How to Use the Next 10 Years to Create More Freedom

Using Your 40s to Build Financial Flexibility Over the Next 10 Years

Hunter Kelly explains how many families in their 40s can use the next decade to build flexibility and freedom, using a real planning conversation with newly married mid‑40s clients Sarah and David. With about $240,000 household income and roughly $900,000 in retirement assets, they aim to stay in their home about 10 years, take an annual meaningful trip, eventually relocate to a cheaper rural area, and give Sarah the option to retire or go part-time in about 10 years while David may work to 65 for health insurance. Topics include defining “freedom” specifically, organizing an old 401(k) (including IRA vs new 401(k) and backdoor Roth pro‑rata considerations), evaluating debt strategically (car loan, federal student loans at 6%, mortgage at 6.3%), considering refinance vs mortgage recast, and building taxable brokerage assets to access funds before age 59½.

00:00 Welcome and Big Question
01:05 Meet the Couple Case Study
02:42 Why the Next Decade Matters
05:03 Define Freedom Clearly
06:38 Old 401k Rollover Choices
09:05 Debt Strategy Without Rigidity
11:09 Mortgage Timeline and Recast
13:56 Bridge Money Before 59½
16:01 Planning Is a Process
17:40 Key Takeaways and Next Steps

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Transcript

0:00

And welcome back to The Retire Early Retire Now podcast. I'm your host, hunter Kelly, certified financial planner and founder of Palm Valley Wealth Management. On this show, we talk about how to use financial planning to create more clarity, more confidence, and more freedom with your money. and today's episode is built around a question that I think a lot of people in their forties. Are quietly asking themselves, how do I use the next 10 years? Well. Not just to grow my net worth, not just to max out retirement accounts, but to create more flexibility and more freedom with my money. Freedom to make work optional sooner. Freedom to slow down if I want to, to move to travel, to make big life decisions without feeling financially trapped. Because for a lot of families that are in their forties, the next 10 years are not random. They're incredibly important and they are the bridge between. The heavy accumulation years and the years where you start wanting more options, and that's exactly what today's episode is about. This episode is based on a real financial planning conversation that I had with a, a couple that are in their mid forties who are recently married, combining finances, settling into a newer home, looking ahead to what life they want to live and what they want it to look like over. The next decade, they expect to remain in their current home for about 10 years, likely moving to a less expensive, more rural area, uh, after Sarah's daughter gets through college. And Sarah would like the option to retire or go part-time in roughly about 10 years, while David currently expects to work to at least 65 in part because of health insurance coverage. Which could change in that time, but partly due to health insurance coverage. And they also are wanting to continue taking at least one meaningful vacation or trip per year. And to me, that is what makes this case study so good. this isn't a conversation about having a financial emergency. This isn't about playing, uh, extreme catch up because they didn't do much in their thirties. This is a conversation about direction. They're not asking, can we survive or can we make it? They're asking how do we use the next 10 years to build the kind of life that we actually want? That's a very different type of planning than an emergency or catch up or, uh. Am I doing this correctly? Right. So I think one of the biggest mistakes people make financially is treating all future years the same. They assume that the next 10 years are more of the same, earn more, save more, invest more. Repeat, but in reality, certain decades carry more weight than others, or at least have different roles. In your twenties, it's all about getting established, learning to save, building your income, maybe paying down some debt. In your thirties, you're, building even more, maybe building income, building a family, building a home, uh, building your savings so that compounding can really start to work. But. For a lot of people, their forties and their early fifties. It's more about positioning and building that plan for that flexibility or for that retirement, whatever that looks like to you. Positioning for flexibility, positioning for choice, positioning for the moment when one spouse wants to pull back or. A move becomes possible Positioning for the moment when one spouse wants to pull back or a move becomes possible, or priorities shift. That's what was happening here, right? The couple had already built meaningful retirement assets. They have about$900,000 combined through their 4 0 1 Ks and other retirement accounts with a household income of about$240,000. And David has roughly about$440,000 of that 900,000 in a former 401k$20,000 in his current 401k. And together, uh, they have about$13,000 in their company stock. And so, uh, the question really wasn't are we doing anything right or are we doing this right? The question was more. What should all of this money be helping us do over the next decade? That's the question more people should be asking, especially if you've done well with saving. If the saving part is easy at this point. What can we do to make this money work harder for us? Right? Is it paying down debt? Is it investing? Is there some way, uh, else that we should be allocating for more flexibility? Those are the type of questions that we should be asking, right? Especially in a situation like this, when people say they want freedom, they often mean something vague. Less stress, more options, the ability to breathe. but in planning, freedom gets more useful when you define it. Specifically for this couple Freedom looked like a few different things. Sarah wanted the option to retire or reduce her work hours to part-time in the next 10 years. David wants to maintain stability of working longer, or at least partly for, uh, the ability to keep health insurance until Medicare. They want it to continue taking a major annual trip and long term they could see themselves relocating to a different property, maybe buying some acreage in a more rural area, uh, because David likes to hunt. And so that matters because once you define freedom, you're planning becomes more targeted, right? You have a point B. So we're at point A, we want to get to point B, and if that point B is very specific, that allows you to start bridging that gap between the two points. now, you're not just saving for retirement. Someday. You have a specific target. You're saving for more flexibility, a future relocation lifestyle spending that matters. Uh, and the optionality before traditional retirement age with Sarah slowing down. So that's totally, that's a totally different mindset than just saving to save for this. A vague definition of what retirement should look like. One of the first issues that came up in their meeting was that David has a old 401k and he didn't know what to do with it. Right? And so this is a common thing that people think about. And so where should he leave it? Oh, what should he do? Should he leave it to where it is? Should he move it to a new 401k? Should he roll it to an IRA? Generally those are the three options, right? And then I guess the fourth would be cash in and out. But, uh, that, that generally doesn't make sense, uh, 99.9% of the time. And so now on the surface, it sounds like this is just an account logistic question, but it's really bigger or deeper than that because every account decision. Either increases flexibility or reduces it right Rolling over a 401k to an IRA may offer more investment, flexibility and control, which is why this is usually discussed as the preferred route in many cases. But it's important to consider caveats like backdoor Roth contributions and what that does to tax sensitivity with when you have, uh. What that does to those contributions when you have pre-tax IRA balances, right? So you think about the pro-rata rule, right? So if you're doing those backdoor Roth contributions, you wanna make sure that all of that pre-tax money would be inside of a 401k. So you're not getting hit with extra taxes each year, every time you do a, a Roth conversion and then creating bases in your IRA and all these different things that, that come along with that. So, uh. And so when you have these discussions about what you should do with your 401k, you should consider your income and, and what you want out of this 401k and what's realistic and how that fits your plan. And so this is just a good reminder that organizing old accounts is not just about tidiness, it's about making sure your money is structured in a way that supports, uh, your financial plan as a whole, right? The same goes for every financial. A decision that you're making in this stage of life. You're not just trying to accumulate more, you're trying to create a cleaner and more usable balance sheet, because a messy financial life can quietly limit freedom. So as we continue to talk, we discuss the 401k and the pros and the cons of an IRA versus moving into his new 401k and things of that nature. And then we got on the topic about debt and this, and David had a great question and a real question around how do I deal with my debt? So they've got about$18,000 left in a car loan. They've got roughly 110 to$115,000 left of, uh, federal student loans at a 6% rate. And that's not an in insignificant number clearly, right? They also have a mortgage at a 6.3 rate, and when you're looking at that for the next 10 years, debt becomes a major part of fi the financial conversation or the financial freedom conversation because every required monthly payment. Reduces that future of flexibility. But here's where people often go wrong. They assume that all debt should be attacked as aggressively as possible, probably because they've watched Dave Ramsey too much. But that is not always the smartest move. in this case, uh, David Student Loans or Federal, and part of the discussion is around preserving some of the federal status while evaluating repayment paths and possible forgiveness related options rather than jumping into, uh, the move that would eliminate flexibility. Rather than jumping into a move that would eliminate flexibility, this is an important planning principle. Don't destroy flexibility in the name of supplication, right? Yes. 6.5% debt deserves attention. but you also want to be careful about giving up options that can matter later. The goal is not just to be debt free as fast as possible. the goal is to put yourself in a stronger position 10 years from now. Sometimes that's the same thing or should be the same plan. Sometimes they're not. Right, and so we want to consider what's the best path forward, paying that debt off as quickly as possible, dragging it out to the term of the loan, or finding some sort of happy medium. And so as the, the conversation continued about debt, we got onto the mortgage and this is another place where the 10 year lens becomes really helpful. Their current mortgage is 6.3% and because David had a previous mortgage around 2.3%, the nor, and this is very common right now, right? A lot of people bought in 2020. Around the lows of the mortgages getting anywhere from 2% to 3%, and so the new one naturally feels way more expensive in comparison, right? It's three times more expensive, and so they discuss the idea of refinancing if rates eventually fall. Uh, into the mid fours. Now, when people have a rate they don't love, the instinct is often to throw extra money at the mortgage. But in this case, that may not be the best immediate use of their excess cash because why? Because they expect to stay in the house for about 10 years and they may want to relocate. That means liquidity and flexibility may matter more than aggressively driving down the principle right away. That was a key part of the planning conversation. We also, uh, discussed another alternative to potentially getting the mortgage payment down. Uh, and so we talked about a future recast. So instead of refinancing, you can do a recast, right? using a large sum of money, uh, later to re amortize the loan to a lower payment without actually changing the full terms of the loan. So this is a great idea if you feel that rates aren't coming down fast enough. You have some extra cash on hand, 50, a hundred,$150,000 you want to pay down that mortgage, but, but for whatever reason, refinancing doesn't make sense for you. You can actually do a recast where you put this lump sum of money in. They'll re amortize the loan for the same terms, uh, that you're already on, assuming that you put a, essentially a larger payment down, uh, down payment down, and, uh, it'll, it'll lower your payment. Right? And so I love that, uh, example because it shows what good planning looks like, right? Um, and so good planning doesn't always say, here's one perfect answer. Sometimes it says, let's keep our options open now so that we can make a better decision later. I don't wanna rush them into a refinance as soon as rates start coming down. Uh, one because there's more closing costs and two, uh, it, it just may not make sense for them, uh, for, for a number of reasons, right? And so that is a freedom oriented way to plan, keep your options open. Eventually, yes, you will have to make a decision, but we wanna be smart about the decisions that we're making. So now I wanna transition into probably what is the core lesson of this whole episode? If Sarah wants to retire or go part-time in roughly 10 years. Then it's not enough for this household to simply have a strong retirement account balance, right? Uh, having money, uh, in a retirement account is great, but we talk about it all the time. It may not give you the flexibility when you need it. They also need to be able to like access that money before she turns 59 and a half. So that's why part of the discussion was focused on opening up a taxable brokerage account, creating a pool of money outside of retirement that can help support. Earlier work flexibility or a partial retirement, if you will, before the traditional retirement age of 59 and a half or 65. And so this is one of the bigger blind spots that I see and we talk about on this podcast a lot. People do a great job. Of saving in their 401k. They do a great job of contributing to the Roth IRA accounts, whether that's via direct contributions or even through backdoor Roth contributions, but they don't always build enough in that in-between bucket. And that super hero account bucket, whoever you're listening to, right? And so we wanna have that brokerage account to give us freedom. And that in between money matters. That bridge money matters. It is the money that helps you work less before full retirement cover a transition bridge gap between 55 and 59 and a half handle a move fun lifestyle shifts without panic. It gives you that ultimate peace of mind ultimately, right? And if. If the next 10 years are about creating more freedom, then at least part of your savings, sh should be going to some sort of brokerage account to give you liquidity, give you optionality, not just long-term tax deferral. That doesn't mean stop funding retirement accounts entirely. Uh, that means save in a way that supports the life that you want. And then lastly, the thing that we talked about. One of the things, uh, I like most about this case is that they don't need to make every decision immediately. Uh, I like sense of urgency from people wanting to make changes and sometimes immediate change is needed. Uh, maybe behavioral change depending on your situation, but sometimes it's, uh. Sometimes it's just taking small bites out each, every week, month, year, uh, to make those small changes to get you where you need to go, right? they don't need to have a perfect student loan answer today. They don't need to have the exact retirement date. Today. Right? They don't need to know whether, uh, a future refinance or a recast will be best today. Right? And so that's why I call financial planning a process and not a destination. Right. We're gonna continue working with David and Sarah, right? We're gonna create a plan that will best meet their needs of that flexibility, give them that flexibility in the next 10 year time horizon to allow Sarah to either slow down at work, them to move, take vacations, whatever that may be. And that's really what financial planning is, right? Giving you that flexibility. And that's a process. Life is gonna change throughout those 10 years. And so we wanna be ready for those changes and make great decisions financially so that uh, we have that peace of mind and we can stay on the trajectory that we want to. It's not pretending to know what the future is. Uh, it's building a system that helps you make better decisions as the future unfolds. And so some key takeaways, right? If you want to use the next 10 years to create more freedom, here are the keys that, uh, here are the key takeaways from this case. First, define what freedom actually looks like to you. Is it part-time work? Is it a move? Is it travel? Is it less stress? What does that look like? Second, make sure your accounts are organized in a way that supports that future. Whether it be flexibility or, uh, whatever that is for you and not just your current convenience. Third, evaluate your debt with context payoff. Have a payoff strategy that supports your future life, not just paying things off quickly, because that's what someone said. Fourth, let's, uh, let your housing strategy match your real timeline. and fifth, if you want the option to slow down before the traditional retirement age, you need to build assets outside of retirement accounts. if there's one message from today's episode that I would like you to take, the next 10 years should not happen by accident. There should be intentionality. So if you want to be more intentional about your situation. And you're unsure where to go next, you can always go to my website, Palm Valley wm.com. Look at my process. I call it the Palm Valley Pathway. It's the process that I have designed to help clients achieve and optimize for that 10 year window between, uh, accumulation phase and then transitioning into an early retirement. So, uh, thanks for listening. I appreciate it and I will see you next time.