At the Motley Fool Answers podcast, we can tell a lot about what's on our listeners' minds by looking into the mailbag, and it's no surprise right now that the big topic is starting to be taxes. The W-2s are rolling in, people are beginning to anticipate their tax refunds, and they're also beginning to stress about the process involved in getting them.
So for this episode, hosts Alison Southwick and Robert Brokamp recruit a special guest to sort out some of those concerns: Megan Brinsfield, head of financial planning for Motley Fool Wealth Management. Of course, not all the questions are tax related, but as a CFP and CPA, she's more than qualified to advise our listeners about retirement accounts, 529s, and more.
A full transcript follows the video.
This video was recorded on Jan. 30, 2018.
Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick, and I'm joined, as always, by Robert Brokamp, personal-finance expert here at The Motley Fool.
Robert Brokamp: So good to be here again!
Southwick: It's time, once again, to open up the mailbag, and joining us this week to answer your questions is Megan Brinsfield, a.k.a. TaxiPants. Hi, Megan!
Megan Brinsfield: Hi!
Southwick: You know we're going to talk a lot about taxes, but we're also going to share some listener tips and feedback. All that, and more, on this week's episode of Motley Fool Answers.
It's the last week of the month, and for listeners who have been paying attention, you know that we're saving up all your questions for the last week in a great big mailbag episode. And joining us this week to tackle your questions is Megan Brinsfield. She's a CFP and CPA, and head of financial planning for Motley Fool Wealth Management, a sister company of The Motley Fool. She joins us, and we're excited about it. Hi, Megan!
Brinsfield: Hi, Alison!
Brokamp: Happy New Year, and all that stuff!
Southwick: The first question is coming to you from Ray. Ray wants to know, "Will the qualified charitable distribution still be in effect for the 2018 tax year? This is the rule that allows charitable contributions to be deducted, even without itemizing, if they are sent directly from an IRA to the charity. Is that provision still in the new tax law?"
Brinsfield: The good news is that that provision was not touched in the new tax law. In fact, a few years ago, Congress made that provision permanent, or as permanent as anything is...
Brokamp: Right. Exactly.
Brinsfield: ... so that qualified charitable distribution is still available. One thing for Ray to keep in mind is that it's not necessarily a deduction. It's just that the required minimum amount is not included in your income, and it's also not a deduction. It's just completely outside of your tax return.
Brokamp: So, instead of taking the money out of your IRA and paying taxes, and then donating to get a deduction, it just goes straight to the charity and you don't have to worry about paying taxes on a withdrawal.
Southwick: All right, Bro, are you ready for the next question?
Brokamp: I'm ready.
Southwick: The next question is actually us trying to tackle four questions. I don't think we have ever received a question about a 4-5-7 account. Four fifty-seven? I don't even know how to pronounce it.
Brokamp: Four fifty-seven.
Southwick: Four fifty-seven. We received four questions in the last month or two about 457 accounts. So, Charles, Ben, and Matt, we hope we can cover it all by addressing Katherine's question. Katherine writes, "My company offers a 403(b) and a 457."
Southwick: "I'm not very familiar with 457s" -- neither am I, Katherine -- "but it appears as though you can withdraw the money anytime. Could that really be true? Would this be a good option to put my money in if I've already maxed out my 403(b) and am over the income limits for the Roth IRA?"
Brokamp: Yes, it is true. 457 is very similar to a 403(b) and a 401(k). Generally offered by government entities, but not exclusively. The main question that Katherine has is can you take the money out before 59 1/2 without paying a penalty and the answer is yes. That is a unique aspect of the 457.
I will add, though, that with all employer-sponsored accounts, there is what the IRS allows you to do and then what the plan provider allows you to do, so you might want to check with the provider and ask, "Can I really take the money out?" They might say you have to separate from the company before you can touch the money. But yes, as far as the IRS is concerned, you can take the money out and not pay that 10% early withdrawal penalty. You still have to pay taxes, by the way.
The other interesting thing about it is the limits are the same as the 403 and the 401(k), which for this year is $18,500 and another $6,000 if you're 50 years old or older. However, the total amount you can contribute to a 403(b) and 401(k) can only be that $18,500. You can't have a separate $18,500 for one 401(k) and then do another 403(b). A 457 is different. You can max out both accounts if you want to be a supersaver. So, yes, if you, Katherine, are not eligible for the Roth IRA, contributing to the 457 is a good possibility.
Southwick: But that's only if your employer offers it. Most people out there probably don't have this benefit.
Brokamp: Probably don't. And the other big difference between the governmental and the non-governmental 457 is that the non-governmental one is a lot more restricted in what you can do with the money after you leave, and I bring this up because it was part of one of the other questions we received. The non-governmentals have a lot of rules about what you can do when you leave your employer and when you can take the money, so be very aware of those restrictions before you decide to contribute to the account.
Brinsfield: I think one other thing that we see frequently is people who had a 457 and rolled it into an IRA, not realizing that if you roll that money into an IRA, you lose that main benefit, which is being able to take the money out before 59 1/2. If you have one, you probably want to keep it intact, even after you separate from service.
Southwick: But it would stay with your former employer, right?
Brokamp: Right, and they might charge a little bit extra. That's one of the trade-offs of leaving any kind of employer-sponsored plan with your employer after you leave. You're stuck with their investment options and they might charge you a little bit more than they otherwise would charge their employees. But if you need that money before 59 1/2, it might be worth it.
Southwick: The next question comes from Bob. "My wife and I are a blended family. We both have separate personal revocable trusts that benefit each other until we're both gone. At that point, all the assets get distributed evenly to the five kids who are now all adults. I remember Bro talking about trusts some time ago, and stating that tax-deferred accounts should not be in them. Could you elaborate on the details about why?" Bro, you're going to have to wait to answer.
Brokamp: Let's get Megan. And feel free, Megan, by the way, to disagree with whatever I said.
Southwick: We're going to get the Megan take.
Brinsfield: I can't wait.
Southwick: Here comes the hot Megan take.
Brinsfield: Coming to you live. The trust receiving an IRA type account is a complex area, so it's not necessarily yes, you should definitely do it or no, definitely don't do it. Just know that if you decide to name a trust as a beneficiary of an IRA, things get complicated really quickly.
One of the biggest benefits of an IRA is being able to stretch out those required minimum distributions when the ultimate beneficiaries receive it, and sometimes if you don't do everything right inside a trust, you mess up the ability to stretch it out. You have to take all the distributions within five years, and inside a trust you're hitting the highest income bracket at $12,500 of income, as opposed to an individual, who hits the highest bracket at $500,000 of income.
You definitely want to be very careful, especially if you have charitable beneficiaries. It doesn't sound like Bob is in that situation. But we generally recommend trust as a beneficiary for people who are more concerned about the beneficiary's ultimate financial situation. If they're not particularly responsible with money, or maybe subject to making poor marital decisions, those could be good candidates for setting up a trust as a beneficiary.
Brokamp: I'll agree with Megan on that. It's really not a black and white thing. If you were to research it, the majority of people would say it's too complicated and it's unnecessary, but in the situations that Megan highlighted, a trust is a great way to pass on wealth to people who may not be ready to handle it well.
Southwick: The next question comes from Tim. "My wife and I decided in 2016 to invest in our nieces' and nephews' future educations as opposed to giving toys as birthday and Christmas gifts."
Brokamp: The kids loved it, I'm sure.
Southwick: Oh, they will love it!
Brokamp: They will.
Southwick: "We set aside $1,000 per child all under..." What great aunts and uncles they are.
Southwick: "We set aside $1,000 per child all under five, and are hoping that with compounding it will be worth quite a bit when they are college age. We would like to earmark the money for college or early career expenses if they don't go to college, and not just give the kids access to it for spending money at 18." Because we all know that's when we make our best money decisions.
"It's currently in a taxable account invested in a Schwab Lifecycle Fund. Of the 10 kids, we know four have 529 college savings accounts with their parents; two have parents that would not be the best to be in charge of the money; and the parents of the other four suggested savings bonds because a 529 counts against them, eventually, when it comes to financial aid. With the rates on savings bonds being so low, I cringe at this idea. Considering tax implications, is there a better place or way to hold the money than a taxable account?"
Brokamp: One thing I think is important to consider is just maintaining control over the money. You've got a lot of different people there. Some people, it sounds like, are better with money than others, so you definitely are smart to keep control of the account for as long as possible.
Now, a 529 account can do that, so if you open the 529 and name the nieces and nephews as the beneficiaries, you maintain control of the account. In my experience, the financial aid implications of having a 529 account, especially if you are not the parents, aren't that severe. When you fill out the FASFA, which is the government form you fill out to apply for financial aid, those assets won't be included on it. Distributions from the 529 will be included in the following years of FASFA, so some people, like when their grandparents were saving, just save all that money to the last year of college, because then they don't care about financial aid.
Investing in savings bonds for kids who are under five years old and have well over a decade for that money to grow is playing it pretty darn safe.
Southwick: Too darn safe, would you say? When some people hear "pretty darn safe," they think that's a good thing.
Brokamp: That's true. I mean, it always depends on your risk tolerance, and all that fun stuff. The good thing about a savings bond is you can be pretty sure about how much that money is going to be worth in the future, and some people like that security. Whereas if you invest in the stock market, even in a 529, you don't really know how much it's going to be worth 10 or 15 years down the road. I think a 529, in this situation, is perfectly reasonable.
The one thing I'll say, though, is if that money is not used for college, you will pay a 10% penalty on the growth as well as taxes on the growth; so, for the kids who don't go to college and they want to use it for career expenses, you'll have to pay those taxes.
Brinsfield: I think the good news is that 529s can still be used for things like computer internet access if you are in school, so even for like a high school student.
Brinsfield: So, there's potential to maybe use it for qualified expenses, even if you're not going to college.
Southwick: But it's tough, though, because we're talking like 10 kids here? You've got to think two or three out of these 10 kids probably aren't going to go to college.
Brokamp: It's quite possible, and if you don't want to take the money out and pay the taxes and the penalties, it can be transferred to any of the other kids; but then the one kid that had the money is going to miss out...
Southwick: Womp, womp...
Brokamp: ... and you hopefully will try to make it up in some other way, unless they're in a situation where they don't need the money. They might have gotten a scholarship or something like that.
Brinsfield: Just for the record, I am totally the aunt that puts aside money for nephews. I know that the response is always like, "T-h-a-n-k-s, M-e-g. T-h-i-s i-s g-r-e-a-t."
Brokamp: And you chose 529s. You've opened those for your nephews?
Brinsfield: Yes. So, Tim, just be prepared to receive very lukewarm responses from all 10 of your nephews and nieces.
Southwick: But we still think you're doing the right thing.
Southwick: We're excited for them. The next question comes from Don. "I'm 46 and I'm in a very low tax bracket this year. I've already maxed out my 401(k) and my Roth, and I'm thinking of converting some stock from my traditional IRA to my Roth IRA. Should I move my winners or my losers to this Roth? I'm thinking that if a holding of mine takes a short-term hit, I should use that opportunity to convert some portion of that holding into my Roth IRA when it has temporarily decreased in value. I'm thinking this would result in a greater number of shares converted or a slightly lower tax bill when I convert. Am I onto a good idea or am I overthinking this?"
Brinsfield: I think Don's overthinking this a little bit. Ultimately, you're going to pay tax on whatever amount you convert. In very specific circumstances, you can transfer the stock itself. Usually, though, you have to liquidate from your traditional IRA and then transfer cash to your Roth and purchase a stock in there. I think the mechanics could work in a very specific scenario, but most of the time you're transferring cash, anyway, so just decide on an amount that you want to convert and convert that amount. I don't think there's a ton to optimize around which specific stocks you choose.
Brinsfield: What do you think, Bro?
Brokamp: I agree with your answer, completely, otherwise he's clearly on the right track. Congratulate him, because he's already maxed out his Roth and his 401(k), and he's thinking along the right lines in that when you're in a year when you're not going to pay high taxes, that's a great year to be doing a Roth conversion.
Southwick: The next question comes from Chad. "When should I terminate my term life insurance policy? I'm 60 and have no significant medical issues. I'm married and have three daughters. The oldest is on her own, the middle daughter is 70% through college, and the youngest will enter college next fall. I've no debt on my home and a vacation home, and I have $2.1 million saved for retirement. My total annual expenses are $68,000. I've worked in the petroleum industry for 38 years; however, I am not working right now because of a downturn in the industry. I plan to work for perhaps five more years when I find a job. I've been buying a $500,000 term life insurance policy for $1,800 a year premium. I'm considering terminating this policy. Please provide your thoughts and guidance on when a person should no longer buy life insurance."
Brokamp: The first question you ask yourself when it comes to insurance is what would happen if I die? Would the people who rely on me financially be OK? And looking at his situation, the answer is probably. I mean, he's got more than $2 million saved for retirement. Both his house and his vacation home are paid for.
One rule of thumb that I often talk about is you should have insurance up until your kids graduate from college. That's one big expense coming down the road for Chad where he might want to, because he may not know how much he's going to have to shell out for that. He didn't mention anything about having saved for that. He might want to wait until all his kids are out of college and then terminate the policy because at that point he's probably on pretty solid financial ground.
Southwick: If one of his daughters blows through $2.1 million in college, that would be amazing.
Brokamp: That would be amazing. But as someone who has three teenagers and is looking at the $70,000 per year price tag on some of these schools, it can require quite a chunk of change.
Southwick: The next question comes from John. "I am 61 and my wife is 57. I was laid off from a high-tech company a few months ago and decided to retire a few years earlier than I had planned. My wife was working as well, but decided that if I got to start sleeping every day, so should she. We have about $850,000 in our combined 401(k)s and Roth IRAs. We have a small pension and an annuity which will generate about $18,000 in annual income, but our annual expenses are about $80,000. I know from the guidance you guys give that we are a bit light in our savings to be able to comfortably retire, but we would still like to try to make it work. We've been working with a CFP for a number of years who's also concerned that we may not make it without taking some other action, like going back to work -- a four-letter word -- or selling and downsizing our house which is already paid off. Our CFP recommended that we work with a firm that offers separately managed accounts, SMAs, to come up with a plan that will meet our needs while minimizing risk. We gave the SMA rep our financial information and he came back with a proposed plan that shows us not running out of money until I'm 97. We were pleasantly surprised by the plan, but not so pleasant about their fees -- 1.8%. In general, what do you think about SMAs and who, if anybody should use them? What about the 1.8% fee, and are there any red flags in the story we should be aware of?"
Brinsfield: John, it sounds like your CFP was, "Maybe someone else can help you get to where you need to go."
Brokamp: That was one of my red flags.
Brinsfield: I think if your CFP is telling you you're going to have trouble making it and recommends that you try someone else until you get the answer you want, that might be a red flag.
Southwick: I don't like that diagnosis. I'm going to see another doctor.
Southwick: Have we tried essential oils? What about that? I think we have lots of ideas.
Brokamp: Maybe acupuncture on your 401(k).
Brinsfield: Aside from that, John, I think you're right to look at the fees and compare that to what you're receiving in return, so 1.8% could be a lot or it could be a little, depending on what kind of help you're getting. If it's just for asset management, yeah, that sounds like a lot. If it's for asset management plus maybe some financial planning -- depending on the complexity -- I know he provided a lot of information, but there could be more to the situation and that might be more reasonable.
Also, 1.8% might not be the total fee, once you start looking at the underlying fees for the investments, themselves, inside this account. SMA is just a term for someone to manage my investments for me, so there are plenty of providers, out there, that charge less than 1.8%. Sneeze, sneeze. Motley Fool Wealth Management...
Southwick: A sister company of The Motley Fool!
Brinsfield: Our fees are significantly less than that but, again, depending on what you're getting, it could be reasonable or not. I think one thing to keep in mind is that typically when advisors run reports like this that say you're going to have money through age X -- in this case 97 -- a lot of times they're using an average rate of return every year, and we know that the market does not return average every single year, so you're not taking into account that market volatility.
I'm somewhat skeptical about that analysis, in general. I think what would make sense is to maybe embrace some other alternatives. Maybe part-time work. The gap between their needs and what they would be getting in guaranteed income sources isn't that great. For two people maybe working part-time, each making $30,000 or so is maybe reasonable.
The other thing to keep in mind is that it sounds like they've assessed their current budget. They're both under 65, so not eligible for Medicare. If you're not working, you're going to have to buy health insurance on your own...
Southwick: That's so expensive.
Brinsfield: ... and that might not be included in the budget that they've set out. I'd definitely echo that fellow CFP's concerns about their immediate plans for retirement. It might be that once they start collecting Social Security, that there's more certainty in their plan; but between now and that Social Security age is really where they have to do some hard thinking.
Brokamp: I would strongly recommend that they reconsider completely retiring. Even working, as you say, part-time would be a big help. And just consider. If you're looking at paying the CFP for whatever the CFP is doing and the 1.8% on top of that, you're paying a lot of money to get professional advice, and just from what I see here, I think your CFP is right in that you are a little light, and I wouldn't pay 1.8% to the other person because I'm not sure I believe in their analysis. I don't know everything about your situation, but it's a little risky.
Brinsfield: I think you also have to consider the source. It's like, "I want your business, so I want to show you a good result." You always have to consider who's giving you good advice and bad advice. If this CFP doesn't have the ability to manage your money, he doesn't really have skin in the game in terms of a potential fee. Just based on very surface-level facts, that sounds like maybe a more trustworthy source.
In general, this is the downside of being a CFP. Sometimes you have to deliver bad news to people, but it's better that they hear it from a trustworthy source than just googling.
Southwick: The next question comes from Jimmy. "I currently get an employee discount on purchasing my company's stock. After listening to your podcast, I think I'm ready to get into owning individual stocks. I was wondering if it would be smart for me to sell some of my company stock and use that to diversify into a few individual stocks that I'm more interested in. I'm currently paying off debt, so I don't really have the extra money to put in the stock market if I don't do it this way. My employer, a Fortune 500 company, does average, but since I'm getting the stock at a discount, I'm doing pretty well with it. Any advice would be greatly appreciated."
Brokamp: Well, Jimmy, good for you for having this plan at work. Many employers offer this. Sometimes you get a 15% discount on the stock. Sometimes it's buy one, get one free. But generally speaking, that is something definitely worth considering. I would say, however, you might want to consider not doing that if you have too much of your employee stock already. My general rule of thumb is don't have more than 10% of your net worth in company stock. That's a tough one to follow for a lot of people if you get a lot of company stock, but that's a rule of thumb.
Also, you mentioned you have debt and that's why you can't buy individual stocks. I think I'd recommend that you first sell some of your company stock and pay off the debt, first, before you buy the individual stock.
After that, I don't think it's a bad idea. You do want to know the rules, though, about how long you have to own the company stock. There are often rules about it. If you go into this discount plan and you buy the stock, you might have to hold it for a certain number of years until you can sell it, and are you comfortable tying that money up for that long.
Southwick: The next question comes from Justin. "My sister recently completed her doctor of physical therapy and started her first job. Her employer offers a 401(k) plan; however, there is no employer match, and the funds within the plan are not great. A few highlights: expense ratios of 1.5, 1.34, and 1.73, and all the funds consistently underperform the S&P 500." Yay! It's expensive, but it underperforms.
"The company that administers the plan also charges 0.2% on top of the expense ratios. I know she will be throwing away a lot of money through expenses if she utilizes the dumpster fire of funds. However, I'm still working on how to think about taxes, both now and in retirement. I'm sure if she uses a 401(k) plan, she'll roll it over later to better funds with a different employer in the future. We also talked about opening a brokerage account where she can make contributions for retirement in a non-tax-advantaged account. Any pointers or tips are appreciated." Way to go, Justin. Way to be a nice brother and help your sister navigate this stuff.
Brokamp: That is very nice.
Brinsfield: Yes, a big brother award. I think, in general, if you're not getting a company match from your 401(k), and you're disciplined about saving -- it sounds like his sister is pretty disciplined -- then you might be better off just contributing to a taxable brokerage account.
In this case, you're paying tax at maybe 22% in order to be able to take that money and put it in a taxable account, and in general we think that if your tax rate is less than about 25%, that something like a Roth is good. But a taxable account is very comparable to a Roth in terms of just paying the tax up front and then investing.
I think that it's worth taking a look at just investing in a taxable account where you're not limited to the funds that are quite expensive. You can buy whatever you want. This would be a totally opposite recommendation for someone who doesn't otherwise have the discipline to save that money. If the 401(k) is the only way that someone is able to actually save money for themselves...
Southwick: Because the money comes out before they even know it.
Brinsfield: Exactly. And then that's the way to go.
Brokamp: If you have a lousy 401(k), you should definitely look at an IRA, maxing that out, and then looking at a taxable account. You just want to make sure that you're choosing tax-efficient investments for that. Stocks that don't pay dividends. Index funds tend to be a little more tax-efficient. They even have funds that are called tax-efficient funds. You want something that you're not going to have to pay a lot of taxes on year after year while you're holding it.
The classic example for me is Berkshire Hathaway, a stock that I own. It doesn't pay a dividend. It's a very diversified company. You can hold that for 30 years and never pay a dime of taxes on it until you sell, and then you pay long-term capital gains which, at least according to current law, are lower rates than what you'd have to pay if you took the money out of a traditional 401(k).
Southwick: And our last question comes from Liz off Twitter. Yay!
Southwick: Thank God, we're on Twitter! If you want to follow us, we're at AnswersPodcast or you can follow me on Twitter, or Brokamp on Twitter, or Engdahl on Twitter. We're all there. Just search for our names. I don't know. I'm Alison Southwick. What are you on Twitter?
Brokamp: I don't know.
Southwick: Don't bother following Bro on Twitter. He's very lonely. A lonely trail. I think he came through here. I don't know. He left behind no crumbs. Liz, thanks for at least following Answers Podcast. Liz writes, "We are expecting our first child in June. A group of friends want to throw a 529 baby shower..." Which is the best thing I've ever heard of. Ever!
Brokamp: How cool is that?
Southwick: It's the coolest thing ever! Aargh!
Brinsfield: I want to be friends with all these people.
Southwick: Why didn't my friends think of this for me? Gosh! Aargh! Fine.
Rick Engdahl: The next baby, Alison!
Southwick: Yeah! Sorry, Liz. I just had to pause there, to interject my enthusiasm for this idea. "We have accounts through Vanguard. I'm drawn toward their stock portfolio, Small-Cap Index Portfolio, but I don't know if we will use for private school or college. Thoughts?"
Brokamp: So, it's very impressive. The baby isn't even born, yet, and they have the 529 account. That's pretty awesome!
Brinsfield: I don't know anyone else that's done that!
Southwick: I know. That's so great.
Brokamp: Except for Megan.
Brinsfield: Except for me.
Brokamp: Megan already has 529 accounts, in her own name, but to be used for your yet-to-be-born children.
Southwick: Yeah. Yet-to-even-be-conceived children.
Brokamp: I was going to say. Are you announcing anything here, on the Answers podcast?
Brinsfield: No, no. No breaking news.
Brokamp: Liz is highlighting a new wrinkle to the 529, thanks to the new tax law, and that is you could now use some of that money for elementary and secondary school, and not just college. In her situation, she wants to decide how to invest it, but she's not quite sure of the timeline, so it sounds to me like she's very rightly thinking, "Maybe I shouldn't do a small-cap index fund if I might need this money sooner than college."
That's a tough call. I would say generally speaking it's probably still OK to do a relatively aggressive allocation for someone who's not yet born. If you think you will be using the money for private school a few years from now, then it makes sense to be more conservative. I think it's OK to assume that most of the money will be used for college, which means you've got 18 or 19 years until this money is going to be used.
Brinsfield: I recently discovered the Gift of College gift card...
Brinsfield: ... that you can give people, so if Liz doesn't have a 529 already set up and selected, that's a good way for people to buy the gift card, and she can put it in whatever 529 ends up being her choice.
Southwick: And in the meantime, Liz, if you're ever in town, I think we could all be friends. Not just for the 529 benefits, but we just seem to be cut from the same cloth, especially you and Megan. Let's get drinks! Let's make it happen!
Southwick: Well, that covers it for the questions.
Brokamp: We really got through all those? Wow!
Southwick: But we have a lot of listener feedback to also attend to...
Brokamp: To look forward to.
Southwick: ... so stick around.
Sometimes people who write us aren't looking for answers, and we've received a lot of mail this last month with your tips, advice, and feedback. Let's just go through some letters, shall we?
Brokamp: Let's do it.
Southwick: David is unhappy. He writes, "Your new format, not answering questions every episode, but doing so only once a month, made my decision to quit listening easier." I'm glad we could help, David! Next comes from Scott.
Engdahl: Anything you want to say about David now that he's not listening?
Southwick: Well, I feel like I have made his life easier, because instead of having to listen to four shows, he just needs to wait and listen once a month.
Brokamp: That's right. That's true.
Southwick: But if he doesn't want to listen at all, and we made the decision easier for him. Then you're welcome, David!
Brokamp: We'll miss you, David!
Southwick: We hardly knew you. We also got a letter from Scott. I don't know where he got this, but here we go. "I remember a fact that I believe was on the Answers podcast. I'm hoping that you can help me find the source. It was something about a survey done of presidents, leaders, and it said one thing they had in common was camping. It was a researcher biographer that said something along those lines, that one trait that leaders had in common was they went camping with their families." Bro, do you remember this at all?
Brokamp: I don't remember it -- not that I didn't say it. I don't remember it, but I love it because I love camping, so I sure hope it's true.
Southwick: I'm skeptical that it's true. Well, for most of the presidents' lives, camping was just called livin'. Right? Like, I'm sure George Washington camped a whole heck of a lot, because it took a month to get to Delaware. I don't know.
Brinsfield: He also had Mount Vernon.
Southwick: Yeah, but anyway.
Engdahl: I hear Lincoln spent a lot of time in a cabin.
Southwick: Right! I think Lincoln did a lot of camping. Teddy Roosevelt was real into it, too, so I don't know. I don't remember it, but maybe some of our listeners remember who mentioned it and they can track it down.
Engdahl: This might possibly have come from David Gardner's RBI podcasts. He did an interview with the author Candice Millard, who wrote the book about Teddy Roosevelt...
Southwick: Oh! Right!
Engdahl: ... and it talks camping a little bit, so that little tidbit might have come out of that. I'm not sure. Just a guess.
Southwick: OK, all right. Well, we can hope that it's true. Again, I'm skeptical, but there we go. That's our best lead -- Candice Millard's book. A bunch of you wrote in with tips for saving, so we're going to talk about Jason's tip first. "You asked if we had any savings tips to send your way, so here it goes. I created an Excel sheet back in 2007 with assets and liabilities..." Sounds simple.
"But then I created accounts for such things like emergency funds, vacations, investing, checkbooks, bonds, CDs, stocks, IRA, 401(k), etc. After each year, my wife and I create what we call a new zero amount. We will take our checkbook, for example. Our new zero amount in 2018 is $15,000. This means that if we have $15,500 in our checkbook, we mentally have trained ourselves to believe that we really only have $500; therefore, never going below $15,000 again." Jason, way to go, you and your wife, in staying so disciplined with your money.
The next one comes from Del. Our buddy, Del. "Regarding your idea of selling stuff on Craigslist, what do you recommend for the logistics for meeting up with a buyer and exchanging money for the item?" He thought about using Craigslist, but he's reluctant because of possible issues around safety, taking cash, checks, etc.
Brokamp: I do it quite a bit. I only take cash, and I have not had any problems with people coming to my house, but I am always the one who handles it and I never...
Southwick: You don't send your daughter Zoe out to haggle.
Brokamp: No, but so far, I have not had any problems.
Southwick: We always meet people in a parking lot somewhere. Actually, that sounds scarier than it is.
Engdahl: The money is always in a paper bag.
Southwick: I'll go to someone's house and pick stuff up, but I never have people... No, that's not true. No, I have had people come pick stuff up at my house.
Brokamp: The last few items that we have sold were bookcases, chairs, stuff that...
Southwick: You're not hauling...
Brokamp: I'm not hauling. I'm like, "You're coming here with your truck to take this away if you want this awesome deal off of Craigslist."
Southwick: Yes, everything I've sold on Craigslist or bought on Craigslist I've actually had really good luck.
Brokamp: Yeah, me too.
Southwick: So, Del, don't be afraid. Go for it! Chris listened to our episode where someone wrote in and they talked about their savings ratio. How they managed to save so much money through the years, and his wife was like, "No, there's no way that's right," but it was right.
Brokamp: Right. It turns out they were saving something like 40% of their income.
Southwick: Chris writes that he never had an explicit ratio that he was gunning for, but generally he's ignored his raises and just shoveled the extra money into the bank. He owns a modest home in an older neighborhood. Buys a new car every six to eight years. Says he likes nice things, but he makes buying them the exception and not the rule. "I'm 40 now, working as a software engineer, and in 2017 I saved up about 70% of my salary."
Brokamp: Holy cow!
Brokamp: That's amazing.
Southwick: You just got some raised eyebrows from Megan Brinsfield. That's a way to impress her.
Brokamp: Right. So, the previous listener, whenever he got a raise, always banked half of it and just spent the other half, as well as the taxes related on to it. He then just kept doing that for every raise, to the point where he was saving a ton of money.
Southwick: Nate's got some advice. If you remember the episode where Rick talked about how when credit cards shut down, that's how you figure out what recurring charges you weren't using anymore. Nate writes, "If listeners don't want to dig through all their bills looking for things to cancel for savings, there's an app called Hiatus that does it for you." He said, "I don't use it myself, as I am an Android user, but they're on iOS right now and I've heard good things about it." Hiatus. If you can use it, check it out.
We also got a note from Dr. Rhodes. You might remember him as the Dr. Rhodes after-tax, 401(k), Roth IRA, rollover plan creator. Do you remember he wrote in with the super complex...? I was like, "Oh, we'll let other people figure this out."
He is, not surprisingly, crushing it with his retirement planning, and he shared his three favorite financial sayings. They are (1) the first million is the hardest, (2) it isn't timing the market that matters; it is time in the market, (3) a question: When is the best time to plant a fruit tree? The answer is 10 years ago. The second best time is today.
Brokamp: Obviously it's clearly worked for him.
Southwick: Yeah, no kidding. David offers some advice for getting your kids investing. He says, "I have to say a site with an app like Wealthfront made the difference for my 13-year-old son. We had gone the route of individual stocks, but he does not have much interest to invest, and the fees for buying a few shares made it tough to see any progress to be diversified. So last year we liquidated his five-stock portfolio worth about $1,000, and he now has a Wealthfront account where he won't get charged fees until he reaches a $10,000 balance. He can put in 100 bucks when he has saved up Christmas or birthday money, or money from work he does around the neighborhood. Being able to call it up on his phone and look at the balance engages him. Technically it's my account, but it's attached to his bank savings account and it's his to contribute to and watch grow." So there you go. Apps are going to save us all and teach our kids how to work with money.
Anthony wrote in to say that my pronouncement of Gualala was the most popular one, but originally it was pronounced GWA-la-la, which he says is Indian for "where the river meets the ocean," or maybe it's where the G is a W. So, if you find yourselves in L.A., he says, drop into the Ballroom Blitz and dance with me and my wife, Susanna. They own a dance studio in Los Angeles.
Brokamp: I'm totally going to do that, by the way.
Southwick: Yeah! Oh, are you going to Los Angeles sometime?
Brokamp: No, but I love ballroom dancing. Like two months ago, I looked up where I can take lessons, again. I used to do it back in the mid-nineties. I love it!
Southwick: Oh, yeah. Ron and I used to dance, too. I love to cha-cha. What's your favorite type of ballroom dance?
Brokamp: Just waltzing and foxtrot and all that stuff.
Southwick: Oh, yeah. The foxtrot's fun, too. The cha-cha was our favorite. Well, that's the show. For listeners in the Bay Area, I've got a surprise for you. Chris Hill, the host of Market Foolery and Motley Fool Money is going to be in San Francisco on Wednesday, February 7th and while he's there he's hosting a meetup at the Golden Gate Tap Room on Powell Street. It's going to be, again, Wednesday, Feb. 7, from 5 to 7 p.m. You don't need to be a paying member or a subscriber to The Motley Fool to show up if you want to hang with other folks like Kristine Harjes, Matt Argersinger. Oh, Megan, are you going to be there, too?
Southwick: Oh, that's awesome! I didn't know that! My voice just went up three octaves.
Brinsfield: I've got one fan! She also just fainted! Crazy!
Southwick: If you would like to get a calendar reminder, you can email firstname.lastname@example.org and I guess they'll send you one. Chris told me to say that, so if it's not true, blame Chris. But yeah, that's so great. They have an opportunity to meet you in person.
Brinsfield: In the flesh.
Southwick: So, if you're somewhere near San Francisco, Golden Gate Tap Room on Palace Street, Feb. 7, 5 to 7 p.m. The postcards are still coming in and they're killing me. I'm so jealous. Matt went to the Maldives, and Tan sent us our very first card from Laos.
Brokamp: Oh, good!
Southwick: Megan, thank you so much, again, for joining us!
Brinsfield: Thank you!
Southwick: Safe travels to San Francisco. The show is edited posthastily by Rick Engdahl. For Robert Brokamp, I'm Alison Southwick. Stay Foolish, everybody!
Megan Brinsfield is an employee of Motley Fool Wealth Management, a separate, sister company of The Motley Fool, LLC. The views of Megan Brinsfield and Motley Fool Wealth Management are not the views of The Motley Fool, LLC and should not be taken as such.
Alison Southwick has no position in any of the stocks mentioned. Robert Brokamp, CFP owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.