Personal finance expert Dave Ramsey was stunned when a 78-year-old woman from New Jersey with $880,000 already saved said she feared earning more money because it might move her into a higher tax bracket.
During a recent call into "The Ramsey Show," Denise explained that she did not want additional interest from investments. Ramsey pressed back, asking why she would not want her money to grow.
Caller Explains Why She Avoids Growth
Denise said she just received a $200,000 personal injury settlement. She already held $450,000 in certificates of deposit, $230,000 in mutual funds, and additional savings. Despite this, she asked whether municipal bonds would be appropriate because she did not want more taxable income.
Don't Miss:
- Would You Have Invested in eBay or Uber Early? The Same Backers Are Betting on This Vacation Home Platform
- Kevin O'Leary Loves ‘Wonderful Recurring Cash Flows' — These Small Industrial Assets Deliver Just That
"It's going to put me in another tax bracket," she said. Ramsey countered, "You don't want the money to grow?" He explained that avoiding growth for that reason was not logical, stressing that no tax bracket takes all earnings.
Ramsey Dismisses Bond And Annuity Options
Denise then asked if annuities could be the solution. Ramsey rejected the idea, telling her neither bonds nor annuities would help her situation. He pointed to the opportunity cost of her current choices.
"If I put $250,000 in a high-yield savings account or CDs and I make 3% on it, instead, I could have put it in a mutual fund and made 13%. That means I missed out on $25,000 a year," he said, adding that her CD holdings showed she was limiting her returns.
Trending: Bill Gates Invests Billions in Green Tech — This Tree-Free Material Could Be the Next Big Breakthrough
Age And Comfort With Risk Shape Advice
During the exchange, Denise admitted she often heard different opinions from people around her and was uncertain how to move forward. She also said risk no longer frightened her at her age because she believed she had enough to live on.
Ramsey, 65, compared her situation with his own approach, saying he continues to value growth over settling for smaller guaranteed returns. He explained that mutual funds would help her capture higher returns if she became more comfortable with the market.
See Also: ‘Scrolling To UBI' — Deloitte's #1 fastest-growing software company allows users to earn money on their phones. You can invest today for just $0.30/share.
Guidance On Next Steps
Ramsey advised her to meet with a financial professional to better understand the market. He said doing so would allow her to make more informed choices and see how the market performs over time.
When Denise suggested adding the settlement to her IRA, Ramsey clarified that this was not allowed. He ended by stressing that he would not recommend municipal bonds, calling it a step that would hold back her financial growth.
Read Next: Have $100k+ to invest? Charlie Munger says that's the toughest milestone — don't stall now. Get matched with a fiduciary advisor and keep building
Image: Shutterstock
