Anonymous and her spouse are both in the military and about to reach retirement. They have an expensive whole life insurance policy, costing $550 per month, and wonder if they should switch to term life insurance.
Ionnie just rolled over her Roth IRA and would like to understand how to withdraw her contributions without getting penalized
Matt wants to optimize his portfolio and wants to know if he should invest along the Efficient Frontier – despite the fact that the asset allocation it recommends is absolutely bonkers; it’s wild and risky and tilted like nothing he’s ever seen before.
Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode.
P.S. Also – we’re launching a book club!! Each month, we’ll read and discuss a book written by an Afford Anything podcast guest, starting with Morgan Housel, James Clear, Ken Honda, and Dr. Susan David. Sign up here: Read with Paula on Fable.
P.P.S. Got a question for us? Leave it here.
Anonymous asks (at 03:14 minutes): I’m active duty military, 39 years old, and I will be eligible for a full, active duty retirement in three years. My spouse is a military reservist, who is 40 years old and will be eligible for retirement in two years. We have 3 children, all in elementary school and hope to leave them some inheritance.
Our total net worth is $1.3M and we continue to aggressively invest over 50% of our paychecks every month, maxing out our TSP’s, IRA’s, and contributing the rest to taxable brokerage accounts and 529’s for our children.
Combined, we have seven years of our GI bills to pass to our children for college education. We also have about $400,000 each in term life insurance through SGLI, the military life insurance.
I am estimating that we will need approximately $1.3M to retire. I have $400,000 in whole life insurance and my spouse has $550,000. Our children each have $50,000 rider policies, which cost $45 monthly in total, and the cash value of their policies is about $1,500 altogether.
My husband and I are paying over $550 per month for our whole life insurance, separate from our military SGLI, which costs each of us only $25 a month. The current cash value of my whole life insurance policy is $25,000 and my spouses is $31,000.
Would you continue to pay for whole life insurance for the duration of your life at a much higher cost or switch to term life insurance and invest the difference.
If we switch to term life insurance, should we keep our children’s policies? Are there any major tax implications if we do cash out the cash value?
Ionnie asks (at 33:23 minutes): When you roll over one Roth IRA into another Roth IRA, what becomes the new basis of your contribution, and how does your custodian keep track of the difference between your contribution amounts and your growth?
I have a Roth IRA at Vanguard, and for the past 10 years, I have contributed $3K a year, totaling $30K, and the account is now worth $100K.
This year, I transferred a Fidelity Roth IRA worth $20K into my Vanguard Roth IRA. At Fidelity, the account was also 10 years old. I contributed $10K and it made $10K.
Can I pull out $50K from the Vanguard Roth IRA, under the assumption that $50K was my contribution, or is my actual contribution only $40K?
When I pull out the contribution only amounts from my Roth IRA, what type of tax form am I looking to receive, and which boxes should be checked on that tax form in order to ensure that I don’t get penalized and I don’t pay taxes? Assuming that I am under 59 and a half, this question is to understand how to withdraw contribution only amounts from the Roth IRA without getting penalized
Matt asks (at 1:03:52 minutes): My portfolio is pretty simple: 80% VTSAX and 20% Vanguard Total US Bond Market. It sits well below the efficient frontier. My portfolio has an expected return of 8.5% and a standard deviation of 12%.
If I move straight up the Y access from my portfolio, the portfolio on the efficient frontier has an expected return of 11% and the same standard deviation. But, this portfolio holds 46% US microcap, 20% REIT, and 34% long term treasuries. This asset mix is just so different from any asset allocation I’ve ever heard you or anyone else talk about.
Assuming I’m comfortable with my current level of risk and assuming I don’t mind more complexity in my portfolio, should I be thinking about converting my current portfolio to the one on the efficient frontier?
As a corollary to this first question, I have read that a Sharpe ratio near one is indicative of a good investment. Along the efficient frontier, it looks like the highest Sharpe ratios occur in the low risk, low return portion of the chart. How much weight, if any, should we place on a portfolio’s Sharpe ratio?
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