Money Talk with Carl Stuart

Carl Stuart takes caller and text questions on debt management, estate planning, cash-out refinancing, investing for young adults, and deep dive into ETFs or mutual funds.

The full transcript of this episode of Money Talk with Carl Stuart is available on the KUT & KUTX Studio website. The transcript is also available as subtitles or captions on some podcast apps.

KUT Announcer: Laurie Gallardo [00:00:02] This is Money Talk with Carl Stewart. Carl Stewart is an investment advisor representative of Stewart Investment Advisors. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:00:22] Welcome to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT App. Money Talk now in our 32nd year is a broadcast about the world of financial and investment planning where you always determine our agenda by calling or texting 512-921-5888. I take today’s calls first and then today’s texts and then texts that I haven’t had. The opportunity to answer or answer fully from previous broadcast. It’s a great idea to call or text. You’ll hear the text coming in. Of course, we have all of our lines available. 512-921-5888. And here is a text. Hi Carl, is there a right balance for paying off debt, saving and investing? Thank you. And thanks for doing what you do to help so many people. Well, that’s a lovely thing to say and you’re welcome. This is a really important and I find difficult question to answer because I think it really gets at the core of where a lot of Americans and no doubt a lot money talk listeners are living with debt and wanting to save for emergencies and also to save the future, whether that future is your. Financial independence and retirement or saving for a child’s education. So I think the way I think about it is that the one thing I would look at is the cost of my debt. For example, let me just give you two extremes. Let’s suppose that by pure luck you happen to buy a home and get a mortgage when interest rates were quite low. And let’s just say your interest rate on your 30 year mortgage is three and a half percent. But you also have debt on your automobile, and that could be anywhere from 8% or more, and you run a credit card balance. You pay your monthly credit card, but you have a balance. And now, according to my reading, as interest rates have risen, naturally so has the rate on credit card debt way above 20%. So every dollar that you pay down on credit card debt is a return of not having to pay 20 or 25% interest. The problem is, it doesn’t get to your other goals and objectives. It doesn’t give savings for an emergency and it certainly doesn’t prepare for your future. So start with your highest cost debt and ask yourself the difficult question, am I living beyond my means? Am I spending more and making up the difference between my income and my expenses by running a credit card balance. Because that’s going to continue unless you have a sincere desire and ability to think about objectively how you’re living and how you are spending your money. So it’s hard for me to tell you to save for your future when you’re paying interest rates at that level. So if you’re playing credit card debt, that’s got to be your first priority. After that, now we’re talking about, let’s say you have auto debt and mortgage. There’s a kind of a broad feeling out there in the universe that I’ve heard so many times about paying off your mortgage and then you have your house free and clear. I’m not a big fan of that unless you have established large amounts of savings and investment. And the reason is that you’re always going to have to live someplace. And calling your house an investment is, in many cases, in my view, a mistake. Because it’s illiquid, and if you sell it, you have to use those proceeds to go live someplace else, whether you’re gonna rent, or you’re going to move into a retirement facility, or you are gonna purchase another house. Am I in favor of not having mortgage debt? Absolutely yes. I hope that there comes a time in everyone’s life who’s a homeowner, that they don’t have any mortgage debt. But frankly, the odds of your house going up in value, perhaps modestly, over the next 10 to 20 years based on history and living in central Texas with a good economy is pretty high. The benefit of your car growing in value is not going to happen, but if you focus on that and not on the other two pillars of emergency savings and saving for your future, that’s not going accomplish your goals at all. So what I would do with the auto debt is I would keep paying my monthly payments. But when I had finished, rather than start shopping for a new vehicle, I’d keep that vehicle and continue to make those monthly payments. But now I’d make them to myself, and rather than to the credit card, I beg your pardon, the auto credit company, and build up, even if you want to do this to kind of fool yourself into a separate account where you’re putting in money for your next vehicle, then let’s talk about the emergency savings. Again, I’ve heard for years, I ought to have six months’ worth of my expenses in a safe place that I can get to quickly. I would say that’s really dependent on your personal situation. Two extremes. Let’s suppose that you are an engineer for the Texas Department of Transportation. You’ve been there 10 years, you’ve got some seniority, you have responsibilities, You like your work? The odds of you getting fired unexpectedly are slim and none. So you don’t need a lot of savings for an emergency. On the other hand, let’s suppose you’re in commission sales and you might make $10,000 one month and $1,000 the next month. So you have huge volatile and unpredictable revenues. Yes, then you need to have savings to cover expenses when those inevitable declines occur. But every dollar you put in that is the dollar you can’t put in for your financial independence in future. That’s where you gotta start savings and that’s where putting money away every month into a stock account, either on your own or with an advisor, you can start small. The good news now based on what’s changed over the last 50 plus years in financial asset investing is you can do this in a very efficient and inexpensive fashion. So that’s kinda how I think about. What is a really important and also, I might think, common and difficult question. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Here is a call. And so you’re on the air. How may I help?

Ansel [00:07:18] Good afternoon, Carl. My question for you is I am putting together a portfolio of documents related to assets my wife and I have in terms of property and vehicles and investment accounts, bank accounts, that kind of stuff. So a couple of years ago I was made aware of a document that is. It goes by several different names, transfer on death or pay on death, that you can enter in with your cash accounts, bank accounts, that transfers your assets to your children and it supersedes a will, is that correct?

Carl Stuart [00:08:11] The answer, and again, I’m not an estate attorney, the answer is a qualified yes. So when you have a joint account, let’s say you have financial asset account where you have stocks and bonds and mutual funds. If it’s a joint with you and your spouse, no, you can’t have a transfer on death for that. But when the first spouse passes away, let’s suppose, because you and I are men, we die before our wives, now she has the account. And then she changes the account to, Mrs. Ansel, transfer on death, and she puts in a document with the custodian to whom it’s to be transferred. That I see all the time. So that’s a strategy for that. I have people complain to me about banks and how they can be difficult. So you really wanna talk to someone that’s got some authority at your bank or credit union or savings and loan. To see what the rules are there. I just had a visit with a woman the other day. Her mom had a transfer on death, her mom was a widow, and her mom had to transfer on-death and passed away. It was a friend of mine, and her daughter said it was just so simple to transfer the securities accounts, but the bank was really a pain in the behind. So that’s where I see, and I think they, a lot of times, to your point, and so they’ll say payment on death rather than transfer on debt. But that is where you wanna be sure that you’ve got your ducks in a row. And then my understanding of things like illiquid assets, like real estate, or say you have, you hold non-liquid assets like gold and energy, oil and gas leases and things like that. Then I think you have to look at making sure that you got your will in order so that when the. Second person dies, the will comes into a place, you have identified an executor, she or he delivers the proper documents to whoever is responsible for those illiquid assets. That’s my understanding of the way it goes, Hansel.

Ansel [00:10:26] Okay, what I was told was my wife and I could both sign a transfer on death or pay on death, and it would specify that, say, I passed away, she was a survivor, it passed to her, and then upon her passing, it passes to our children.

Carl Stuart [00:10:52] And I’m just saying when it comes to financial assets, that’s not my experience. Now, I’m not saying, let’s hope we have an expert, but I can tell you that that’s the way it’s been explained to me, is when you have this situation with community property, it goes to the surviving spouse and then he or she adds the transfer on death. That’s my understanding. Now I’m happy to find out I’m mistaken, but that’s way I see it happening every day. Okay, thanks for your help. You’re very welcome, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Let’s just see. Okay, here’s another text. Could you please explain the pros and cons of the reverse mortgage versus the cash out? Because I’m thinking about both sides here. Okay. But I’m sure which is the safer of the two. I have no savings, no emergency funding, but the reverse mortgage would give me $23,000 immediately and another $59,000 after one year. Cash out would give 44,000. That’s just a synopsis of everything. Well, I know a lot, I start over, I think reverse mortgages were designed for people who had equity in their home but didn’t have sufficient money to live. And so what you’re doing obviously is you’re creating a liability that either upon your death or you move out, the lender gets the property. And you’re still responsible for upkeep and taxes, et cetera. And it’s really a good thing for people who find themselves in that situation. Obviously, the interest rates got to be higher than a traditional mortgage. Because if you go down and take a 30-year mortgage, whatever the interest rate is, the lender knows exactly what cash flow they are going to receive from your promise to pay called a mortgage. But when you do a reverse mortgage, they don’t know when they’re gonna get their money back because they don’t know when you’re gonna die and when you gonna sell the property. And so it’s gotta be a higher interest rate. But the nice thing is that until you die or move out, there’s no payment to that. Now when you talk about a cash out, I gotta tell you that’s not something I work with on a regular basis and I’m not aware of it. I would also want to know what the embedded interest rate is on that, because at least in the case of the mortgage you’re taking, reverse mortgage, you’re taken on a personal liability, but it’s not one that you have to pay for unless one of those two things occurs. So good luck. We have all of our lines available, no incoming texts, a great time to call or text 512-921-5888. Let’s see here. Hey Carl, I’m a recently graduated college student, hook him, I wonder where she or he graduated. That managed to make it out with no student loans, congratulations, as well as a fair amount of savings. More or less $5,000 emergency and a high yield savings, more or less, $20,000 in an individual brokerage account, mostly US index exchange traded funds. I’ve yet to find a job using my degree. And I’m working in hospitality, which keeps the bills paid, but not so much left over to save. What are my best moves to make my saved money work for me while I’m not contributing much to it? Should I open an IRA and transfer funds to it, if so, how much, or what other options do I have? Well, because you’re a young person, you have to be clear with the money you put in an IRA, Roth IRA which I’m going to talk about is just gone that it’s designed to be there for your future and if you take it out prior to that there’s going to be penalties if you do it before age 59 and a half on the growth in the Roth and the entire amount on the IRA if it’s pre-tax. So the only reason I would recommend that you put money in a saving retirement account is it’s money out of that 20,000 that you’re absolutely confident you’re not going to need. In which case if the answer to that is yes, then obviously at a young age you want to be invested in equities and you said index ETFs, that’s a very good idea. They can be tricky once you get beyond, if you will, the big indexes, the MSCI. In all world, ex-US, US, S&P 500, NASDAQ, that type of stuff. Once you start getting down into the values and various mid, small, large cap, it can be huge differences in those indexes. So be very careful there. That’s what I think I would do. I would decide, can I live with the loss of access to some amount of money? If the answer is yes, that’s a perfect time to begin to grow that. Now, would I do an IRA? Well, of course, I can’t predict the future better than anyone else, but you’ve got a college degree and while you may not be able to find a job currently, the odds are, just given the overall growth in the US economy over decades, that you’re going to find a job that’s going to be rewarding and people with college degrees, by and large, just using the data now, make more money than people without college degrees. And so If you’re going to be in the higher income level in the future, and you’re going to work either on your own or with a company, if you work with a company, you’re gonna have the ability to probably have an employer sponsored retirement plan, a 401k perhaps, that you’ll want to participate in and get the company match. That’s why I think a Roth IRA for young people can be a wonderful thing. You still get the tax deferred growth. You’re not making a pile of money so you can put money in roth. If you start making a good living, you’ll be precluded from putting money in the roth, and you’ll also be able to see it grow. And unlike other retirement plans, say 401Ks and IRAs, you don’t have to start taking the money out when you’re in your 70s. If you wanna take the money out over 59 and a half years of age, it comes out tax-free. But if you don’t need the money, it can continue to grow and come out whenever you want it. So that’s how I would think about that. You’re listening to Money Talk on KUT 90.5 and the KUT app. Call or text 512-921-5888. I’ve got an incoming text, but it’s close to time for me to take a break. So that what I’m gonna do. 512921588, stick around, I’ll be back.

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KUT Announcer: Laurie Gallardo [00:18:59] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:19:13] Welcome back, you’re listening to Money Talk on KUT News 90.5 and the KUT App. I’m Carl Stewart. When you have a financial or investment plan in question, give me a call, you just heard that coming in, or that’s a text, or give me call at 512-921-5888. Carl, can you mention one more time the exchange traded funds to be considered? Is there a time horizon? Under which say at least 10 years where you would select ETFs. So let me just give a little background. So for decades, starting I believe in the 1930s, we had mutual funds. And mutual funds owned a portfolio of stocks or bonds or both, okay? And… They would price the value of that portfolio at the end of every business day. And if you bought shares of that fund, you paid the price for the value of the portfolio at the of the day. And if sold, you would get the value of the the portfolio on a per share basis at the the end the day, then it came along exchange trading funds. Now the name is really descriptive. Because mutual funds, which exist under something called the Securities Act of 1940, don’t trade during the day. As I said, the price you buy and sell is determined at the end of the business day. Exchange-traded funds trade on the New York Stock Exchange, for example. So while they may have a portfolio of stocks or bonds or both, they trade during the day, that’s a significant difference. The other difference is… That the law says that mutual fund managers have to pay out to you, the shareholder, all of the dividends and interest they receive on the portfolio, and they have to do their gains and losses, and then if they have a net gain, they have pay that out to whether you want it or not. That’s the law. I recommend people take those payments and automatically reinvest them so as to compound their growth. There’s a technical way in which exchange-traded funds work so that they don’t distribute capital gains. Now, I suspect a lawyer would say, is that in their prospectus? They’ll never distribute it? And the answer is no. But to my knowledge, they don’t t distribute capital gain. So that makes for a situation where they’re even more tax-efficient. Is there a time horizon under which, say, at least 10 years where you would select ETFs? But well first of all depending on the type of ETF. I mean, you can own a bond ETF that could be very low volatility that the odds of losing money over a meaningful time period like two, three years is very, very low. Or there can be exchange-treated funds that are very speculative, depending on their investment strategy and the nature of their holdings. So it’s not easy to 10 years or whatever. I would say this if you’re going to invest in broad indexes and mutual funds or exchange-traded funds, and you have a three to five-year time horizon or longer, based on history, they’re going to do well for you. I can’t remember off the top of my head, but I think the odds of a positive return on a 12-month basis are more or less 50-50. But they start going up so that by the time you get out to 10 years, to use your sample. The odds of a negative return over that time are very, very low. Now, I didn’t say they’d be great, but they’re very, very low after all for some of our long term listeners. We know that real estate was a very poor performer for about six, seven, eight years here in central Texas. So investors by their nature, I hope, are long term in their perspective. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Hi Carl, I have a question about college savings accounts. I have an account for my 13 year old and nine year old, which we have contributed to since they were babies. Good for you. The one I have now is the California plan, which my father advised us to get. I’m aware of a plan in Texas now that offers a tuition freeze. For Texas public schools and has some other benefits. Do you think it would be worth it to start a second college savings account so that we could have the benefits there? Or is it better to keep just one account and put all the money in the same place so that it can grow more? Well, I think the tough part, and it really comes down to how you all feel about this, are you going to say to your 13-year-old and your nine-year old, I’m going to use some two extremes, okay? You can go to college anywhere you want, as long as it’s in Texas. Or are you going to say, you can go college anywhere you want? Because if you are in the first situation, well then the benefits you ascribe to the Texas plan look very, very powerful. But if you’re not sure, I could never have told you when our kids were 13 and 9 where they were going to go to school. Then I wouldn’t have done the Texas plan because I wanted to have the flexibility to help them with their college expenses wherever it was in the United States. To use some extreme examples, some kids end up having really unique and powerful talents that cause them to wanna go to a school that specializes in that and it may not be in the great state of Texas. So my intuition, just having been through this over the decades. Is I’d probably not do the Texas plan unless you felt that your kids were determined to go there. Because what you don’t want to do is get into a situation where your child graduates from high school and deeply and desperately wants to go to a school in, I don’t know, Illinois or Oregon or New Jersey, and you can’t. That’s not a good way to start a post-secondary education. So that’s how I think about that. You’re listening to Money Talk on KUT News. 90.5 and the KUT app. Call or text 512-921-5888. Let’s see. Hi Carl. Awesome show, thank you. I have $40,000 invested in real estate open land with a partner and we have had it for five years. The value hasn’t gone up and we are thinking of selling that. Is that a good idea or should we stick to it longer not knowing the future? Okay, I would tell you when you think about real estate and you think of the kind of risk return. The highest risk and the highest return is open land because there’s no income coming from it. The reason I say on Money Talk that the two investment classes which have outpaced inflation over long periods of time are income producing real estate and stock. Excuse me, income producing real estate. Because in a growing economy, rents go up, generally equal to or slightly above inflation. And so that future cash flow becomes valuable for a buyer. And that’s why you can sell income producing property later on at a profit. Does that always work? Absolutely not. In a recession, where there aren’t any buyers for real estate, you begin to appreciate the lack of liquidity. But over time, it’s been a good inflation-beating investment. Stocks have because companies grow because of human innovation. So raw land, unless there’s something that happens to cause it to grow in value, is not a particularly attractive investment. I remember, I’m going to show my age here, back before we had Bergstrom International Airport, And our only airport was at Miller. And everyone knew, and there’s probably information in the public domain, that the city was looking to build a new airport. And rumors started to swirl that it was going to be in Manor, Texas. And there were stories about people buying raw land and buying options on raw land. And of course we know what happened. The Air Force Base closed and we ended up with this beautiful airport that we have here today. And the people who bought that land lost their shirt and probably their trousers and boots as well. So I’m not a fan of raw land as an investment. If you know of something that is eminently going to drive up the value of the land, then of course you should keep it. But absent that information, and unless you just like to go out there and kick dirt, I would sell it if I were in your shoes. Just because you want to sell real estate doesn’t mean you have a buyer. You’re listening to Money Talk on KUT News. 90.5 and the KUT app. Call or text 512-921-5888. Here’s the text. Carl, what would you recommend as first steps for a beginning 16-year-old investor with only about $5,000 in savings but a trust to support everyday costs through college? So, I think… This is a great opportunity because when someone’s that age, if they have interest in investing, first of all, congratulations, because I sure as heck didn’t when I was 16. So this is an opportunity for great education. And luckily, there are lots of tools out there, and you can just, this person no doubt is very internet savvy, she or he can go to the large custodians, the big The names would include Schwab and Fidelity and Vanguard. And they have educational material. This person spends a few hours on all three of those websites and other asset managers do too. The one thing you want to avoid is some literature or book or online conversation. We have the way to make a lot of money. Run as fast as you can in the other direction. But if you want start, the first thing to do is start with education. Now. Unless you have an advisory relationship as a parent, then it’s going to be somewhere between very difficult and impossible for your 16 year old to work with an advisor because simply they can’t make a living with $5,000 per client. It’s just the ugly economic reality. So use this child’s interest and spend time educating. And I know this is self-serving, but if you can get him or her to listen to podcasts and money talk. Going to pick up a lot about the world of financial and investment planning and that’s how I would get started. Thanks for the text. You’re listening to Money Talk on KUT News 90.5 and the KUT app. When you have a question call or text 512-921-5888 and as usual I just realized I forgot I mentioned a while ago podcasts, you can listen to all the past shows at kut.org slash money talk. Or wherever you get your podcasts. I like to point out that we had a texter a few weeks ago who listens on Spotify from Italy. 512-921-5888. Carl. With about one and a half million dollars in savings, exchange traded funds, and 401K. At 56 years of age, do I need a financial advisor? I have two kids about to start college in the next two and three years. Great question. So, I think the most fundamental way to answer this is based on my 48 years of experience and observation. Back in the day, when I first got into this profession, You had to go to someone who had access to the financial markets. A lot of times they were called stockbrokers and if you wanted to buy a mutual fund or a stock or a bond, they had the keys to the gate. Well guess what? Not only are the keys gone, so is the gate so you can be a do-it-yourself investor or you can work with an advisor. What I have learned is that on this important question, the most important thing to ask yourself is. Where do I fit along that continuum? Am I the kind of person who wants to be involved in the decisions and to have understanding and have a conversation with somebody every time that there’s a suggestion to make a change, that’s going to be difficult. And you are, you may want to stay control of it and just work on what the do-it-yourself custodians that I always mention because I don’t pick favorites, Fidel Lee and Vanguard. Schwab and there are others, or you can engage in an advisor, but if you engage in advisor, you want them to do what they believe is best for you. Not have you look over their shoulder and second guess them. Then you ought to do it yourself. Now, let’s assume you say, no, I either don’t have time or interest for this, or I’m just exhausted with it and a million and a half dollars is a lot of money and if I make a mistake, it can be really costly. Then you’re talking about an advisor and in that kind of money, you can select an advisor who’s what’s called a registered investment advisor. Technically, his or her business is called that, and she or he is called an investment advisor representative. And they will charge you a fee based on the value of the assets, not on the transactions. They have what is called a fiduciary responsibility. They have to put your interest before theirs. They can receive no transaction compensations, no commissions, no sales charges, nothing that’s hidden. And they have what the law calls a duty of care. Now… They want to do what’s best for you, because their fee is based on the value of the assets. And if it grows over time, they get paid more, and if it shrinks over time they get pay less, okay? And you should then be willing to give up control, that’s called discretion, to do what’s the best for your. So this is a serious decision, and you wanna be sure that you meet these people, and you understand several things. How are you going to invest my money? How do you understand the investment world? What’s your investment philosophy? Secondly, if I engage your services, what’s our relationship going to look like? What’s a happy, healthy client relationship look like. And third, how are you compensated, and what are your fees? All of these things ought to be completely transparent and ought to completely understandable to you. Every profession has lots of jargon, and if they can’t tell you things, way that makes sense to you, then you’ve got the wrong person. You just keep looking. It’s a great question. Good luck. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Okay, hi Carl. To what extent do the 2020s resemble the 1920s? I know that arc is fluctuate. It seems that we are due for a slump, or worse, a serious economic downturn affecting nearly all of the asset categories. Well, Actually, I know something about this, and I know it’s not because I was in this business in the 1920s, that would be rude of you to think that, because there is a magnificent book out called 1929 written by a man named Andrew Ross Sorkin. He wrote the book Too Big to Fail, and that book was about the global financial crisis. And he went to every person who appeared in there, from Ben Bernanke at the Fed, to Hank Paulson, Treasury Secretary, to the heads of the large banks, and said, this is why I’m gonna put in this book that I understand what occurred. And they said, yes, it did, or it didn’t go in the book. He took eight years to write this book, and my understanding is he was the first author to get access to all of the minutes of the deliberations of the Federal Reserve in 1929. And I can tell you that the financial markets are very, very different today from where they were then. There was no distinction between investment and commercial banking. So people could take their savings account and put it into stock market and they could borrow five to ten times more than they were putting in. It was just rank speculation. The amount of government oversight was practically nil. Calvin Coolidge felt strongly that it was not the government’s business to be in business. And so you had rank speculation, you had massive dishonesty. The banks would bring issues called trust to the market. But first, they would sell it at below that price to their friends. And when it went public at a higher price, their friends would dump the stock and make a profit. We are nowhere close to that, number one, full stop. Number two, I’ve been through the rise and collapse of energy. The rise and collapse of central Texas real estate, the rise in collapse of technology stocks, and the global financial crisis where people’s homes were worth a fraction of their mortgage and we got into a situation where the global finance system was at risk. Now, how many people knew that was coming and were able to therefore react to it intelligently? The answer is close to zero. So what I’ve learned is I know this sounds foolish, but it’s just my experience. When it comes to investing and the economy, good things last longer than you anticipate and bad things last more than you expect. The Nasdaq, which was heavily tech stocks in March of 2000 peaked and it didn’t come back to that level for 15 years. That’s right, you heard me, 15 years! So People didn’t see that coming. Global financial crisis, people didn’t see that come. And so I can’t say what’s going to happen, and that’s why I never invest 100% in the stock market. But are bad things going to happened? Yes. How do we explain that we have the war in Iran skyrocketing over $100 barrel oil, the war in Iraq, the American public is very unhappy. The stock markets in its fourth consecutive year of double digit returns. So, am I going to stop investing because of that? No, because I have no idea what’s going to happen. Thanks for the text. It’s time for me to take a break. Great time for you to call or text 512-921-5888. I’ll be back.

Jimmy Maas [00:39:17] Money Talk airs every Saturday at five o’clock on KUT News 90.5 FM on the KUT app and at KUT.org. This podcast is produced by KUT and KUTX Studios as part of KUT Public Media, home of Austin’s NPR station and the Austin Music Experience. We are a nonprofit media organization. If you feel like this is something worth supporting, set an amount that’s right for you and make a donation at supportthispodcast.org

KUT Announcer: Laurie Gallardo [00:39:48] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:40:01] Welcome back to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 in the KUT app. We have good text today. We’ve had only one call. So if you’re thinking of calling, now would be a terrific time to do that. But you may call or text at any time, 512-921-5888. Okay, let’s see. Here we go. Carl. I am 71, I have $500,000 saved for retirement, including a standard IRA, savings accounts and checking. My house is worth $1.2 million, I owe $272,000 with an interest rate of 5.875%. My monthly income is around $20,000 from my business. A couple of pensions and social security. I’ve owned my house for four years and I’ve been paying $6,000 extra on my mortgage payment every month for the past two years in order to get my mortgage paid off as soon as possible. My mortgage payment’s $10,800 a month. I pretty much break even every month with bills, income due to the high mortgage payment. I wonder if it’s smart to have so much money tied up in my home once I have it. Paid off anyway. Should I just pay the mortgage and put the additional money in savings? Is $500,000 enough? Generally speaking, $500000 is not enough. When you think about your other income either declining or going away and you say I’m 71 or 74 or 75, how much money can I draw from that $500,000? Well, part of it is, how is it invested? If it’s sitting in a high-yield savings account at 3%, you’re gonna have a hard time. If it’s in a balanced portfolio of stocks and bonds with an emphasis on stocks, say 60% or so, the kind of general financial planning rule of thumb is 4% of the previous year-ending value. And the year-end value is gonna fluctuate, so so will the 4%. That’s $20,000. You’re used to making $20,000 a month. So no, $500,000 is not even close to it. The question is, can you sell that house, are you willing to do that, and own something for cash that is much, much smaller and sharply reduce your monthly expenses? But putting more money in the house when you have $500000 in savings, in my view, is not a good idea, and I think you’d be better off to invest that money. Take some risk with it as well. Thanks for the text. You’re listening to Money Talk on KUT News 90.5 in the KUT app. Call or text 512-921-5888. Morgan, you are on the air. How may I help?

Morgan [00:43:13] Hi Carl, thanks for taking my call. So I should have shot you a text, I’m just going to read it. So I am a mother to my first child fairly young or 21 and just had my second child 13 years later. So my husband and I are in a better place to save than I ever was when my first son was growing up. And I’m wondering what kind of accounts, what kind of savings would be best if they just separate for my… One-year-old versus my 14-year old. I’ve helped him in business with the 529.

Carl Stuart [00:43:51] So first of all, I share your ambivalence with the 529. I was enthusiastic when they first came out because Americans are not saving enough for their kids’ college and people are graduating with massive debt. And so anything that would incentivize people to put money away for college to me was a good idea. But I think that there are more flexible ways to go. One of the things that I like is you can set up an account you can call it the education account but it’s you belongs to you and your husband and you start a regular investment regime in that and you put money in every month you get into an automatic situation where it’s drawn from your checking or savings account into your investment account and the younger the child the less you put in anything but the stock market and the uh you have a young child and do you say you have a 13 year old as well Morgan?

Morgan [00:44:50] I have a 14-year-old and an almost one-year old. OK.

Carl Stuart [00:44:54] While the 14-year-old still, when you think about the future, probably going to be heavily in equities and you’re not going to put all a big huge lump sum in at once, I like this because if you invest it in tax-efficient exchange traded funds or mutual funds, it is tax-sufficient. You don’t pay capital gains on it. What I really like is you have absolute daily liquidity. So if it turns out that the one-year-old needs tutoring in elementary school you’ve got the money or if you want to send someone to an academic camp you got the money or buy them a clunker used car when they’re 16 you got the money and if they are somehow so brilliant and talented that they get a full ride scholarship to harvard it’s your money so i really like that flexibility and it’s tax efficient and you don’t pay taxes on it. Until you sell, and when you sell it, you pay the lower long-term capital gains tax rate. So setting up an account, you and your husband can join on it, and you can style it, the Morgan and your husbands name education account, and start investing on a regular basis, and invest for growth, and you know the stock market’s gonna go down, we just don’t know when, but you’re putting the same amount of money in every month, so you’re getting more shares. Over the long term, that’s the one thing that’s likely to keep up with the cost of higher education. And that’s what I would do, I think, if I were in your old shoes, Morgan.

Morgan [00:46:32] Okay, wonderful. Thank you so much, Carl.

Carl Stuart [00:46:34] Very welcome. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Here’s another call. Neil, you’re on the air. How may I help?

Neil [00:46:53] Hey carl uh… A i i i caught the end of your show a few weeks ago and you’re talking about five twenty nine uh… Balances and not having uh… What you could do with them there’s a provision of the just came into effect uh… Within the last two or three years that lets you you’ve got a five twenty-nine you get a beneficiary there’s no other beneficiary didn’t do you can you can put in you can transfer up to a limit seven thousand five hundred year into a raw for that person, assuming they have an earned income of $7,500 to match it again. But it’s a clean transfer.

Carl Stuart [00:47:32] I think there’s another thing, if the account 529 is old enough, they can put $35,000 in a Roth, unrelated to whether they have taxable income or not. That was in Secure Act 2.0. You just have to read up on it because it’s very specific as to how you qualify. But what the government’s realizing and you’re pointing this out Neil is some people have ended up, I happen to have lunch with their parents, she said, I put too much money in the 529, my child’s out of college, and I’m stuck with this tax penalty getting the money out. So, thank you for knowing the 7,500, but if you look at Secure Act 2.0, it’s even better than that, you can put more money in.

Neil [00:48:15] Well, that’s great. And one more thing for listeners, if they have any form of the Texas Tuition Fund, the Texas Tuition fund will also refund the remaining, you know, whatever they’re, whatever depends on when you bought it. But you can transfer that money tax free into the Roth by whatever the same rules are.

Carl Stuart [00:48:33] Good. I did not know that. That’s great. Well Neil, thanks for your call and helping me out. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Carl, my question is how much money you need have saved up in order to make $7,000 a month on a regular basis every month. Okay. So it’s the opposite of what I said a while ago. There’s no guarantee, but the best thinking is if you have a balanced portfolio of financial assets, we’re not talking CDs here because they’re financial assets also. We’re talking risk assets, stocks, and bonds primarily. There can be some other things. And you invest and you are 65 or older and you take the value at the end of the previous year times 4 percent. It will last into your 90s. Not guaranteed, but the data indicate it will last. So that’s a 25 multiple. So if you want to know $7,000 a month, that’s $84,000 a year. Okay, so 84,000 times 25. I can’t do that in my head, all right, but that’s the amount that you need. That’s a lot of money, so that’s 4% withdrawal. Obviously. If you don’t take that withdrawal until you’re 70 or 75 or 80, you can take a bigger amount. By the same token, if you start taking it when you’re 60 or 58, it’s got to be a lot bigger number. And you have to realize that the only way this is going to work is that you have money at risk. And if you don’t t have it at risk, and we have 3% inflation, and you pay taxes on it, you have a negative return. And as I always say, there’s three things you need to know. Number one. How long are you going to live? Number two, what’s going to happen to the cost of living? And number three, what is going to be the return on your investments? Guess what? We don’t know the answer to any of those. None. All we have to base it on is history. So good luck. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Hi Carl, I only owe $11,000 on a mortgage and I’m 64 years old. I’d like to pay off our house and we’d like use some $80,000 of savings to help my daughter get into a house. My husband and I both still work and plan to for five years. We make a combined about $210,000 a year. We have 401ks of $430,000 and savings of about $180,000. Is this a terrible idea? The answer is yes. It’s a terrible idea because of the four percent rule that I just said. You’re used to making $210,000 a year, and when you quit, you have 401k of 430 and savings of 180, so 430 and 200,000 is 630, so you have 610. A four percent withdrawal is an annual income of approximately $25,000 dollars a year and you’re used making 210,000. I don’t think Social Security going to make up the difference for that. And while you’d like to do the loving thing and help out with the house, you first and foremost need to take care of yourself. So I think that is a terrible idea. I’m sorry to have to tell you that. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Hello, I’m a public school teacher. Congratulations, that’s one of the most important jobs I can think of. On the verge of age 40, I have been contributing to a teacher’s retirement system for about eight years and roughly $100 per month into a Roth for three or four years. My fear is that when time comes, I won’t have enough to sustain myself in retirement. Is that a rational fear? I would also like to have some sort of investment account for my daughter. Do you have recommendations such as a custodial Roth? Well, first of all, let me just get this off my chest. You’re not making enough money and that’s our fault as taxpayers. You got one of the most important positions in the country and the world. Okay, I’ll try to get off my soapbox. Get down off there. Teacher retirement system is going to be there for you. You’re going to have guaranteed income and you can’t outlive it. Now, it’s plausible that your system doesn’t contribute to Social Security so you may or may not have that. They will predict for you what your future benefit is. So you can look at that and determine whether you think you have enough money or not. But as the way pension systems work, in those first few years, the growth is very, very small. But as you get to those years where you combine, I think it’s called the rule of 80 through your age and your tenure, it turns out to be a bigger and bigger number. So if you enjoy teaching, The last thing I want you to do is stop teaching. We desperately need teachers. But I think putting $100 per month into the last three or four years into a Roth is a terrific idea. Why is that? Because your TRS income, and if you had Social Security, that would be subject to income tax. And the Roth, by the time you get to be 65 and 70, will be worth considerable money, and you’re not gonna have to pay any taxes when and if want to take that money out. Would also like to start some sort of investment account for your daughter such as a custodial Roth. I think that that’s a good idea if you want to put the money away for her long-term future. Then the answer is yes and you invested in a stock index fund and you put money in regularly just like you’re doing with yourself. I think that’s terrific idea. On the other hand if you think that you’d like to have a liquidity so that you can take that money for some purpose for her. Then putting it in a Roth would probably not work. Now, she has to have earned income to do that. You are the custodian until she’s 21, it’s my understanding. If she has taxable income, you can do the Roth. If she doesn’t have income, you can’t do a Roth or an IRA, but you can a custodial account if you want. I’m not a big fan of custodia accounts because the child owns it, and under the Uniform Transfer to Minors Act, They get that property when they’re 21. I can tell you that without getting into details, I was a pretty dumb kid at 21 and luckily I didn’t have a lot of money. So keeping it in your name in my view has some benefits. You’re listening to Money Talk, I am not gonna give you the phone number because we’re down to the last two or three minutes so I will read another text. Hi Carl. I am a mother of two and had my first child fairly and ah, you just called me with that one. Thank you. Let’s look at this. Carl, let’s see here. I am rectifying, I am recertifying my income-driven repayment of my federal student aid loan. I am now in my 70s and receiving Social Security benefits. I’ve spoken with the advisors at the loan services and they told me that Social Security isn’t counted as income for purposes of calculating my monthly payments. If true, that’s great, but I’ve gotten bad advice from loan phone reps before. Do you know if this is so? Thank you. And how could I document my conversation with the loan servicer? Boy, that is a really, really specific question. I have no experience in that whatsoever. Thanks for listening, but I’ve got a policy. When I don’t know the answer, I’m just very straightforward and tell you that I just, I simply don’t the answer. We’re running out of time here. Let’s see this text. We have about a net worth of this, this, this, no, that’s a great question. I hope you’re listening next week as I will get it to you next week. I want to thank Alyssa for doing her usual terrific job. I want thank you for listening and to remind you next Saturday at 5, be sure and tune in to Money Talk.

KUT Announcer: Laurie Gallardo [00:57:18] You’ve been listening to Money Talk with Carl Stewart. Carl Stewart is an investment advisor representative of Stewart Investment Advisors. And this is KUT and KUT HD1 Austin.

This transcript was transcribed by AI, and lightly edited by a human. Accuracy may vary. This text may be revised in the future.