, and so, which is
why they called it honest Math. I could see that
(10:59):
being a great resource for a lot of folks. But
also Schwab, they've got a great calculator where I didn't
have to create an account.
Speaker 2 (11:05):
To access the calculators. I just did that.
Speaker 3 (11:08):
But when you crunch the numbers, you find that the
lump some it makes sense if you think you can
snag every turn that's greater than five point three seven percent.
So and you know, the question kind of boils down
to whether or not you think that that is likely
what you would expect to see from the market with
that lump sum where you to go ahead and invest it.
Speaker 1 (11:26):
Yeah, and that might sound kind of easy. I mean,
if you look in a recent history, save these accounts
and CDs, they were paying in that neighborhood, right, so
you're like, oh, five plus percent, I can get that
a zero risk taken. Or you just look at the
last two years in the stock market and you're like
earning more than five percent. Mean the stock market this
year's up like thirty percent, right, So this sounds very doable.
(11:47):
But I think you have to not just look at
like the most recent history, but also kind of take
a larger window in order to make a good decision here. Sure,
if rates continue to decline, we're talking about having to
take on more risks in order to achieve those returns
that you need, which means putting a decent bit of
that lump sum that you would get into the market.
(12:08):
And this will be wise considering how many decades you're
trying to fund anyway, right, like four decades of retirement here,
But there's still risk when it comes to making that decision.
I think it's important also to mention that age is
a factor.
Speaker 2 (12:22):
In Trent's decision, right.
Speaker 1 (12:24):
Like when I'm running the numbers, Matt, I'm forty years old,
Trent is almost fifty five and he's planning on retiring soon,
and so we're in kind of two different situations here
where Trent can and should be taking some market risk
if he takes to lump sum, but he might not
be able to have as market heavy of an investing
focus as I can be, given the extra one and
(12:45):
a half decades that I have to endure potential downturns, so.
Speaker 2 (12:49):
Some swings in the market.
Speaker 1 (12:50):
Yeah, I think it's just important for Trent to realize, Hey,
we're kind of in different scenarios here, and that guaranteed
return and the facts on the ground, they are the
similar in some ways, but they're also different in others.
Speaker 2 (13:02):
That's true.
Speaker 3 (13:02):
Yeah, I'll point out as well though, that Trent he
did he mentioned he's got over like two million dollars
in other accounts. I think he said he's got like
over one hundred and fifty thousand dollars in cash that
he's looking to uh to spend as well, And so
that tells me, I mean, that puts me more in
the camp of maybe invest a little bit more aggressively
because of the fact.
Speaker 2 (13:20):
That he's going to be able to weather downturns in
the market. That's a good point.
Speaker 3 (13:23):
He's got a little more I don't know, there's a
little more slack in the leash. If the market dives
to the left, it's like he's got time to basically
respond to that and maybe brace a little bit. Yeah,
I guess if it's a big dog you're saying, it
sounds like based on the way he lives, and I'm
based on what he's been able to amass as an
st egg over time, he's got more flexibility than the
average person. And so if you're this was his only
(13:45):
source of thin margin, it would be different.
Speaker 2 (13:48):
That's right.
Speaker 1 (13:48):
You almost like are forced to take the guaranteed pension
because you don't have that ability to take on additional risk.
Speaker 2 (13:54):
That's that's exactly right. And I guess the other factor too.
Speaker 3 (13:57):
He mentioned some of the different assets that he has,
but he did I don't think he shared what his
cost of living was, like how much he's looking to
spend every single year, and so I don't know, maybe
that one hundred and fifty k that could last you
or between six months actually, I mean it could last
you one month depending on your lifestyle, or it could
last you like five years.
Speaker 2 (14:16):
He's popping bottles at the club. We'll see all night
every night.
Speaker 3 (14:18):
Bottom lie, like you are making an educated guest right
that this is a strategic bet when you make this decision,
like you're even making a prediction about how long you're
actually going to live and not everything comes down to
the numbers.
Speaker 2 (14:31):
Wait say that again, because I don't think I've ever
heard you say that before. Joel.
Speaker 3 (14:35):
You got to take behavior, You got to take your psychology,
what you're willing to endure int account as well.
Speaker 2 (14:40):
You're taking my point of view.
Speaker 3 (14:41):
Well, part of the decision does come down to your
risk tolerance. You know, how much of a financial buffer
have you built up? How flexible do you plan on
being with your spending in retirement. Because if your goal,
if you simply are only looking at the numbers and
your goal is to maximize those dollars to the absolute fullest,
Let's say you've got a higher risk appetite, will taking
the lump sum and investing those dollar in the market.
Speaker 2 (15:01):
That can make sense.
Speaker 3 (15:02):
If that were to be the case, you could certainly,
I think you can see your network grow more quickly,
offering you more optionality. And those numbers too that we
mentioned that needing to see a five point three seven
percent return in the market. That's also assuming that your
pension has a cost of living adjustment built into it,
and not all pensions do. Most government pensions do, but
(15:24):
not all of them do. And so basically, if you
don't include that, we run those numbers based on two percent,
then you can count on needing to earn less than
that two percent, less than five point three to seven percent.
So you're looking at three point three seven percent returns
from the market in order to earn more than what
you would without pension.
Speaker 1 (15:41):
Yeah, so, Matt, this comes down to whether or not
how much risk you feel like you could stomach, and
or if you prefer certainty, and there is a lot
of certainty that the monthly pension check provides, right, it
would provide a solid benefit for your spouse as well,
if you don't make it to ninety five and she does,
and if that feels like a security blanket for you two,
(16:02):
and I think that's something that needs to be discussed
between the two of you. That's understandable that choice can
make sense. And if you offer the lump sum, right,
you've got to be ready to take a massive potential
tax hit alongside the risk in the year that you
take it. Right, So if twenty percent is withheld from
that lump sum for tax purposes, unless you roll it
into an IRA, and that would really be I think
(16:24):
the only way that taking the lump sum makes sense
is sticking it into an IRA. I mean, otherwise this
single year tax bomb would probably be too much to bear.
Speaker 2 (16:32):
Yeah, it would be massive.
Speaker 3 (16:34):
So most pension issuers take that twenty percent off to
be compliant to the IRS. But it's likely, I mean,
assuming you're still earning money from your job, your effective
tax rate is going to be more than twenty percent.
For much higher than that, I guess, not much higher.
Speaker 1 (16:48):
Your marginal tax rate is going to be much higher,
most likely in the throll of the dollars get in
the lump sum above and beyond what you make in
your day job will be taxing a much higher rate.
And so that's why taking the lump sum as a
cash payment, Yeah, it's like really scary from a tax perspective.
Speaker 2 (17:03):
Totally agree.
Speaker 1 (17:05):
This is Joel Larscard and Matt Altmis and you're listening
to KFI AM six forty how to Money on Demand
on the iHeartRadio app. By the way, if you're looking
for the right credit card for your wallet, well you
want to be able to use it responsibly. But if
you do that, if you pay your credit card on
time and in full every single month, well check on
our credit card tool. You can find that up on
(17:25):
the website at howtomoney dot com.
Speaker 3 (17:27):
Joel, it's the time of year where retailers are discounting
in order to win your spending dollars. Is talk about
some of the deals that we're going to come across.
Because it's not just TVs and toys. Travel is getting
on the price cut action as well, and in the
coming weeks you might find some sweet travel deals coming
your way. Specifically, if you are looking to book on
travel Tuesday, this is a way for travel companies to
(17:50):
boost their bookings at it's time that tends to be
a you know, there's like a lull in the.
Speaker 2 (17:54):
Market, similar to a Black Friday.
Speaker 3 (17:57):
It's now more of an extended event as opposed to
just actually taking place on Tuesday. But that being said,
if traveling more is a part of your twenty twenty
five budget, and if it's something that you want to
do well, booking during the week of in the week
after Thanksgiving, it can help you to snag a deal.
And so the best deals, according to a recent piece
over on McKenzie's websites, are of course flights, but then
(18:20):
cruises as well as package travel deals too.
Speaker 1 (18:23):
Yeah, we're already seeing some of those travel bargains rolling out,
even though travel Tuesday isn't actually doesn't come about for
a couple of weeks.
Speaker 2 (18:30):
And Matt, you.
Speaker 1 (18:30):
Mentioned package deals. Some of those can be really good deals.
But then there are other things that kind of sound
like they might be a great package deal and they're
actually exploitative, and they could be like the worst deal
you've ever encountered. And I'm talking about something called vacation clubs,
and they are a twist on times shares, a kind
(18:51):
of a new twist on timeshares, because boy, if you
call something a timeshare now, people are kind of tipped off.
Speaker 2 (18:56):
Red flag.
Speaker 1 (18:56):
Wait a second, I've heard something bad about timeshares in
the past, But if you call it acation club and
you rebrand it, people are saying, oh, vacation clubs sound
so much better. I haven't heard bad things about this,
but you're gonna hear something bad about it now. There
was this New York Times report, and it found that
people are paying tens of thousands of dollars to join
these vacation clubs based on a sexy pitch and using
(19:20):
name brand recognition from a company like Hyatt. Oh, come
get this Hyatt vacation club. I've heard of Hyatt. The
wouldn't steer me wrong. They wouldn't completely steal my money,
would they. Well, these pitches are being made while they're
also applying the people who are receiving the pitch with
lots of alcohol, and we know that alcohol harm decision making.
Speaker 3 (19:39):
I like drinks, yeah, but maybe not combined with like
tens you're saying all the things I like, Joel.
Speaker 1 (19:43):
Maybe not combined with the decision that could cost you
tens of thousands of dollars.
Speaker 3 (19:46):
Right.
Speaker 1 (19:46):
And then consumers they're finding that the fine print after
they've signed up for one of these vacation clubs, it
makes the investment that they've made. I use investment loosely.
It's made it worthless. And so the pristine promised it's
been delivered in the pitch, it doesn't live up to
the reality that you encounter on the back end. If
you buy into a vacation club. You don't actually really
(20:08):
own anything. You don't own any real estate. You're buying
discounts for future stays, but blackout dates and other unfulfilled
promises diminish the value to being almost worthless. So timeshares
are a problem because they're really expensive, they're hard to unload,
they're basically worth nothing after you buy them. It'd be better,
you'd be better off buying a used timeshare for very little,
(20:32):
because people will sell them for literally pennies, and you
might hear a pitch for a vacation club. It's eerily
like a timeshare, and it will similarly cost you big bucks.
Speaker 3 (20:40):
I think oftentimes what you're paying for is like the
access right, Like people are allured by the exclusivity of
some of these different clubs, and you kind of get
sucked in that way. It makes me think of there's
been a trend I've noticed recently two of smaller businesses
doing like these small business pop ups, and they charge
an upfront costs or upfront fee to even shop at
(21:01):
a pop up, and I feel like it's drawing on
like the same sort of like limited time only the
exclusive nature of the ability to shop here, even if
you know, like you may not even buy anything, but
also it includes a drink, and so it's a similar tactic.
And I don't like, I'm all for small businesses. But
what's great is that the market will decide whether or
(21:21):
not these things are going to be successful or not.
Speaker 2 (21:23):
But I think it's just.
Speaker 3 (21:24):
Important to highlight some of the marketing tactics that are
going into whether you're talking about a purchase with you
know that's five digits versus one that maybe is only
two digits, right, Yeah.
Speaker 2 (21:34):
Well there's this takes our pattern.
Speaker 1 (21:35):
Yeah, and some of the maybe cute marketing is one thing,
but kind of predatory tactics that some of these vacation
clubs take is another.
Speaker 2 (21:44):
And you might be We don't want you to be
an unsuspecting victim.
Speaker 3 (21:47):
So while we're talking about traveled man, it's not been
a good week for Spirit Airlines.
Speaker 2 (21:51):
Huh, that's true.
Speaker 3 (21:52):
We recently talked pretty glowingly about the Spirit effect and
how by it's just mere existence that they're able to
help lower fares for all of us. But the airline
has been struggling financially. They've entered bankruptcy. So what does
that mean for everyone out there who already has the
trip booked with Spirit. Well, if you're traveling in the
near future, like over Thanksgiving, it shouldn't change pretty much
(22:14):
anything for you. And you can even still book future
flights with Spirit if you're so inclined of maybe getting
the absolute lowest price and you're not looking to take
anything with you, just your phone in your pocket. But
if you have Spirit points, however, you might want to
consider using those sooner than later. It's not completely known
what the fate I guess, of those points or the
Spirit Airlines as a whole, will be, but it does
(22:37):
make it just given the more business friendly administration coming
to ALLUS next year, it does make it more likely
that they will exit bankruptcy via a merger with one
of the other airlines where those mergers have gotten shut down.
Speaker 1 (22:49):
What they were trying to trying to merge with Jet
Blue or Jet Blue is trying to take Spirit over,
and that kind of got the Frontier was trying to
get in on the action to at some point, and
I could just see that happening, because what's than reduce
competition via merger, well, reduce competition.
Speaker 2 (23:04):
Probably via bankruptcy of Spirit.
Speaker 1 (23:06):
So I think You're probably right, and I think we
could see Spirit brought into the loving arms of one
of these other low cost airlines. But yeah, Spirit not
being around anymore would be a loss for all of us.
Speaker 3 (23:16):
This is Matt Altmix and Joe lars Guard and you
are listening to KFI AM six forty How the Money
on Demand on the iHeartRadio app.
Speaker 1 (23:24):
Matt, We've got a question from a listener who is
a ridiculously good planner.
Speaker 2 (23:29):
Hi, Matt and Joel.
Speaker 5 (23:30):
My name is Sam and I'm from Saint Paul, Minnesota.
I found this podcast back during COVID and I love
the content and advice you share. My husband and I
are planning on buying a house in the next three
to four years. We're in our early twenties and right
now we love the apartment living, but we know eventually
we'll want to settle down. Right now, we are lucky
(23:51):
enough to have great jobs we love and very low expenses,
so we are able to save half our income each month.
Knowing interest rates will likely be falling soon, We're not
quite sure where the best place to save our money is.
I've been recommended going through my local credit union and
doing a CD or money market, but I'm not sure
(24:11):
what the pros and cons are to each. Please let
me know your thoughts and what you would do in
our situation.
Speaker 3 (24:17):
Sam, I'm so glad you found how to money back?
Did she say, back during the pandemic twenty twenty? I
feel like those were years that we all needed a
little bit.
Speaker 2 (24:24):
Of additional guidance as to what was going on in
the world. Gosh.
Speaker 3 (24:27):
But Sam, you use the phrase lucky enough, and I
think that's really important, because I think luck is a
significant factor in.
Speaker 2 (24:34):
All of our lives.
Speaker 3 (24:36):
But you have also made choices that have set you
up for success. Not many folks are able to save
fifty percent of their income. That is a tall order.
That is a sick That is a very nice savings
rate right there. And I want to just encourage you
that the choices that y'all have been making are absolutely working,
and they're going to make buying a home, you know,
(24:57):
in your case, three or four years.
Speaker 2 (24:59):
It's going to make that a reality. Yeah.
Speaker 1 (25:00):
I was just talking to one of my buddies, Matt,
and he was saying he's got a friend who makes
six hundred thousand dollars a year and is kind of
consistently living paycheck to paycheck and doing like.
Speaker 2 (25:11):
Some of these stupid things. Oh my god.
Speaker 1 (25:12):
And I was thinking, if you put that money in
my hands and told me I had to spend it,
I wouldn't know what to do. Like I would, I'd
be like, how what am I going to spend it on?
Speaker 2 (25:20):
I don't know. It would take some work, but you
would find a way.
Speaker 1 (25:22):
Maybe my vision feels like it doesn't quite exist for that,
so I don't know. I think Sam needs to give
herself some credit because there's a lot of people out
there who make a whole lot more money than she does,
who are.
Speaker 2 (25:33):
Spending the bulk of it.
Speaker 1 (25:34):
Yeah, they're spending it all and so you're having a
fifty percent savings rate is nothing to see it.
Speaker 3 (25:38):
I think that's a part of it. Like it made
me think how like I said, it would take some work,
and I think that's exactly what it would take, because
you get used to doing the things that you do,
and so you get like, if you're used to spending money,
you just get better at spending money, and you just
as you earn more money, you're like, well, I'm pretty
good at spending money.
Speaker 2 (25:51):
Watch this. Yeah, And then they go off and buy this,
they bend it down.
Speaker 3 (25:55):
But like when it comes to being frugal and finding
ways to question the things that you're spending money on,
like you get better and better at that. I think
oftentimes you find yourself drawn to one or the other.
It's almost polarizing. I don't know, it's difficult to find
somebody who's living in a sort of balanced way, or
are they able to connect some of the sacrifices they're
making in the here now to some of those in
(26:16):
this case, medium term, short term goals.
Speaker 2 (26:17):
Yeah, I love how far they're planning ahead. Right.
Speaker 1 (26:19):
They're content with apartment living, but they know that owning
the home is a medium term goal. And there's just
way too many folks out there who decide, you know what,
this year feels like the year for home ownership. I think,
I think I want to try to buy one in
twenty twenty four. Yeah, exactly, You're it's like, you know what,
it's November spring buying season. That's what I'm going to
jump in on this thing. And then they start thinking
(26:40):
about how to a massive down payment, but they haven't
given themselves a long enough timeline.
Speaker 2 (26:45):
They don't have enough runway. It means they.
Speaker 1 (26:46):
Don't have enough to put down, they have to settle
for a home that they wouldn't otherwise opt the purchase,
or they take on a mortgage that's beyond their means.
Right they they're like, Okay, I'm going to put three
and a half percent down instead of ten percent, and
so my moreage is a little out of control. And
guess what it's even on Like this starter home that
I don't really love and I don't plan on being
in for very long. I think figuring out those goals
(27:08):
in advance, well in advance, and then saving diligently it
makes that endeavor joyful instead of being just fraught with peril.
Speaker 2 (27:16):
Totally.
Speaker 3 (27:16):
Yeah, I think a part of the reason for saving
so dang much of their income, the reason that this
is such a big win at this point in time
is that Sam and her husband can be reaching not
just a new home, but I think they can be
reaching multiple goals at once.
Speaker 2 (27:29):
Yeah.
Speaker 3 (27:29):
With the savings rate that large, for sure, I'm guessing
that they're investing a decent chunk of that massive savings
rate while also having plenty of money left over to
funnel into savings for that down payment. And I think
if their savings rate was just more typical, right like,
even if it was just like twenty percent instead, I
think they would they might have to end up scrimping
on one goal or the other, you know, where they're
(27:50):
maybe delaying financial independence further down the road, or maybe
they're really focused on financial independence and soad they're gonna
forego home ownership. Saving fifty percent is it's admirable, and
it's not easy. It's not easy, and then they may
not be able to keep it up for you know,
for forever. It makes me think of our buddy Jordan
grummot aka dot G that he always talks about front
(28:13):
loading the sacrifice, and that is what Sam is doing.
And I think certainly in three or four years from now,
I think they will be glad that they did so.
Speaker 1 (28:21):
Onto Sam's specific question, where should she save those dollars?
I think a CD can make a lot of sense
right now, a certificate of deposit. And that's particularly true
I think when it looks like and we don't know
how much, how far, or how fast, interest rates are
going to decline, but it does look like they will
decline more in the coming months or years. If you're
(28:43):
locking up those funds for twelve to eighteen months, it
ensures that you're going to continue to receive a higher
payout right as the high old savings accounts rates go down.
So right now still pretty solid, but those are likely
to get worse and worse because right when the FED
cuts rates, guess what goes down. Not the rate to
borrow money oftentimes, but the rate on your savings typically
(29:04):
goes down immediately. And so this is particularly true because
the liquidity it's not a concern for your dollars right now.
It's not like you're saying, oh, but I might need
to tap some of those just in case. You have
a kind of a targeted window of three to four years.
So as a known timeline, Yes, I think locking it
up should shouldn't cause really any angst. And so one
of the things I think she mentioned was going with
(29:25):
her local credit union. Well, that might or might not
make the most sense, right because rates on CDs and
savings products can vary wildly. Is your credit union competitive
in that space? I mean, maybe, but maybe not. I
think the best place to compare CD rates in highlight
sav mus accounts rates too is a site like doctor
Offcredit dot com and we're likely talking about here, Matt.
(29:48):
When it comes to a lump sum down payment, we're
talking about a big start chunk of money. So the
extra half percent or one percent it really matters on
something like this. Where As we're talking about, Oh, I've
got three thousand bucks in savings, should I go from
the four percent of the five percent account? No, it's
probably not worth jumping through those hoops, but it is
worth opening up an account at another institution if we're
talking about a significant bump in interest rate on a
(30:10):
big chunk of money that they're holding onto.
Speaker 3 (30:12):
Yeah, and specific to their timeline. I did a quick google,
and depending on how quick you are to get out
there and get searched, but I saw a three year
CD at a credit union up in Michigan that all
it takes is a five dollar donation to like some
sort of local charity, and boom, you have access to
this three year, four point three five percent certificate of deposit,
(30:33):
which might be like totally perfect for them for them
a three year window. But on top of that, I mean,
I think chances are that she's going to have new
savings flowing in every month, and so I think she
could open up a CD with the bulk of her
current savings pile, but then funnel additional incoming dollars into
just like a basic Hygeld savings account or even a
money market account, the best of which are still at
(30:54):
this point at least paying north of like four and
a quarter c It's platinum savings account. It is been
an upper echelon account four years now, and we need
to kind of go this approach, like you are protecting
the bulk of your dollars from declining interest rates, and
then you're getting the best current rates for these new
savings dollars that you don't have on hand. The only
(31:15):
other reason I would sort of question this is one
other thing that you mentioned was that you love and
this is this stood out to me because not many
people love living in an apartment, but you said that.
You said that we love apartment living right now, and
so I would ask you how flexible are you when
it comes to buying a home in three to four years,
because if you have a little bit of flexibility when
(31:35):
it comes to your timeline, man, I would be so
tempted to invest those dollars as a like straight up
in the market. So I have some numbers to illustrate it. Joe,
I'm going to crunch them numbers again.
Speaker 2 (31:44):
Do it. The media, it's.
Speaker 1 (31:44):
Gonna say, yeah, three year window, it's too risky. But
if you can bump bump that window out to five
or six years, investing might make the most sense.
Speaker 3 (31:50):
And yeah, like even four to five years, because so
the media. According to the FED, the median home today
is four hundred and twenty thousand dollars. So you're looking
at a down payment of eighty four thousand dollars. And
let's just say, because they've been saving fifty percent of
their income right now, they might already have that cash
in the bank. And so if you were to just
stick that into a high yield savings where you're earning
let's say four and a quarter percent, well, that eighty
(32:11):
four k is going to grow to one hundred thousand
dollars in four years.
Speaker 2 (32:15):
That's solid. Yeah, that's really nice.
Speaker 3 (32:17):
But were you to invest that in the market in
historically speaking, you're looking at ten percent in the market.
You're not just looking at one hundred thousand dollars in
four years, you're looking at one hundred and twenty three
thousand dollars.
Speaker 2 (32:27):
A lot more buying power. Yeah, Like that's a trick, whether.
Speaker 1 (32:30):
You can afford maybe slightly more house than you thought,
or you can reduce that mortgage payment significantly.
Speaker 3 (32:36):
Gain more favorable terms, Like I would be so tempted,
especially again given the fact that you're it sounds like
you're all about an apartment living. You know, You're like,
don't threaten me with a good time living in apartment
where I don't have to keep them with any maintenance.
And so for you, just in your specific case, Sam,
I wonder if you know, were you to experience declients
in the market for y'all to say, all right, we'll
(32:56):
just keep hanging out here, it's a blast. Just punt
the home ownership timeline a little bit longer down the
road a year or two and wait for the market
to return. If you've got that flexibility and you can
change the timeline, then investing makes a good better sense.
Speaker 2 (33:07):
I love it.
Speaker 1 (33:08):
You've been listening to How to Money with Joel Larscart
and Matt'll Mix, and you can always hear us live
on kf I AM six forty twelve to two pm
on Sunday and anytime on the iHeartRadio app.
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