Jordan Goodman
ABOUT Jordan

Jordan E. Goodman is “America’s Money Answers Man” and a nationally-recognized expert on personal finance. He is a regular guest on numerous radio and television call-in shows across the country, answering questions on personal financial topics. He appears frequently on The View, Fox News Network, Fox Business Network, CNN, CNBC and CBS evening news. For [...]


Joe Anderson
ABOUT Joseph

As President of Pure Financial Advisors, Joe Anderson has led the company to achieve over $2 billion in assets under management and has grown their client base to over 2,160 in just ten years of the firm opening. When Joe began working with Pure Financial in 2008, they had almost no clients, negative revenue and no [...]

Alan Clopine

Alan Clopine is the CEO & CFO of Pure Financial Advisors. He currently shares the CEO role with Michael Fenison, the original founder of the company. Alan is primarily responsible for the day-to-day activities of the firm while Michael’s focus is on expansion and hiring. Alan joined the firm about one year after it was [...]

Published On
August 14, 2017

ways to reduce debt

America’s Money Answers Man, Jordan Goodman, offers creative ways to reduce student loan debt, car loan debt and mortgage loan debt. Big Al lists 7 Facts About Your Roth IRA That You Didn’t Know. Jason Thomas, CFP® comes up with 5 Mistakes Retirees Make When Claiming Social Security. Answers on recovering IRA losses, early retirement account withdrawals, real estate investing and target date funds. Plus, caring for elephants in Thailand before retirement?!

Show Notes

  • (01:03) Taking a Gap Year
  • (12:07) Jordan Goodman: Reducing Student Loan Debt & Car Loan Debt
  • (22:39) Jordan Goodman: Reducing Mortgage Debt
  • (31:37) Big Al’s List: 7 Facts About Your Roth IRA That You Didn’t Know (Motley Fool)
  • (37:41) Jason Thomas, CFP®: 5 Mistakes Retirees Make When Claiming Social Security
  • (47:54) Email Question: How Can I Recover My Losses in My IRA?
  • (54:23) Email Question: Can I convert my savings plan from a former job into an individual 401(k) in order to make withdrawals?
  • (57:16) Email Question: Can I take out two mortgage loans, pay off one completely when I sell the old house, and then have a reasonable payment on the principal remaining on the second mortgage?
  • (1:00:33) Email Question: I want to start managing both of them myself. What are your thoughts on target date funds?


“The average person is graduating with $38,000 in student loan debt. A lot of people are 50, 100, $150,000 undergraduate, and then you go to graduate school, business school, law school, medical school, anything like that, easily another 2, 3, $400,000 on top of that. Before you get your first job. That is an enormous burden on this generation. We’ve never seen anything close to it. Total, about $1.4 trillion in student loan debt.” – Jordan Goodman, MoneyAnswers.com

That’s America’s Money Answers Man, Jordan Goodman. Today on Your Money, Your Wealth, he’ll offer some innovative ways to pay down the three biggies: student loan debt, car loan debt, and mortgage loan debt. Jason Thomas, CFP® is back for a lightning round, this time the with 5 Mistakes Retirees Make When Claiming Social Security, right off the top of his head. The fellas answer your questions on recovering IRA losses, early retirement account withdrawals, real estate investing and target date funds. Plus, should you take a gap year before you retire, maybe take care of elephants in Thailand? Here are Joe Anderson, CFP® and Big Al Clopine, CPA, to talk you through some options.

1:03 – Taking a Gap Year

New York Times Article: You Don’t Have to Be College-Bound to Take a Gap Year

AC: You don’t have to be college bound to take a gap year. Did you know that?

JA: I don’t even know what a gap year is.

AC: It’s like a year off, a gap between jobs, a gap between college and your career, a gap between retiring and actually being retired, I guess.

JA: That doesn’t make any sense. A gap year before retirement? (laughs) So I’m going to take a year off before I retire?

AC: Yes you are.

JA: What does that mean?

AC: Do you want to know what you’re going to do? You’re going to be like this doctor.

JA: OK. He took a year off before he retired?

AC: Dr. Sinar. He took a year off between his retirement and retirement. (laughs)

JA: Sounds like he just was retired.

AC: So first thing he did, was he did a summer apprenticeship to an expert in stone masonry in Alaska. So that was in the summer. He says, “my wife and I were renovating and selling houses at the time, so I thought I might learn a few things to help me with those projects in exchange for room and board.” He studied how to create stone facings for houses, and learned how to put together little rock walls and stuff, he said it was like a jigsaw puzzle. He loved it. And then, let’s see what did he do next? Then he went to Kathmandu in Nepal, and he had back to back internships in Tibetan medicine. Why not, he’s a doctor, let’s learn a couple of things because at the time Western doctors were wary of this kind of homeopathic medicine. Then he went off to Romania. And he worked with a team of archaeologists, who were restoring a castle.

JA: That doesn’t seem like a year off.

AC: And our final stop, an apprenticeship to a master restorer of antique furniture in Pennsylvania.

JA: That sounds like a pretty busy schedule.

AC: Yes, well that’s the point. He wasn’t just sitting around retired, he was out doing his gap year.

JA: So that’s the gap year then. What’s he doing in retirement, just sitting in a Lazy Boy drinking beer?

AC: In this case, it says he went back to his job, and then retired five years later. And so I guess he became a better doctor because he learned the Tibetan medicine, and how to build stone walls. (laughs) So that’s kind of cool, right? I mean all of a sudden you do different things than you’ve ever done before.

JA: Well, I think that’s an important discussion in some degree, is that when people retire, they’re either looking at a number or they’re looking at an age. And they don’t necessarily focus on what they’re potentially going to be spending their time with. And we talked about that, what was that, last week with the… what was that website, the get ‘er done retirement dude? (laughs)

AC: (laughs) It’s a week ago. Listen to the podcast.

JA: So, when I teach retirement financial planning classes all over Southern California, I ask how many of you are currently retired. And sometimes there are a few hands that show up, and I go, like, here’s Steve, congratulations on your retirement. How long has it been? And then they’ll usually say, “Well, it’s six months, maybe a year something like that.” I was like was it everything that you thought it would be? And a lot of times it’s like, “Well, I thought I’d be happier” or “I thought that it would be a little bit different.”

AC: Yeah right. We hear that all the time.

JA: Because they didn’t necessarily plan for the day to day activities. So it’s like, let’s just pretend you retire today, what are you doing tomorrow? And there’s a lot of boredom that people face in retirement because they were so busy in their day to day lives while they were working, they look so forward to that retirement date. “I’m going to retire at 66.” Just think of it like a date. Or a number. And It’s funny to me. This study was done. People that focus more on a number, they’re actually more successful in their overall retirement for some reason, versus an age. I found that kind of interesting. And so they took a look at, what do the wealthy think about when they retire, and then they did a survey of someone that had a million dollars or more. That was their classification of wealthy. I would agree with that. And their objective of retirement was hitting a certain number. So they were going to work as long as they could to hit a certain number so that they could secure their overall retirement. Other individuals that are not necessarily, I guess, “wealthy,” I don’t know, wealthy is just a stupid word. I mean, you can have wealth with no money, right? But in this survey, in the context of the survey, that’s what they call it. Where they weren’t necessarily as well-prepared if they focused on an age. So I want to retire at 62. Why are you retiring at 62? Well, I can retire at 62 because then that’s when I can claim Social Security, or I’m going to retire at 65 because then that’s when I can get some sort of pension. But then, you still have to take a look at, how much money are you actually spending? Is that a pension or Social Security going to cover your living expenses?

AC: Yeah, right. I think a lot of people retire, “well, that’s when my dad retired. That’s when my mom retired, so I’m going to retire then too.” And that’s not necessarily the best way to do it. And of course, you want to take one extra step, Joe, which is not just how much do you need, what’s the dollar amount, but what does that dollar amount produce in terms of income? You really have to take that next step.

JA: Right. And what that dollar is producing in income, Is that going to do the things that you wanted to do in your lifestyle? Because I think we have to focus there first. And I think the good doctor here, that went to Tibet and Katmandu and wherever, Stonehenge? (laughs) So it’s like I’m going to retire, but what am I going to do? I still want to be productive in society versus playing golf every day.

AC: Well see, that’s the thing, and I think that’s what enriches our retirement. I’ll give you another example. Cathy Thomas, age 63, suburban Philadelphia. So she had worked with Bank of America as well as other banks, and so she decided to take a year off. And so she started – actually, not even a year. She started working two weeks at an elephant sanctuary in Thailand. Would you like to do that, to care for elephants?

JA: No. Nothing against elephants. Or Thailand.

AC: Well elephants are cool. I think that’s my favorite African animal.

JA: An elephant? They got pretty big memories.

AC: (laughs) They do.

JA: You know what is very strange to me about elephants, is that when they put the chain on the elephant, like for the circus? So they don’t go trampling people? That chain, they could break that chain, but they do it when they’re like very baby elephants. So they couldn’t back then, so they always think that they can’t now, even though they could easily break the chain. Isn’t that…? Well, it might not be, never mind.

AC: Wow that’s really deep.

JA: See? This is your favorite animal? And you don’t know anything about elephants!

AC: You’ve been waiting 10 years to come up with that elephant chain story. (laughs) Finally got a chance to use it. So then you wanna know what she did the next? She volunteered six weeks at a home for abused and neglected girls in South Africa.

JA: Wow, that’s cool.

AC: Yeah. And then she attended a weeklong writing retreat in North Carolina, and then she spent two weeks tending fields on an organic farm in Scotland. So the point is, it doesn’t really matter what it is, the point is, get out there.

JA: I bet she just went to the farm once and hung out in Scotland for the year.

AC: This says she tended the fields for two weeks, and I’m taking this at its word.

JA: You’re preparing yourself right? You go down to Mexico and hang out with the kids there, right?

AC: I do, I help an orphanage down in Tijuana. And I love, love hiking nowadays, and so I do a fair amount of that. And I guess when you’re working, it’s like you don’t really have the time to do these kinds of things. But when you retire, or if you’re fortunate to have a position that allows you to take a break, whether it’s a month or even a year, you get out there and do something completely different. I mean these are completely different things than what these people were used to professionally. And I think that’s what enriches your life. And then I think your retirement becomes much more interesting.

JA: Yeah, you’ve got to step out of the box is the point. Get out of your comfort zone.

AC: Exactly, step out of the box. This first guy, he’s used to being a doctor, used to being in charge, and I know what I’m doing. And I’m sure he’s a great doctor, but now he’s like the apprentice with a stonemason in Alaska, and all of a sudden, it opens all kinds of new doors, and new ideas, and new thoughts, and there are a million different things you can do. It’s just a matter of getting out and actually doing it. And both these people said it wasn’t really that expensive. Cathy Thomas said that the biggest cost was the airfare. Getting to these places.

JA: Well, I think if you volunteer your time, there’s a lot more of those work-study programs for retirees. Robbie’s been all over the world, it’s crazy. Your son. Like for school. I mean, how many countries has he been to now?

AC: Yeah, way more than I have.

JA: I mean where is he now? Is he home or is he in Norway? Or where’s he at?

AC: Well he was in Norway. He’s home now. He’s going to be teaching sixth grade in Santa Barbara. So he just moved up there this week. But he had been in Norway, and he had been in Colombia, South America. Those are the two places, the two main places he went this last year and volunteered at both places. And when you volunteer, you often, not always, but you often get room and board paid for, so it doesn’t have to be that expensive.

JA: Right. And then so there’s more of this type of programs for retirees if you want to volunteer your time.

AC: Or virtually anyone that’s willing. But that’s the hard part is you’re 40 and getting your career rolling, and you’ve got a mortgage payment, and how do you take a year off? It’s challenging.

JA: You just convinced me, Al. I’m done. I’ll see you next year.

AC: We’ll see you next year. What are you going to pick? So you’re not going to do the elephant sanctuary. I think the stonemason – your dad was a cabinet maker. Maybe that’s something?

JA: No, no.

I might volunteer at an elephant sanctuary: they’re my favorite animal because elephants may be helping us to cure cancer. It’s true, look it up! Anyway, have you got your retirement all mapped out? Can you afford a gap year? Find out if you’re on track.Visit YourMoneyYourWealth.com and sign up for free financial assessment with a Certified Financial Planner. They’ll help you figure out how much money will you need, what Social Security strategies are available to you, how much income can you get from your portfolio, and even whether a gap year makes sense for you. Make sure your retirement strategy is aligned with your retirement goals. Sign up for a free two-meeting assessment with a Certified Financial Planner at YourMoneyYourWealth.com

12:07 – Jordan Goodman: Reducing Student Loan Debt & Car Loan Debt

JA: Alan I’m pretty excited today. Got Jordan Goodman on the line. He’s been helping people with their finances for longer than you’ve been alive, Alan.

AC: Well, not quite, but a long time.

JA: 40 some odd years. Jordan. I can’t believe we got you on this show. I really appreciate it. How are you doing today sir?

JG: Great to be with both of you. We’re going to give a lot of useful advice today for the audience.

JA: Look at that! He’s America’s Money Answer Man. Jordan, I listen to your podcast religiously. And you have some of the most unique guests on your show. I know this is kind of off topic here, but who has been your favorite guest? You’ve interviewed thousands. Your podcast is very popular. Who’s been your favorite guest and why?

JG: Well, I’ve been doing it for 10 years every week. So that’s quite a lot – it’s over 800 segments, I guess you might say. I like doing Jane Bryant Quinn, that was a good one, Bill Root Kaiser, Ric Edelman, I’ve done all kinds of famous people. I have an hour with them so it’s great – if people want to hear the show, the past show, they can go to my website, moneyanswers.com, they can just click on Money Answer Show and see all the different people. I have a very diverse group, I should actually get you two on as well.

AC: Oh wow. Well, we’re ready. Monday morning we were ready. (laughs)

JA: Jordan that was a kind of a plug. (laughs) I was like, “I got to get on this show. I don’t know how to do it!” (laughs)

AC: It was a sly way to ask. (laughs)

JA: See that? Sneaky!

AC: That’s gonna be when it’s a very slow week. “Well, maybe I’ll get Joe and Al.” (laughs)

JA: “Maybe Anderson and Clopine. Well, maybe just Big Al.” (laughs) Al and I’ve been doing this show for over 10 years, and I swear to god, we go out and it’s like, “Oh Big Al!” And then, “you’re Joel.” I’m like, “No! It’s Joseph Anderson! Joe!” Ugh, whatever. (laughs) OK well, let’s get into some important stuff here. I want to talk a little bit about the student loan crisis. You wrote a wonderful book based on student loans, and let’s talk. What was the genesis behind that? And then, let’s kind of talked a little bit more about what do you think people should be doing? We’re running into kids that have way too many loans, we have parents that have loans for their kids, Social Security is getting reduced because of this and that and whatever. So let’s just dive in.

JG: Well the latest thing now is, not only have the kids maxed out when they graduate, the parents are maxed out – not only the student loans, but they take out home equity loans, they take out 401(k) loans, life insurance loans, anything that’s not nailed down, they’ll borrow it. So the parents are maxed out, now the latest thing that they’re asking the grandparents to take money out of their 401(k), their IRAs, for their grandkids. So we’re going to have three generations maxed out the way things are going here. Now the average person is graduating with $38,000 in student loan debt. That’s the average. A lot of people are 50, 100, $150,000 undergraduate, and then you go to graduate school, business school, law school, medical school, anything like that. Easily another 2, 3, $400,000 on top of that. Before you get your first job. That is an enormous burden on this generation. We’ve never seen anything close to it. A total of $1.4 trillion in student loan debt.

So the book that you mention is called The Ultimate Guide to Student Loans. The first third of it is about how to invest upfront to avoid taking on student loans in the first place. The second part is when you get to school, how to make sure you get the best student loans, and the third part is once you come out of school, how to make sure you can pay them off as quickly as possible. I’ve got a lot of resources there, but just to give you one example: when people came out of school, they typically have a whole bunch of different student loans, some federal, some private, some subsidized, some unsubsidized. What people don’t realize, you can refinance all that student loan debt into one, at a much lower interest rate, typically in the 2 to 3% range, and therefore pay them off more quickly.

There’s a place called Credible that does that, and their website is credible.com/moneyanswers. They know it’s me that way, you get 200 bucks off your first payment. And so instead of having a whole bunch of different loans and a whole bunch of rates, now you have one at a much lower rate and help you get out of it a little bit quicker.

AC: Can can anybody do that, or do you have to have certain credit, or how does that work?

JG: You have to have decent credit. But if your credit isn’t that great, then you may have to pay a little bit higher rate than 2 to 3%. But if you are doing private loans, those can easily be 8, 9, 10%. So the better your credit, the more chance you’re going to get a good rate. And parents can do it, as well as the graduates. So this is a whole new field that hasn’t been around for maybe more than three or four years, but the amount of debt is so huge and is changing this generation, it’s really a new growing area now, refinancing student loan debt.

AC: Jordan, is it a 5 or 10-year term, or is it different terms, or how does that work?

JG: It’s different terms. The shorter the term, the higher the payment. So it depends on what you can afford as to what the terms are going to be. And what they do, it’s not just one lender. They’ve got five or six different companies, credit unions and various others that have loans. And then you pick what’s the best deal for you. So the lenders are competing for your business to make sure you get the best deal on both interest rate and term.

JA: Is there certain loans that you do not want to refinance?

JG: Well, not necessarily, I mean I’d take all of it. If you have federally subsidized loans, those are probably the best, but even those are like in the 4.5% to 5% rate. So if you can get those down to 2% or thereabouts, then that’s better to get that. So I’d like to refinance all of it at the lowest possible rate because there is a huge need, these are 30-year loans on people – it’s like getting a mortgage before you get your first job. And I think President Obama paid off his student loan when he was in his early 50s. That’s what’s happening to people today.

JA: Yeah, I think he was in office before he paid them off. (laughs) He needed to get that book deal done so he could pay off his student loans.

JG: Exactly. Most people don’t have a book deal like that.

JA: Yeah right! So what do you think, this is getting pretty scary. I mean, we have mortgage debt, and then student loans are right there a close second. And I think with the mortgage crisis, it was everyone buys a home, buy a home, buy a home, and it’s like, “OK well let’s just give these loans out to everyone so we can live the American dream of homeownership,” which I think is admirable. But we saw these crazy ninja loans, no income, no job.

JG: Interest-only loans. Home ownership rates got up to about 70% at the peak, about 2006. 70%. A lot of those people should not have been in homes at all – particularly in California where you have ridiculously high prices, and all kinds of terrible lending going on, now it’s about 62%. So about that 8% of the population, they thought they were buying a home, they were actually renting because they were about to be thrown out.

JA: And then now it’s like, OK, well, everyone go to school. Everyone go to school. Everyone go to school, and then now these loans are fairly easy to get, and then what did the colleges do, they hike up their prices. So now the cost of college has increased significantly. Now the kids are getting all these loans, they’re getting out of school with $30,000, $40,000 in debt. In some cases, what, I’ve seen $300,000 of debt.

JG: Oh yeah. I get e-mails from people all the time at moneyanswers.com. I got one from a guy who said he had $110,000 debt, and he works at Wal-Mart at $10 an hour. He said, “how long is it going to take pay this off?” I said, “how many grand kids are you going to have to pay this thing off? I think it’s going to be beyond your lifetime.” And it’s true. You mentioned loans – the total amount of consumer debt recently went up to $12.7 trillion. All time record high. Student loans are a big one. I think a bigger problem to some extent is car loans. We’ve had a big increase in subprime car loans at very high-interest rates, at payments to people in many cases cannot afford. And now the delinquency rate has doubled on car loans in the past year. And if you guys want to go into a real growth business, I would say the repo business would be a good one to go into because a lot of cars are coming back, and that’s a real problem for people.

So some specific solutions there, go to a car buying service to get the best deal upfront, so you don’t take on a payment you can’t afford. A website that would be carQ, the letter Q, carQ.com. They help you get the best deal on a car, financing, leasing and all that stuff. And then if you’ve got a car loan that you can’t really afford, you can refinance that, just like we talked about refinancing the student loans. People don’t realize they can refinance their car loans, and there’s a website for that too, which is MyLoanGen.com. You put in everything about your existing loan, interest rate, payment, how many more years you have to go, and then it gives you will a  little dial, and you can dial up to a lower payment, maybe stretch maturity out a little bit, and allow you to keep the car, and not getting the repo man coming to get it. The reason that these subprime car loans are going out in such a big way now is the lenders are putting in the car a device, that if you don’t make your payment, they literally cut your car off the moment you don’t make your payment. So you’re driving along the 405 and all of a sudden it’s like, “My car just died because I didn’t make my payment.” That way they can send GPS and repo men know exactly where you are. Makes it much easier to repossess. So that’s why they’re making these loans, in the past, they probably wouldn’t have.

AC: Wow. I never heard of that.

JG: Yeah, you don’t want to miss a payment on a car with that kind of device.

Southern California, are you on a smooth, well-paved road to retirement, armed with a good roadmap and clear directions? Join one of our Certified Financial Planners for a FREE Lunch N Learn in San Diego or Orange County and learn how to pave your road to retirement. Visit purefinancial.com/lunch to register for one of these free events – lunch included! Learn about investing for your future, generating retirement income, retirement plan distributions, and how to minimize income taxes. Get on a good road to retirement! Visit purefinancial.com/lunch to register for a FREE Lunch N Learn in San Diego, Brea or Irvine. That’s purefinancial.com/lunch

22:39 – Jordan Goodman: Reducing Mortgage Debt

JA: Hey welcome back to the show, the show is called Your Money, Your Wealth. Joe Anderson, Big Al Clopine hanging out here. We’re talking to Jordan Goodman. He’s the Money Answer Man.

AC: You also wrote a book called Master Your Debt, and you came up with some tips on paying down your mortgage in 5 to 7 years versus 30, so why don’t you talk about that?

JA: Yeah, Jordan, you got some magic beans? How do we do this?

JG: It’s a magic way of moving your money, let’s put it that way. It’s called mortgage optimization, generically, and exactly right. In fact, I think you have the book there, I’ve got some tables showing exactly how it works. There’s a website for people that explains how this works too, which is called TruthInEquity.com, and I’m just going to give a very oversimplified example of how this works. With a traditional 30 year mortgage, you make the same payment for 30 years, or 15 years, the same, all the interest is up front. The first 10 to 15 years of a 30-year mortgage, pretty much all interest. You make maybe 10% of the principal after 15 years or so. And then what a lot of people do is refinance when rates have gone down, and you start a new 30-year clock all over again. And meanwhile, you’ve got your money, your paycheck, and all your other income, in a checking account, sitting there earning zero, basically. So what the mortgage optimization does is completely reverse the table, and your income, instead of sitting in a checking account earning zero, is sitting in a home equity line of credit, what’s called a HELOC, which is a liquid line against your house. You can take money in, you can take it out whenever you like, but that money that you have sitting in there is pushing down the principal every day. So literally, your mortgage payment is going down every month at an accelerating rate as you pay your mortgage off and depending on how the numbers work out, you literally can pay your mortgage off in about five to seven years. So I just saved your listeners 25 years off their mortgage. And in California, probably hundreds of thousands of dollars of interest they don’t need to be paying. And a bank will never tell them about this one.

JA: What are the down sides of that?

JG:  You gain equity in your house very quickly. So it going to be a bit of a temptation, I guess you might say, to just spend when you really shouldn’t. Don’t borrow against your house to go on a vacation or something that’s gone right away. A big fungible or something that just disappears. But if you’re disciplined, I think paying the mortgage off is a great idea. The home equity line of credit interest is deductible. It’s a second mortgage. So you’re not losing a tax break. What you’re doing is saving yourself tens of thousands of dollars of interest, and then you keep making a mortgage payment to yourself, in stocks and bonds and mutual funds, things that are growing for you, instead of just paying the bank interest all the time. What you do is you go to that website I mentioned, TruthInEquity.com, you fill in the free, what’s called a personal profile with all your numbers, your income, your expenses, your house value, your mortgage. And they’re going to say, “OK, based on what you’re doing today, it’s going to take you 28 and a half years to pay it off. With the number, you just gave us, 6 1/2 years,” whatever the numbers come out to be. And then they show you step by step how to do it. So this is something, again, most people are not familiar with. I did a whole chapter on it in Master Your Debt, and it really can transform an awful lot of people.

JA: There are some financial experts, Ric Edelman for one, that you’ve had on your show. He believes in having a big mortgage for the rest of your life, it doesn’t make any sense to pay it off. What’s your argument against that?

JG: I would disagree with that because the tax deductions to me are overblown. You get a tax deduction at your tax bracket. And if you are in the very highest bracket today 39%, only 1% of people are in that. Say you’re in the 25% bracket, to give an example. So that means that after tax, you’re still paying 75 cents of that dollar in interest. OK? So to me, I’d much rather have 100% of my money working for me, pay maybe a little bit more in taxes, then have these deductions and huge amounts of interest that are completely unnecessary. So I guess I would disagree with Ric on that one a little bit.

JA: Yeah, I guess there are two sides to every coin because right now interest rates are fairly low. You lock in at a fairly low rate, and then you do get the deduction on it. So in California, we pay a fairly large, Franchise Tax Board, a couple of bucks, and so I think Ric’s argument would be something to the effect of, “You look at the arbitrage. You can lock in at a certain rate and it’s based on cash flow in retirement.”

JG: It’s always a matter what you do with the money.

JA: Yeah exactly. No, you’re absolutely right, if you’re disciplined, then I think any strategy is going to work. But what do you think the number or the percentage of individuals have discipline? I mean I think that’s the biggest problem.

JG: A lot. Everyone I talk to. I’ve been I’ve been mentioning this to people for over 10 years. Over 50,000 people have gotten this strategy and it’s working for them because they do have the discipline. Unlike things you can see the gold in the ring and in front of you on the merry go around, know what date exactly you’re going to have your mortgage paid off, and particularly in retirement. I mean you really don’t want to be entering retirement with a 2 or 3 or $400,000 mortgage hanging over you when your job is not there anymore. Ideally, you should have that paid off. And if you get your mortgage paid off, with the size of mortgages, and the price of homes in California, you’ve got to accelerate it, because it’s otherwise not going to happen. And then what people do is they get into retirement, they’ve got this mortgage, they have to do a reverse mortgage possible, which can be difficult to do today, and they are burdened. And the big asset that they’ve got, their home, they have to take the equity out of it, in effect. So I’m a big believer in paying mortgages off as fast as possible. And then, if you need it again, you buy a car or you have a college tuition, do it out of your HELOC. I mean, do it in the low, tax deductible way. So I’m not saying never have a mortgage, but do it where you are in control. With most people’s situations, the bank’s and control, because they tell you, “you have to pay the same payment for 30 years and pay us tens if not hundreds of thousands of dollars in interest.” When you’re closing your mortgage they’re going to give you an amortization table, which nobody ever looks at, which shows you exactly how slowly your mortgage is paid off. But nobody looks at it because they just want the key to buying the house.

AC: Yeah I think you’re right. I agree with you, I think that’s good advice. However, what we see in California is a lot of people come to us, they’re ready to retire, they’re in their 60s, and they still have a mortgage. They haven’t used your technique 5 to 7 years ago. And they’re not going to work another day. So sometimes, in that case, we’ll actually have them refinance to a 30-year mortgage, just so they can afford the cash flow. But I think, all things being equal, I’d much rather have the mortgage paid off.

JG: Yeah, so they refinance at 60. And that means the mortgage is paid off when they’re 90. That’s not great! I’d rather go through retirement without the mortgage than having one one hanging over me, particularly with the size of the mortgages and the price of homes in California.

AC: Yeah I agree. Unfortunately, it’s not practical for everybody. And I think that’s where Ric Edelman comes in, it’s like, “well, you can live your lifestyle. You’ve got this mortgage, yeah it’s going to be with you forever, but at least you can afford your retirement.”

JG: Maybe. There are three things you need, by the way, to make the strategy, mortgage optimization strategy, work. The first one, gotta have equity in your house. You can’t be underwater because of having nothing to borrow against. The second thing you need, a decent credit score, maybe 680 or higher to qualify for the HELOC. And the third and most important one is you’ve got to have positive cash flow during the month. More money coming in than going out. So that positive cash flow is what’s moving that balance down on a regular basis. So if you’ve got equity, decent credit score, and positive cash flow, you can do it. And again, that free website is TruthInEquity.com will show you exactly how it works.

JA: I really appreciate you coming on our show. I know you’re a very busy man, and you’ve helped out thousands and thousands of individuals in your overall career, and just spend a few minutes with Big Al and Joel, It’s been our pleasure.

JG: Well I enjoyed doing it, it was great. I hope we got a lot of good information that people can really find helpful, and they can always email me at MoneyAnswers.com for further information.

JA: MoneyAnswers.com. You got to check out his podcast as well. That’s Jordan Goodman he’s The Money Answer Man.

For even more useful information, visit YourMoneyYourWealth.com to access white papers, articles, webinars and over 400 video clips on tax planning, investing, retirement planning, Social Security, estate planning, small business strategies and more. It’s a veritable treasure-trove of information just waiting for you at YourMoneyYourWealth.com. If you need more help, you can always email us at info@purefinancial.com, or pick up the phone and call us at 888-99-GOALS. That’s 888-994-6257.

It’s time now for Big Al’s List: Every week, Big Al Clopine scours the media to find the best tips, do’s and don’ts, mistakes, myths and advice to improve your overall financial picture – in handy bullet-point format. This week, 7 Facts About Your Roth IRA That You Didn’t Know

31:37 – Big Al’s List: 7 Facts About Your Roth IRA That You Didn’t Know (Motley Fool)

AC: So, we’ll see if we can educate you, Joe. Number one is, the Roth IRA is relatively new. 1997, that’s a true statement.

JA: Yup. You know what they wanted to call the Roth IRA when it first came out, was the American Dream IRA.

AC: Yeah, what happened?

JA: Senator Roth.

AC: Senator Roth decided to claim it for himself, huh? “Let’s call it the Roth IRA.”

JA: Yeah. When I come up with one it’s going to be the Anderson IRA. Right? I wish they would’ve called it the American Dream IRA because I guarantee – well, I can’t guarantee anything, but to take a guess. I would think that a lot more people want to have money in a Roth IRA than they do currently, because of the American Dream IRA, it’s like, “Yeah, I want some of that!” Roth? Roth sounds like SARS.

AC: Yeah. Who wants a Roth?

JA: No, I don’t want that.

AC: Hey, just for fun, the little side point: I got most popular surnames in your state. And I looked at Minnesota. What are the three most popular surnames in Minnesota, would you say?

JA: I don’t even know what a surname is, help me out?

AC: Like Anderson, for example. Like your last name.

JA: Anderson, Johnson…..

AC: Yes. And Nelson.

JA: Nelson. Sure.

AC: So I’m thinking, if it would have been a senator from Minnesota, it would have been the Anderson, not the Roth IRA.

JA: What’s California?

AC: California. Interestingly enough, it’s Garcia, Hernandez, and Lopez. Español. Español influence.

JA: Perfect.

AC: All right back to the list, number two is the Roth IRA isn’t the only IRA with tax benefits. Regular IRA, sometimes people forget about that, regular IRA, you can put money into it and in many cases you get a tax deduction. The monies grow tax deferred, but the difference there, of course, is when you pull money out in retirement, you pay taxes on the entire balance. Roth IRA, no tax deduction now, but it grows tax-free for ever.

JA: What’s the name of this list?

AC: It’s called Seven Facts About Your Roth IRA You Didn’t Know.

JA: Then why is the regular IRA in the seven facts about Roth?

AC: Well it says the Roth isn’t the only IRA with tax benefits. (laughs) Three, Roth IRA contributions must be made with earned income.

JA: Earned income. I think people get confused on what earned income is. If you pay Social Security tax, basically, if you think of it that way. So if you have a pension, or dividends, interest, Social Security, that is not classified as earned income. So you have to be employed. You have to be working, paying into FICA tax.

AC: Or your spouse, a lot of people miss that.

JA: Right. Yeah, that’s a good point.

AC: Your spouse works and you can claim their earned income, so forget that. Number four is you can sock away $5,500 into a Roth IRA, or $6,500 if you’re 50 and older. So be aware of those limitations.

JA: $1,000 catch up. Huge.

AC: So are you learning anything. (laughs)

JA: No.

AC: Let’s see, maybe it gets more advanced.

JA: I’m not listening to anything you’re saying until the last word. And then, I guarantee you I know the answer.

AC: OK. Number five is, you can amass a surprising sum in a Roth IRA. Well, for our TV show, I did a little table along that line. So here’s my table starting at age 25, if you put $5,500 per year at 7% per year, compounded return, by age 65 you’ll have $1.1 million. Of course, that’s 40 years. But it does show you the compounding impact because if you start at 35, it’s not $1.1 million, it’s a little over $500,000. And if you start at age 45, you have 20 years to go, that’s $225,000, and if you start at age 55, $76,000. So the point is yes, you can get a lot in a Roth IRA, but starting earlier is better than starting later.

Retirement Savings Compounded

JA: Yeah but you could still get a heck of a lot of money in there without contributions. You can do the conversions.

AC: Well that’s right. That’s right. And that’s the next thing is, contributions are not the only way to get money into a Roth IRA. Roth conversion is another way, and a lot of people don’t realize that they can take money out of their IRA, their 401(k), they can convert it to a Roth. And the problem, the downside is, you have to pay tax on what you convert. But there’s no way around paying that tax anyway. So if you’re in a low enough tax bracket, you’ve got to take a little look at your situation, you convert it, now that’s in a Roth IRA, and all future income and growth in principal is tax free, and it’s tax free for you, your spouse if you pass away, if the two you pass away, for your kids, for your grandkids, it’s tax free for everybody. So it’s kind of a one shot pain to get long term tax-free, forever.

JA: It’s like ripping the Band-Aid off. Right? (laughs)

AC: Yes. I’ve  heard you say that before. And number seven, I know I’m boring you with this list today, is how you invest in your Roth IRA matters.

JA: You know, I wish I could just get the motivation to just to be super excited. But you know how many times we’ve talked about Roth IRAs?

AC: I know, and we’re doing it one more time. (laughs)

JA: It’s like, “IT’S AMAZING! TAX-FREE! WOO!!!”

AC: So, asking a question. Should you go to your bank, open up a Roth IRA in a money market account, or should you go to….

JA: I just want them to open up the account, first and foremost, and then we can get complicated on how it should be invested.

Your Money, Your Wealth isn’t just a podcast, it’s also a TV show! Check out Your Money, Your Wealth on YouTube to watch clips on estate planning with attorney Nicole Newman, Trump’s Proposed Tax Plan, Social Security Savvy, all about the 401(k), and much more. Coming soon, an in depth look at Medicare, and reverse mortgages with retirement researcher Wade Pfau. Don’t miss the Your Money, Your Wealth TV Show – just search YouTube for Pure Financial Advisors and Your Money, Your Wealth.

37:41 – Jason Thomas, CFP®: 5 Mistakes Retirees Make When Claiming Social Security

JA: So we have this we have this individual, just graduated, wants to be a Certified Financial Planner®, wants to work for a fee only financial planning firm, and he wants to be an intern. So he’s talking to one of our Managing Directors up in Orange County, in Brea, and man, he’s pretty excited – he’s binge watching Your Money, Your Wealth. Poor soul.

AC: Well, it’s funny when people come in, I know when they haven’t really done much research, when I ask them, “Do you have any questions,” and they say, “Yeah, what’s your role? What do you do?”

JA: Yeah, who the hell are you? Why are you in this meeting?

AC: (laughs) I’m an intern!

JA: “I’m in this work study program for retirees. I was a CPA for 30 years…” (laughs)

AC: “I used to work in a bank figuring out calculations.”

JA: “I used to be a CPA for 30 years, thought I’d do this work study at this little small company..”

AC: I got this last week, one of my interviews. “So who are you again, what would you do? What do you do at the company, what’s your role?” (laughs)

JA: (laughs) “I’m a stand-in interviewee.”

AC: (laughs) “Yeah, I was cleaning the office, and they asked me if I’d talk to you.”

JA: Oh boy. So yeah, we’re not hiring him, I guess. So let’s try this another week, Al. I want to call Jason Thomas. He’s a Certified Financial Planner®. He’s a financial educator at Pure Financial Advisors. Last week – were doing little sneak attacks with these new employees.

AC: Yeah. See what they really know.

JA: Yeah exactly. So we’re just going to get him live, and there’s no preparation. And we’ll see how he does.

AC: He did pretty well last week.

JA: Yes he did. Yes, he did very well. So again, this could be boom or bust.

AC: It’s live radio. So you take what you get.

JA: Kind of nervous for him. (laughs)

AC: (laughs) All of a sudden you’ve got me nervous. I’m pulling for you, Jason.

JA: I don’t even know what I’m going to ask him. What do you think? Top five mistakes that people make with Social Security?

AC: Are you going to use a deep voice? “Hello. Jason Thomas please.”

JA: Yes. “This is very urgent.” So what do you think? Top five mistakes people make with their Social Security?

AC: Yeah, let’s do that.

JA: Alright. Let’s see how he does.

KB: Thank you for calling Pure Financial Advisors, this is Kathryn, how may I help you?

JA: Jason Thomas, please.

KB: Jason Thomas? May I ask who’s calling?

JA: Joseph Anderson.

KB: Oh! Is this Joseph Anderson, really?

AC: You are live on the air, Kathryn.

JA: Kathryn, do not tell Jason Thomas he’s going to be live on the air. Could we please just give Jason Thomas on the phone.

KB: (laughs) Okay, one moment, please.

JA: That’s Kathryn Bowie, our Director of First Impressions. And what a first impression. She can talk about anything to anybody.

AC: And 1800 clients later, remember everything about you.

JA: It’s unbelievable. I want to talk about elephants. She’ll have an elephant story. She’ll beat my story.

AC: Yeah. Well, you’ve been waiting 10 years for that chain story. (laughs)

JA: I wonder if he’s around?

AC: You told him to stand by, right?

JA: No.

AC: Didn’t say anything.

JA: Well maybe he’s at lunch, I don’t know. It’s early.

Pure: “We appreciate your time and patience…”

JT: Hello?

JA: Jason Thomas, Joseph Anderson you’re live on the air.

JT: Hey, good to talk with you.

JA: All right, so last week you did pretty well with Medicare. This week, the topic: Social Security. Give me five biggest mistakes that retirees make when claiming Social Security benefits. Go.

JT: Wow, you’re catching me on the spot. Well, the first one would probably be not putting a strategy together regarding when they’re going to take it. For example, one mistake would be people taking it at 62, which would often be a mistake if you’re still going to be working. Depending on how much you’re making, some of those dollars might be penalized, which would not be the case if you’d waited till 66. So if you’re going to be working more than just a few hours at a time, Part time work, you probably don’t want to take it at 62. So that would be number one. Number two is for people that have other assets, they might be able to draw the money from and are taking it earlier than they need to. Even though 66 is a full retirement age for a lot of people, you can still defer until age 70 and get a bump on your benefit, which might make sense for a lot of people if they have assets somewhere else. Another mistake that people make is not taking into account the fact that they might be subject to what is called the Windfall Elimination Provision (WEP). And this is really tricky because it doesn’t show up on your statement when you look online, or when you get it in the mail because the Social Security Administration doesn’t know if you worked for what is called a noncovered pension. You’ve got a pension from another government entity, like a state, local, or municipal government, and that’s going to reduce your Social Security benefits. And you didn’t have to pay Social when you were working. And the fourth mistake is something very similar: trying to claim the spousal benefit when you also have one of those pesky non-covered pensions, which again, the same situation, you worked for state, local, or federal government, and they didn’t withhold Social Security, and therefore you’re going to get a reduction in that benefit when you go to claim the spousal benefit later on. So you want to take those into account because those don’t show up on your statement. The last one I’ll say is a little rarer, but it can affect a lot of people, a lot of individuals with an ex out there, I know you don’t want to stay in contact with them, but if you were married to them for at least 10 years, you kind of should, because if you’re going to take a spousal benefit, your ex-spouse, I mean assuming you’re not remarried, one of your former spouses, might be a better benefit than your current benefit, or a subsequent spouse. So, you want to just make sure that whichever one of them was making the most money is the one that you’re going to use to claim on if you were able to stick around for 10 years.

JA: Wow, impressive.

AC: Not bad at all, Jason.

JA: Hey, I have two follow questions for you. We are here in the state of California, and we have a lot of individuals that will have the state pension. So let’s say that I am under, like, the Government Pension Offset (GPO), or the Windfall Elimination Provision (WEP). And let’s say that I have a pension plan. How would that affect, like, a survivor benefit? Because let’s say, I’ll have my pension, but I’m  WEP’d out on my Social Security. So I still receive a Social Security benefit, but it’s significantly reduced, because of the Windfall Elimination Provision or the Government Pension Offset, whatever it is. But then, my spouse has a very large benefit, because my spouse waited until age 70, they got 132% increase in their overall benefit., and then that spouse dies. Now, will I be able to receive that survivor benefit from my deceased spouse, or is that still going to be subject to the Windfall Elimination Provision or the Government Pension Offset?

JT: It wouldn’t be subject to the Windfall Elimination Provision but it would be subject to the Government Pension Offset, which could reduce that one of two ways: either up to two-thirds of the amount of the non-covered benefit that you’re receiving or down to zero if that amount is greater. Just a quick example would be if you’re getting $1,200 from your noncovered pension, and you want to claim a spousal benefit, based on that wife, for example, anything less than $800 would be reduced to zero. Anything other than that would be that benefit, minus $800, is what you could receive, in that example. And the reason that’s $800 is just because of the arbitrarily chosen number of $1200, that’s two-thirds of that amount, that’s how much you would be reduced, which can bring you to zero. But the good news is, even if that happens, you’re still going to be qualified for Medicare 65. So all is not lost.

JA: Last but not least, what’s the joke of the week?

JT: Ooh, joke of the week. You have me down here in San Diego which I really enjoyed, so I thought I’d do a San Diego themed joke, which was a Dangerfield classic, I got to hear him do it in 1999 before he died. A kid goes to his father and says, “Dad, you never take us to the zoo.” He said, “If they want you, they’ll come and get you.”

JA: (stunned) Say that again?

AC: (laughs) you have to think about it.

JT: (laughs) This is what we call a grenade. Something that’s going to be funny later on. (laughs)

AC: It’s dry, and then it blows up on ya.

JT: Exactly. Hopefully in a good way.

AC: I’ll explain it to him at the break.

JA: All right, that’s Jason Thomas, folks, once again, killed it. Thank you, sir.

JT: Thanks, guys.

JA: All right, we’ve got to take a break. Show’s called Your Money, Your Wealth.

This is the point at which you might want to visit the White Papers section of the Learning Center at YourMoneyYourWealth.com. We’ve got 6 Critical Social Security Facts Retirees Must Know, which is updated with the latest rules for claiming your Social Security. We’ve got a guide for making the most of Medicare. There’s a white paper on what tax reform might hold for us in the fall, and much more. It’s all in the White Papers section of the Learning Center at YourMoneyYourWealth.com While you’re on the website, sign up to get access to Joe and Jason’s Medicare video series, coming soon!

It’s time to dip into the email bag, with financial questions courtesy of Advisor Insights from Investopedia, and you, the Your Money, Your Wealth listeners. Joe and Big Al are always willing to answer your money questions! Email info@purefinancial.com – or you can send your questions directly to joe.anderson@purefinancial.com, or alan.clopine@purefinancial.com


47:54 – How Can I Recover My Losses in My IRA?

JA: Here’s something for you, Alan. “How can I recover my losses in my IRA?” “I’m trying to invest today, to help my son in the future. I put $2,000 into an IRA. But between the fees and bad investment decisions I made, it’s been losing money, and it’s valued currently below the initial deposit. Is there anything I can do to minimize or regain my losses? Can I move it to another investment vehicle to save what’s left? What strategies are out there for me to recover from this, and how should I re-evaluate my savings strategy?”

AC: That’s an excellent question.

JA: So first of all, let me just put my two cents. He goes, “I’m trying to invest today to help my son in the future.” So how old do you think this gentleman is?

AC: I would say, probably your age, 40.

JA: What?! He’s trying to help his son. The son’s 40? how old is the author of this e-mail?

AC: I said 40. He’s got a young…

JA: But you need earned income to put money into an IRA for his son.

AC: I know, and that’s where you’re going with this.

JA: Well no, I’m just saying, I thought this guy is like, “my kid’s like 16.” So then I was thinking he’s in his 50s, at least. And if he doesn’t know how to work an IRA? He should worry about himself, not his son, with this question!

AC: Well I agree with that. Let me answer his question. Since he asked.

JA: Sure. Sorry, emailer.

AC: Don’t listen to Joe. Losses in an IRA. Typically – I’m going to give you an exception, but the basic rule is this – when you put money into an IRA, the account goes down, and it’s in the account. You got a tax deduction already.

JA: How about if I didn’t take the deductions after tax?

AC: Well I’m going to come back to that because there’s an exception here, but the general rule is when you have an IRA and it goes down, or when it goes up, there’s no tax impact either direction. And your best bet is to find a different investment. If this is a terrible investment – we don’t know anything about the investment.

JA: Here’s the problem with a lot of the statement here. I” put money into the account, and I lost money.” We hear this too. “I had a Roth before, but the Roth was terrible, lost money.” It’s not Roth’s fault. Or the IRA’s fault. It’s your investment choice of what you plugged into that particular shell. So you could invest anything you want in a retirement account. If you want to buy an individual stock if you want to buy mutual funds if you want to buy FDIC insured CDs. It’s whatever you want to build that portfolio, and within that account, you can. So, yes, you can switch investments and everything else, but you can’t write that loss off on your tax return because there’s no basis. You get a tax deduction, and then it grows tax deferred, so you don’t pay any tax on any other growth, or get a tax deduction, or tax loss for any of the loss, until you pull the money out, and then you have to pay ordinary income tax on those dollars, if you did take the deduction.

AC: Yeah. And there is a rule.

JA: Miscellaneous expense or something?

AC: Yes, you can take your IRA out if it’s gone down in value, and that loss shows up as a miscellaneous itemized deduction, which is – first of all, you have to be over 2% of your income, just to claim anything. So there’s that. Also, miscellaneous itemized deductions are not allowable for alternative minimum tax purposes, so for a lot of people, it wouldn’t even apply.

JA: But I would have to cash the whole thing out.

AC: You would, which could be taxable. So you might create a tax deduction. That’s if you’ve already written it off.

JA: So here’s a question for you. Hypothetically, gentlemen came in, he bought into some REITs, non-traded REITs, and it was in some hospitals, and the hospitals went bad, and everything else. So it was about $150,000. Right now, he thinks the market value of all of these different investments is maybe $5,000. So you lost $145,000. It’s in an IRA. Can he write that off?

AC: Not inside the IRA. But what if he pulls the $5,000 out, which that’s what it’s worth. I think it works this way, Joe is that – well first of all, if he got a tax deduction, I don’t know what his contributions were, let’s say 150. So then, that would be taxable. I think that would be… I’m not sure if that is subject to the 10% penalty. This requires a little research on my part, but the loss itself would go, potentially, on a miscellaneous itemized deduction. I think maybe the caveat, Joe, is you have to do it in the same tax year. I think that’s the way this works because then you wouldn’t have taken that deduction. Otherwise, if you could do it in a future tax year and you’re younger than 59 and a half, it would be subject to penalties. think it has to be in the same tax year.

JA: OK, how about this for an example. And I know you don’t know the answer and I’m sorry for throwing it, but I’m just thinking out loud here, and of course what better place to do that is live on the radio. (laughs) I have a 401(k) plan, I contribute $10,000 a year into it, I take the deduction on that. And then it grows to X. And then I roll it over to an IRA. And then the IRA grows to $150,000, and then I’m like, “Oh, I got $150,000!” And then I run into this nice friendly broker that sells me these products at $150,000, but maybe my contributions were only let’s say $50,000. It grew to 150, 20 years later, then I bought these products. And then after three or four years, it goes down to $5,000. So, you would have to kind of figure out all sorts of stuff. What were the actual contributions, where did they come from, and trace that money that way or what?

AC: And yeah, and whether you got a tax deduction or not. So, let’s just try to keep this simple, you’d do it, in this case, $2,000 into an IRA. Let’s say it’s the same tax year, did not get a tax deduction. So then, when you pull the money out, that loss, whatever that loss is, is a miscellaneous itemized deduction. That’s a real clean one, that’s actually how I think the rule is written. If you did take a tax deduction, that’s why I think it has to be in the same tax year, because if you pull it out within the same tax year, you don’t get a tax deduction. And it still falls under that same loss rule. I think that’s how the rule works. I think once you go into the next tax year, you’re stuck. It has to stay in the IRA. That’s what I’m sticking to, from memory.

JA: All right. That’s pretty good. And, we are not giving tax advice on this program whatsoever. Please consult your tax advisor or any other legal consultant that you would like to have, if you have any of these questions, please.

AC: Very good disclosure.

54:23 – Can I convert my savings plan from a former job into an individual 401(k) in order to make withdrawals now?

JA: “I have a retirement savings account from a former employer that I made several contributions to. I am not allowed to withdraw any of the money I contribute until age 55, but I need the money now. Can I convert my savings plan into an individual 401(k), since I’m no longer working for the company?”

AC: And then what’s he want to do, pull the money out then? (laughs)

JA: He didn’t say.

AC: Well you can roll it to an individual 401(k) if you have an individual 401(k), which means you have to have your own business. So if you don’t have your own business, you can’t do that.

JA: Right. So you have to set up your own business, and it has to be a legal business, you have to have profits.

AC: You probably can roll it into your own individual retirement account. I mean, most plans, when you leave the employer, allow you to roll it into an IRA. You still have to wait, but now you gotta wait ’til 59 and a half.

JA: Versus 55 in an employer 401(k).

AC: But isn’t the rule with 401(k), you have to retire at 55?

JA: Yeah, you have to separate from service at 55. If you separate at 45 and keep it in the plan….

AC: You’ve got to wait till 59 and a half. You can’t just say the 55 rule works for me. You have to actually separate at 55. So, like let’s say you have a couple 401(k) plans, and you’re still working, and you want to retire, and you’re 55. If you need access to the money, you might want to roll the old plans into your current plan before you retire, and you retire after 55. Then you’ve separated from service with that plan, and you can actually get to those funds. You will pay income taxes on that but will avoid the penalty.

JA: Yes. So that’s a really good point because of that 55 rule kind of messes people.

AC: Yeah, they assume it’s always true, and you have to separate from service at 55 or older.

JA: No, because people get just snippets of information. Because most people, I would imagine, that’s listening right now, they’re saying, “I can’t touch my retirement account until 59 and a half. That’s IRAs. But if I have a 457 plan, there is no restriction on any age. I can pull that money out without a 10% penalty. If I have a 401(k), it’s 55. But you have to separate from service at 55 from that employer to get the money out without a 10% penalty.

AC: With that employer, with that plan, with that money. Not your old 401(k).

JA: Yes. You have to separate that 55 with that plan, “55?” Then they hear 55 and 401(k) plan and they’re like, “well no, I can pull my money out of a 401(k) at 55.” Yes, if it’s your current employer when you separate at 55.

AC: Yes. (laughs)

JA: Is it clear?

AC: Not really, but that’s why this stuff is just crazy.

JA: It’s a little confusing.

AC: That’s why we’ve been on the air 10 years trying to explain it and we’re still not there.

JA: Still trying to understand it. (laughs)

JA: You’re a real estate investor, right?

AC: Yes.

JA: You understand the ins and outs of kind of buying property, selling properties, investing in them, and so on?

AC: I would say so, yeah.

JA: You’ve done a couple transactions?

AC: Yeah. More than a few.

57:16 – Can I take out two mortgage loans, pay off one completely when I sell the old house, and then have a reasonable payment on the principal remaining on the second mortgage?

JA: OK. So here is the question. “I own property on the East Coast and want to move to a more expensive home on the West Coast after retiring. Paying a mortgage on the full cost of the new home is fine for a few years, and I plan to pay off half when I sell the old house. I am worried that I might be stuck with remaining payments that are too high for me in retirement unless I refinance, and we don’t know what the mortgage rates will be like in three years. Can I take out two mortgage loans, pay off one completely when I sell the old house, and then have a reasonable payment on the principal remaining on the second mortgage? What is the best way for me to make this transition?”

AC: Well that’s actually a pretty good question. So I guess the first thing that strikes me is, yeah, you can get more than one loan, but she may not like the answer, because you can get your first trust deed, which is normally the loan that people get on their home, and right now interest rates are 4%, 4.5%. I’m not sure exactly but in that range. Then you could get a second trust deed, which is the second position. But that’s a lot riskier for the bank that makes those loans, so they charge a lot higher interest rate. And I don’t know what seconds go for, of course, it depends upon your credit and the home equity and all that, but let’s just say a second might be 6 or 7 or 8%. So it would make your next five years a lot more expensive. You could potentially if you could afford it, if you had the cash to buy, put down 50% down payment, you could follow up with a home equity loan, perhaps.

JA: It sounds like he’s going to have equity in his East Coast home, that he’s going to take all of that and pay the other one to pay off half the note. But it’s a lot more expensive, I guess, here in Southern California than where he’s living on the east side.

AC: Yeah. We don’t know that for sure. But if that’s true, yes.

JA: So he’s going to pay down half, but he’s going to still be stuck on that amortization schedule when he first initially got the loan. So that payment is still going to be based on that, even though the balance of the mortgage is a lot lower is a lot lower. So he’s like, “OK, well let me refinance this thing because I want to lower my payment because the balance is lower.”

AC: I think I know where you’re going, and I like the thinking.

JA: Just take a cash out refinance on the East Coast home.

AC: If he’s got equity.

JA: He has to if he’s going to say he’s going to pay it… I don’t know. Again take it out of his retirement account maybe? Or is there….   I’m assuming that’s where he’s going to come up with the money.

AC: Not a bad thought. If he can borrow against his East Coast home now, and pull extra capital out to make it make a really big down payment on the West Coast home so that he ends up with the mortgage he wants to end up with in California… Yeah, I like that. I like that answer even better than mine.

JA: Of course you do. (laughs)

AC: Because you had a chance to think about it. (laughs) But, that’s assuming he’s got enough equity to make this all work out. Otherwise, you can do it, you can get more than one loan on a single property, it’s just that the second loan will be generally more expensive in the interest rate. But yeah, I kind of like that idea. So you sell the East Coast home and that loan goes away, and you’re left with a home loan that you want on the California home. Brilliant.

JA: Thank you, sir. OK.

AC: Joel. (laughs)

1:00:33 – I want to start managing both of them myself. What are your thoughts on target date funds?

JA: Well, let’s see. We got a few more minutes. Wanna get one more email in? “I currently contribute to a company 401(k) through Fidelity and a Roth IRA through Vanguard. I want to start managing both of them myself. What are your thoughts on target date funds?”

AC: Target date fund is where the fund itself, you match it with your potential retirement date. So let’s say you want to retire in 20 years from now. So you might have a target date fund that that matches your retirement, what would that be, 2037. And what they do is they gradually…

JA You usually call it 20-37. But if you want to call it two thousand thirty-seven, that’s fine.

AC: Target date 20-37. (laughs)

JA: What’s the year? Two thousand thirty-seven.

AC: It’s around two…  0-3-7. (laughs)

JA: You’re like Marty McFly going into the future. “What year is it?” “20-37.” “What does that mean? Is it 2? 2-0? Two thousand thirty-seven?

AC: 2-0-3-7. What did I say?

JA: I’ve never heard anyone called 20-37 two thousand thirty-seven.

AC: Well, you heard it here.

JA: What’s the date today? What year is it today, Al?

AC: It’s two thousand seventeen. (laughs)

JA: There you go. (laughs)

AC: Anyway. OK target date, I’ll say it your way.

JA: When you say target date funds I guess that’s what I’d usually hear.

AC: What I’m trying to say. I wasn’t even thinking about how I said the number, but you are correct. Yes. As we get closer to the date, then they tend to get more conservative, fewer equities, more bonds, because they figure when you retire. you’re going to need more safety. That’s kind of how they’re engineered, it’s how they’re designed. And I would say, honestly, my feeling is, absent any better strategy, that’s not a bad way to go. I would say, as a rule of thumb, you could probably do better with just a little education on whatever your goals are, to invest appropriately. But if you don’t want to go to that point, it’s not necessarily a bad way to go. Some of those target date funds are inexpensive, in terms of internal fees, and some are relatively expensive, so you want to look at that.

JA: Would you ever invest in a target date fund?

AC: No. Because we know more about investing and not everyone knows what we do.

JA: I mean if you just can’t stand this stuff, and you want to do it yourself, you don’t want to hire or educate yourself, yeah, I think that would be a better option. Because then it’s going to give you a right split. And they have a glide path. I don’t really care for that term, but they glide you into more bonds and stocks as you get closer to retirement. But you’ve got to be careful because they’re so popular now. They came out with the pension protection act of ’06, and now 10 years later, they’re very, very popular because I think there’s a lack of information and education with people of how to invest their money, and this is kind of an easy way to do it, where you’re going to get a little bit more diversification than maybe just your company stock. But you have to dive in a little bit deeper pm which one is going to be appropriate. I think, yeah, cost and fees are one thing, but what do you think is happening? They understand that people that select a target date fund, they don’t necessarily have the education of investing. And so you have multiple companies that these individuals could choose from. How are they going to examine the right one for them? What are they going to look at, do you think? They’re not going to look at fees, they’re going to look at what? Return. The one with the highest return is the one that I should be in, right?

AC: Yeah. And then one in 2050 is better than the one in 2030.

JA: Even if it’s a 2030 2030 fund, they’re still going to select the one with a higher expected rate of return. Going out that far, I guess it doesn’t really matter. But we see people in their 60s that want to retire in five years. Then they’re still picking the one with the highest return over the last 5, 10 years. And why do you think that fund has a higher return? It’s not because they’re magically doing something different inside that fund. They’re just putting more stocks. It’s riskier. So you have to determine what is your risk profile? How much risk are you willing to take? What is your target rate of return, not your target retirement date? And then this goes full circle to our first segment! People that are better off and more well-off in retirement, they don’t look at a date. They look at a dollar figure. I need to accumulate X amount of dollars before I give up this finite dollar that I’m getting as an income, versus a date! I hate my job. I’m out of here in 10 years, so let me go to target date X.

AC: (laughs) Take a gap year?

JA: Yeah, take a gap year. Go to Switzerland, and pick some flowers. Whatever. That’s it for us. I’m going to go take a nap. Have a wonderful weekend everyone. For Big Al Clopine, I’m Joe Anderson. Stick around next week we have another great show lined up. Shows called Your Money, Your Wealth.


So, to recap today’s show: You can take money out of your 401(k) at 55, but there are lots of very specific rules to do it right, so don’t just launch into that willy nilly. Target date funds are fine if you want to invest, but don’t want to be educated on how to do it well. Thanks to Jason Thomas, CFP® for that list of 5 off-the-top-of-his-head mistakes when claiming Social Security – and if someone from the zoo comes and gets your kids in two thousand thirty-seven, maybe they’ll put them in with the elephants!

Special thanks to our guest, America’s Money Answers Man, Jordan Goodman. Visit MoneyAnswers.com for more information on how to reduce student loan debt, car loan debt, and mortgage debt.

Subscribe to the podcast at YourMoneyYourWealth.com, through your favorite podcatcher or on iTunes, where you can also check out our ratings and reviews. And remember, this show is about you! If there’s something you’d like to hear on Your Money, Your Wealth, or if you have a question for us, just email info@purefinancial.com. Listen next week for more Your Money, Your Wealth, presented by Pure Financial Advisors. For your free financial assessment, visit PureFinancial.com

Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this broadcast and does not represent that the securities or services discussed are suitable for any investor. Investors are advised not to rely on any information contained in the broadcast in the process of making a full and informed investment decision.

Your Money, Your Wealth Opening song, Motown Gold by Karl James Pestka, is licensed under a  Creative Commons Attribution 3.0 Unported License.