Ross Anderson
Appearances
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
I don't know if we're at a bottom or if we've already seen the bottom of kind of this current unrest. But generally, I want to be a buyer when everybody else is concerned. I think of it as how can I put the most money to work possible when everybody else is a little bit nervous.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
Yeah, so I'll try and keep it fairly distinct here. But when I think about wanting to retire early, what that generally means is that you're going to need a higher savings rate or a higher contribution rate to get to the finish line faster. And so...
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
I'm going to use some very broad generalizations here, but typically about 15% for folks, if you're saving a total of 15% towards your retirement, that's normally going to have you on track for what I'll call a traditional age retirement, which might be in that 60 to 65 range. Depends exactly when you get started and what you spend and kind of what your spending mix is.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
So there is some nuance to it, but 15% is a really nice benchmark for to say, okay, that's probably going to get you to a normal aged retirement. If you want it to be done earlier than that, then what we probably need to do is ramp up those resources.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
If we can get to saving 20% or 25% of your income, and some people in the FIRE movement you'll see end up saving really, really large percentages of their income, And that's because they have that goal to be done sooner, right? So we have to build capital sooner, and we've got less time for that money to compound.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
And so if we're thinking that way, then how aggressive you want to be leads down kind of two paths. Number one is we need to think about what that savings rate is. What can we really get to? And it is a balance, as you said, right? We're balancing how do we live today with how ambitious do we want to be towards that savings goal?
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
And the second thing that I don't think it's talked about as much or enough is where are we saving? So if you wanted to be retired at 50, for example, you don't have full access to your retirement accounts, right? When you're putting money into 401ks or Roth IRAs, right?
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
And there's nuances and rules to all of this stuff where you may have an exception or two, but you don't have unrestricted access to that money. And if you're trying to take... Whatever you're saving as your nest egg, you're going to go overseas with it, buy a house and start living on your resources.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
You want to make sure that it's accessible and that it's not causing you really big tax headaches. And so that would be the other really big focus I would have is make sure that you're still getting your match in your 401k, right? Anything that you can do to get free money, we should do that.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
But you may also want to prioritize saving in just a brokerage account and building wealth outside of your retirement accounts because you may need access to them way before you traditionally would have kind of easy access to those retirement dollars.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
You're teaching me new terms today. I always called that one kind of coast fire, where you're going to get to a spot where you can coast a little bit. You're still working, but you don't have to necessarily work at the same level of intensity. But I like barista fire. I'm learning today.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
Well, ultimately, I think what I would do in this case is a little bit of modeling, right? We kind of have to start guessing at what some of the numbers are going to be. And, you know, we're going to say guessing, but it's hopefully an informed guess on what will it cost you to acquire housing, right? Are you hoping to buy something overseas? Are you going to plan to rent?
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
That's going to be a big difference in how much money you need to bring to the table versus how much you just need to earn over time. But that would really affect how I would kind of adjust my savings is if I need to make a down payment. And I would also explore the local market.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
So, for example, a resident in Portugal, and I'm not an expert on Portugal, by the way, but a resident in Portugal can typically buy a house and borrow up to 90% of the value of the house. So you could put 10% down and end up in a house. If you're considered a non-resident when you move there, you might only be able to borrow between 65% and 80% of the value of the home.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
So you might need a much bigger down payment. So really, that's what I would be thinking about is, what am I going to need to purchase... both in terms of one-time things and then on an ongoing basis, how much cash will it take me to live comfortably in those markets? I would do a lot of deep dive on what does it cost an average person to get groceries or go out to a restaurant?
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
How comparable is that? If you're living in New York now, maybe you've got a really high cost of living now and your costs will actually come down if you do that. And so what that would do is start to build a target. We generally think that people can live on, let's call it 4% to 5% of their portfolio value every year as a distribution. Again, there's a lot of science to that.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
I'm trying not to go too deep. But so if you were able to accumulate a million dollars over your lifetime for retirement assets, we think you could take $40,000 to $50,000 out. So if I know that I can cover my expenses with that... Now I've got really good information and you'll have other resources, hopefully like Social Security or things like that on top of it.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
But that's what's going to help you plan for can I retire is do I know how much money I need to spend to be comfortable? And then that kind of creates the target for how much you need to get to.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
Ellen, I just had a couple of questions. Sounds like you are sitting on quite a bit of cash right now. Is that building up every month that you're kind of underspending what you have coming in? So your cash is just kind of sitting in banks at the moment?
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
Yeah, so you had mentioned earlier that you're more focused on kind of lifestyle and not as much legacy. So it did tick my ear a little bit when you just said that you had life insurance. Some folks will sell that as a savings vehicle. And ultimately, yes, you can build an asset in the cash value part of a life insurance. So there's kind of two big categories.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
Term insurance is normally just kind of think about it like rent. You just pay for it while you have it and then permanent. could either be a whole life, a universal life, or a variable universal life where you're going to have some cash value component. But what you're really doing when you take the money back out of it is that you're borrowing from your own insurance policy.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
But if you kind of borrow too heavily, the policy can actually collapse. And so what I would do with that, I would have them run you an illustration. It's called an in-force illustration and say, how much could I actually take out of this and see how that really serves you? Because in most cases for somebody that doesn't have legacy goals,
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
I really wouldn't reach for a permanent life insurance contract. Some people truly believe in it as an investment vehicle. I'm not really in that camp. So I would at least double click on that and make sure that that product is serving you well, or that it'll do what you expect it to. But I do love that you've got a brokerage account.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
It sounds to me like you could probably be a little bit more aggressive in how you're funding that and get through some of that cash that you're accumulating. and maybe just turn that into a regular monthly contribution. So you don't have to put all the work, the money to work right now.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
If we're worried about markets, if we're nervous about it, and we don't want to just plop everything in, things could always go down from here, right? And so instead, what I might recommend is just dollar cost averaging and getting some of that cash to work over the next three to six months so that you don't have all of the risk of just a single entry point into the market.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
Of course. Yeah, please.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
Yeah, an in-force reprojection. So when you bought that contract, what they should have shown you is a projection of kind of if you put X number of dollars into it, this is how much cash value it'll have over its lifetime. And a lot of times it looks really impressive depending on what return rate they show. And then they say, well, all this is going to be tax-free.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
And you go, well, that all sounds great. What the policies sometimes require, though, is when you start taking the money out of it, we need to see if it's healthy. Because you can do what's called collapsing them. If there's not enough money to still pay for the insurance component, then the policy can collapse on you. And so, again, different policies are structured different ways.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
I don't want to go too, too deep into this, but you can ask them to run a new projection for you and say, well, I want to take... X number of dollars out in these five years so that I can help with this down payment or whatever it looks like.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
And they'll have to show that to you on how the contract will hold up or if it ends up crashing and burning, which I think will help you make a good decision on whether to keep it.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
So if it runs out of money or it requires you to put in a whole bunch of money later in life to keep it alive, I would say that probably doesn't make sense for you, right? We don't want to be in a spot where we're trying to pay for retirement and now we've got this life insurance contract that's on life support and now you're having to make payments to the insurance company.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
which is just going to add to your spending burden in retirement. We'd much rather be spending money on fun things and exciting things that you're doing overseas rather than having to buy insurance that you didn't really need at that point.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
Yeah, so it's really because of the mechanism that we're talking about. The reason that it's tax-free is that you're borrowing against your own asset, right? All borrowing is tax-free. If you go and you buy a home and you get a mortgage and they send you a big check, basically, or they really send it to whoever you're buying the home from.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
But when you borrow money, they don't tax you on that borrowed money. So the same way that you could borrow against an investment portfolio if you were doing a portfolio-supported loan, that's tax-free too. And so I think that these get sold on the... dream of this is tax-free. And there's other ways to achieve kind of similar things.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
A Roth IRA, if you wait until you're 59 and a half, is going to be tax-free growth, tax-free withdrawals. And so you've got other access points to things that are tax-free. But because these things can get complicated, they're difficult to understand.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
I would only reach for a permanent life insurance contract in really, really specific situations where we do have a lot of legacy goals and we want to really overfund this thing. So to me, I'm not hearing alignment in the tool versus what you're trying to do with it.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
Yeah.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
Yeah, so just as we've been talking about here today, I think the first question is how secure of a position are you in? Ellen has done a great job of creating really a battleship full of cash that she can go to war with if she needs to. And so even if there is job uncertainty or an interruption there, I think she's put herself in an incredibly strong place. Not everybody's in that position.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
So if you are concerned about the economy affecting your job and you're not in a place where you could live more than weeks or a couple months without an infusion of cash from somewhere, to me, that represents a risk. And so even though I want to treat economic uncertainty as a spot to go harder at my investments, I want to add cash.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
I want to be a harder saver when things look like they're opportunistic. I would caution anybody to do that and certainly don't put yourself at a higher level of risk if that's the position that you're in. So having enough money to live on is always job number one.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
To me, the big question is going to be timing and taxes. So number one on the timing, and again, we talked about this just a bit, which is when do I have easy access to my accounts? If you retire after the age of 55, you can typically touch your 401k accounts that were with an employer. After 59 and a half, you generally have easy access to all of your IRA accounts or Roth IRA accounts.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
But if we're thinking about anything before that, or we're thinking about needing to buy a home, then we got to go, well, where's that money going to come from? Is it going to come from me selling my current residence and taking that equity out and then using it to rebuy something? Or do I really need to save specifically for that goal?
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
So I really think of that as the kind of timing and where the money is going to need to come from. We need to kind of map that out. The second big piece is always going to be taxes. You do need to understand how international taxes work. And that is a highly, highly specialized area of expertise where... Every single country might be different.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
And so knowing how the taxes are going to interact, I would find a blog that is dedicated to exactly the country you're thinking about and find an expat community in that country. Because I think that's going to be your best resource for either finding a really good CPA to work with or hearing the experiences of other people that have moved to the exact place that you've gone.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
so to me that's going to be the the trick is how do the taxes work for an expat that is living abroad in that specific country because it's not the same everywhere that you go most cases you're going to get a situation where you are paying some international taxes and then you still have to file in the us as well and again that's going to be a specialized knowledge base where
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
Nobody knows all of that stuff for every country. So having a really strong advisory team, I think, is critical to making sure you get that tax filing right and not getting yourself into hot water when you do it.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
So I'm going to give you an annoying answer first, which is that if your time horizon is long enough, it's always a good time to buy stocks. I know that's annoying to hear. That's something that advisors generally believe. But if we think that the market's going to go up, and it tends to, if we look at the last about 45 years, it goes up 74% of the time.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
three out of four years, essentially, the market goes up. And so by being a long-term investor, we're putting those odds on our side. And that tends to be my position at any given time.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
If you're within three to five years of spending the money, that's when I think it's not a good time to be buying stocks because that's when you're needing to create some safety and have that capital ready to be accessed, right? So if we're getting close to needing the money, that's when stocks stop being a good idea.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
But between three, five years or longer as a time horizon, I would say it's mostly a good time to keep investing, not overthink it and just continue to be a dollar cost average person and put that money into the market. The second question that you asked or piece of that was what to invest in.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
The broadest answer would be if we don't have really specific thoughts about what we want to own, just buy all of it, right? And so when I say that, that typically means broad-based index funds. The United States, you can buy all of it in basically a total stock market index. You could also buy all of the companies outside of the U.S. in an all-world ex-U.S. index.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
So with two positions, you could basically own the entire world stock market. To me, that's a great answer for somebody that doesn't have specific things that they've researched and really want to dive into. And that is a completely valid way to invest. And honestly, I think people find it overly simple and they want to fight that. They're looking to make it harder.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
Fight that instinct as much as you can. We can keep this really, really easy, really low cost and not have to put that much thought into it if we're buying really broad-based, very well-diversified index funds across a bunch of things. You mentioned that it's been kind of a volatile year and you're right in the US. We are down year to date. International stocks aren't.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
So if we've been diversified, you could actually have positive gains in your portfolio so far on a year to date basis. And so I do think making sure that you've got some international exposure and not just the United States in your portfolio is a really nice way to make sure that you're balanced out and that we're kind of spreading our eggs into multiple baskets as well.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
I think that that's correct. If it's something that you need on the short term, I love your high yield savings account. I think that's a good place to have money parked or even something like CDs or conservative like that. Yes, with anywhere that you're earning money, ultimately, we're going to pay taxes.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
If you own stocks or index funds in a brokerage account and you hold that in there for more than a year, you're going to move into the long-term capital gains territory. That's going to be a lower tax rate than what you pay on your income always. So for most people, they pay 15%. It goes as high as... 20 or really 23.8, depending on if we're including the net investment income tax.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
But it's always going to be lower than what you're paying on your income. And so there's also opportunities in our lives. If you're going to do what you're talking about, and let's say you're going to explore the FIRE movement. The year that you sell those stocks might be a year that you're not earning any income.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
If you quit your job and you sell those stocks, you might be in a really low tax bracket. Some gains might be completely free federally. If you're in the 12% income tax bracket, you can actually sell stocks at 0% capital gains rates on the federal level. And so when we get into really specific planning, that's when we can look at those opportunities. But I wouldn't
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
choose not to invest because of the fear of the taxes, right? You pay taxes on that high yield savings account every single year. They send you a 1099 and then you put that in your tax return. You pay income on that too. Some people will choose not to make any money just so that they don't pay any taxes. I would much rather make plenty of money, plenty of investment gains. Be smart about it.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
Let them get into that long-term territory if at all possible. But paying a few bucks on earned money is not going to be the end of the world.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
Happy to hear it.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
My pleasure. Happy to be here.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
Thank you so much for having me. Happy to be here.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
Thanks for a little bit of the context that you're sharing some concerns about whether or not the federal cuts might impact your employment. My first question would really be, what does your emergency fund look like? And we don't necessarily need the numbers here, but I would think about it in terms of how long could you go, whether that's weeks or months, if you didn't have paychecks coming in.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
That's really how I think about evaluating emergency funds. So could you share a little bit about where you are in that respect?
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
A couple of years. Okay. So, so very strong.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
Yeah.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
Typically what you'll hear advisors say is kind of three to six months, um, as a good, healthy emergency fund. Now, the more sensitive your income is to the environment, I actually think notching that up can be prudent. So people that work in commission jobs, for example, or real estate where they may not have, um,
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
commissions for a long period of time or they may have a slow season and things like that. So being a little above that is really healthy. But in theory, if you could go multiple years, first of all, congratulations, that's fantastic. That also may be an indication that you're a little too heavy in cash. So we can talk about that as well today. But that's a really, really impressive place to be.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
So you should be proud of that, that you were able to save that much and put yourself in a really strong position.
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
That kind of then leads me back to your original question, which is, does it make sense to reduce your retirement contributions if that's the case? If you're starting from a position of really strong balance sheet, meaning you have that emergency fund in place, then quite frankly, I would almost go the other direction, right?
NerdWallet's Smart Money Podcast
Smart Planning Sessions: Investing Through Uncertainty and Planning for Early Retirement Abroad
When we've got times of economic uncertainty, that's normally when markets are going to price down because people are scared. And the stock market is kind of the one place where everything goes on sale and nobody wants it. It's a great place to be putting money, especially when there is fear in the markets. And