Jeremy wants to attend graduate school. Should he take student loans or cash out his investment portfolio?
Andy is wondering if the 4 percent rule stands up to high inflation. (There’s a shockingly simple answer!)
Did Rudolfo discover a hack to supercharge his 401k investing?
Nandini is overwhelmed by her investing choices. Which accounts should she use? Which funds should she pick?
Former financial planner Joe Saul-Sehy and I tackle these four questions in today’s episode.
Enjoy!
P.S. Got a question? Leave it here.
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Here are the details:
Jeremy asks (at 02:30 minutes): What’s the best way to finance a grad school education?
I work as an emergency department nurse and I want to pursue a doctorate degree that’ll allow me to transition to a lucrative specialty of nursing.
The future earnings of this career change will more than pay for the degree in the long run, but what are the risks of taking on debt in the short term?
The three-year program will cost $160,000 in tuition and fees.
I’ll cover living expenses with part-time work while I’m in school, but I won’t be able to cash flow the tuition.
I’m considering one of two options:
- Student loans: When I was an undergrad, I had a Dave Ramsey debt-averse mindset. I paid for school by applying for scholarships and working. My views have since softened and I’m willing to take out a student loan but I’m worried the interest will bury me for 10-plus years, until the loan is paid off.
- Tap my investment portfolio: I have $70,000 invested in a taxable brokerage account. If I cash it out and continue to save for another year, I could pay for most of the tuition outright.
How do I weigh the cost of interest on student loan debt against the loss of potential earnings on my investment portfolio?
Rudolfo asks (at 22:38 minutes): I think I’ve found a way to skirt 401k contribution limits by taking out a loan and paying it back. Am I onto something?
For example, the 2023 401k contribution limit at age 50 and above is $30,000.
I understand that there’s no penalty to take out a 401k loan as long as the funds are returned to the account with interest.
Assuming an interest rate of 5 percent on a $50,000 loan, would it be possible to take out a loan and immediately pay it back with 5 percent interest, or $2,500?
If this could be repeated four times a year, this would result in an additional $10,000 contribution.
Can I do this? Is there a limit on the number of times I can do it?
Nandini asks (at 34:16 minutes): If I already contribute to a Roth 401k, are there any advantages to opening a Roth IRA?
I’m not currently maxing out my Roth 401k and my income only allows for a backdoor Roth IRA contribution.
My company also offers an after-tax mega backdoor Roth account with a limit of $44,000.
How do I decide between these three options?
Beyond that, I feel overwhelmed by all my investing options.
What’s the best way to identify which funds to invest in? Are expense ratios and average returns the main factors?
Andy asks (at 46:19 minutes): How do higher inflation numbers affect the 4 Percent Rule?
I understand that the 4 percent withdrawal rate is meant to be inflation-adjusted, but where does that number come from?
Should the rule be seasonally adjusted according to the inflation data? If so, how do we make this calculation?
Resources Mentioned:
Podcast | Practical Investing and the Efficient Frontier with Joe Saul Sehy
Podcast | The 4 Percent Retirement Rule with Bill Bengen
Youtube| Stephen Colbert eats Ranch ice cream
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