Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 01:00 – High-Earning Doc With a Late Start: Can I Actually FIRE at 55? (Kickass Seabass, NJ)
• 13:39 – Military Pension + TSP: How Aggressive Should We Stay for the Next Decade? (Aang & Katara, VA)
• 25:10 – Mandatory Retirement at 56, But Can I Punch at 50? (Steph & Ayesha, SF Bay Area)
• 46:54 – Outro: Next Week on the YMYW Podcast

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Transcription

(NOTE: Transcriptions are an approximation and may not be entirely correct)

Intro: This Week on the YMYW Podcast

A ndi: Joe and Big Al spitball for three people planning for early retirement and wondering, can I really pull this off? How much risk can you take, and how much do you really need to? That’s today on Your Money, Your Wealth® podcast 588. Dr. Kickass Seabass and his wife are both 41 and they got a late start on savings. Can they still hit FIRE – that is, financial independence, retire early – by 55? Get your salt shakers ready. Aang and Katara have military pensions and a big thrift savings plan. Should they invest it aggressively or play it safe over the next decade? Finally, Steph has a mandatory retirement at 56 but wants out even sooner, at age 50… if his wife Ayesha doesn’t kill him first for quitting seven years before her. Three early exits, three very different risk calls. What do you think? Tell me in the YouTube comments, and while you’re there, follow YMYW and turn on notifications so you don’t miss a thing. I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

High-Earning Doc With a Late Start: Can I Actually FIRE at 55? (Kickass Seabass, NJ)

Joe: We got, Kickass Seabass from New Jersey It’s from Dumb and Dumber.

Al: Dumb and Dumber, that’s right.

Joe: Hi, Joe Al, Andi. Long time listener, third time questioner. first, I’m glad you got the reference to Dumb and Dumber.” yeah, of course. That’s a great movie. “Important stuff first, my drink of choice is a wheat beer. Wife’s is a whiskey. I drive a Ford Fusion.” Go America. I heard a lot of that. I’d like-

Al: Did it- Yeah … back, Alabama?

Joe: I was not in Alabama, I was in Arkansas.

Al: Oh. I meant, but that’s-

Andi: The other A state.

Al: the- yeah, you know, one of those states over there.

Joe: Got it. “I’d like to have a general check-in to see if I’m on track to FIRE at 55.” Is that a FIRE at 55?

Al: That’s close enough.

Joe: Okay.

Al: We’ll, give it to him.

Joe: All right. “Wife and I are currently 41. I’m a physician, so started, A, with high…” Started… You’re a physician- … and this is how he writes. “I’m a physician, so started, A, with high med school loans and late start to saving.” So he started with high loan amount. High loan. So he had to pay off those loans. Yep. started a little late saving his cash.  “My wife’s salary is 300,000. my salary’s 300,000. My wife’s salary is 200,000, so $500,000 total. Numbers are as follows. My 401(k), 457 balance is 500,000. The wife, 300,000. We max these out every year. Wife’s 401(k) is all Roth. My 401(k) is 90% traditional, 10% Roth.” What do you think they come up with the percentages on that, Big Al?

Al: great question. I’m gonna say they wanted mainly a tax deduction,but sprinkle a little bit in the Roth.

Joe: Just to s-

Al: Just to start it.

Joe: Yeah. Yeah. 90/10.

Al: Yeah.

Joe: Let’s go with that.

Al: Yeah,

Joe: All right, they got $100,000 in a brokerage account and a Roth IRA of $30,000. They got, two kids, couple 529 plans, $100,000 total. Would like to get those to 160 each over the next 10 years. Hormol- ho- home mortgage is $410,000 at 2.8%. Home is worth a million bucks. Okay. Spend inclusive of all insurances, 529 and discretionary spending, but not mortgage payment, $12,000 a month, which is what we’d like to spend in retirement. Social Security to be claimed at age 70 is about $80,000. At age 50, we’ll do the catch-up max until retirement starting in 2026. The last of the student loan’s currently 1.7%, so no rush to pay it off earlier, will be paid off- And we’ll start to save $3000 monthly into our brokerage account. What do you think? Is it doable? Thanks for all the info on the laps over the years. You guys are the absolute best. All right, Kickass Seabass.

Al: do you want me to summarize?

Joe: What do we got? We got about a million dollars worth of assets?

Al: Yeah. We got… It’s about 900,000 actually. And so Joe, he wants to retire in about 14 years. So I just ran a little math. starting with 900,000, 14 years from now, I did a 6% rate of return. You can do whatever you want. I like to be conservative, but some cases you may earn more. I think they’re saving about $100,000 a year if you add up everything, so that gets to 4.1 million. And spending 144,000 a year, I did inflation at 3%, 14 years, that’s 218,000, Joe. And so you, what you do is you take the 218,000, divide it into the 4.1 million, you get a 5.3% distribution rate, which might be, a little bit high for a 55-year-old. What do you think?

Joe: I would do it, I would say $144,000 over 14 years at 3% inflation.

Al: Yeah.

Joe: Is that what you-

Al: Yeah, 218.

Joe: That, 144 also includes the mortgage payment, correct?

Al: It doesn’t.

Joe: $12,000 a month. It’s… But not mortgage payments. Yeah. Inclusive of all insurance, 529 and discretionary spending … but not mortgage payments.

Al: Yeah, I guess I’m thinking some, like the 529 may go down, but other expenses- You can run this a million ways, but it-

Joe: The 144 is what… I’m saying you can’t use a full 3% inflation factor on that because he’s got a mortgage payment in that 144.

Al: I know, but it’s not even in there. So I’m assuming that either it’s gonna get…

Joe: Okay, please read that, and what does that tell you? 529’s in discretionary spending, but not mortgage payments, so doesn’t that tell you that the mortgage payments are not included, or-

Al: Yeah, that’s how I read that.

Joe: Okay.

Al: Yeah.

Joe: So- So the mortgage p- payment is on top of the- On top of- … 12-

Al: So it-

Joe: … and then, but he’s gonna be paid mortgage-free by the time he retires.

Al: I don’t know. Maybe. Got it. Yeah, I mean, hard to know. We don’t have all the facts. Okay. But my assumption was mortgage is paid off. I just took, 3% inflation on 144,000. I get to 218,000 of spending. Divide that into the assets at that point. Given my assumptions, 4.1 million, so that’s 5.3% distribution rate.

Joe: Or you could just say 218,000 is what the discretionary spending’s gonna be, divided by .03 to see how much- How much money he needs. So let’s call it 7 million bucks.

Al: Yep. You could do that.

Joe: So if he’s trying to think of what number he needs to get to, I think probably anywhere between 6 and 7 million, because he’s gotta bridge a pretty long gap to Social Security. Social Security’s gonna come in. It’s not gonna be 80,000. It’s gonna be something less than that because he’s retiring at 55.

Al: Yeah, So I agree with you, and I did, I looked at it a couple other directions.

Joe: Okay.

Al: So, so one is, what, if he worked till age 60? So I just ran the same assumptions but added five more years, and, ends up with 6.1 million, spending about 250,000. Now, that’s a 4.1% distribution rate, so that’s pretty close. That, you know, that, that’s more likely.

Joe: A- and- Yeah.  He’s gonna claim at 70, so he’s only got a 10-year bridge- of the 250 to 10 years, then you subtract out 80. It’s probably still around 4%.

Al: Yeah, I think that, probably works. Or here’s another thought, Joe. What if he really does wanna retire at 55? And I just said, I was generous. I gave him a 3.5% distribution rate, which means he’d have to, he’d have to make about $80,000 part, on part, some, kinda part-time income to get, to, to be able to cover a 3.5% distribution rate.

Joe: How much money did you say he was saving each year?

Al: 100,000.

Joe: Is that including the 36,000-

Al: Yeah. So here’s the breakdown.

Joe: Okay.

Al: 25,000 each retirement.

Joe: Yep.

Al: 15,000 employer match combined, that’s 65, and then call it 35,000 in savings.

Joe: Got it.

Al: Yep. Yeah, so, so I think to me there’s a couple ways to look at it. I would probably personally work to age 60 just for more cushion. But if, you just couldn’t, you could retire at 55 and, you know, Joe, I, in the last four months I’ve met two doctors that instead of retiring completely, what they did is they became, they worked on, like urgent care for, on phones. And they did it, and one guy does it 30 hours a week. Another guy did it like, I don’t know, 15 hours a week, something like that. So I think that’s possible depending upon what kind of doctor he is

Joe: I think it’s 9% over 14 years he’ll probably hit it.

Al: 9%? Yeah. 9%. If he could get that. Yep. Yep.

Joe: Yeah, feasible. Yeah … a little aggressive, but I think that’s what…

That’s how I would look at this, is that, all right, each year you’re gonna look at your investments. You’re gonna do things- Sure … you’re gonna adjust. And so I wanna know what my target number is. So is it 5 million? Is it 6 million, 7 million, 2 million? Whatever that is, you can just take what you’re spending, what you wanna spend, inflate that, and then just divide it by whatever distribution rate you think is feasible for yourself, and that gives you a target number.

So then it’s like, all right, how much money should I be saving on an annual basis? What target rate of return should I be shooting for on an annual basis? And then where should I be putting those dollars? Should it be in Roth? Should it be in pre-tax? Should it be in brokerage account? How should I be allocating from a tax perspective?

So those are the steps that I would be taking if I was Kickass Seabass, because he’s still really young and he’s got 15-year timeframe. And then each year it’s like, all right, do I wanna spend my money on this, or can I save an extra couple bucks to get me to that retirement goal a little bit sooner?

So at $100,000 savings is, a ton because, what is that? I mean, they’re, saving two- a third of their gross income?

Al: gross is 500. So- So about 20% … about 20%. Yeah.

Joe: Yeah. All right.

Al: Yeah.

Joe: No, I- But I think he’s on the right track, for sure.

Al: For sure, and I think that’s a good way to look at it. I, think, Joe, another thing I would say is how you feel at 41, you may feel differently at, 50 and 53 and 55.

So to, to me it’s, one thing to have a, like, this long-term plan. “I wanna retire 55.” Great. But when you get closer, then you obviously, and ongoing, you reevaluate to see where you’re at. Can you pull this off? Can you spend a little bit less? Could you have saved a little bit more? can you work part-time?

So all these things are gonna factor into when you actually retire. But yeah, right now just given the numbers that I have, it’s a little tight, so I would work a little bit longer. But nevertheless, Joe, you, bring up a good point is, what do I need to do? Maybe if he saves 150 and gets a 7, 8% rate of return, maybe that works.

Joe: Yeah, And then where does he put the money? He’s putting… H- His wife’s going 100% Roth, he’s going 10% Roth. What? I, don’t understand that.

Al: they’re in a high tax bracket.

Joe: Yeah, but I d- I still don’t understand why that allocation is-

Al: I think, I, think just to get it started. Just to get it- That’d be my guess.

Yeah.

Joe: Yeah, they probably have the Roth IRA from when he was still in med school or something where they didn’t have the high income. But 500,000, do you go all Roth or do you go all traditional and then you do conversions later? Do you get more bang for your buck, or does it make sense at 40 to, put money into the Roth? I don’t mind the allocation.

Al: Yeah.

Joe: But, there could probably be a little bit more- strategy behind that?

Al: I mean, right now with, all the money going into, or most of it going into the regular 401(k), traditional, 500,000 of income with the standard deduction, they’re kinda just barely into that 32% bracket. So if they did less, it would be taxed at a higher rate. So I can, I, I can get why they want the tax deduction.

Joe: But, his wife is 100% Roth.

Al: Oh.

Joe: He’s putting 90% of his 10%

Al: into Roth- Ni- 90/10. Got it. Got it …

Joe: so she’s 100% Roth.

Al: Yeah.

Joe: So I don’t know. Interesting allocation.

Military Pension + TSP: How Aggressive Should We Stay for the Next Decade? (Aang & Katara, VA)

Joe: Okay. let’s keep going here. We got Ang and Kartra.

Andi: I think it’s Aang and Katara.

Joe: Oh, okay. that sounds even better.

Al: I liked your names better.

Joe: Ang and Kartra.

Andi: Aang and Katara from Virginia.

Joe: Do we know what… Is that from something or?

Andi: Aang and Katara are from Avatar: TheLast Airbender animated television series.

Joe: Oh, okay.

Al: Oh, okay.

Joe: this should be- Good to know … this should be an interesting, question. Good to know. All right. “Greetings to the team. I’ve been listening for six months and going back to the 2019 to listen to some more. Anything before that makes me feel too old.” All right. “I drive a 2024 Jeep Sahara. Wife drives a 2014 Honda Odyssey. I think I have the cooler vehicle.” Let’s see.

Al: Don’t say that out loud.

Joe: Let’s see what a Jeep Sahara looks like.

Andi: Hang on. Oh, interesting. if I Google Jeep Sahara, it comes up with a Jeep Wrangler.

Joe: Really?

Al: Oh.

Andi: There’s the Sahara.

Al: Okay

Joe: No, that’s pretty cool

Andi: Want it in purple?

Al: Yep

Joe: No, I like it.

Andi: Anyway

Joe: Okay. No, I agree with him. He does have a cooler vehicle. We enjoy foo foo drinks- … and both of us are lightweights

Andi: Is that cosmos? What, counts as a foo foo drink, Joe?

Al: Oh, that would be, something real sweet.

Joe: what’s that, what’s the airplane? What’s the popular one?

Andi: Oh, yeah, an airplane.

Joe: Yeah. What’s, Over the last couple of weeks, what’s the popular drink that everyone’s going for?

Andi: Oh, the French 75

Joe: Yeah, the French 75 Oh, that’s right So that’s, I think that’s definitely foo foo all right, we are 55.

We make $330,000 a year, includes our combined $117,000 military pension. All right, thank you for your service. COLA-adjusted, 30% is federally tax-exempt and portion is deductible on our state taxes. I make an additional $200,000 a year. I contribute 10% to the Roth and receive 5% employer match. My wife has a part-time job and she enjoys that she makes up the remainder.

In seven years, I could theoretically retire from my present job with a pension of $24,000 a year in today’s dollar. I’m a fan of pensions. Aren’t we all?

Andi: I can’t imagine- Yes … anybody who wouldn’t be,

Joe: I have $500,000 in a TSP, about $45,000 in Roth, or 45%

Andi: 45%, yeah.

Joe: All right. We have $40,000 in savings. We have another $150,000 in crypto.

My initial investment was $5,000 about 10 years ago, and I’ve used tax- taxable gains over the years to pay off a car and student loans. I hope, dreaming of using BTC to help pay off our house, but I realize it could all go to zero.

Andi: That’s the important realization to have.

Al: Yes, it is.

Joe: Okay. We recently purchased our first home and we own $1.1 million at a 6.5% interest rate.

This probably isn’t our forever home, but after 20 years of military moves, I think I owe my wife a house, and she’s very happy. We also have a $30,000 loan on the Jeep. I can’t say definitely when I would like to retire, but it probably won’t be until age 65. My Social Security at 65 is $3,500 a month.

I hear that three to five years is the sweet spot to avoid big dips in the market and not enough time to reco- recoup those losses depen- depending on the house. If we can refinance or decide to downsize, there may be more expendable income. I’m looking for a spitball on how heavily I should remain in stocks.

We’re 80% in the C fund, 10% in the S fund, 10% in the I. Is that too aggressive for 10 years? Am I supposed to scale back each year? “Or just ride it and wait until three to five years out and then adjust? Finally,” sorry, Joe, for the length, “Is there a commonly acceptable ratio of stocks to G Fund that I should be looking at as we inch closer to retirement, or is it just risk tolerance?

P.S. I recently opened an IRA and converted $100 to a Roth so I could start that five-year clock and have some more flexibility in retirement, as TSP distributions are a bit clunky. Love the show and the banter, especially listening to Joe pronounce big words.”

Andi: Thank you, Ang and Kartra.

Joe: Ang

and

Kartra.

That’s right.

Kartra.

Andi: Aang and Katara.

Al: Yeah.

Andi: Love it.

Al: Perfect.

Joe: So he loves it, having me sound like an idiot. It’s perfect.

Al: what do you think? Do you just kinda let it ride, or do you kinda get closer, you kinda make a change?

Joe: Okay, so let’s- Or do you change- let’s define a couple- Ch-

Al: change now. Yeah, go ahead.

Joe: let’s define a couple of things. So TSP, Thrift Savings Plan. So he still works for the federal government, so he has a TSP plan.

in the TSP plan, there are only a handful of options, which they call the S Fund, the C Fund, the I Fund, the G Fund. Those are the funds that he is in. So the C Fund, Al, do you know what the C Fund is?

Al: Yeah, that’d be common stock.

Joe: Yep, it’s that. S&P 500.

Al: Yep.

Joe: So 80% in the C Fund, so 80% in the S&P, 10% in the S Fund, that’s small cap, and then 10% in the I’s-

Al: International. Yep.

Joe: he’s 55 years old. Do I like that allocation? Here’s how I would think about the allocation. I would… He’s got 10 years, so I’m fine with 100% stock because he has a decent pension, right? He’s got $117,000 military pension.

Al: I can afford to take some risk.

Joe: You can afford to take on as much risk as you want because that $117,000 military pension is like your bond allocation.

It’s your fixed income. It’s your safe money, right? so if you wanna take on more risk with your liquid assets, totally fine. and I like the allocation. I would probably maybe put more dollars in small and international than the 80/10/10 split that he has or whatever that is. Yep. but yeah, I’m, I’m totally good with the risk. What about you?

Al: I think he’s, you said the key, which is the fact that he’s got the military pension, 117K. He’s got another pension of 24,000 when he retires. We don’t know what he’s spending, so that would be helpful to know. But assuming that he’s got his expenses mostly covered, right? With, Or maybe even completely covered with the pensions, then yeah, I would be happy taking risk.

Here’s what you need to think about. There’s no, real standard, allocation. It’s very individual. If you need your portfolio for income, you don’t want it 100% in the stock because if the market crashes, then you gotta pull it out of stocks which are already down, which will make it even that much harder to recover.

That’s why you wanna have some safety. And a lot of times we’ll say, “What do you need per year? Is it 100,000 a year, 50,000 a year?” Multi- multiply that by five years or even 10 years if you’re really conservative. You need $50,000 a year. You’re conservative, 10 years, 500,000. So make sure you got safe money, bonds for 500,000.

I think that’s how I would look at it more. assuming that there’s plenty of money from the pensions to, to pay for the expenses, y- you can do whatever you want. it… You can– You don’t have to take the risk, but you can if you want, particularly if you want this to go to kids or grandkids or whatever.

Joe: Yeah. No, I think you said that well, is w- what Aang and Katra need to do- … is, right? You gotta do a little bit of planning to figure out, all right, here’s… I got $120,000 or $150,000 pension. what is my annual spend? Is it $200,000? So I need $50,000 from the portfolio, and I need 50,000 from the portfolio in 10 years.

I got a half a million dollars today. Maybe in 10 years from now, that half a million dollars is 1.5 million if I’m saving X amount of dollars into the TSP. Or maybe that 500,000 over 10 years, if I don’t save anything, is worth a million dollars. So if I need $50,000 from the portfolio, then at that point, I would want half in stocks, half in bonds to cover that extra income needed from that pension.

When would I wanna start reallocating my portfolio from 100% stock to that 50/50 split? I think you’d look at it probably three to five years from retirement. You don’t wanna do it, like, the day before because if the market is down, your 50/50 split is a lot less than what you wanted it to be, so you wanna be thoughtful. There is no magic timeframe. I think sometimes you hear, like, the retirement red zone- I think we did a TV show on that, like five years-

Al: We did, yeah

Joe: … before retirement, five years after retirement. I don’t know. There’s all sorts of different marketing, cliches out there. But the- his pension is so giant that, to be honest with you, it’s if you can’t… He’s not gonna have a huge demand for the portfolio it seems like. Like, all of us will probably have a lot larger draw, right? Because most of the income that we’re going to live off of in retirement is from the portfolio, not $150,000 pension. Most of us don’t have pensions, right? Mm-hmm. So it’s gonna be our portfolio and some Social Security, and that’s it. And so if I’m living off of my portfolio and a little bit of Social Security, then my strategy’s gonna look a lot different than someone that has that giant of a pension, which is great, and he deserves it. Served his country, and God bless him. Yeah. God bless America.

Al: I, 100%. I’m with you.

Andi: Thank you, Aang and Katara.

Joe: Aang and… All right.

Al: Okay.

Andi: Before the fellas said a word about how much risk Aang and Katara should take, they wanted to know one thing: how much do you actually need from the portfolio once fixed income is coming in? You can’t decide the right allocation, how aggressive to invest, and when to start dialing back, until you know your spend at the very least. And that’s the piece that most people skip. They guess at their stock and bond mix without ever pinning down what the money has to do for them. This is where it helps to have someone run your actual plan. The experienced professionals on Joe and Big Al’s team at Pure Financial Advisors will give you much more than a spitball when you schedule a free financial assessment. They’ll look at your whole picture: your income sources, your timeline, how much risk your situation can really handle, and whether the money is set up to last. It’s a no cost, no obligation, clear look at where you stand. Click the free assessment link in the episode description or call (888) 994-6257 and book your meeting at one of our offices around the country, or right from home. If you aren’t sure if you’re taking too much risk or not enough with all that money you’ve been diligently saving for retirement, schedule your free financial assessment now.

Mandatory Retirement at 56, But Can I Punch at 50? (Steph & Ayesha, SF Bay Area)

Joe: Yeah. Let’s go with, Steph and-

Andi: Ayesha.

Joe: Ayesha?

Andi: You know, as in Steph Curry and Ayesha Curry.

Joe: Oh.

Al: Oh, okay.

Joe: Oh.

Al: Oh, very cool.

Joe: Okay. I didn’t know Steph’s, wife’s name.

Al: I didn’t either.

Andi: Yeah, ’cause she’s a famous chef apparently, so-

Al: Oh, okay surprise.

Joe: I do like Steph Curry

Al: I do too. He’s, amazing player.

Joe: He is. all right. San Francisco Bay Area. “Hey, y’all. Just found your podcast recently and have been really enjoying it. You sort of remind me of a financial version of the old Car Talk show on NPR.”

Al: how about that? That’s a-

Andi: That’s a compliment.

That show ran from 1977 to 2012 …

Al: that, I would

Andi: say- You guys are on track for that, I think …

Al: that, I would say that’s the highest praise we could get, to be compared to Car Talk.

Joe: All

Al: but then, but not fully, sort of.

Joe: Sort of. anyway, “I’d love to get a retirement spitball from you. My situation’s a little different because I have a mandatory retirement at 56, but I’m eligible at 50.”

Mandatory retirement at 56. what do you think Steph does for a living?

Al: let’s see. We can-

Joe: Pilot? We- What pilot? 60 years old?

Al: he’s got a TSP.

Joe: All right, so border patrol? M-

Al: yeah, maybe some kinda law enforcement-related.

Joe: Yeah, law enforcement?

Al: Yeah.

Joe: FBI?

Al: Yeah. maybe. He’s- I don’t know …

Joe: risking his life every…

I- I’m sure it’s something pretty dangerous.

Al: Yeah, probably. ”

Joe: To have a mandatory retirement at 56.”

Al: That’s pretty young.

Joe: Yeah.

Al: Yeah, that’s… You’re coming up on that.

Joe: Yeah.

Al: Sort- sort of.

Joe: Yes, I’m gonna have my own mandatory retirement- … at 56. but, “I’m eligible at 50.” Yeah. “So I have a shorter runway than most people, and I can’t just work a few more years or save more. So can I go at 50? Will my wife kill me if I retire seven years before she does?”

Al: We, can’t answer that question.

That’s-

Andi: The next one is, “Is it worth it?” Yeah, indeed. Is it worth it to die so that you retire early? That’s up to you, Steph.

Al: Yeah, that’s, that’s… we don’t… That… We can’t answer that one.

Joe: No. “Should I or do I need to wait until I’m closer to 56? Here’s the details.” Yeah. Important stuff. Me, 42 years of age.

Her, just turned 40. Got three kids, 6, 4, and 10 months.

Al: Wow. Okay.

Joe: All right. 6, 4, and 10 months.

Al: So he wants to retire in 8 years. Okay.

Joe: Cat name, Steven. Drinks, me, risky- whiskey on the rocks. Okay. Beer, or pretty much anything you hand me, and keep ’em coming.

Al: Okay.

Joe: Her- … wine, beer, fancy mixed drinks, and keep them coming.

Al: Okay.

Joe: Love these guys.

Al: They would be fun, wouldn’t they?

Joe: Just keep ’em coming. cars, me, just replaced my old Mazda CX-5 with a shiny new 2025 Kia Carnival hybrid minivan due to the expanding family.

This guy’s an FBI informant, and he drives a- hybrid minivan. He’s got a mandatory retirement- It, no,

Al: no, it’s, part of the disguise.

Joe: Got it. Yeah, it’s a really good one.

Al: It is.

Joe: he’s… If you have a mandatory retirement at that young of age, it’s gotta be… What, Andi, are you doing some, research here?

Andi: We did this once before, and yes, you came up with pilot and there was a couple of other ones, but yeah, I don’t know that there’s anything else that we’re gonna come up with.

Joe: You, oh, you think he carries a firearm? I think the answer is yeah.

Al: I think yes. Yep.

Joe: Or a hose.

Al: A ho- yeah, I suppose. I’m gonna say firearm then.

Joe: All right. Her, what does she drive?

Andi: Military pilots, air traffic controllers, foreign service employees at the Department of State, federal law enforcement officers, national park rangers.

He might be an air traffic controller or a park ranger.

Joe: Air traffic controller. My uncle was a air traffic controller.

Al: Really?

Joe: He was.

Al: That would be so hard. that’d be the most stressful job.

Joe: He got, And then remember the strike?

I, that was-

Al: And, Reagan fired everybody? I, Oh, gee. did he get fired?

Joe: yeah. No, then he, he wasn’t an aircraft, air traffic controller when I-

Al: Oh, it was after …

Joe: it was, yes.

Al: Oh, because all the, all of them got fired.

Joe: Because of all the, yeah, laid off and fired and whatever.

Al: Yeah. you were… Y- yeah, you, you-

Joe: I don’t even know if I was born yet.

Al: Yeah, you probably were, but-

Andi: And who, knows how correct, Wikipedia is, but they actually say that the mandatory retirement age for air traffic controllers is 56.

Al: That could, so could be.

Joe: Okay. Interesting.

Al: All right.

Joe: All right. that’s our guess.

Al: So n- no firearm or hose.

Joe: I guarantee he’s… Yes, guarantee he has a firearm. What… I don’t know if the Carnival hybrid minivan-

Al: That’s a-

Joe: He loves the drinks. Keep ’em coming.

Al: Yeah,

Joe: He’s got a stressful job.

Al: He’s very s- it could be air traffic controller.

Joe: Oh. All right. Let’s go. “What does the wife drive? 2008 Camry, but possible, or possibly i- a, Rivian.” Ooh, R2- Okay … when they come out.

Al: Nice.

Joe: Is that an electric truck or something?

Andi: It’s one of these.

Al: That is fancy.

Joe: Oh, yeah. They-

Andi: And the interesting thing is the Kia Carnival looks very similar.

Al: Oh.

Joe: What, the Carnival minivan looks like a Rivian?

Andi: see how it’s got that flat… It’s long and it’s got the flat top and kind of the Rivian does the same thing.

Al: They just don’t call it a minivan.

Joe: Yeah, the minivan is, I guess it’s- … the new version. It’s pretty cool.

Al: The new ver- Yeah,

Joe: Okay. So we’ll see. “However, my four-year-old son wants to buy a Corvette, a Mustang, or a Camaro, or Tesla or whatever his favorite car of the day is.” Maybe someday, Junior. You know what my son’s favorite car is?

Al: I don’t know.

Joe: Bugatti.

Al: Bugatti?

Joe: Bugatti or a- Ha- … Ferrari.

Andi: Where’d he get that?

Joe: I don’t know where he knows these fancy car names.

Al: Oh, it’s the neighborhood you live in.

Joe: N- s- no. I don’t see any of them. I do not see any of those. Got it.

It’s like a… I don’t know. It’s a YouTube show he watches or something.

Al: Something.

Joe: Fast. He wants fast.

Al: He wants fast.

Andi: How old is your son? Yeah.

Joe: He turns five in a couple weeks.

Al: Oh, so he’s-

Andi: Wow, and he’s watching YouTube shows.

Al: So, so he’s currently four, just like Steph.

Joe: That’s the babysitter, Andi. Yep. Babysitter’s the YouTube.

Andi: Got it, got it.

Joe: Okay. Very simple.

Andi: Yeah.

Al: I got it. Okay.

Andi: And that’s where he’s learning about Bugattis and Ferraris.

Joe: I have no idea. I guess,

Al: I guess that’s a plausible story.

Joe: Yeah. He, gets the device. He can only t- see the device on the weekend. It’s usually only Saturday, and it’s a very limited time.

Al: Oh, really?

Andi: Okay. He’s going straight for the most expensive cars he can find.

Joe: He… I- I don’t know. Yeah. He goes through the Hot Wheels. He looks up Hot Wheels, and- yeah … there you go.

Al: Okay.

Joe: retirement savings, $1.5 million. Here’s the breakdown. My TSP is $600,000, 500 traditional, $100,000 Roth. Her 403(b) is 300,000.

The brokerage account is 400,000. The IRA is 135. 529 plans, 45, 25, 3500. Crypto, let’s call it 50 grand, depending on the day. He’s got $75,000 in cash. Future pensions, me 100 grand, her 60 if she stays till 55. Social Security $100,000 combined if taking at 67, I think. Income, me 250 plus, depending on how much overtime I work.

325 this year. Yeah, a lot of OT.

Al: Yeah, air traffic controller.

Joe: Her, 200,000. Airbnb rental property, zero to 15 a year.

Al: Oh, boy. Here we go. Keeps going.

Joe: Yeah, man. So savings, they save $110,000 a year. They got a mortgage of 700,000 at 2.5%. The rental is 280,000 at 3.5%. All right. Ooh, but cost basis is 310 after a cost seg.

Andi: What’s that?

Al: Yeah, we haven’t talked about that in a while.

Joe: Cost seg. Why is he doing a cost seg on a $280,000 property?

Al: That’s a good question. that’s the mortgage. the, the-

Joe: Oh, yeah … three- The value’s 470.

Al: yeah.

Joe: Still don’t get that, that-

Al: Well-

Joe: The cost basis is three…

Al: the- the land- Yeah

the land. It, there’s a land piece, whatever that is.

Joe: A lot of fixtures in there.

Al: Yeah, a lot- A lot of fixtures. Fixtures. Yeah, We’ll explain the cost seg in a minute, so.

Joe: Oh, okay.

Al: I think you’re right. Oh, man, the window coverings. You wouldn’t believe it.

Joe: He’s got, he’s got 47 windows in that rental.

Al: Oh my gosh.

They’re all gold-plated, too. Yeah.

Joe: okay. Let’s see. Current spend, roughly $16,000 a month, includes $4000 a month in childcare, which will drop to under 2000 once baby girl is in kindergarten, and eventually to zero, I hope. Okay. Retirement spending is, here’s the WAG, 15 to $20,000 a month. Here’s our questions.

All right, retirement eligible at 50 but forced at 56. Can I go at 50 or 52 with three kids about to enter college? Stopped Roth TSP contributions last year due to the tax bracket. Is that a good move? Never thought much about Roth conversions till your show, but now thinking about Roth conversions between retirement in 73. Am I over-saving? Can I loosen up a bit? This is just like a stream of consciousness.

Al: It is. It is, yeah.

Joe: He’s writing.

Al: He woke up in the middle of the night and just-

Joe: Man, am I saving too much? Can I loosen up a bit? Yeah. Can I retire at 50? Man, I hate my job. Can I get a cocktail?

Andi: And keep them coming.

Joe: And keep them coming. Just keep them coming until I find the answer. Then I’m gonna buy the Rivian. I don’t know. Then the kid’s got a Camaro and a Porsche and so many other-

Andi: A better Tesla.

Joe: Oh, man. Okay. Until very recently, I didn’t appreciate our pensions or Social Security, but now I’m seeing how huge of advantage a pension is.

Brother, you got a $100,000 pension. That’s giant.

Al: It’s, it is

Joe: giant. it’s almost unheard of, especially at age 50, if he’s eligible for a $100,000 pension- at 50.

Al: He doesn’t say when he gets it, though, so I don’t really know whether it’s at

Joe: 50. He gets- that’s eligibility of retirement is when he can claim-

Al: Yeah

his pension.

yeah.

Joe: “I appreciate our pensions or Social Security, but now I’m seeing how huge of advantage a pension is. Online calculators tell me I might be saving more than I need to. We want to be able to live it up in retirement, especially the first 15 to 20 years, without worrying about money.

After that, I expect we pull back on spending a bit, but I’m a big kiteboarder and skier.” Kiteboarder, wow. Yeah. That’s fancy.

Al: Yeah, that’s nice. You ever try that?

Joe: no.

Al: Do you know what it is?

Joe: Yeah, I think that’s like you’re on a kite-

Al: Yeah, you’re

Joe: s-

Al: you’re surfing, but the kite’s propelling you.

Joe: Yes.

Al: It’s fun to watch.

Joe: Yeah.

Al: We see that in Hawaii a lot.

Joe: Looks a little dangerous.

Al: It- yeah,

Joe: And a skier.

Al: Yeah.

Joe: He’s definitely carrying a firearm. “We would love to travel more to beautiful destinations for those activities and take a nice family vacations. We also currently don’t have enough bedrooms for our littler…” hold on.

we also currently don’t have enough bedrooms for our litter of kids, and would love to build another floor and add two bedrooms sometime in the relatively near future. But living in the San Francisco Bay Area, the cost are outrageous, and would probably easily run upwards to $500,000. Should I use a brokerage account to fund this project, or should I borrow the money, or use a combo of two, of both of them?

Or just make them get bunk beds and share a room until college- … and tell them to suck it up?” I shared a room with my brother-

Andi: I think it depends on if they’re boys or girls

Al: … a couple… Yeah. I used to share a room with two brothers.

Joe: See?

Al: Yeah, it’s, can be done.

Joe: Yeah, it can be done. Yeah, I shared a room with my brother until he went to the military.

Al: Got it. Okay.

I shared a room till I was in junior high, and then we had a, we, bought a new three-bedroom home, and they had this wet bar, and the wet bar was just big enough to fit a bed, and that became my room. Open the door, and there’s the bed. But I had my own room.

Joe: Got it.

Al: It’s, why I’m 5’10”, because the bed was 5’10”.

Joe: let’s see. “I opened up a separate brokerage account last year to save towards this goal. It’s currently at $50,000, but co- could pull that money f- from the others if needed, including in the aforementioned numbers. Anything else I should be considering? Thanks for considering my question. I did forget about the FERS supplement I will get from retirement until age 62.

Looks like we’ll get roughly another $45,000 a year if I retire at 52.” all right, what does he wanna spend?

Al: He wants to spend, well- 240 … 15 to 20,000. So I, just said 20,000, y- let’s go with the high number. That’s 240.

Joe: 240. 240. And then he’ll have 160 in pensions.

Al: Yeah, so let’s do a little math here.

Joe: All righty.

Al: Okay, so retire at, I said 52, ’cause he said at 50 or 52. I just picked 52.

Joe: Okay, I like 52.

Al: 10 years,

Joe: You can supplement at 45, so that’s- That’s right … 150 plus her pension.

Al: Yep, that’s right. she f- she may still be working.

Joe: She’s gonna work until 62?

Al: He’s… No, she’s gonna work till her pension, like 50… Let me see here.

Joe: 55.

Al: 55, yeah, so she’ll work a little bit longer. Anyway, here’s what I got, and then you can, go from there.

Joe: Okay.

Al: All right, 1.5 million right now.

10 years from now, 6% rate of return, saving about 100,000, four million. So we’ll go with even four million is what they have. spending is 240,000 today, 3% inflation, 10 years, that’s 323,000.

Joe: Okay.

Al: Okay, so here’s how, here’s the math. We start with the spend, 323,000, and then we subtract out fixed income. So I subtracted out the FERS of 45,000. I subtracted out her salary, assuming that she’s still working. That’s 200. But she’s gotta pay tax on that and, the pensions, 75. I assume his pension wouldn’t kick in until 56, but you may be right. But let’s go with my first assumption. And so the shortfall, spend minus the FERS pension minus wife’s salary minus taxes on her salary, shortfall is about 150,000. It’s a 3.8% distribution rate. That’s probably fine given that, that’s not even including his pension. So, yeah, I think that,that likely could work is what I’m coming up with.

Joe: Is 240,000 in today’s dollars?

Al: Yep.

Joe: Got it.

Al: Yeah, 323 in 10-year dollars. Call it 325.

Joe: Oh, okay. Let’s see. You think it’ll work, huh?

Al: Yeah, I do.

Joe: All right. If, yeah, you’re probably right. What do you think the pen- what do you think the COLA is on the pension?

Al: Great question. I don’t know. And if his, if it-

Joe: Is that 100,000 in today’s dollars, or is that 100,000 in future dollars?

Al: Great question. Probably it’s in today’s, so I’m probably being overly conservative, right?  But I’ve gotta start somewhere.

Joe: Yeah. No, I agree.

Al: Yeah.

Joe: 240,000. Let’s see. Let me see if I can-

Al: See, if you, see what your math says.

Joe: I got $433,000 spend at 67.

Al: Okay.

Joe: And then-

Al: Oh, you’re going, okay. You’re-

Joe: They’re gonna have $300,000 of fixed income at that point.

Al: Yep.

Joe: So 133 at 67.04. They need 3 million at 67.

Al: Yeah, and as long as they don’t go through, I think about four. Now they wanna spend half a million on home improvement. So I mean, there’s some things here that make it a little tricky.

Joe: Yeah, 52 is a stretch. I wouldn’t, let’s see. What would-

Al: Me, personally, I’d probably go to 56, but, I think it could work potentially, even at that spending level.

Joe: Yeah, I mean, that spending number’s a little high.

Al: It is.

Joe: They’re gonna have plenty of pensions and fixed income.

Al: I know. If they blow through all their liquid assets-

Joe: Yeah … they’re still gonna live pretty high.

Al: and he said spend 15 to 20. I ran it at 20,000 a month. So what if it’s 15? Then that, this looks probably just fine.

Joe: Yeah.

Al: So I think the answer is there’s a lot of ways to look at this, and I think there’s, they’re probably fine. Again, 10 years from now a lot of things change, especially when you have a 10-month-old. So you may not even wanna retire then. you may want-

Joe: But he has to.

Al: he has to retire at 56. I-

Joe: Oh, yeah,

Al: yeah.

So he could work another four years.

Joe: They got $160,000 of fixed income pensions.

Al: Yep.

Joe: That’s the equivalent to four or five million bucks.

Al: Yeah. Yeah, four million at 4%.

Joe: Yeah, four million. It’s like- Yeah … I would need $4 million saved-

to generate $160,000- Yeah … of income- No … that I’m not gonna outlive.

Al: Yeah, so for, people that have pensions, it’s valuable.

Joe: Just add another $4 million to your net worth.

Al: Yeah. You can look at it that way. Yep.

Joe: what do, what, do you think? Does he build on another story on his house for 500 grand?

Al: with all those kids and they make good money, yeah, why not? I would pro- I would borrow a- and then try to aggressively pay it off. I wouldn’t use my cash all at once.

Joe: I would not use the cash either.

So yeah, I think I would take a home equity line.

Al: me too.

Joe: Yeah. I wonder if he’s- Okay. What else is he on then?

Al: But the kids, the kids are, s- How old are the kids?

Joe: They’re my kids’ age.

Al: yeah, right now they don’t even know the difference, so you probably g- probably got a couple, three years before they even care.

Joe: Six, four, and 10 months.

Al: Yeah. Maybe when the six-year-old gets to more like nine- 10 … or 10, might really say, “Dad, I really kinda want that room now.”

Joe/Al: Yeah. Yeah.

Al: I’ll give up the Mustang and Camaro if I get a room.

Joe: Yeah, guaranteed. No way. No way.

Andi: So what is cost seg?

Joe: Cost segregation study is where you can accelerate depreciation on a rental property.

Al: That’s the quick answer, and the, way it works is when you buy a rental property, typically your accountant says, “All right, this much is land and this much is building.” The building part you get to write off over 27 and a half years if it’s a residential rental. So that’s pretty good. Y- So it’s, kinda like this expense, this phantom expense that reduces your income.

Now, cost seg study says, “You know what? You bought more than land and building. You bought some fixtures, window coverings,” that’s why we brought that up, light fixtures, carpet, w- you- stoves, things like that. That, has, like, a five or seven-year depreciation life. So if you can pull that piece out, you get faster depreciation.

So a cost segregation study, you can’t just do it on your own. You have to hire a company that knows what they’re doing, and it can cost several thousand dollars, so it’s not cheap. But it can make a big difference in the tax deduction. And Joe, while you were saying, “Wonder why he would do a cost seg on a $400,000 property?”

That’s a good question- ’cause th- the cost of it may not have justified the deduction.

Joe: And they can’t… They make too much income.

Al: Yeah, to, to even-

Joe: To even- …

Al: take any-

Joe: To, take any of the annual depreciation …

Al: any anyway. Yeah, because of the passive loss rule. So yeah, so they, they would’ve taken it all and not deducted it.

Joe: so it’s just sitting on the return.

Al: Yeah, if they did it right.

Joe: It… I guess they can use it when they sell.

Al: Of course, but you can do that anyway.

Joe: Yeah, I know.

Al: Yeah.

Joe: You wouldn’t – there’s no reason to accelerate depreciation unless-

Al: If you can’t deduct …

Joe: if you can’t deduct it.

Al: Now, unless they’re maybe-

Joe: Or maybe a real estate professional?

Al: with one rental. That gets a little tricky.

Joe: Yeah. no, she’s got a 403(b) and a pension, so she’s done the real estate investment.

Al: No, she’s working. She… Yeah, she’s got a full-time job.

Joe: Yeah.

Al: Yeah. No, that… That is true.

Joe: So I wonder when he did the cost seg. And who gave him the advice to do the cost seg?

Al: Yeah, that’s a great question. Maybe it sounded great, and maybe he never knew he got to, didn’t get to deduct it.

Joe: Guaranteed he deducted.

Al: One way or another.

Joe: Got it. he’s probably like, “Huh, wonder, wonder what they’re talking about.” Interesting.

Al: Yep, yep, Anyway, I think it looks pretty good.

Joe: Yep. All right. Yeah, some questions there for Steph.

Al: Yeah.

Outro: Next Week on the YMYW Podcast

Andi: Next week on YMYW, is borrowing to invest a smart way to put other people’s money to work, or a fast way to blow up your portfolio? That margin loan question from a few weeks back stirred the pot, so Joe and Big Al dive back into the great margin debate for Jack and Jill and YouTube commenters Bones and Tom. Forest and Jenni wonder what the fellas think of Michael Kitces and Wade Pfau’s reverse glide path, where you get more conservative right at retirement, then dial risk back up. Plus, how should Jack and Diane bridge the gap when they’re selling a home and moving across the country? Join us, won’t you please?

Your Money, Your Wealth® is your podcast, and this show would not be a show without you. Watch on Apple Podcasts, YouTube, or Spotify, or listen in your favorite podcast app, but wherever you catch YMYW, make sure you’re subscribed or following. And tell a friend that we’re making fun of finance over here on Your Money, Your Wealth®.

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

_______

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