In an earlier story, which you can find here, Bruce and Calley Coldsmith, a Mobile, Ala.,-based father and daughter financial planning team, talked about how to retire early, how much money you should be putting into your 401(k) and why it’s still possible to have fun and save at the same time. 

In today’s Q&A with the Coldsmiths, we discuss the best places to retire, credit card debt and why happiness should be the most important part of your retirement strategy. 

We talked earlier about lifestyle and being frugal. Obviously that involves living more cheaply. Where is the best place to live if you do want to retire early and make those dollars go further? 

BRUCE: You know, Sweet Home Alabama has some attractions there. It’s all relative, but generally, you don’t want to move to New York City if you want to live frugally. You know, when I was younger, I lived down here, and I had a rental house and this guy came and rented it. And he said he worked all his life up in the Northeast so he could take those Northeastern dollars down to Alabama, where he was from.

One of the things that we talk to our clients about is there’s four strategies if they want to retire. Do you want to delay your retirement so you can live better in retirement? Do you want to use your retirement so you can live earlier? Do you want to take more risk in your portfolio with the hopes of growing it faster? And we also talk about the idea of saving more money today, which is just another way of living with less today. If you do with less today and save more, you’re effectively living a more frugal life and you need less in retirement.

On top of the 10% take home pay that you advised putting into a retirement account, do you also suggest having a private savings account?

CALLEY: I think having an emergency fund in place is at the front of a lot of people’s minds right now who have experienced a job loss and other difficulties, like Hurricane Sally, the storms, COVID. What we tell our clients is that depending on your situation, if you’re a single person with only one source of income, you want to have about six months’ worth of expenses in your savings. If you’re a married couple with two high earners you need three months’ worth of expenses. That should prevent you from doing things like dipping into your 401k or getting into credit card debt.  

What would be your advice for somebody who does want to follow this great advice that you’re giving about retirement but is also saddled with maybe like a couple of credit cards that they need to pay off?

BRUCE: I would say that for most people their credit card debt, their interest rate on the credit card is going to be 10% or higher. A lot of them you’ll see 20%-25% rates, and that there is no investment out there that can guarantee that rate of return. I would say that job one is to knock that out. Dave Ramsey has some really good ideas on getting out of debt. He calls it the snowball effect, where you focus on the lowest dollar amount card, and then once that’s gone put all that extra money toward paying off the next debt.  

Staying with the snowball effect, what are some other strategies to help pay off debt and maybe even get those interest rates down?

CALLEY: There’s a lot of credit cards out there that are in the business of basically letting people move their other credit card debt to their card and give a zero percent interest promotional period on the amount. That’s known as the zero balance transfer payoff strategy. If they don’t pay it off, obviously, they’re going to have another high interest rate credit card on their hands. And you might pay a small fee for the transfer, but then you’re not accruing all that interest on what you’re not paying off on this new card. You know, obviously, it’s only good if you can really commit to doing that. Otherwise you’re just gonna be opening different credit cards and that doesn’t do wonders for your credit report.

I am also a proponent of starting with your highest interest rate credit card and paying that off first. But I think paying off a smaller balance rewards and motivates people as well.

BRUCE: The research tells us going after the highest rate card is the best way. And that’s what we do advocate. But Dave Ramsey says go after the smallest one for exactly the reasons Calley mentioned.  

There’s a lot of talk from Millennials saying that Baby Boomers had it easier that we do today. Higher wages relative to home prices and living expenses, etc. Is it harder to retire early today than it was 30 or 40 years ago?

BRUCE:  I’d have to say that the opportunity to retire early is greater today. People did not have access to Robinhood 40-50 years ago. And that opens up the door to learning about stocks and what they can do for you. You’ve probably heard the quote about capitalism, or that idea that capitalism has been the single greatest engine for bringing people out of poverty. A well-balanced, diversified portfolio can be tremendous help for people who want to retire early. On the flip side, we are definitely a more consumer driven economy now, much greater than perhaps they were decades ago. I was around with all those ones. 40 years ago.

Interestingly, there’s a lot of research about the kids who lived through the Great Depression, and how they are notoriously frugal. You know, we would call those the Greatest Generation now. And there’s been some early indications that all that upset, all that volatility in the market has caused a lot of Millennials to have similar characteristics. I buy into this. I like to kid with Calley about it. But she is not your typical millennial, she still has the first dollars she earned in allowance money. I think a lot of millennials are very conservative and concerned about the market. So I think my biggest concern about that is that Millennials might be unduly afraid of risk in the market.

But there isn’t a whole lot of risk if you start early and maintain a diversified portfolio.

I think it’s really important that people recognize the difference between owning stocks and owning a portfolio. Portfolio management, it really is a science. Several have won Nobel Prizes for their advancements of portfolio management. And that entails things like you don’t own five stocks in the same sector, you don’t own the FAANG stocks (Facebook, Amazon, Apple, Netflix, Google).

It’s a great place to have some money. You know, I want to say there’s a very large percent of the S&P 500 that, say, from the year 2000, who are no longer in business today. So in a portfolio you want to have 24 different securities that are held in different sectors, and, you know, there’s a lot that goes into creating it and then maintaining it. That’s the real key in managing risk. You can’t put it all in Apple and hope that Apple is going to be the one stock that never has a bad year.  

You mentioned happiness earlier. How can we balance happiness with all these complex and heavy concerns about retirement and living a good life now?

BRUCE: There’s an idea that’s gaining some strength about gauging a countries success in terms of its gross domestic happiness, not its gross domestic product. And that idea translates to each person figuring out what they need to be happy in retirement. If you’re going to be cruising and traveling the world then you really need to be an aggressive saver and earner. On the other hand, if you’re going to be happy hanging out at the house and gardening then you have different considerations. And, you know, there’s not a right or wrong there. It’s about your own happiness and deciding what you need from life.

 You can learn more about Bruce and Calley by visiting the Coldsmith, Ryder & Associates website.