Ever wonder what it really takes to retire early—without running out of money or sanity? Today, Joe, Paula, and OG welcome back tax expert and author Sean Mullaney, co-author of Tax Planning To and Through Early Retirement. Together they unpack what “early retirement” actually means, how to build a plan that lasts 40 to 50 years, and why your tax location might matter even more than your asset allocation.
Sean shares how lifestyle design ties into tax strategy (hint: fewer knick-knacks, more steak dinners), Paula debates the eternal Roth vs. Traditional question, and OG reminds us that sometimes the biggest risk is saving too much. Plus, you’ll hear a lively trivia round about former Vice President Spiro Agnew—because nothing says “fun with money nerds” like 1970s tax evasion.
In this episode:
- Defining “early retirement” (and why it’s more flexible than you think)
- The three financial levers that move your retirement timeline
- Lifestyle design vs. lifestyle creep
- Roth vs. Traditional 401(k): the ultimate friendly cage match
- Tax-efficient withdrawal strategies and the 72(t) rule
- Future-proofing your plan for AI, inflation, and unexpected curveballs
FULL SHOW NOTES: https://stackingbenjamins.com/building-your-early-retirement-plan-1746
Deeper dives with curated links, topics, and discussions are in our newsletter, The 201, available at https://www.StackingBenjamins.com/201
Enjoy!
Our Topic: Financial planning for early retirement
During our conversation, you’ll hear us mention:
- Defining early retirement
- Retirement age debate
- Health insurance planning
- AI and job changes
- Savings vs. spending
- Lifestyle design
- Opportunity cost
- Tax-efficient investing
- Roth vs. Traditional
- Asset allocation
- Drawdown strategy
- 72(t) withdrawals
- Premium tax credits
- ACA health coverage
- Tax flexibility
- Sequence of returns
- Over-saving risks
- Inflation protection
- Bucket strategy
- Experiential spending
- RMD age changes
- Future-proof planning
- Black Swan risks
- Creditor protection
- Work-life balance
Our Contributors
A big thanks to our contributors! You can check out more links for our guests below.
Sean Mullaney
Another thanks to Sean Mullaney for joining our contributors this week! Hear more from Sean on his YouTube channel at Sean Mullaney – YouTube
Check out his newly released book Tax Planning To and Through Early Retirement.
Paula Pant
Check out Paula’s site and amazing podcast at AffordAnything.com
Follow Paula on Twitter: @AffordAnything
OG
For more on OG and his firm’s page, click here.
Doug’s Game Show Trivia
- How many Benjamins did Vice President Spiro Agnew pay in fines for tax evasion?
Mentioned in today’s show
Join Us on Monday!
Tune in on Monday when we tackle gold and other investments that flourish in a down market.
Miss our last show? Check it out here: Build Wealth AND Community Using This Real Estate Strategy (with Mel Dorman) SB1745.
Written by: Kevin Bailey
Episode transcript
[00:00:00] opener: Hello, my name is You Killed. My father Prepare to Die [00:00:14] Doug: Live from the basement of the YouTube headquarters. It’s the Stacking Benjamin Show. [00:00:29] Doug: I’m Joe’s mom’s neighbor, Duggan. In the last few weeks we’ve talked five steps to retirement. We’ve, we’ve talked. About working less and getting more done. We’ve, we’ve even talked about how to use your retirement plans better, but you know what we really haven’t talked about yet? Building an early retirement plans. [00:00:46] Doug: So let’s do that today. Our all-star panel of contributors will dive into all the questions you’re asking about early retirement, so you can punch out earlier and more importantly, happier. But you think that’s all, of course not. We’ll also bring home the bacon halfway through today’s show with my amazing money themed trivia, and now a guy who’s. [00:01:10] Doug: To good money habits. What bacon and eggs are to breakfast, which means often burned and usually runny. It’s Joe Saul. See? Hi. [00:01:27] Joe: Welcome to the only show that can ruin a great open. Hey everybody, it is Joe Saul-Sehy. Hi. Happy that you’re here with us. We’re gonna have a great time today, so sit back and relax and get your money nerdy on. I’m here right now with my buddy, Doug. How are you my friend? Hey buddy. So glad when you called me. [00:01:43] Joe: We were buddy. We got a great show because I’m gonna hold it right here. We got this, uh, author who’s gonna be part of our round table today. Done. Done. Yep. Not gonna show you, gonna show you in just a second, but first, let’s meet the guy who is always across the card table from me and Kitty Corner Kitty. [00:02:01] Joe: Is it Kitty Corner or Catty Corner? I hear it both ways. It’s Kitty, kitty, kitty Corner from Doug. Mr. OG is here. How are you brother? [00:02:08] OG: I believe it is Cattycorner actually. Nope. But, uh, just, uh, get my papers ready. So always be an argument show Doug. What’s what, and yeah, only if [00:02:18] Doug: you’re the kind of person who says, cat’s up instead of ketchup. [00:02:21] OG: I think there’s plenty of people. I would argue a solid two thirds of the population would say catty corner. I dunno. Don’t, please [00:02:29] Joe: don’t write to me and tell me which way. Take, take a, I was about to say, write to me, do this later, but don’t write to me about that. Write to me about the important stuff like early retirement and a woman who likes to talk about how to think about early retirement. [00:02:43] Joe: The Paula Pant is here. How are you? [00:02:45] Paula: It’s definitely cattycorner for sure. Oh my God. Definitely wrong cattycorner and ketchup. Wow. [00:02:53] Joe: So she’s splitting the difference. She is split the upright. Yeah. I wanna get along with the og, but I also want to get along with Joe and Doug. How are you, Paula? I’m great. How are you doing? [00:03:02] Joe: You have been moving, I saw you have a little red wagon [00:03:05] Paula: and you I do, yes. So I’ve been moving out of that WeWork office and I’ve been putting everything into a storage unit, and it’s about an eighth of a mile in between the two. And rather than take an Uber or Lyft or taxi, then obviously I don’t have a car. [00:03:18] Paula: I’ve decided to just hand pull every item. So I’ve got a little red wagon. And I have been loading boxes and loading equipment and just loading stuff onto the wagon, pulling it an eighth of a mile to the storage unit, uphill both ways and unloading and then walking back. And so just back and forth, back and forth. [00:03:37] Paula: I’ve done probably around 10 trips. I’m, I’m training for the half marathon, Joe, I [00:03:42] Joe: just love the fact, Paula, that you, you get to say the word mile in there, like it’s a long way. ’cause ’cause when I start doing that math backwards, as a guy that ran track in cross country, half a mile is 800 yards. Mm-hmm. A quarter mile is 400 yards. [00:03:57] Joe: Paula, are you telling me you go a whopping 200 yards or two? 200. Well, that’s 1600 meters. [00:04:03] Paula: It’s an eighth of a mile. So it’s 800 yards, right? No, 800 [00:04:06] Joe: yards is a half mile. Oh boy. [00:04:07] Paula: Oh, oh. Okay. Wait. So it’s one, it’s, [00:04:11] OG: please make this a trivia question. Please make this a trivia question. Please make this a trivia question. [00:04:16] OG: I got this one. I know it. It’s [00:04:17] Paula: 0.8 miles. I, it’s 0.8 miles. It’s 0.8 miles, almost mile miles. Those are way different things. Miles. Well, there you go. It’s almost a mile. It’s 0.8 miles. If Paula was [00:04:27] OG: ready for retirement, she would’ve just hired 10 people to do this once and then all with Red Wagons and put it on her socials. [00:04:36] OG: It’s the We Wagon. I can’t believe, by the [00:04:38] Joe: way, all the math that Paula does on her show and she gets tripped up. Up by an eighth and 0.8. [00:04:43] Paula: Yes, [00:04:44] OG: yes. No wonder the cookies always taste funny. Add one half cup sugar. It’s like there’s two big [00:04:50] Joe: scoops of this, right? Well, that’s two cups. No, that’s the entire bag. [00:04:55] Joe: HoChi. That’s the entire bag. Oh [00:04:56] Paula: wow. That was some botched math right there it is. Point eight miles. Are you [00:05:00] Joe: guys excited? Because look at this. I got this new book just, just below the screen for those, not with us on YouTube. And the author of this book, actually one half of the author team of this book is with us today from Southern California. [00:05:14] Joe: There he is, my brother by another mother, my younger brother by far. Mr. Sha Malan here. How are you man, [00:05:20] Sean: Joe? I am doing well. Uh, we’re talking early retirement today. We got the Jets on Monday night, tonight. Awesome day. [00:05:27] Joe: Oh boy. That is Doug. Is is Sean Malaney the one person, uh, in stacker who’s worried about the Jets tonight and excited that the Jets are off? [00:05:37] Joe: Well, [00:05:37] Doug: I don’t know about that, Joe, because a whole bunch of Detroit fans now are Semi Jets fans because we gave you our coach. [00:05:44] Joe: That’s right. That’s right, Sean. So is it the time for the big turnaround? You’ve been looking for the past like 30 years in Jet’s world? [00:05:51] Sean: Lots of hope over here. It’s gonna take a while. [00:05:54] Sean: Let’s put it that way. Tonight. Could be the start of it. Uh, dolphins are not very good. They’ve got some talent, but they’re not very good. So I’m very hopeful for a w. [00:06:03] Joe: And everybody’s like dolphins. That was a couple weeks ago. Well, now, you know when we recorded this. There, there you go. But Sean is the co-author of this beautiful book that I have in my hand, tax planning to and through early retirement, you and your friend, uh, Cody Garrett, wrote this thing, Sean, how was it writing this Beast? [00:06:22] Joe: Look at how big that book is. [00:06:24] Sean: It’s over 300 pages. So we go through all sorts of stuff in that book, uh, accumulation through the end of the retirement. I really enjoyed it. I became a better professional by doing it. I learned a lot by doing it. And our hope is that readers will learn a whole lot by reading it. [00:06:40] Sean: Sean [00:06:41] Joe: starts on this project, goes tax planning. That’s a thing. Is that really a thing? I mean, I’ve known Sean a while. I’m sure that wasn’t exactly how that went down. Well, we’re gonna talk early retirement, everybody, and that will include, uh, partially because Sean’s here a lot of work on your tax planning for early retirement, but also the other planning you need to do the psychological piece, the investment piece. [00:07:04] Joe: We’re going to do a 360 look at this for about the next 45, 50 minutes. So grab your iPad, the paper, wherever you take notes, and we’re gonna dive in. But before that, we got a couple sponsors to make sure we can keep on keeping on. So we’re gonna hear from them so you don’t have to pay anything for any of this pre and early retirement. [00:07:24] Joe: Goodness. We’re gonna hear from them. And then Sean, Paula, og Doug and I, we’re gonna talk about planning your way into early retirement. [00:07:41] Joe: All right guys. Sun Sue from one of my favorite all time books, the Art of War, said the Best Battles, the one that’s never fought, and I can hear the battle already. Paula Pant, which is gonna be oh, early retirement. And then, and then the debate over what early retirement actually means, which is the eye roll discussion. [00:08:01] Joe: I don’t wanna have. So let’s make sure we don’t fight that battle. Define it for us, Paula. Sure. What are you playing for during this next hour? What is early retirement gonna be defined by Paula as, [00:08:14] Paula: I’ll start with what it’s not. Retirement is not the complete and permanent cessation of all income producing activity. [00:08:22] Paula: Retirement, I think is the option. Well, okay. Think about what a 65-year-old who retires does if that 65-year-old is in good health. Then just move it forward several years so that 65-year-old might decide to stop income producing activity for a while, maybe forever. Or that 65-year-old might decide to volunteer, maybe to start a part-time job, maybe to do, you know, that 65-year-old has options. [00:08:48] Paula: So just imagine that framework and then just move it forward. Og, what are you gonna define early [00:08:53] Joe: retirement as today? [00:08:57] OG: I didn’t know that this was gonna be one of the questions. Um, what do I wanna define it as? [00:09:01] Joe: Or do Apollo did what? Define it as not, what are we talking about? We not talk about, [00:09:06] OG: I think it’s largely accepted that retirement is 62 plus and when you stop working, like Paula said, uh, you just are done doing anything that’s productive from a work standpoint. [00:09:19] OG: So early retirement would be anything that, uh, causes you to, uh, stop that major source of income, your primary job before that. So you know anybody who’s done. In their fifties. I don’t even know. Early retirement. It’s early retirement. It’s retiring early. Why do we have to define a word that’s like two words that make a lot of sense together by themselves? [00:09:38] Joe: Well, Sean, and you know why? I think you know why I’m starting there? Here because people are like, well, but they’re still working, but they’re still doing stuff. They’re over 50 years old and they’re doing, they’re not really actually early retired. So define it for us in Sean Malaney terms. [00:09:52] Sean: Paula makes a great point that retirement does not need to mean zero out earned income. [00:09:59] Sean: Here’s how I look at it. I say something like, 70% of Americans report retiring prior to Medicare enrollment. Medicare enrollment is the first of the month. You turn 65. So if you retire prior to Medicare enrollment, that means at a minimum you’ve got a health insurance issue to manage. And it’s very manageable, but you need to have a lot of intention around that. [00:10:23] Sean: So I start with 65. Anything prior to 65 is gonna have at least some sort of thought that’s gonna be needed behind the health insurance. And so I would argue anyone before 65 is early by at least some metric, by at least some planning consideration. Uh, the other thing I’m gonna say about early retirement is there are gonna be some folks in the audience who say, oh, I’m gonna work to 65, 70, maybe even 75. [00:10:46] Sean: And I think in today’s world, everyone needs the early retirement play or play set in their playbook. Not that everybody needs to plan on an early retirement. Do we really think the jobs we’re doing today are going to exist as they exist today, 10 years from now, 15 years from now, heck, even five years from now. [00:11:06] Sean: It could be that your company changes, the economy changes or your own preferences change. You may love going to the office today. Maybe in five years something’s gonna change. You’re not gonna love it so much anymore. So I think this early retirement, I almost think it, it’s more of a planning concept, and it’s a planning concept that applies to almost everybody with a job. [00:11:26] Joe: Man. I love that, Sean, because at lunch today I was reading the CEO of Walmart at a recent employment conference talking about how, and this is his quote, AI is going to affect every job. And it’s not about people not having jobs, it’s about how do we help retrain our workforce and how do we think about where people are gonna fit because the way we fit is gonna be different. [00:11:49] Joe: Well, he predicts that we will all have jobs. We’ll just be doing much, much, much different things. So to your point, we may be an earlier retiree, we may be an earlier retiree than we think as we’re getting retrained for the next thing. [00:12:02] Sean: Absolutely Joe. Um, and, and I’m not here to say I’m for or against ai, but it’s certainly part of the conversation and things change and, and that we’ve seen that over the last 10 years. [00:12:13] Sean: Things in the world, things are our own personal lives, careers, and so I just like this idea of, look, I may not be 100% planning on retiring prior to 65 or prior to 55, but I at least have some flexibility in my playbook to consider it if it does happen. [00:12:31] Joe: Yeah. And I think it doesn’t matter whether you’re forward or against it, right? [00:12:34] Joe: I mean, I’d love that Jack Welch quote from the nineties, except reality, the way it is, not the way you wish it were or hope it will be. Like reality is AI’s coming in some way to every job in one form or another. Sean, let’s stick with you. In retirement, you’ve got these three levers saving money, right? [00:12:52] Joe: How are you going to save money? You’ve got the spending. How are we gonna control our spending and, and look at our spending patterns? And third is earning money. Are we gonna keep putting money away? Partly, which of those three levers, if I’m planning on early retirement, do you think is the most important to drive? [00:13:10] Sean: That’s a fantastic question, Joe. I sort of look at two of them being building up the wealth. So saving and investing and then the spending. ’cause the spending is a very powerful driver of when someone can potentially retire. It’s one thing to say, oh, you know, I’ve got, you know, a $2 million balance in my retirement accounts, in my taxable account, whatever it might be, in investible assets. [00:13:33] Sean: Well, how much do you spend every year? And if it’s, oh, well I spend 50,000, 60,000 a year, well, that’s one situation. Well, you know, what, if you spend 300,000 a year, that’s a very different situation. So I don’t necessarily put a a, a priority between saving and our expenses, but boy, that expense stuff does matter and can give you some flexibility. [00:13:54] Joe: Paula, when you think about those three drivers, saving, spending, and investing, how do you put them in order? [00:14:01] Paula: I would put savings is number one, because the, well, okay, this, it depends on how you’re defining savings, but if savings is the delta between what you earn and what you spend, then I would say increasing the size of that delta. [00:14:16] Paula: Did I say that correctly? What you earn and what you spend? Yes. Then I would say increasing the size of that delta is number one, since that is the backbone of everything. And then number two would be shoveling as much of that into investments as possible. [00:14:29] Joe: And then asset allocation, then how you do it is three. [00:14:31] Paula: Yeah. Yeah. And you know, refining all of that, that’s becomes more important after you have made some significant contributions to your portfolio. But as, as you and I have talked about on my show, especially when you’re building that first a hundred thousand, it’s the contributions that really move the needle, not the um, tweaking around the margins. [00:14:51] Joe: Oh gee. You see people on a daily basis who are struggling with all three of these, right? What’s the one you end up having to help people with the most? ’cause they’re getting it the most wrong. [00:15:02] OG: So just for clarification purposes, you said saving, spending and investing, but isn’t saving and investing the same thing and that you said asset allocations? [00:15:09] OG: Is that what you mean by investing like that? [00:15:12] Joe: Yeah. Yeah. Shoveling money in. Spending plan in retirement or how you have it invested so that you can withdraw it, you know, in a simple manner and an efficient manner. [00:15:22] OG: I think that there’s two types of people from a financial planning standpoint that we talk to very broadly speaking, and one is the person that’s not saving enough money, you know, for their future goals. [00:15:35] OG: And, and, and most of us can kind of picture that, right? It’s like lifestyle and just, it is what it is. I’m where I am in my life and I need to like stretch or like Paula said, try to figure out a way to increase that gap between my earnings and my saving potential. That’s probably the large majority of people, maybe 60 or 70% kind of fall into that category. [00:15:56] OG: But I think the other side is, and I don’t know that this is a direction we wanna talk about with this, but I think the other side is also the person that saves too much money and doesn’t do enough, like living in terms of experiences early. That’s kind of a different thing altogether and it seems like to the person who is not saving enough money, hearing somebody go, like there’s people out there that have too much savings and like, boy, that would be tough. [00:16:19] OG: You know, woe is them, you know, must suck. It’s the same disease. It’s just the other side of the coin. And that person has the same sort of anxiety and stress and you know, I’m not there and I need to work harder as the person who doesn’t have those things. It’s the same psychosis as just the other side, and that’s fewer people, maybe one in three versus two in three. [00:16:40] OG: The other side, in terms of not saving on the whole, it’s focusing on how do we, like Paula said, increase that gap between the savings or our spending and what we’re earning. And however you get to that, that delta or increasing that is okay. Sometimes you can do it from reducing your spending. That’s harder, I think to do than it is to increase your income. [00:17:05] Joe: What I like. And actually the next topic I wanted to kind of morph this into, because I feel like these topics meld together so well, is this idea of lifestyle design, right? And so og, when you talk about people who save too much money, I mean now we’re into this whole different idea, I think, of determining how we’re actually spending our money. [00:17:29] Joe: Not, not whether we’re spending money, but but how we’re spending our money, right? I mean, [00:17:35] OG: from a spending standpoint, and we’ve talked about this on the show for 15 years, it’s so much harder to cut your lifestyle down to something than it is to just make more money. And again, I get it. There’s people that are listening going, oh, you don’t understand. [00:17:48] OG: It’s way harder than you think it is. I didn’t say it was easy, but you can only cut to so much, right? You can only have so little food or so little housing costs, or so little transportation costs. And once you’re at that base amount, you’re there. Versus working a little overtime or getting a second job or getting a third job or whatever the case may be, to increase your income to infinity. [00:18:11] OG: There’s no theoretic limit to, to your income, but it’s a combination of both of them for sure. And if you’re stuck kind of lips, just above water type of scenario, you make some money and you spend just kind of where you are, I think it’s fair to evaluate everything and, and realize there are no sacred spending or income earning activities. [00:18:31] OG: And you should be able to say everything counts, including selling the house and moving. You know, you think about like the Dave Ramsey concept of where he is, like, you gotta get rid of this, you gotta get rid of this, you gotta, you know, sometimes you gotta do those things to get kinda your life back in, in where it should be so you can grow from there. [00:18:47] Joe: Well, and that, I think Paula is really the cool thing. What OGs talking about is, you know, well Dave Ramsey might say, you gotta cut this, you gotta cut that. You don’t have to cut anything. Like, I feel like this powerful thing of lifestyle design. It might have a little bit to do with this phrase I just came up with. [00:19:02] Joe: Listen to this. You can afford anything. Just not everything. I just thought of that like it’s pretty kick ass, isn’t it? [00:19:10] Paula: Brilliant, brilliant. What that speaks to is opportunity cost. That saying yes to something necessarily means that, uh, you are saying no to other things and the goal is to be intentional about what you say yes and no to. [00:19:24] Paula: Right? To be very intentional about both of those. ’cause I think what often happens is that people will make decisions because that is what is generally prescribed by society, right? So society says that you should have this type of house or this type of car, or wear these types of clothes or wear these brands or whatever. [00:19:43] Paula: Or, or have a, have a giant TV [00:19:46] OG: that is required. Paula? Yeah. [00:19:48] Paula: What? You went too far. I, you can see my, I don’t own a tv, hence. Why? I never know anything when it comes to our culture. Enough [00:19:54] Doug: virtue signaling. [00:19:57] Paula: I mean, I do, I have a, an iPad. I do watch things on there, but you know, I think that’s a perfect example of what might be a big priority to you is not a priority to me. [00:20:07] Paula: You know, versus I’ll spend my money, I went to Panama in April, right? That’s something that I, [00:20:15] OG: can you guys ever think of that without saying that? Anyways, [00:20:18] Paula: I dot know this song. [00:20:20] OG: Oh my God. [00:20:21] Doug: Case a right there, og and she doesn’t own a television [00:20:27] OG: oaa, [00:20:28] Paula: right? But that trip to Panama, that’s an example of something that I value, but not everybody would necessarily value that. [00:20:34] Joe: And apparently og uh, values Van Halen Way more than you do. Yes. And Sean, on this topic of lifestyle design, I think lifestyle design has a lot to do with early retirement because you’re like, you know what, I’m rejecting the premise that I have to work till 65, but you did a cool thing the first time you and I met at a campfire in Southern California where you tied this idea of lifestyle design also to tax planning. [00:20:58] Joe: Do you mind for, you know, most of our stackers weren’t there unless our total audience was the 40 people that were in that room. Do you mind tying those two together again? ’cause I think this idea of lifestyle design and tax planning are pretty cool things that go hand in hand. [00:21:12] Sean: Yeah. So it turns out, particularly in retirement, we claim we have a quote unquote income tax, but when you boil it down in retirement, oftentimes it’s a consumption tax. [00:21:24] Sean: I was making a point about stuff, and now I’m gonna make a point also about stuff versus experiences. One of the points I made in that presentation was, well wait a minute. In retirement, if you want to go buy more stuff, you’re increasing your taxes because you’re essentially taking money out of taxable accounts, traditional accounts, increasing your taxable income to go buy that stuff. [00:21:45] Sean: So you’re paying more taxes for this stuff, which, oh, by the way, is ultimately going into the landfill anyway. The other thing about that in terms of retirement is stuff versus experiences. So what I mean by that is we buy the sports car, we buy the vacation home, we buy these other big ticket items they have carrying costs. [00:22:06] Sean: Versus in retirement. You go to the big island of Hawaii and you upgrade to the ocean view room and you go to a nice steak dinner a couple of nights. Well, maybe those were expensive and maybe even blew the budget a little bit. But there’s no carrying cost when you pass. Your kids don’t have to sort that out, right? [00:22:24] Sean: Oh, mom and dad happened to go to the big island and they had a few steak dinners and they went snorkeling, and okay, maybe they spent a little too much, but there’s no carrying cost and there’s no decision for your loved ones when you pass on, oh, what are we doing with this knickknack or that knickknack. [00:22:40] Sean: So I think in, in the early retirement paradigm, one, the stuff tends to increase our taxes. And two, if we’re gonna be a little more spendy, why don’t we do it a little bit more on the experiences side than on the stuff side. [00:22:55] Joe: It’s funny, ever since you talked about that, no matter how good you take care of this stuff, it’s gonna. [00:23:01] Joe: End up in a landfill. Yesterday in Houston, I was in the Galleria Mall, this Monster Mall, and all I can think of is Sha Melany in my ear going, no matter how good people take care of this stuff, it’s all gonna be a landfill. And it’s just so, it was so gross. It’s just [00:23:17] Sean: such a big, sorry, do I ruined your Sunday at the mall, Joe? [00:23:20] Sean: Oh no, it’s good. Say So what did, what did you buy? My, [00:23:23] Joe: my Sunday at the mall’s already ruined, you know why? Because I was at the mall. That’s, that’s a, it’s a hundred, a hundred percent. Uh, I wanna talk about this idea of tax location, Sean. How important is it while I’m planning for this early retirement to know whether I have my money in pre-tax, in, in tax free or in tax flexible locations? [00:23:44] Sean: So it is very important, and there’s sort of two aspects to this. One is something called asset location. Most investors we’re not giving investment advice in today’s podcast episode, but most investors want some combination of bonds and equities and so, wait, wait a minute. I wanna have some bonds. Where should I hold that? [00:24:02] Sean: Should that be my traditional retirement account, my taxable account, my Roth account? That tends to do much better in my traditional retirement account. It has interest income. We like to leave that off a tax return. It’s also lower growth, generally speaking, so we like to leave those at a Roth accounts. [00:24:17] Sean: We like the higher growth than the Roth, so that’s one piece of it. Okay. Then there’s the second piece, and I get this question and I bet everyone here has probably gotten this question, well, what’s my ideal ratio of traditional retirement accounts, Roth retirement accounts and taxable accounts? And the real nerds will even throw in an HSA to that equation, but let’s just do traditional tax. [00:24:38] Sean: Roth, [00:24:38] OG: it’s the triple tax. [00:24:40] Sean: Yeah. I like to argue there’s no ideal ratio between those three. I think what we can do is in our draw down, we can be intentional around how we access those three. And all three of those have pros and cons. And by the way, it’s mostly pros because you wanna get to retirement with sufficient assets. [00:25:00] Sean: So if it’s, even if it’s all, all in one or another, as long as we got sufficient assets, all three of them are generally speaking better than worse. That’s the sort of, the way I look at it is not that we have any sort of golden ratio of traditional to Roth to taxable, but more how can we control our drawdown to make the most of whatever it is we have. [00:25:20] Sean: And my general thesis too is, you know, everyone with any sort of sufficient mix of those three can probably have a very tax efficient retirement with some planning. [00:25:31] Joe: All right. One more question for you, Sean, which is that we had, uh, a stacker in mom’s basement, our Facebook chat group, and having a lively discussion where they said that they wanted to have you or your co-author Cody on to talk about the fact that Paula and I really are, we, we kind of default first to the Roth and then talk us out of it. [00:25:54] Joe: Do you agree with that strategy? ’cause it sounds like you don’t, based on the fact that somebody wanted you on to fight with us. [00:26:03] Sean: So it’s about an intellectual discussion. Right. And reasonable minds can differ a little bit here, but the overriding premise I go with is let’s pay tax when we pay less tax. [00:26:14] Sean: Generally speaking, for most Americans, and this includes most affluent Americans. We tend to pay the most tax during our working years, and we tend to pay less tax in our retirement years. Is that a 100% universally true statement? Of course not, but let’s just think about it conceptually. First. In our working years, we’re getting up at 9:00 AM or before then to go to the office to earn an income. [00:26:39] Sean: Over the years, we’ve had this sort of in koha fear, enter the personal finance space. Oh no. In retirement, I’m gonna pay all these taxes. But that’s counter to the lived experience that literally in your working years, you’re going to work every day trying to earn a buck or two. In your retirement years, you’re sleeping in or you’re going to the national park. [00:26:57] Sean: You’re not going into the office to earn a buck or two. Now, yes, financial assets can absolutely earn you money in your retirement, but there’s another thing that’s going on in retirement is you have access to all the different tax brackets, the 0%, and the standard deduction, which keeps going up and up and up the 10% to 12% to 22% percent. [00:27:16] Sean: On and on. When we’re at work, we’re making a decision, Hey, do I do a traditional 401k or Roth 401k? That decision is not based on, well, some of this is in the 0%, some of this is 10, some of this is 12. It’s all in our marginal bracket, 24%, 22%, 32%. So in order for the traditional to fail in retirement, it’s gonna have to be taxed at a higher rate than the rate we deducted at during our working years. [00:27:43] Sean: I think for most Americans, you’re gonna wind up, even if you’re relatively affluent, you’re gonna wind up paying back the IRS at a lower bracket, and this, going through the brackets in retirement is a very beneficial concept. The other thing too is the RMD landscape has just changed. They start at 75 now. [00:28:01] Sean: So one other point I’ll make and then I’ll come down off my soapbox is eight years ago, folks were like, RMDs, they’re terrible. They’re terrible. Well, yeah, but they started at age 70 and a half. You know, when they start. Now, if you’re born in 1960 or later, and thus could potentially be an early retiree, they start at age 75. [00:28:19] Sean: And so I think it’s based on a lot of these changes that have occurred, it’s time for all of us to step back and reexamine some of these things. And one of them is, well, arent R ds are compelling planning objective, fair enough. But they only last for a narrow slice of our lives. And why is this one concern sort of had this overriding concern in the personal finance space when now, you know, for those of us born in 1960 and later, which is essentially every perspective early retiree out there in the future, they only start at age 75. [00:28:48] Sean: How many of these things are you actually gonna have? If you look at the social security mortality table, you may not be, uh, too thrilled about how many RMDs you’re scheduled to have. So, Joe, it’s great that you’re, you know, having this conversation. I think it’s time for all of us, considering all the changes that have occurred to at least reassess this issue. [00:29:05] Joe: These are my favorite discussions though, to your point, John, because um, what, and what I love about having them is people often think that we’re, uh, we’re all in agreement about this stuff, and smart people always disagree. I remember we had Frank and Carsten and uh, Dana on, and it was just a huge, uh, I, it felt like a fist fight sometimes and people were like, I left more confused. [00:29:26] Joe: And the point wasn’t to confuse our stackers. The point was really to show people look at ’em at different ways. There are to slice this, [00:29:31] OG: oh, don’t lie, Joe, you wanted to confuse everybody. Come back on Monday for the uncon confusing part. [00:29:38] Joe: If I [00:29:38] OG: keep ‘ [00:29:39] Joe: em confused, nobody knows. If I keep confused, they’ll come back for the next 15. [00:29:43] Joe: Like some timeshare presentation. See how this actually makes everybody more money. Like, we’re like, we’re great. You’ll be rich. Timeshares never go down. Well, the stacker that mentioned this, Paula put you and I on the other side of this, so you just heard Sean’s argument. So let’s hear the Paula pant argument. [00:29:57] Paula: Okay, the Paula pant argument in favor of, uh, my biases towards Roth, unless you have a compelling reason otherwise, is for a few reasons. Number one, when you contribute money to a Roth, you are contributing a smaller amount versus if that money grows, we’ll take the rule of 72, which, uh, is a, a rule of thumb that the amount of money doubles if you take the rate of return. [00:30:22] Paula: That rate of return multiplied by number of years equals 72. So 72 divided by the rate of return is the amount of time it takes for the money to double. Let’s just say that you’ve got an 8% long-term annualized return. That means every nine years that money is going to double. So I think the Roth argument is even more compelling if you’re in your twenties or thirties or forties, but really at any age. [00:30:44] Paula: I mean, if you consider the fact that you will be pulling money out of your retirement portfolio throughout retirement, you know, and not just on the day that you retire, that money is going to be in there. For a series of doublings, which means that the amount that you are eventually pulling out, it grows to 300%, 400%, 500% more than what you have put in, depending on when you put it in. [00:31:09] Paula: So to be able to have all of that as tax-free growth is, I think, an incredible opportunity. That’s one of my two reasons. The other reason is that we do not know, uh, I’m gonna give three reasons actually. So that’s reason number one, reason number two. [00:31:24] Joe: But wait, there’s more. [00:31:25] Paula: Yeah, I’ll go through the next two very quickly. [00:31:28] Paula: Reason number two is that we don’t know what tax rates are going to be in the future, and there is at least a probability that tax rates in the future might be much higher than they are today. If you wanna argue that I’m paying a premium for certainty, sure, I’ll take that argument. I would pay a certainty premium to lock in today’s tax rate as opposed to a much higher tax rate that might exist in the future. [00:31:50] Paula: So that’s reason number two. And then reason number three, that, by the [00:31:53] Joe: way, Paula, just to stop there, that is the ed slot argument right there. Ed slot’s argument is if you just look at tax rates versus where we’re at in the debt, there’s no way tax rates are gonna remain as low as they are today. But continue, [00:32:05] Paula: yeah. [00:32:06] Paula: And I don’t wanna make any like, certainty prognostications about the future, but I’ll just say there’s a, at least a reasonable probability that tax rates in the future will be higher than they are today. So that’s reason number two. Reason number three is the simplicity. Somebody in the comments said this too. [00:32:20] Paula: The simplicity of it, what you see is what you get. You look at the amount that’s in your, uh, portfolio and you’re like, that’s it. That’s, that’s the amount that I’ve got. [00:32:29] Joe: Oh, gee, you know, on Stacking Benjamins, I’ve tried to lure you into this argument and you’re like, I’m not taking it. ’cause it’s different all the time. [00:32:35] Joe: So we, we try again. It’ll be fun. Uh, you just heard, Sean, you just heard Paula, where do you come down on this idea of pretax versus Roth? [00:32:45] OG: I come down as yes, yes to everything. You should have everything because you, we don’t have any idea what the future is gonna hold. And yes, tax rates could be higher, that could be lower. [00:32:56] OG: We could have some tax bracket changes that give some flexibility. I think the main goal in distribution planning and retirement is to have, have a system that allows you to take advantage of whatever is going on in the circumstances in that calendar year. So maybe you have a high expense year, or you have high expenses in a year, and you say, well, if I do that, if I take that all outta my IRA, then I’m gonna pay higher Medicare taxes or higher social security taxes. [00:33:22] OG: And you know, so it’s nice to have the flexibility of saying, oh, I can have some Roth money to take that out this year to still keep my lifestyle the way that I need it, but then pay a tax rate that is more favorable and in subsequent years, maybe I don’t need as much. Or you have the flexibility for charitable contributions to kind of double dip by taking it out of your IRA perhaps or something. [00:33:42] OG: So. I can’t make a logical argument on one side or the other because there’s too many unknowns, and so I like to take it year by year. And I’ve said this in our circumstances, I think that I would much rather have Roth money in my 401k, but I also know that right now because of the way the the college funding FAFSA Bs is Roth 401k contributions don’t count against my income, whereas pre-tax 401k contributions do. [00:34:11] OG: So if I do pre-tax 401k contributions for me and the misses that ends up being $47,000, that comes off of our income for FAFSA purposes and grant and aid and that sort of stuff that we might qualify for scholarships or that my son might qualify for my kids versus not being able to do that. So the problem is, is that I gotta decide that on January and I find out the next year whether or not that paid me, you know, I got any payoff with any sort of scholarships to grants rate or whatever the case may be. [00:34:39] OG: So I, it’s a, it’s a gamble, like Paula has said, it’s paying for some certainty versus uncertainty type of stuff. And I would much rather just have the flexibility, make a decision year to year, live with it. If you can’t decide, do 50 50, totally fine. [00:34:52] Joe: You know what I love? I love first that if you are debating which one of these to do, it already means you’re saving money. [00:34:59] Joe: It already means you know, this is important and now you’re trying to tweak, tweak, tweak. And so I love what all three of you said, and I think it’s amazing to see the differences in your thinking and how we get to where we are. I think it’s so helpful for all of our stackers. And by the way, Paula, yeah, [00:35:16] OG: og. [00:35:16] OG: No, I was just gonna say that’s the message I think is if you are trying to tweak that last 5% of the calculation, then you’ve already won the game. It’s the saving of the 20,000 in your 401k that matters. It’s the icing on the cake of whether or not you exactly get it right in terms of what that future tax rate’s gonna be in 30 years from now. [00:35:37] OG: So save the 20 grand and if, you know, if you wanna mess around with that last little bit, then so be it. [00:35:44] Joe: Paula and I got to open this year’s FinCon conference and we did a funny little skid at the start saying you might be a money nerd if, and, uh, let me see if I can find it, uh, in the comments. We got some great stackers from the family hanging out with us today chatting, and we’ve been putting as many of them on screen as possible. [00:36:04] Joe: In fact, Ben says, I’m being diplomatic. I’m not being diplomatic as much as I do enjoy all these, as much as, uh, I think it’s, uh, uh, wills Lou, who said you might be a personal finance nerd if. You’re really enjoying this conversation. Hold, hold on. Like somebody’s trying to talk to you like, whoa, whoa. [00:36:23] Joe: They’re about to talk about the Roth. Hold on a second. Hold on. I wanna hear more. Well, you’re gonna have to wait a couple minutes because at the halfway point of every Stacking Benjamin show, we paused for Doug’s trivia question, but on Fridays it’s super spectacular because our three frequent contributors, OG Paula and Jesse Kramer, they do battle in this year long competition that’s been getting tighter and tighter as the year goes on. [00:36:46] Joe: Started off as a blowout with OG way ahead, but now, well, Doug, tell Sean what place he’s in and, uh, tell our stackers hanging out with us, the score. Well, Sean, [00:36:58] Doug: here’s the setup today. Uh, you are playing for Jesse, who is in the lead, but only by a half point. He’s got 11 and a half points. OG has 11 points, but Paul has got her vehicle in fifth gear and she is coming on strong. [00:37:13] Doug: With eight and a half points. [00:37:15] Joe: And that means that, uh, unfortunately, and I hate this for you, Sean, you have to guess first, whoever the leader is, guess first. So, um, that is the only painful part of this. Hey, thanks for coming on our show. You have to guess first, but for you to guess first we have to have a question. [00:37:31] Joe: And Doug, what’s on tap for today’s trivia question? [00:37:38] Doug: Well, hey, there’s stackers on Joe’s mom’s neighbor, Duggan. Today we are shining a light on almost President Spiro t Agnew. Three off, didn’t it? But in the early 1970s, Spiro Agnew resigned as vice president after pleading no contest to tax evasion, opening the door for Gerald R. Ford to become vice president, and then our nation’s 38th president after Richard Nixon resigned as well. [00:38:08] Doug: Had he just used TurboTax? I bet we’d still be talking about President’s Bureau Agnew today, right? Maybe. Am I right? [00:38:16] Joe: Maybe not. [00:38:17] Doug: That’s not how it works. Uh, could be, I don’t know. Here’s today’s question though. Back then Agnew was find a bunch of Benjamins for his crime, but exactly how many Benjamins were in that bench. [00:38:31] Doug: I’ll be back right after I see how many Benjamins it’ll take to get Joe’s mom to let me try her latest batch of chocolate chip cookies. They’re the ones with the m and ms and everything. Those things are amazing. Should be worth at least three Benjamins. [00:38:44] Joe: Oh, they are amazing. And this is the difference. [00:38:47] Joe: It could have been President Spiro Agnew and Eddie hanging out with this online says Spiro, who, and yet had he not committed tax evasion, he could have been the next president allegedly. Contest Alleges contest. That’s right. He did. It was no contest, Sean. It’s not how many dollars, it’s how many Benjamins was he fined? [00:39:10] Joe: Ooh, that’s the, that’s what we [00:39:12] Sean: gotta know. Nobody picked up on that significant notation or whatever the, [00:39:15] Joe: yes. I don’t know how many more times I could have said Benjamins Just wanted to clarify that before you, before you get [00:39:23] Sean: Oh, that is that. Alright. So, and you gotta remember too, back then, dollar amounts are smaller than they are today. [00:39:30] Sean: Yeah. Dollars U are this big and they used to be this big. All right, so I am going to say, oh boy. I’m gonna say 5,000. ’cause I think that gets me to a half million if I did the math correctly. Five. And I may not have, I’ll say 5,000. 5,000 [00:39:49] Joe: Benjamins. We’ll just add two zeros. Benjamins, you’re good? Sure. Oh gee. [00:39:53] Joe: He says 5,000 Benjamins. Mr. Agnew was fine for tax evasion. What say you, [00:40:00] OG: I think that’s light. That doesn’t seem like a lot of Benjamins in the grand scheme of things. Nothing. I mean, I think the common person in 1970 would be like, that’s ridiculous. But, uh, let’s say lots, he said lots of Benjamins, uh, for a fine. [00:40:14] OG: Uh, so I’m gonna say, uh, 23,694. A half Benjamins, [00:40:23] Joe: 23,694 and a half. Just so if you’re new here, this is just so Doug can do the math. [00:40:31] OG: Well, if he would stop doing dumb things, then he would get good answers. [00:40:35] Joe: All right. Paula, you’ve, you’ve got a big number from OG that I already can’t remember, but it’s significantly bigger than Sean’s 5,000 Benjamins. [00:40:43] Joe: It’s a wide [00:40:44] Paula: field goal. Let’s see. Well, I am the person who conflated one eighth of a mile with 0.8 miles. So [00:40:52] OG: one eighth of a Benjamin. [00:40:54] Joe: Well, Brett’s helping you. We said no help stackers. And Brett said, check this out. He says, more than one. It’s more than one. [00:41:04] Paula: More than one. I would agree. It’s uh, a number that is more than one and less than Infinity. [00:41:10] Paula: I think Sean was closer, so I’m gonna take. The upside of his answer and go with 5,001, [00:41:18] Joe: 5,001 Benjamin million, million and $1, which, uh, Doug, what was OGs guess? 23,000 Benjamins, 23694.5 Benjamins, which would be $2.3 million roughly. We’re gonna find out if it’s 2.3 million 500,000 or 500,001 in just a minute. [00:41:43] Joe: We’ll be right back. [00:41:47] Joe: All right. We’re talking about Spiro Agnew today. The guy that Eddie hanging out with us on YouTube says, I gotta learn about this guy, uh, this Spiro guy. But regardless, Sean, you started off with half a million dollars or 5,000 Benjamins. How are you feeling now that, uh, Paula took your upside away? [00:42:07] Sean: Look, that’s not a great outcome for Jesse and myself, but I will say I got the downside, so I’m feeling good about that. [00:42:15] Joe: It’s funny because, uh, Phi Leer, our friend Phi Leer says that we gotta let the guests go last, which I agree with Phi Leer, but you’re playing for team Jesse and he’s winning. So we’ll see. Paula, you feeling good about taking the upside, [00:42:31] Paula: taking the middle, I guess, uh, taking the middle side, you know, I don’t know because when 2.3 million, uh, OGs guess it doesn’t sound like a lot, but it doesn’t sound like a lot in today’s dollars. [00:42:43] Paula: But if you think about it in terms of the early seventies, it was more, and also he was vice president. Vice presidents don’t actually get paid a, a whole lot. I don’t know what his other business interests were, but I would imagine that the scandal of it was less about just the sheer heft of the amount and more about the evasion itself. [00:43:04] Paula: So yeah, I think I’m feeling good. That’s a [00:43:08] Joe: long way to, yes, I feel great. Jessica, by the way, wants to go back to, uh, when we were talking about Pav and talking about Octoberfest. It’s 80 swimming pools, 80 swimming pools. Oh gee, you had a lot of swimming pools full of Benjamins. How you feeling about the big 2.3 number? [00:43:25] Joe: Yeah, [00:43:26] OG: I mean, Doug was pretty adamant that it was a lot of Benjamin’s, so. You know, I hope it’s not something silly like 10. [00:43:34] Joe: We’ll find out. ‘ [00:43:35] OG: cause then Doug’s a liar. [00:43:38] Doug: Doug, who’s wow, who’s taking away the price today? OG Iss not playing the game. He is just playing it to hose me like he is just angry at me and he wants everybody to know it. [00:43:50] Doug: Hey there stackers. I’m chocolate chip lover and guy who just got caught with the bait and switch. Joe’s mom’s neighbor, Doug. Good news and bad news. The good news is that Joe’s mom agreed to three Benjamins for her chocolate chips. Sadly, she wasn’t buying it when I brought in three of the neighborhood kids who happened to be named. [00:44:10] Doug: Ha. See what I did there? So can I, uh, clever. Gonna gonna need to borrow a few bucks there, stackers. Hey, write me on that one because I gotta get to the trivia question here. It was, how many Benjamins was Vice President Spiro Agnew fine for tax evasion? Well, what I can tell you is it was 23594.5 less than what OG guessed it was 4,901, less than what Paula guessed, and just 4,900 less than what Jesse slash Cian guest ’cause the correct answer was $10,000 for the fine translating to just 100 Benjamins. [00:44:51] Doug: And yes, that’s a lot of Benjamins. Yes. Making Sean our winner, Sean [00:44:58] Joe: Mullaney. Wow. Guess is [00:44:59] Sean: first wins the prize. Congratulations, brother. Thanks so much. If I’m gonna be honest, I thought it was how much money was he caught with? And I was like, ah, probably got like a half, half mil. And then it was like, oh, it was the fine. [00:45:13] Sean: Well, I, I, I went north, but no one else, uh, no one, no one else picked up that fumble. [00:45:19] Joe: And, and you were still the closest. And by the way, we didn’t get this done on time, but every time you talk today, we were going to play this clip. [00:45:28] bit: Now, sin, excuse me, Sean, I’m sorry. [00:45:33] Joe: The old church [00:45:33] Sean: lady. [00:45:34] Joe: You ever getting that, Sean? [00:45:35] Sean: Oh, people mispronounce it all the time, but I’ve not heard, I, I didn’t put that together actually, that it was church lady. I certainly remember eighties, SNL and Dana Carvey. So I just, I swung a miss on that one too. [00:45:46] Joe: Oh, cn. I mean, Sean, I’m sorry. Every single time I called on you I was gonna play that clip. [00:45:51] Joe: Oh see? Ocn. Anyway, it was funny for me at the time. Apparently not as funny. Here live. Let’s move into our second half of this discussion. Sean, I’ll stick with you. What are the biggest points when building a retirement plan that’s built to last for 40 or 50 years versus that are different than if you’re building one to last for 25 or 30? [00:46:14] Joe: What are the different inflection points? [00:46:17] Sean: So, I think the different inflection points include sufficiencies more challenging, right? If we’re gonna retire at age 70 and we’re walking right into a high social security check to begin with, that’s a much different retirement than if we’re retiring at 55. So that’s the first inflection point is just sufficiency, and we’re probably gonna have to build up some more assets. [00:46:36] Sean: The second one is healthcare is more of a challenge. And now I think in today’s environment, it should not be a gating issue if you have sufficient assets to otherwise retire. But that is absolutely going to be a challenge. And then the third one is draw down strategy. There’s is more pressure on it, and it’s amazing how many times folks just ask, well, what do you do at first in early retirement? [00:46:59] Sean: What assets do you access first? And you know, we believe that this requires some intention, but it’s very navigable. Those three would be areas of differentiation. Just sufficiency is more challenging. Health insurance is more challenging, and we just need to be a little more intentional, most likely with our drawdown strategy. [00:47:17] Joe: You know, og, we haven’t yet today talked much about asset allocation, but it seems to me that when you’re looking at 45, 50 years of retirement, that puts a lot more pressure on the portfolio. Is there something different that you do if you’re planning on a 45 year retirement than a 30 year retirement with your asset allocation? [00:47:37] OG: 45 versus 30. No, I’m known for saying this, but I don’t think that your portfolio would ever change, honestly. Uh, whether you retire at 50 55, 60, 65, 70, 75, 80, 85, 90. I mean, why would you, if you’ve got sufficient assets, when you get to that point of I’m going to retire, why then would you now say, now I finally got this big corpus of money, I’m gonna let off the gas in its entirety and just let this slowly get eaten away by inflation, you know, sitting in the bank or sitting in a CD at 4% or something awful like that. [00:48:13] OG: You know, I think you have to be particular around how you’re gonna take the money out and how do you protect yourself in case the market does go down 25, 30%. ’cause it’s going to probably five times during your retirement, just like it did five or seven times during your accumulation stage. But short of that little two, three years of extra cash, maybe that, that maybe draws your asset allocation to. [00:48:35] OG: 90% stock and 10% cash or, you know, short term stuff or maybe 85% stock. I don’t know why you would ever choose an asset allocation that takes the opportunity for, uh, generational wealth and throws it completely in the trash. You’ve accumulated all this money, you’re 70 years old with 2 million in the bank. [00:48:54] OG: And using Paula’s example, you know, it’s probably gonna double three or four more times if I just leave it, if I just just live my life. And you say, well, but you’re gonna spend some of that, consume some of it. Okay. So maybe it only doubles once or hell, maybe it doesn’t double at all. It just stays the same. [00:49:08] OG: And I don’t like glide path it all the way into the ground at zero, at a hundred years old, it doesn’t make any sense to me. So if you’re retiring at 55 or 65 or 75, I don’t think that there’s any marked difference in your, in your investment allocation. [00:49:24] Joe: It seems to me, Paula, that for a lot of people, the risk. [00:49:27] Joe: Might be that you’re too aggressive, but for the early retiree it’s that you’re too conservative. I think for early retirees especially, you can’t go that target date fund route ’cause you’re gonna end up screwing yourself by not having that last double. [00:49:42] Paula: Right. Well, because I think generally a lot of people have internalized the notion that the closer your timeline is, the more conservatively you want to invest. [00:49:50] Paula: But the problem is when that gets applied to an entire portfolio as a whole, you can sometimes end up being overly conservative with that portfolio. And so, Joe, I I like a, an approach that I’ve heard you talk about, which is the bucket strategy where, you know, you’ve got, for your first year or two of retirement, a bucket of money that just gets you through that first year or two. [00:50:11] Paula: It helps you pass through the sequence of returns risk window, and so you’ve got a bucket for that. Then maybe you’ve got a separate bucket purely for, um, you have a, a goal of doing a lot of travel in your first 10 years of retirement because you know that those first 10 years of retirement, you’re gonna be a lot healthier and more energetic than you will be in later decades. [00:50:31] Paula: And so maybe you have a bucket of money that’s set aside purely as travel during the first 10 years. With a goal of actually whittling down that specific bucket to zero at the 10 year mark, right? And so you just have these little buckets of money for different specific purposes, and you manage each one according to its purpose. [00:50:53] Joe: You know, Sean, you brought up RMDs later in about how the world of RMDs is, is changing, and that’s a reason for us to go back and look. But also just the world of tax planning when it comes to an early retiree versus somebody who’s gonna retire at 60, 62, or 65. What’s one key difference when it comes to that tax planning portion of our planning that is really different for that person that wants to go at 50 versus 65? [00:51:21] Sean: I would argue a big one is the taxable accounts. Not that you can’t retire at 50 or 55 if the lion’s share is in the traditional retirement accounts that exists in the world and is absolutely worth, you know, considering. And you can actually have very good results living almost entirely on traditional retirement accounts in your fifties. [00:51:41] Sean: But you know, when we’re retiring at 50 versus 65, we now have 15 years of medical insurance to manage for. And the most common solution is the a CA medical insurance. And that comes along with it, the so-called premium tax credit. So essentially you have these very high medical insurance premiums, but if you can control your income, what happens is you get a big credit against those insurance premiums. [00:52:08] Sean: This premium tax credit behaves like a tax. And so one of the best ways to manage for that is as a first spend asset in the beginning of our retire. Is those taxable accounts, because those taxable accounts have quote unquote basis recovery, right? So if you’re 52 years old and you’re a retiree and you’re living off a hundred thousand dollars this year, so you sell a hundred thousand of a b, C mutual fund, well, what’s your taxable income? [00:52:34] Sean: Well, it’s not a hundred thousand. It’s 100,000 less your basis, your historic cost, what you bought it for. So maybe you bought it for 30,000 or 40,000 or 50,000 or 60,000. Well, your taxable income is the 100,000 less that basis, and that’s a way of keeping our income lower in the first part of retirement, which is a way of keeping the premium tax credit higher in the first part of early retirement. [00:53:00] Joe: More money in the taxable account. [00:53:03] Sean: That’s exactly right, Joe. And this has also very good ancillary knock on effects. There’s a 0% long-term capital gains rate if you can keep your income, uh, low enough, and oh, by the way, even if you don’t, you still get the benefit of it. So it can be that the first part of retirement can be a very good time from a tax perspective. [00:53:20] Sean: You might be paying very little or no income tax and you might be able to keep your income position such that your premium tax credit is very high. Significantly reducing the expense on the medical insurance premiums, which is definitely an important consideration if we’re thinking about retiring in our early to mid fifties. [00:53:39] Joe: I wanna ask you one more question, which is when do we, well before, actually I got two more, but I feel like Paula, no, I got three more. No, I got four more. [00:53:48] OG: Can you come back on Monday? That would be great. [00:53:51] Joe: How much. Do you like using this obscure IRS obscure to some of our stackers who are just beginning called IRS 72 T using this ability, if I’ve got the money all in a pre-tax plan or if I don’t, even if I have tax flexibility the way OG talks about in when we get into more complex tax planning, do you end up using 72 T so that we can take money out early from our retirement plans or do we save that money for later? [00:54:19] Joe: And for people who don’t know what ev, I’m even talking about this IRS idea of 72 tackers, is that you can take money out of your pre-tax plan before your traditional retirement years, right? So let’s say you decide to retire at age 50 and you’re like, what am I gonna do? Or 45? Well, you can take money out if you follow some specific rules outta these plans ahead of time. [00:54:40] Joe: Do those figure into early retirement planning. [00:54:44] Sean: The answer is they absolutely can, but I’m gonna give you a few guardrails and considerations. First thing is, my preference is to spend down the other available resources first, so the taxable account first, generally speaking, and only later in the early part of retirement. [00:55:01] Sean: Start the 72 T payment plan. Now, financial planners have been allergic to 72 T payment plans for a long time and until 2022. That was mostly justified. So 72 Ts rely on an interest rate calculation, generally speaking, and it used to be based on the previous two months interest rates back in 2020. In the year 2020 that got the, the rate got down well below 0%. [00:55:28] Sean: So you didn’t wanna plan into it because, oh no, if the interest rate environment is too low, I may not be able to take enough out of that under the 72 t payment plan to live my life. That’s a really bad outcome. 2022, early in the year, the IRS issues, a notice it’s called 2022 dash six, got almost no attention in the personal finance space, but it should have. [00:55:50] Sean: And they said, well, from now on with these 72 T payment plans, you can always use 5% or less as the rate, regardless of what the market, uh, rates are at the time. Wow. When you’re in your fifties, general rule of thumb, that means if you use 5%, you can generally take 6% out of that retirement account. And so that means, especially if we’re thinking 4% rule, and that’s a whole other conversation, but essentially you can actually slice and dice the IRA into two IRAs. [00:56:18] Sean: One, you take the 72 T out of one, you don’t. This gives it a lot more flexibility. So it’s a much more valid technique than it was say four years ago. This is, again, these tax rules change and sometimes the commentators are a little late to the game in terms of these changes, but Joe, it’s absolutely a, a viable path, and now you’ve gotta manage it with the premium tax credit and keeping expenses low. [00:56:41] Sean: But one thing that can happen is, say you start a 72 T payment plan in your mid fifties, your effective rate on those distributions might be tiny until you collect social security, because some of that’s being recovered against the standard deduction, the 10%. It could be that you’re setting yourself up actually for a very low tax, late fifties and early sixties by doing a 72 T payment plan. [00:57:03] Joe: It’s interesting just how deep you can go. I mean, as if you might have written a 300 page book on this topic. I bet you can go [00:57:10] Doug: 300 pages deep on it. Yeah. Flat three quarters of an inch deep is how you deep You can go on. Is that about [00:57:15] Joe: three quarters of an inch? [00:57:17] Sean: I [00:57:17] Doug: think it’s almost [00:57:18] Sean: an inch. [00:57:18] Doug: I [00:57:18] Sean: think it’s, it’s around, I’m not sure. [00:57:20] Sean: One eighth [00:57:20] Joe: of an inch might be 0.89 if I’m [00:57:22] Sean: remembering Amazon. Exactly. Point eight. [00:57:24] Joe: Ah, man. Well, well we could have 15 discussions on this JI’S point of, uh, Sean, could you come back Monday and Wednesday and next Friday and then the following week and we’ll have, uh, you and Cody on 15 times. But I think we did a great survey. [00:57:37] Joe: We’ve been talking kind of around early retirement, the last several episodes. Doug, as you began this conversation, I’d like you guys to each take one more swing though before we go, which is this. I realized it’s called planning and not just a plan. It’s not a one-time thing. And clearly what we brought up with a Roth discussion versus pre-tax today and tax flexibility, we don’t know where things are going. [00:57:58] Joe: Sean’s talked a lot already today about how much the rules have changed. Certainly on this show over the 15 years we’ve been doing this, things have changed so much. So you don’t just set it and forget it. However, we wanna kind of future proof our thinking, right? So that we’re able to not have to rera the train 10 years from now and go, oh, oh man, I gotta redo this whole thing. [00:58:19] Joe: So og, let’s start with you. What is a move we should make today after hearing this episode that will help us future proof our early retirement or normal retirement planning? [00:58:30] OG: I think that the biggest thing is trying to figure out what is the exact number that you’re gonna need and spend 95% of your energy on figuring out how you’re gonna save enough money to get to the goal that you want. [00:58:43] OG: 5% of your energy on what sort of asset allocation is best for which asset class, for which tax location, for, you know, for which IRAs or Roths or pretax or HSAs or all that sort of stuff. Because you can be exactly right with the allocation of your pre and post and whatever and be wildly off by like a million dollars of your savings and it doesn’t matter, versus having too much money in your ira. [00:59:14] OG: I’ve never met anybody that’s like, man, I’m really, really peed off. I got 40 million in my ira. That’s gonna be a big giant tax bill someday. It’s like, yeah, all right, but you got 40 million bucks so that that doesn’t suck. You know, like you at least show up to the problem in the limo, right? Is like what they say. [00:59:29] OG: So I wanna spend 90% of my time on how much money do I really need to reach my goal, [00:59:35] Paula: Paula? I would say to future proof it, I’d ask the question, what are the black Swan events? What are the things that could completely pull me off course? Am I prepared for some type of a major long-term disability, either of myself or of a loved one? [00:59:49] Paula: Am I prepared for a gigantic lawsuit and the ramifications that could emerge from that? Am I prepared if I lose some cognitive faculties and end up getting scammed out of part of my money as a result, [01:00:04] OG: like [01:00:04] Paula: Doug? So the protection and the playing defense is, uh, what I would focus on if I wanted to future proof it. [01:00:13] Joe: Sean, you’ve got the last word is our guest of honor, my friend. Thanks for hanging out with us, by the way. [01:00:17] Sean: Oh, thanks for having me, Joe. Uh, bit of a twist on what Paula was saying. I’d be maxing out these retirement accounts for two reasons. One, I think the deduction into the traditional 401k is very valuable. [01:00:28] Sean: I’m a big fan of the Roth IRA at home, that’s based on a known trade-off profile, but max out these retirement accounts. One, because they’re gonna provide sufficiency and two creditor protection. The 4 0 1 Ks and the IRAs to varying degrees have incredible creditor protection. Now, personal liability, umbrella insurance is another component of creditor protection that a lot of folks should be thinking about and considering. [01:00:53] Sean: But yeah, maxing out these retirement accounts, I think is ultimately gonna serve most Americans very well. [01:00:59] Joe: You know what I’m a big fan of, guys, it’s just the lifestyle design portion of this. I mean, it’s funny, we call this show Stacking Benjamins, but it truly is, if you look at Benjamin’s life, it’s about Stacking more life, not just more dollars. [01:01:10] Joe: And uh, man, if, if you can use this tax planning and this early retirement plan we talked about today to get more life, I think that’s great. Let’s talk about what each of you are doing this fine day in mid-October. Mr. Og, what’s happening in the OG household this weekend? [01:01:27] OG: Oh, we’ve got it, uh, tonight away, football game for the varsity kiddo. [01:01:31] OG: And then, um, you know, normal, normal Saturday weekend for me. And then, um, or, or normal Saturday for me, and then, uh, softball on Sunday. So it is sports times a million here in the OG household. [01:01:43] Joe: Sporting, sporting weekend for the OGs. Yeah. Paula, what’s going on at the Afford Anything podcast besides, you know, running your wed wagon up and down Manhattan. [01:01:55] Paula: Yeah, yeah, exactly. When I’m not pulling a, a wagon full of boxes. Point eight miles 0.8 in each direction. So, you know, 1.6 miles every round trip. See, this is just [01:02:05] Joe: becoming a flex. [01:02:08] Paula: Um, no, I, I, I told you Joe, that’s how I’m training for the half marathon that I’m going to come and walk, come on with you as far as what’s on the podcast. [01:02:16] Paula: So we have. Our first Friday episode where I cover all of the macroeconomic topics, you know, inflation interest rates, what, you know, what’s going on there. We’ve got q and a episodes, Joe, where you and I tackle listener questions. We have an interview with Sarah Williamson. Sarah Williamson and I, we go deep into the solar system of investing. [01:02:38] Paula: So she creates a framework to understand the world of investing, you know, what is a hedge fund, what is private equity, what is investment banking, and how do all of these things fit with one another? She creates sort of a, a linean classification system in which she has five different solar systems and a variety of planets orbiting within each solar system. [01:03:02] Paula: And she uses this framework to explain how the world of finance is laid out. Oh, Doug. So if [01:03:08] Joe: you’ve, Doug, come on. Are you gonna say it or am I gonna say it? You say it. Which one’s your anus? Ah, [01:03:17] Doug: I couldn’t, my stars. You’ve thought about it for so long. [01:03:21] Joe: There’s a 12-year-old everywhere. Sorry. [01:03:27] Paula: I was like, did I mispronounce Ian? [01:03:31] OG: Sean’s just like, oh no. We’re taking that part out of the show, right. For the final recording. I can’t be affiliated with this poop talk. [01:03:38] Joe: This goes on your permanent record. Sean. Sean’s co-author, Cody says, Pluto’s no longer a mutual fund. So it’s, it is God. But that’s coming up at the Afford Anything [01:03:48] Paula: podcast. [01:03:49] Paula: Yes. That comes out today at the Afford Anything podcast. [01:03:51] Joe: Yes. Without Joe’s crude, uh, remarks. Sean, thanks again for hanging out. You and Cody really did it up. I mean, you’ve got everything in the book. I mean, even just in the table of contents from people have pensions to tax loss harvesting if you have a sudden job loss, if you’re inheriting property. [01:04:10] Joe: I mean, it’s all here. Tax planning to and through early retirement. Nice job. You and Cody, where do people get it, Sean? [01:04:19] Sean: Uh, so Amazon, Barnes and Noble. It’s online at various places. I think it may actually be in some bookstores too, which is exciting. Awesome. Um, yeah, so, and thanks so much for having me on and for, uh, mentioning the book. [01:04:31] Sean: Uh, very much appreciate you. [01:04:33] Joe: Dude, and fantastic job winning the trivia. Well, uh, over these people, I’m, I’m not, not, I’m not really sure. OGs hard to beat. Well, Paula, lately, I don’t know what’s been going on there, Paula, but Yeah. Yeah. But winning our trivia. Alright, that’s gonna do it for today, by the way. [01:04:47] Joe: Thanks to all of you hanging out with us online. If you’ve got questions for us, uh, and you’d like them to appear on the show, ask us your question. It is, uh, Stacking Benjamins dot com slash voicemail, and we’ll have links to everything, including Sean and Cody’s book, tax planning to and through early retirement on our show notes page at Stacking Benjamins dot com. [01:05:08] Joe: Doug, you’ve got it from here, man. What are our big three takeaways today? [01:05:12] Doug: Well, Joe, here’s what’s stacked up on our to-do list for today. First, take some advice from Sean. Ignore your inco at fear of taxable accounts. It’s possible to have a solid retirement on good old traditional retirement accounts. Am I right? [01:05:27] Doug: Second, learn from what OG said. Don’t fall into the trap of saving too much money. Go ahead. Buy that automatic cheese straightener you saw on QVC at 3:00 AM. Get out there and enjoy yourself. [01:05:40] Joe: Not sure that’s where we were going, [01:05:41] Doug: but the big lesson, don’t ask the real life Benjamins you brought to the house to chip in on the cookie purchase from Joe’s mom. [01:05:50] Doug: Apparently being significantly younger than me has its advantages because these guys got free chocolate chips and me, I got free shower drain snaking duty. You see how much hair collection there? It’s nasty. Ugh. Seriously. Is there anything grosser than just pulling out that No. Oh no. And scene. [01:06:09] Joe: That was grosser than my comment earlier. [01:06:13] Doug: Duck do the credits. Okay, we’ll do the credits. I’m, I’m sorry, my brain is so distracting ’cause it’s so long. You know, you got that big clump right at the top and it’s got all the shampoo and stuff stuck in it, but then there’s Oh, hard pass. It’s just nasty. Let’s do the credits. Okay, fine. But then sometimes it, okay. [01:06:31] Doug: I’ll do the credits. Thanks to Sean Malaney for joining us today. You’ll find Sean’s new bestseller, tax planning to and through early Retirement, wherever books are sold. I know Sean, you and Dan Brown recently released books. I don’t know which one I’m gonna read first. We’ll also include links in our show notes at Stacking Benjamins dot com. [01:06:51] Doug: Thanks to Paula Pant for hanging out with us today. You’ll find her fabulous podcast. Afford anything wherever you listen to finer podcasts. And thanks finally to OG for joining us. Looking for good financial planning. Help head to Stacking Benjamin’s. What are you doing? [01:07:08] OG: Blowing kisses to my fans. [01:07:10] Doug: Blowing kisses to his fans like he’s a prom queen on a float or something. [01:07:15] Doug: Anyways, head to Stacking Benjamins dot com slash OG for his calendar. This show is the Property of SP podcasts, LLC, copyright 2025, and is created by Joe Saul-Sehy. Joe gets help from a few of our neighborhood friends. You’ll find out about our awesome team at Stacking Benjamins dot com, along with the show notes and how you can find us on YouTube and all the usual social media spots. [01:07:41] Doug: Come say hello. Oh yeah, and before I go, not only should you not take advice from these nerds, don’t take advice from people you don’t know. This show is for entertainment purposes only. Before making any financial decisions, speak with a real financial advisor. I’m Joe’s Mom’s neighbor, Duggan. We’ll see you next time back here at the Stacking Benjamin Show. [01:08:54] Joe: I realize it’s planning and not a plan, but what’s a move that we can make in terms of our thinking that will help us? Kind of future proof. Our planning, make it so that in the future we are thinking about this the right way and we’re able to get where we wanna go without having to rera the train. Uh, og do you wanna take this one first? [01:09:18] OG: I was reading the comments and I knew you were gonna ask me first. [01:09:21] opener: Well, [01:09:22] Joe: lemme go to, let me go [01:09:24] Doug: to Paul. [01:09:24] Joe: Lemme go to Paul. [01:09:25] OG: I was like, oh, don’t pick me. Don’t pick me. Don’t pick me. When [01:09:28] Doug: you’re scared of the ball, it always finds you on the baseball. It always, it just like, hit it to someone else. Hit it to someone else. [01:09:33] Doug: Here we go. [01:09:34] Joe: Paula, how about if you go first? Let’s go ladies first. Okay. [01:09:38] Paula: I, I got hung up on future proof because then my brain immediately went to the future proof conference. [01:09:43] OG: Right, right. Which just happened. Just happened. Are you there, Paula? [01:09:47] Paula: No, no, I wasn’t there, but I know a lot She. Yeah. It’s like, I didn’t see [01:09:51] OG: you. [01:09:52] Paula: Yeah. Yeah. A a lot of people went straight from future proof to FinCon anyway, so I was hearing a lot about it, and then it got distracted. ’cause I was thinking about future proof, so I missed the rest of the question. [01:10:03] OG: Oh, for [01:10:04] Joe: three, Joe, which, for everybody that wasn’t here live Oh, gee. Missed the question too. [01:10:09] Joe: That shows how, how, uh, how good this is. Uh, so let’s, uh, let’s start with you. Well, I wanna go to the guest of honor last, well just say [01:10:17] OG: it again. Just say it again and I’ll, and I got you. I got you, bro. [01:10:21] Joe: Let’s do it again. Let’s talk about, I realize this is, this is ape. All right, Steve, just cut all that. [01:10:30] Doug: Cut the previous 68 minutes, Steve.
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