Jonathan Clements
ABOUT Jonathan

Jonathan Clements is the founder of HumbleDollar.com and author of nine personal finance books, including his latest, From Here to Financial Happiness: Enrich Your Life in Just 77 Days. Born in England and educated at Cambridge University, Jonathan spent almost two decades at The Wall Street Journal in New York, where he was the newspaper’s [...]


Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 15 out of 100 top ETF Power Users by RIA channel (2023), was [...]

Alan Clopine

Alan Clopine is the Executive Chairman of Pure Financial Advisors, LLC (Pure). He has been an executive leader of the Company for over a decade, including CFO, CEO, and Chairman. Alan joined the firm in 2008, about one year after it was established. In his tenure at Pure, the firm has grown from approximately $50 [...]

Published On
September 11, 2018
Jonathan ClementsJonathan Clements

Jonathan Clements on how to stop spending money the wrong way and enrich our financial lives in just 77 days with his new book, From Here to Financial Happiness. Plus, 3 things you need to do now if you want to retire in 5 years, and answers to the questions: why are there required minimum distributions on employer-sponsored Roth accounts, and can Elizabeth’s husband contribute to his defined benefit pension plan and his company 401(k)?

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Show Notes

  • (01:30) Jonathan Clements: How to Reach Financial Happiness in 77 Days (part 1)
  • (11:21) Jonathan Clements: How to Reach Financial Happiness in 77 Days (part 2)
  • (21:56) Big Al’s List – 3 Things to Handle Now if You Want to Retire in 5 Years
  • (29:22) RMDs: Why Are Retirees Forced to Draw Down Employer-Sponsored Roth Accounts?
  • (37:31) Can My Husband Contribute to His Defined Benefit Plan Pension and His Company 401(k)?


Fans of the Your Money, Your Wealth TV show, the day you’ve been waiting for is finally here: season 5 has begun! Watch the first episode of the season, How the New Tax Law Will Affect Your Retirement, at YourMoneyYourWealth.com Be sure to subscribe, new episodes post every Sunday!

“How happy would you say you are? Would you say you’re very happy, pretty happy, or not so happy? Back in 1972, 30% of Americans described themselves as very happy. In 2016, exactly the same percentage described themselves as very happy. Over the intervening 44 year period, our standard of living more than doubled. We have twice as much money today as we did 40 years ago, and yet we report no greater level of happiness. And it’s not that money can’t buy happiness, it’s just that we often spend it wrong.” – Jonathan Clements, author, From Here to Financial Happiness: Enrich Your Life in Just 77 Days

That is the inimitable Jonathan Clements of HumbleDollar.com, and today on Your Money, Your Wealth®, Jonathan is going to help us stop spending money the wrong way and show us how to enrich our financial lives in just 77 days with his new book, From Here to Financial Happiness. Plus, Big Al has 3 things you need to do now if you want to retire in 5 years, and, Joe and Al answer your questions: why are there required minimum distributions on employer-sponsored Roth accounts, and can Elizabeth’s husband contribute to his defined benefit pension plan and his company 401(k)? But first, let’s see if I can help Joe pronounce our esteemed guest’s name correctly. I’m doubtful. Here are Joe Anderson CFP® and Big Al Clopine, CPA.

01:30 – Jonathan Clements: How to Reach Financial Happiness in 77 Days (part 1)

JA: We’ve got our good friend Jonathan CleMENTS on again. What, why are you laughing, Andi?

AL: CLEments.

JA: Well, it’s my Minnesota accent. (laughs) Clements.

AL: (laughs) Jonathan Clements.

JA: Everyone knows who Jonathan is, no one knows who the hell I am so it doesn’t matter anyway. People are just listening to this program to listen to Jonathan. Jonathan has been on the show once before. He’s the founder of HumbleDollar.com and the author of nine personal finance books, including his latest which we’re going to talk about, From Here to Financial Happiness: Enrich Your Life in Just 77 Days. He was born in England, educated at Cambridge University. Jonathan spent almost two decades at The Wall Street Journal in New York, where he was the newspaper’s personal finance columnist. He also worked six years at Citigroup as the Director of Financial Education for the U.S. wealth management business. He’s got a brand new book coming out. I’m really excited to talk to him about it, without further ado, Jonathan welcome back to the program.

JC: Hey, thanks for having me on Joe.

JA: So here’s an interesting title which I love, From Here to Financial Happiness: Enrich Your Life in Just 77 Days.

JC: And so you say, well how am I going to get you from here to financial happiness in 77 days? The book really grew out of two issues that I feel very strongly about. One is that it’s not enough just to know what to do with your money. You really need to find some way to get yourself to actually do it. Behavior change is a huge issue. I think even more important than educating yourself about money. And second, and I’m sure this from your own work, that there’s far too much emphasis on people’s portfolios and not nearly enough in their broader financial life. And for people to make smart financial decisions, they need to look beyond the stocks and bonds and mutual funds that they own and think about what it is they really want from their money. What do they want to achieve with their financial life? What does it mean not just for the investments they own, but also for their debts, for the insurance they have, for their estate plan? What’s their house? What sort of financial ambitions do they have for their kids and sending them to college? It covers a whole slew of topics beyond just that portfolio mix

JA: Really good points here. I think the biggest is, I kind of always equate this to the diet industry. There’s always a new diet or there’s an exercise book or an exercise video or whatever. But it’s still a big problem. People say, “hey, I want to lose weight.” It’s fairly easy to do in a sense – it’s just eat right, exercise, and get some sleep. But it’s a lot easier said than done. And I think financially we’re exactly the same. “OK, I need to save a little bit more money, I need to control my debt and my spending,” but still look at the mess that we’re in financially. So what are some of the steps that you’re helping us with? How do I take action? How do I get off the couch? How do I dig that jog or start organizing my financial life?

JC: Well before I answer that, Joe, let’s just dial back a minute. I just want to address what you just said. If simply knowing what to do was enough, I would be out of business. Nobody would be reading my stuff. Nobody would be buying my books. And you would be out of business because nobody would need a financial planner. They could go on the Internet, they could read a couple articles and they’d be away. The fact is, we all need to be pushed in order to behave better. And there are a whole host of ways that we could push ourselves to behave better. One is to hire somebody to help us. There’s nothing like public scrutiny to make us act. If I tell myself, “I’m going to go to the gym in the morning,” it’s so easy to roll over and go back to sleep. But if I tell my wife I’m going to go to the gym in the morning, I gotta go or I’m going to get a whole bunch of grief. So what I try to do with the book is, first of all, get people to visualize what sort of financial future they want. It’s so easy to look after our current selves, and so hard to take care of our future selves. Our current selves are sitting right there. They’re like the needy, crying baby. They get pretty much everything they want. It’s our poor future self who we’re forever short-changing. So somehow we have to make our future self seem more important – and one way we can do that is to start to describe the better life that we want in greater detail. And if we do that, if we really say something beyond just, “Oh yeah, I want the kids to go to college,” or, “oh yes, someday I want to buy a house and someday I want to retire,” if you start to think specifically about what sort of house you want in what neighborhood with what features. If you think about what I’m going to do when I retire, how am I going to spend those days, you start to bring those financial dreams alive. Suddenly you will be much more motivated to act.

JA: So we have 77 days. I got the book, I’m ready to go. What do I do that first week or that first day? Do I start just visualizing a little bit more of what I want? Is that kind of the first steps here, and then get very detailed in some of the goals that I’m trying to accomplish?

JC: Well actually, on day two, what I say to readers is, “OK, imagine that money was not an issue. What would you change about your life? Would you quit your job? Would you change careers? Would you move to another part of the country? Just assume that money wasn’t an obstacle. What sort of financial life would you like? As I clearly state in the book, I’m not promising you that I’m going to be able to make all your financial dreams come true. But unless you know what your financial dreams are, there’s no way they’re ever going to happen. The reality is we all spend money on stuff that brings us very little happiness. In fact, one of the questions I ask people is “how happy would you say you are? Would you say you’re very happy, pretty happy, or not so happy? That question has actually been asked of the American public every other year since 1972, and the results are startling: over that 44 year period, America’s reported level of happiness has not budged. Back in 1972, 30% of Americans describe themselves as very happy. In 2016 when the latest survey was done, 30% of Americans – exactly the same percentage – described themselves as very happy. Over the intervening 44 year period, our standard of living more than doubled. We have twice as much money today as we did 40 years ago, and yet we report no greater level of happiness. And it’s not that money can’t buy happiness, it’s just that we often spend it wrong. So we need to think really hard about what’s the right way to spend our money so we get maximum happiness out of it?

JA: That’s a great point because I’m sure you’ve seen the same studies of what level of wealth will make someone happy. And some people will think it’s millions and millions of dollars. But it’s actually astonishing, a fairly low number. It’s not millions. It’s not, “I need 50 million dollars to make me happy.” I need maybe an $80,000 job lifestyle, and anything more than that, yes, I’d get a little incremental happiness, but it’s not the huge leaps that I thought – I’m in the money business, I guess, so I always thought you need a lot of money to be happy. But as I get older, and I’ve been doing this now for 20 years, I find out that what is truly important to you is what’s going to make you happy. You’re absolutely right, people spend money on the wrong things.

JC: So you actually you have the number absolutely right. There’s a study from about 10 years ago now that said that day to day happiness caps out at about $75,000 a year in the U.S. It’s probably a little bit higher now because of inflation. But interestingly, there was a recent study that replicated the finding in the U.S. and looked at developed countries around the world, and they found exactly same result – happiness on a day to day level caps out at about $75,000 a year. It doesn’t mean that more money would necessarily make you feel happier. But when we think about feeling happier because we are rich, or because we have a very high income, it only happens when we sit back and think about our position in society. So you could have a multimillionaire who is miserable day-to-day, but if you say, “are you happy?” That person will sit back and think, “hey, I’ve got more money than all of my neighbors. Yeah, of course I’m happy.” But he may not really be.

JA: (laughs) Probably not. So how do you make me happy Jonathan?

JC: So what you need to do is you really need to think hard about how you spend your money and the way you do that is not to act impulsively. You need to sit down and write down what you want to spend your money on, and then put it aside and think about it. One of the steps I encourage people to take in the book is to create a wish list of major expenditures that you want to make in the years ahead. It might be some great vacation, it might be a new car, it might be a vacation cottage, might be a kitchen remodeling. You draw up that list, you put it on the refrigerator, you come back in a month, and you look at the list you say, “Yeah, I don’t need that one. Oh yeah, that I really like the idea of.” And if you do that, if you draw up a wishlist, you put it aside, you come back to it regularly, what you start to do is have a better sense of what you really want to do with your money. And it has a sort of additional minor benefit, which is in many cases when we spend money, the best part is spending money is the anticipation ahead of the purchase. So if you create a wish list and you imagine, “OK, yup, I want to take a trip to South America. Yup, I want a kitchen remodeling. Yup, I want a second home.” And you think about those things for a couple of months, even if they never come true, the very fact that you spent a couple months thinking about them will make your life happier. The anticipation is huge.

Pardon the interruption, just a reminder: if you’d like to read a transcript of this interview or listen to Jonathan Clements’ previous appearance on Your Money, Your Wealth®, where he divulged the secrets to defeating the ingrained instincts that lead us to financial failure, just visit the show notes for this episode at YourMoneyYourWealth.com. You’ll find all the links you need right there in the show notes.

11:21 – Jonathan Clements: How to Reach Financial Happiness in 77 Days (part 2)

JA: I used to do a segment of “my stupid purchases” and I’m a king at impulse stupid purchases. And one of the best ones I think – but you know what, now it’s making me happy, Jonathan. I bought a replica Darth Vader mask, and I think I spent several hundred dollars on this stupid thing. But it is pretty cool. It’s in my living room, and I look at that daily when I leave. And I say, you know what? I guess even though that was probably a pretty stupid purchase, but I’m pretty happy about it now. But I could go on and on about other stupid purchases that I just kick myself in the rear. But I think if you anticipate something, even though you never purchase it, you start thinking about it, you’re right. I think that it’s crazy that that happens. The human mind is absolutely off-kilter when it comes to money.

JA: So let’s say you’re starting to think about 2019 and what you’re going to do next summer. You should start planning those vacations now, thinking about all the different places you might go to, see the National Parks, travel across the country, go abroad, whatever it is. Imagine all those different vacations you could take. You get to enjoy every one of them in your mind. You’ll only ever take one of them in the end. But the fact that you spent time thinking about it is going to make you happier. You could go on wonderful vacations in your mind. It’s a great way to spend time at the office when you’re bored. Just think about all the vacations you’re going to go on.

JA: (laughs) So now we start the dreamscape. I’m writing my wish list, I got it on the fridge. I’m thinking about my vacations, I’m thinking about my new…

AL: Darth Vader masks. (laughs)

JA: Yes maybe a Yoda outfit. (laughs) So I’m thinking about all of this. Now, what are the next steps for me to even to try to accomplish some of this? Instead of thinking about it now, what are some other concrete steps that I can take into action?

JC: So once you decide what it is you really want to do with your money, then you have to figure out how you’re going to get there. And there are going to be specific steps that you’re going to need to take. And so if you can write down those specific steps that say, “I’m going to save $300 every month towards my child’s college education.” “I’m going to try and buy a home within the next two years.” “I’m going to put enough in my 401(k) plan every pay period to at least get the company match.” You write down those steps, you make a financial commitment, and then you’re more likely to follow through. So it’s really hugely important to have financial commitments, not just financial commitments in your head, but down on a piece of paper that you can look at and say, “Have I done that or not?” So putting pen to paper, writing it down, regularly revisiting and saying, “Am I doing this?” That is hugely helpful. And if you struggle to get over the lip, if you can’t really get yourself to act, send the list to your mother – she’ll call you up and ask you why you haven’t done it.

AL: (laughs) Ruthie!

JA: Yeah right, get Ruthie involved. A Harvard study did something similar when they looked at Harvard grads, of putting in a business plan or something really short and sweet. “What do you want to accomplish in the next 5, 10, 15, 20 years,” and then they broke it out and some people just thought about it, and then the other people put pen to paper, and then they looked at them 5-10 years later and the people that put pen to paper were much more successful in their overall careers because they wrote it down. We think about things all the time,  but the power of just putting it on paper. We talk about financial planning and these big elaborate financial plans, but they’re not worth the paper that they’re on if they’re not really committed to the process. And I think as a financial advisor or planner, one of the biggest frustrations that we have, I think, is getting people to really implement. They have to have buy-in in their own goals first, I think what the point is. And then second, they have to be committed, and how do you help being committed to your own goals is to just start writing it down and being committed to yourself.

JC: And I think that if you cannot get it done, that’s when having a financial planner is really important, because if you can’t hold your own feet to the fire, and you don’t have a mother to send your to-do list to, having a financial planner who you’re going to go and see every three months, every six months, is going to call you up and say, “Have you done this? Have you got the will? Did you buy more life insurance?” and bug you is hugely important, because we all know that we behave better when other people are watching.

JA: What other points do you put in your 77 day plan? So I can see, I’m envisioning now, I’ve got to establish some goals, but really concrete goals, writing those goals down, and then from there, looking at some specific action steps such as, “Hey, I want to save the company match, or maybe put another couple of hundred dollars in a side account for the kitchen remodel,” and so on. And then so I got my mom on speed dial, so when I blow up I’m calling Ruthie to make sure that she kicks me in the butt. But then, where do I continue to develop? Where do I continue to go from here?

JC: So I think when you think about the goals that you have, I like to think about them in three buckets: so there’s how you want to improve your week-to-week. Everybody has things during the week that they like to do and things that they dislike doing. So the first step is to think about how can you change your week-to-week so you spend more time doing the stuff you like, and less time on the stuff you don’t like? So that’s one set of goals. Then two, there are these major expenditures that you want to make in the years ahead. Buying the new car, doing the kitchen remodeling the expensive vacation. And then the third level, there are the major goals. Buying the new house, putting the kids through college, retiring. So you have those three sets of goals: the weekly, the major expenditures and the big goals out there in the future. And then you need to think about the variety of angles. And so it’s not just about the portfolio, it’s also about, what does this mean for insurance? How am I going to handle any debt involved? What does it mean for my estate plan? So in all of these goals, you need to think across your financial life. We tend to be way too bucketed in the way we think about money. So what I do in the book, I don’t sort of state this at the outset, but I make sure that we go through, not only thinking about goals, but also thinking about your debts, thinking about your estate plan, making sure you have the right insurance, making sure that you’re thinking about taxes, and making sure that you have your financial affairs organized, just in case something happens to you. You don’t want to be bequeathing your family a mess.

JA: Talking to Jonathan CleMENTS.

AL: CLEments. (laughs)

JA: CLEments. CleMENTS. I like that so much better, Jonathan. I hope you’re not offended.

JC: As long as you can spell it I don’t mind.

JA: Yes. I’ve got a big thick accent I guess, still from… anyway. 77 days to get to financial happiness. And we talked about this a little earlier, but I think this book is so important. We have clients that have millions of dollars that are on the verge of divorce, super unhappy and everything else. So if you have all the money in the world but you’re miserable what’s it all for? And then you run into other people that live such a very modest lifestyle and they’re happiest people on earth. All you want to do is just spend so much more time with them because they make you happy. So I think we talk too much broad picture of, “what is your asset allocation” and “how do you save money on taxes” and looking at Roth conversions, to tax loss harvesting, to creating income, dividends, and all that other stuff – that’s important, but if you do that all perfectly but you’re still miserable, who cares? So I think the point of your book, which is phenomenal, is really to identify what makes you happy, and then try to get there in 77 days. So from suicide to happiness in 77 days. I just retitled it.

AL: Wow. (laughs)

JC: (laughs) So when people think about what money can do for them, there are really three things that being smart about money can help you achieve. One, if you’re smart about money, you don’t have to worry about money. And for many people, money is a huge financial concern. It’s a big worry. It wrecks their lives. So if you can get your finances in order you don’t have to worry about money. That is a huge achievement. Two, if you have your financial house in order, you can start to spend your days doing what you love – and all the research says that spending our days doing what we love is hugely important. And third, if you get your financial house in order,  It will give you the financial wiggle room to spend more time with friends and family – and that is the third big boost to happiness. So those three things: not worrying about money, spend your days doing what you love, and spending time with friends and family. If you get your financial house in order, all three of those things can happen.

JA: If you want to change your perspective on money, you’ve got to get his book. It’s called From Here to Financial Happiness: Enrich Your Life in Just 77 Days. Jonathan, I really appreciate your time. You’re such a pleasure to talk to you and such a huge impact in our financial society by continuing to do the things you do. You can get more on Jonathan at HumbleDollar.com – that’s one of the best websites. I go there often, you have such great content on there. I don’t know where do you find time to sleep with everything that you do.

JC: (laughs) My wife asks me the same question.

JA: (laughs) I really appreciate you hanging out with me.

JC: OK, it was my pleasure. Thanks for having me on. Thank you, Andi.

AL: Thank you, Jonathan.

Next week on the podcast, Forbes contributor Jeffrey Levine from Blueprint Wealth Alliance and Kitces.com tells us about President Trump’s new executive order affecting Multiple Employer Retirement Plans and the Retirement Enhancement and Savings Act of 2018. In a couple weeks, we’ll talk to Cubert from AbandonedCubicle.com about how he’s using vacation rental real estate in his plan for early retirement. Subscribe to the podcast for free at YourMoneyYourWealth.com so you don’t miss a thing.

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, 3 Things to Handle Now If You Want to Retire in 5 Years.

21:56 – Big Al’s List – 3 Things to Handle Now if You Want to Retire in 5 Years

AC: This is from Nancy Anderson. Is she related to you maybe somehow?

JA: I don’t know, maybe.

AC: So any guesses what these three things might be?

JA: I’m guessing it’s something that is not going to be of significant value.

AC: Really? (laughs)

JA: (laughs) It could be worth a little conversation. Clean out your garage.

AC: Oh, you’re really close. (laughs) Here’s the first one: make expensive home repairs. I got a couple of thoughts there.

JA: Five years before you retire blow your retirement load on upgrading your kitchen. (laughs)

AC: (laughs) The home of your dreams. Well, I guess the thinking is this: if you’re planning on moving or downsizing anyway after you retire, why not spend the money right now and enjoy it yourself before you actually sell it. So that was kind of the thinking in this article. And of course, another thing too is, as long as you’re not going into your retirement savings account to do this, it emotionally gets harder to spend. If you really do want to do some home improvements it’s emotionally harder to spend money on that kind of thing after you retire. So that was that was the point of that one. Number two: pick up a new hobby or rekindle an old one. And you’ve already started that. Does that mean you’re five years away from retirement?

JA: Yeah, it could be, Alan. It very well could be. It could be like Cubert and retiring at 46.

AC: So you’re into golf now. You’ve always been into golf, but you’ve really taken it a different way.

JA: I’ve dialed it up.

AC: Yeah, you’ve got a coach. You’ve even got me with your coach. I think I have a lesson here and the next day or two as well.

AL: Are you guys getting better?

AC: Uhhh…

JA: It’s a process. (laughs)

AC: I will say I’m new in this process, and it’s a relative term because I was so bad that yes I am definitely getting better, but I actually had taken lessons before and I know how this works. You do a couple of things and you get better and you get excited, and then they’ll start changing other things and you will lose it. I know that’s coming. (laughs) And he warned me about that too. But yeah, so far I’m getting better. But yeah, I think that’s right, Joe. Start your hobbies. get those rolling before retirement because the last thing you want to do is like retire and be like, “Now what?”

JA: It’s like, “Wow. I’m bored as… whatever.”

AC: Yeah. Actually, I just talked to a retired CEO. He was with a successful company, in his late 40s, ended up the company sold. And I guess the buyout was more for the clients as opposed to the management team. So the management team just stepped aside kind of simultaneously, pretty much with the sale. And so he’s been out of work for about a month and a half, and he ended up getting enough proceeds to probably cover his retirement for life. And I said, “What do you think of retirement?” He said, “it’s awful.” He said, “I am so bored you wouldn’t believe it.” And I think that’s that’s sort of speaks to this. I think you need to have this kind of thought out before you do it, because I think the last thing you want to do is to have nothing going on. He said the first couple of weeks were pretty good. Because kids are younger, they’re out of school and all this, and now it’s like, “now what?” He’s gonna get in a new company is what he’s going to do.

JA: You know I played golf with the gentleman that retired in his late 40s. He’s probably in his 60s now. He was a high-end corporate attorney. He’s strange as all get out. So I think he’s retired at 40 and all of a sudden…

AC: It didn’t help.

JA: You retire in your late 40s or early 50s, who are you hanging out with? You call someone up on a Tuesday afternoon and say, “you want to grab some lunch and a couple of beers?” You’re calling a lot of people to be able to do that. (laughs)

AC: Yeah you are. That’s funny because I just went to a party recently and talked to a guy. He’s probably in his 60s, same thing, he retired in his late 40s. Not gonna say any names, but a little eccentric.

JA: Sure. If they like to hang out by themselves, by all means, because you got very little social life during the week.

AC: I didn’t know this guy, going to this party, and I’m just grabbing a beer out of the refrigerator and he looks at me he goes, “Hey, how are you doing? Tell me about your life!” Just like that. (laughs) “Wow… And what’s your name?” So I guess the moral of that story is have something planned before you retire. Third one, you wanna know what it is?

JA: Yeah, we gotta speed this thing up.

AC: Dramatically improve your health.

JA: OK. Five years before your retirement?

AC: Get it rolling. Because they quoted the Fidelity study.

JA: Oh, healthcare and all that, you won’t have health care through your employer.

AC: Right. And so the current analysis by Fidelity says that a couple aged 65 over their lifetimes will have to spend about $280,000 for health care. And there are ways to dramatically reduce that cost just by simply eating better and getting in shape.

JA: Exercise, get some sleep.

AC: Right. Have something to do. Have a life purpose. Not just golf. So you’re going have to get another one too. But that’s a really good start.

JA: I’m gonna write a book. How I survived Al Clopine for 20 years

AC: (laughs) I think you and I are going to be doing this show long after we retire.

JA: Yes, let’s do it. All right. That was Big Al’s list folks, hopefully, enjoyed it as much as I did. So if you’re curious about the three things to handle now before you retire in the next five years is what, revamp your house, find a hobby and get in shape.

AC: It’s all good advice. That’s assuming you’ve got the financial part figured out. (laughs) We didn’t even go there.

So what about you? Have you got the financial part of retirement figured out? If you’re in Southern California or planning to visit, you’re invited to join Pure Financial Advisors’ Director of Research, Brian Perry, CFP®, CFA® for a free Lunch ’n’ Learn at our office in San Diego at 11 am on Thursday, September 27. Learn how tax reform and the current state of the financial markets could affect your retirement, how to minimize taxes in retirement, and how to set and stick with an appropriate investing strategy. Sign up in the Learning Center at YourMoneyYourWealth.com. It’s all free and lunch is included. To register, visit The Learning Center at YourMoneyYourWealth.com or call (888) 994-6257.

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! Call (888) 994-6257 and leave it in a voicemail or email info@purefinancial.com 

29:22 – RMDs: Why Are Retirees Forced to Draw Down Employer-Sponsored Roth Accounts?

JA: We got an email from Michelle. It says, “Hi Joe and Al, I have a question about RMDs. While I understand the reasoning behind the imposition of RMDs on traditional retirement accounts, ie, Uncle Sam wants retirees to start paying taxes on their deferred savings, this reasoning falls apart for the Roth provisions of employer-sponsored accounts, which are also subject to RMDs. What’s the rationale for forcing retirees to draw down their employer-sponsored Roth accounts? Thanks, Michelle.” Do you want to take a first stab at this Alan, or should I?

AC: Sure, be glad to. A typical Roth IRA, there is no required minimum distribution for the original owner. But someone that has a Roth 401(k), there is a required minimum distribution at age 70 and a half, unless you’re a participant in the plan and you’re still working at age 70 and a half for that plan. So it’s a reasonable question: why is there a difference, because they’re really kind of the same thing in a way, but my reason is because it’s two different areas of the code, the IRS code. One is under 401, which has 401(k)s. That’s a whole different section than individual retirement accounts, which is 401(a), and they just have different rules.

JA: Right. And I totally agree with that statement, because, it’s either – not necessarily laziness, but it’s like why rewrite a section of the code for a Roth provision of the 401(k)? Because it is already under the umbrella of the 401(k) plan.

AC: Exactly. And I agree with that as well. So in other words, it’s like the 401(k) code was already there, this was just an add on to it. And so I don’t think they even thought about it, really. it probably was unintentional, but that’s how the law is, currently. Now the workaround is, you can take your Roth 401(k) and you can roll it to a regular Roth IRA and not have an RMD. So that’s what you do.

JA: Sure. What would be the reasoning for someone not to do that?

AC: Well, I suppose if that if you need to take money out of your Roth anyway and you’ve got better cheaper investment choices in your Roth 401(k), I suppose that could be one, or maybe there’s a little bit better bankruptcy protection in a 401(k) than an IRA?

JA: Right, I think that’s the only reason. And it’s not even bankruptcy – it’s liability. What is it? It’s up to the state too, because on the federal side you have pretty good protection on both.

AC: Yeah you do. But there are limits on IRAs.

JA: A couple million bucks. If it came from a 401(k), you roll it, it still traces that back to the 401(k). But it’s different state to state. So I don’t know what state Michelle lives in. Here’s another reason. That’s it, I think. And so if you don’t think you’re going to get sued for malpractice or something like that… I think the bankruptcy laws are a lot better on states and federal when it comes to retirement accounts – it’s the liability if you get sued or if you do something, like within your company…

AC: That could be, and we’re not attorneys. (laughs)

JA: We are not practicing law. (laughs) We’re just we’re guessing and BSing.  But here’s another thing when it comes to 401(k) plans Alan, that you’re aware of, but I don’t think maybe Michelle or a lot of other people are aware of, is that, let’s say if you still had Roth dollars in your 401(k) plan and you wanted to start taking distribution, the distributions come out pro-rata. So you can’t choose what you want to come out anyway.

AC: Yeah, so you might as well roll it.

JA: Yes, you have to roll it in my opinion, I know that’s kind of a strong word. But what we mean by that is, let’s say that you have $100,000 in your retirement account. $80,000 is pre-tax, $20,000 is post-tax in the Roth. So that equals your $100,000. Or another way of saying that, 20% of the balance of the retirement account is Roth, 80% is pre-tax. So Michelle is going to take distributions from her account. She’s already upset that she’s got to take required distributions, it makes no sense, and I agree with her on that. But now what doesn’t make any sense at all is that, let’s say you take one dollar out of that account, well 20% of it is going to be tax-free, 80% of it is going to be taxable.

AC: Yeah, so you can’t say, “I want the Roth side for these dollars.”

JA: Right. So the whole purpose of having Roth money and pre-tax money is to control your taxes by determining what is your tax bracket and then pulling the right amount of dollars out of each of those different pools – on your call. Not necessarily on what the IRS wants you to pull.

AC: Yeah and it’s also important to realize that the reason why people have a Roth 401(k)s is because you can put a lot more money into a Roth 401(k) each year than a regular Roth IRA – $18,500 per person and there’s no income limitation, whereas a regular Roth, it’s only $5,500 and at certain income levels you cannot do a Roth contribution. So, a lot of folks have Roth 401(k)s, but I would agree with you,  I think in most cases you probably would want to roll that out from the Roth 401(k) to a Roth IRA. So then you have complete discretion and you don’t have to take required minimum distributions. You can let them grow over your lifetime,  or when you do take them, they’re all tax-free. And the other thing to consider, some people have a Roth 401(k), regular 401(k) and in the regular 401(k) they have pre-tax money and post-tax money – meaning after-tax money. And so what typically people would do, and should do,  you take your Roth 401(k), you roll that to a Roth IRA, you take your after-tax 401(k) money, basis, roll that to the Roth IRA, and then roll all the other money to a regular IRA. Now you’ve got complete control over your distributions in the future.

JA: Right. So this is another huge planning component that I want to piggyback on what you just said, Al, is that a lot of people have the ability to put more money into their 401(k) than they might be aware of. And what you were referring to is after-tax contributions. And so $18,500 is the max pre-tax contributions, or $24,000 if you are over 50. But the code says, well wait a minute, if the plan allows it, you can put more dollars into it. And I believe the limit for this year, maximum is what, $55,000?

AC: Well I think it’s $61,000 because of the 401(k) catch up if you’re over 50. Actually, if you’re 50 and older, to be specific.

JA: So with that after-tax contribution that you’re contributing to the account, you don’t get a tax deduction for it. But what you can do with those after-tax dollars is put those into a Roth IRA. So that’s really super-charging, if you will, your Roth dollars, which is a key component. Of course, you have to be able to afford to save that much.

AC: Well, true. (laughs) You have to make at least that much to be able to put it in. You can’t just write a check. You have to have it come out of your payroll.

JA: Yeah. Which is another thing that people get a little bit confused on: I want to max out this plan. What are we looking at? What’s the date today? It’s in the middle of September almost. Yeah. So we’re just getting out of Labor Day or Memorial Day or whatever that day was?

AL: That was Labor Day. (laughs)

JA: Labor Day vacation and we all labored, and now it’s like what the hell, it’s September, the kids are back to school?? We only got a few more months left.

AC: Yeah, you got three, maybe three and a half, and if you don’t have any that has gone into your 401(k) you might want to really kind of jumpstart or get a little bit extra withholding, but then you may not have enough take-home pay to cover your bills, so you have to look at that too.

JA: Right. You got to start juggling and planning. So this is a really good time to do that.

37:31 – Can My Husband Contribute to His Defined Benefit Plan Pension and His Company 401(k)?

JA: This one’s been sitting in the email bag for a while and I keep forgetting about poor Elizabeth. “Joe, I really hope that you’ll…”

AC: And she asked you, Joe, by name. So that’s pretty good.

JA: I know, specifically. Yes. So she’ll never email me again because it took me a couple of weeks to answer this. (laughs) “Joe, I’m really hoping that you will be able to answer my question because I can’t seem to get a straight answer. My husband belongs to the Carpenters’ Union where he contributes to his pension. My question is, can he also contribute to his company’s 401(k) plan? Thank you.” I don’t know, is this a trick question? But to me, if I have a pension plan, that’s a defined benefit plan. He’s in the Carpenters’ Union. My father was a carpenter. Cabinet maker – made some really beautiful cabinets.

AC: I know he did.

JA: And so I’m guessing – and he wasn’t in a union, but in any other union, or any other defined benefit plan that you have, that’s a totally separate defined contribution plan, which is a 401(k) plan. So my answer to Elizabeth would be yes. I do not see any issue with him fully funding the 401(k) plan even though he’s a participant in the Carpenters’ Union defined benefit plan.

AC: Yeah, I would agree with that.

JA: I’m not 100% sure.

AC: So a more general answer I guess is where you were going. Many companies have a defined benefit plan, which is an employer paid plan only, and a 401(k) plan as well. And so the employee can contribute to the 401(k), whereas the defined benefit is contributed by the employer, and usually there’s a match in the 401(k). So the employer is contributing on the defined benefit plan and the 401(k). The employee can only contribute on the 401(k). So I think that’s what we have here as well.

JA: Yeah. So I’m 99.9% sure. I’ll do a little bit of research on the Carpenters’ Union and we’ll send this back out to Elizabeth. But yeah, I don’t see an issue with that. And I think she kind of set me up there a little bit by saying she can’t get a straight answer. Guess what I did? I’m not giving her a straight answer. She’s asking me the question.

AC: Did you talk in circles? (laughs)

JA: No, I don’t think I talked in circles on this one. I might have.

AC: I know you like to just do these cold. I do too, actually, it’s more it’s more fun that way. But then we don’t always give a great answer.

JA: It just shows either…

AC: Our intelligence or lack thereof?

JA: Yes. Very good. And that is it. Next week we got Jeffrey Levine, so really looking forward to talking to Jeff. He’s a CPA, CFP®, whole bunch of different things, a lot more designations than Al and I have. Want to thank Andi Last for producing another wonderful show.

AL: Thank you, sir.

JA: For Big Al Clopine, I’m Joe Anderson, we’ll see you next week. The show is called Your Money, Your Wealth®.


Special thanks to today’s guest, Jonathan Clements. Read more from Jonathan, including his new book, From Here to Financial Happiness: Enrich Your Life in Just 77 Days, on his website at HumbleDollar.com.

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