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 [...]


Andi Last brings over 30 years of broadcasting, media, and marketing experience to Pure Financial Advisors. She is the producer of the Your Money, Your Wealth® podcast, radio show, and TV show and manages the firm's YouTube channels. Prior to joining Pure, Andi was Media Operations Manager for a San Diego-based financial services firm with [...]

Published On
August 1, 2023

Christine isn’t sure that Roth conversions are all they’re cracked up to be. Erick needs a retirement spitball analysis for his Roth conversions, annuities, and the real estate in his self-directed IRA, Billy the disgruntled attorney wants to know if he can retire now, and Zach wonders just how bad is it to rely on the lottery for retirement? But first, Joe and Big Al spitball retirement strategies for three members of the US military.

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Show Notes

  • (01:16) I’m 22, Military. Should I Be Spending More Instead of Saving So Much? (Cole – voice)
  • (06:19) I’m 27. How Should I Max Out Military and Second Job Retirement Contributions? (Adam)
  • (09:08) Retiring With Pensions at Ages 59 & 63. Is Our Retirement Plan Sound? (Scott, AL)
  • (16:55) I’m Not Sure Roth Conversions Are as Good as They Sound! (Christine, Seattle)
  • (26:44) Roth Conversion, Annuities, Real Estate in Self-Directed IRA Strategy? (Erick, CA)
  • (37:23) Can a Disgruntled Attorney Quit and Retire Now? (Billy, Joplin, MO)
  • (39:53) Just How Bad an Idea Is Relying on the Lottery for Retirement? (Zach, Tuscaloosa, AL)
  • (47:18) The Derails

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Today on Your Money, Your Wealth® podcast 440, Christine isn’t sure that Roth conversions are all they’re cracked up to be. Erick needs a retirement spitball analysis for his Roth conversions, annuities, and the real estate in his self-directed IRA, Billy the disgruntled attorney wants to know if he can retire now, and Zach wonders just how bad is it to rely on the lottery for retirement? But first, Joe and Big Al spitball retirement strategies for three military families. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Should I Be Spending More Instead of Saving So Much? Military (Cole – voice)

Joe: Go to YourMoneyYourWealth.com, click on that special- not special offer- What are we doing?

Andi: Click on Ask Joe and Big Al on Air.

Joe: Yeah, thank you. I think Cole did that, didn’t he?

Andi: That’s what he did.

Cole: “Hey Joe, Big Al, and Andi. It’s good to talk to you guys again. My name is Cole, and I’m currently driving my 2020 Hyundai Sonata in white. I called into the show probably 3 or 4 years ago. I’ve still been listening here and there whenever I get the chance. And I just want to give an update to my situation. My question that I had all those years ago was something about, I think like investing into a brokerage and then like selling it if it’s under $50,000. And if it would give me like 0% capital gains tax, if it was long-term capital gains, something along those lines, had this whole plan. I’ve made over $50,000 a year. So I’ve never really been able to utilize it for my brokerage account, but I just wanted to give a rundown on some numbers that ask a philosophical question. So I’m making approximately $72,000 a year right now. Although because I’m in the military, some of it is nontaxable allowances, BAH/BAS. Currently in my TSP I have $105,000 and about $76,000 of that is Roth. I also have an individual Roth account with $37,000 and a brokerage account with around $30,000. I think it’s slightly less. In addition, I have cash reserves of around $30,000. Anyways, with all this being said, I’m 22 years old, turning 23 pretty soon, and I was just wondering, do you ever feel like maybe you wish you spent more rather than saving as much? I know that usually people don’t have that sort of problem, but in my head I’m like, wow, I kind of wonder if maybe I should be actually spending more money. Even though I do have a lot of experiences that I really enjoy. I went to Paris and Barcelona a couple months ago. I went to Puerto Rico actually last month. So I travel two or 3 times a year, but I’m just wondering from your personal experience, has there ever been a situation where somebody has been like, wow, you know what? I wish I did X, Y, and Z when I was younger. Anyways, thank you so much. I appreciate all of your content over the years and I hope that you’re doing well. Oh, now that I can drink, I like Coors Lite and whiskey sours. Awesome. Have a good one. Bye”

Joe: Now that he can drink. Wow.

Andi: Oh, and he messaged us 3 or 4 years ago. He was only like 18.

Al: Yeah. So that’s pretty good. Cole, you can drink, all right. You’re part of our group.

Joe: Yeah. I think everyone says, I wish I would have done things differently. I don’t think anyone says, I lived my life perfectly.

Al: 100% agree. What went into my mind with this question Cole is, we’ve got this little plaque in our family room that says, ‘Enjoy the Journey.’ Because to me, that’s what life’s all about. Of course, you’ve got a long-term goal of retirement or whatever it may be. You’re saving for that. Make sure you’re, you’ve got, you’re on track with your savings goals, but boy, oh boy. Yeah. Enjoy the life. Do the things you want to do. Travel, hobbies, right? Take a little more time off, whatever it may be. You will never regret that. So yeah. Wholeheartedly. Go ahead. It sounds like you’re saving plenty. You got a couple of hundred thousand dollars and you’re what, 22? That’s amazing. So I’m not worried about your savings. Make sure you have fun though. That’s, yeah that’s what, that’s my thought.

Joe: Yeah. A couple hundred grand at 22 years old is pretty impressive. You look at a lot of people in their 60s don’t have a couple hundred thousand.

Al: Exactly. In fact, for some people, they aspire to $200,000.

Joe: And it’s a huge chunk of change. So at 22, he’s in the military, depending on how long he stays in the military, he could receive a military pension. And so that would be added savings for him as well. But you look at $200,000, if he never saves another dime, that thing, it would probably double every 7 years or so. So when he’s 30. He’s got $400,000. When he’s 37, 38, he’s got $800,000. At 40 some, he’s got a couple million bucks just with compounding interest of those dollars doubling every 7 to 10 years, depending on what rate of return that you use. But yeah, I think that’s what planning is all about too. Just figuring out what you want to do long term. When do you want to retire? When do you want to be financially independent? When do you want to have work optional? But I think at the end of the day, you want to take care of your older self as well. When we meet with clients in their 60s and they have millions, they’re not going back and saying, damn it, I wish I wouldn’t have saved as much. They’re pretty happy that they have millions. So I think the strategy is looking at, hey, don’t forget about your older self, but making sure that you’re enjoying the journey as Al said, as his plaque in his living room. Thanks, Cole. Good job there.

I’m 27. How Should I Max Out Military and Second Job Retirement Contributions? (Adam)

Joe: Hello, Joe and Al. My name is Adam. I’m 27 and a bit of a nomad at the moment.” A nomad. Not sure what a nomad is.

Al: That means don’t really have a home. Just traveling around.

Andi: Gypsy.

Al: I like that.

Joe: “If it has booze, I will probably drink it. When I’m not drinking or working, I drive a 2015 BMW 3 series because a foreign car is what every 20 some year old should drive. I’m learning from my poor purchase decision slowly. I balance my time between a job that takes me all over the world and the Air- oh at the Air National Guard?”

Andi: and the Air National Guard. He’s got two jobs.

Joe: Oh, thank you. “Doing this allows me to keep my costs extremely low and save a lot. My question is both employers give me a 401(k). I’m wanting to max out contributions this year, but will both give me a match and I’m unsure the best way to go about maxing out the contributions. I know that you guys say to avoid over contributing, but we pay being variable at both places of employment and better spitballs to easilier hit the max contributions besides a long drawn out math question and adjusting percentages as years go on.” I don’t know if that made any sense whatsoever, but-

Andi: You read it a little bit of a jumble, but, yeah.

Al: I’ll take a chance at it, Joe. I think what Adam is asking is I got a couple employers with 401(k)s and I think he’s alluding to the fact that you can only give $22,500 in all 401(k)s. You can’t do $22,500, which is the max in one plan. And then again, in another plan, you’re limited to that as a total. And so I think where he’s going is what’s the best way to do it with two employers. And if that’s the question, the best way to do it is to make sure you’re getting full match at each employer. So it’s not just you putting money in, but it’s your employers as well. That way you’ll maximize the money going into your overall accounts. And then monitor both, because you want to try to get to that $22,500. If you go over, what happens is you just have to record some of that as income on your return because you got a deduction and now you weren’t allowed it. I guess it’s not the end of the world, but yeah, try to hit that $22,500. Try to get the most match you can from each company.

Joe: How often is that caught?

Al: It’s actually caught all the time. And I’ll tell you why, because the tax software out there catches it and adds it back to income. If you do it manually, I guess they wouldn’t catch it.

Joe: All right, cool. Thanks for the question.

Retiring With Pensions at Ages 59 & 63. Is Our Retirement Plan Sound? (Scott, AL)

Joe: Scott from Alabama writes in. He goes, “Hey, Joe, Big Al, been listening for a couple of years. Really enjoy your podcast. You guys do a great job providing spit balls- with humor.”

Andi: – interspersed-

Joe: “- with humor.”

Al: That’s good. That’s good. Yeah, that was accurate, Joe. You’ve read it appropriately.

Joe: “I’m rapidly approaching retirement at the age of 59 this December. Wanted to get your take on the soundness of my approach. We will be relocating after retirement to the old KC area. Wife is 4 older at 63. Here’s a quick rundown. Projected retirement expenses, $135,000 inclusive of taxes, $60,000 is discretionary and planned for travel, hobbies, spoiling grandchildren, etc. Assets total $1,630,000, no debt, $930,000 in a retirement account, $50,000 in a Roth, $650,000 in equity, and a paid off home that we plan to roll over to a new residence in Oklahoma. Pensions $55,000 a year, military pensions with COLAs $25,000 a year and another government pension, COLAed after age 62, Social Security is $40,000 for me, spouse $16,000 at age 67 increasing to $19,000 when she converts to her spousal benefit at 71.” She converts to her spousal benefit at 71.

Andi: I assume that means she’s going to take her own and then switch to spousal?

Joe: At 71? I don’t know why.

Al: Yeah, that may not be quite technically right, but it’s quite close. But that’s what that’s trying to refer to.

Joe: Got it. Alright, “So it looks like I have about $80,000 of expenses covered by my pensions and would need to draw about $65,000 a year from my retirement accounts for 3 years until my wife turns 67 and Social Security kicks in. Then I will drop to $50,000 a year for the next four years when I turn 67 and begin drawing my Social Security. After that, it looks like we’ll need to withdraw $7000 per year. Just based on a straight math, without factoring in inflation compounding, or COLAs, it looks like we’d be drying down $400,000 or so before Social Security starts. I’ve run the numbers through several calculators and based on historical and Monte Carlo projections, they say we got 100% chance of not running outta money before I reach 90, and my wife is 94. I assumed a 3.5% rate inflation, 5% real rate of return on equities. Anything you’d be concerned about this approach? Since we’d be drawing down the traditional balances significantly before we hit RMD age, we’re not really worried about the RMD impacting our taxes and aren’t planning on any Roth conversions. Make sense? I’d appreciate any thoughts, concerns you may have to share, and if I might be overlooking something. We drive a 2016 Lexus and 2022 Ram that pulls our Airstream all over the country. I enjoy a Beefeater gin and tonic, and my wife likes her pinot grigio. Thanks for the spit ball. Scott in Alabama. Not my real name.”

Al: Okay. We’ll call you Scott though anyway.

Joe: Thanks Scott. Scott’s doing pretty good, Al.

Al: Yeah. I’d say Scott, you’re right on.

Joe: Simple math. The only thing is the Social Security. Kinda a little jacked, but-

Al: Yeah, something’s a little off there, but so here’s the way we think about it. So you got about $1,000,000 of liquid assets and you’re starting out by drawing $65,000 a year. So simple math, that’s a 6.5% distribution rate, which if you listen to our show, that’s a little high. Usually we like you to be 4% or less depending upon your age. But here’s the key, that 6.5% is only for a few years. Then it goes down to $50,000. Okay, so that’s a 5% distribution rate, and then it goes down to $7000 when Social Security fully kicks in. Now you’re less than 1% distribution rate. So I would say there’s a highly, there’s a high likelihood of being successful. I would never give anything 100%. There’s no guarantees in life, but I would say you’re in the high 90%s of making this work. That’s the way I look at it.

Joe: The biggest thing that I see here, is that he’s right, in the first several years of retirement, he’s got a large distribution rate. So what is his withdrawal strategy? A sequence of return risk is probably his biggest risk because he’s taken 6.5% out plus taxes, maybe it’s closer to 7%, I don’t know. And then let’s say the market falls 30%. How’s he invested? Is it all equities? Is it all bonds? Is it a mixture of both? How is he pulling the income from the portfolio? Because basically he’s going to be pulling everything from a traditional IRA. It’s going to be fully taxed, right? He’s going to have pensions. He’s going to have Social Security and just as cost of living of $135,000, given inflation might put them in the 25% tax bracket. So I wouldn’t overlook conversions just yet. I’m not sure if it makes a ton of sense, but if tax rates continue to go up and you don’t have very- if you have very little diversification and how you’re pulling the money, maybe it might make sense to at least contribute to Roth as you’re still working and grow that overall pool of money. But yeah, the biggest risk that I see in his overall situation, he’s loaded up on all ordinary income. He’s got a military pension, a government pension, Social Security, and the TSP, IRA, all of that is taxed at ordinary income rates. The distribution rate is going to be too high in the beginning, so if the market blows up on him that could be- But he’s got good fixed income. If his retirement accounts go to zero, he’s not going to be on the street.

Al: And the other thing that you do in this situation is some of that million dollars have in very safe investments. So if the market goes down, those investments will hold their value.
You just pull from those investments and let the market recover. That’s how people get around this one.

Joe: All right. Very good. Thank you. Scott.

Andi: I’ve posted some financial resources specifically for military families in the podcast show notes, so click the link in the description of today’s episode in your favorite podcast app to get there. To get your own Retirement Spitball Analysis, click the Ask Joe & Al On Air banner there in the podcast show notes. Tell the fellas the relevant details like your name, age(s), and location. And the name can be whatever you like; the ages and location should be real for a more accurate spitball. Also – when do you (and your spouse, if you have one) want to retire? How much do you think you’ll need to spend annually in retirement? How much do you make and save now? How much do you already have saved, and in what types of accounts (401(k), brokerage, Roth, etc)? And provide any other details that are relevant to your financial question. Then, to help Joe better visualize your whole situation, tell us where or how you listen to YMYW, what you drink – because that’s important to Joe – and anything else you want to share, because this show would not be a show without you. Again, just click the link in the description of today’s episode in your favorite podcast app to access all these resources right before the episode transcript.

I’m Not Sure Roth Conversions Are as Good as They Sound! (Christine, Seattle)

Joe: “Hey guys. So you might be surprised to hear me say this, but I’m not sure- I’m not so sure if Roth conversions are good as they sound.” Wow.

Al: Wow, okay. Oh, we’re going to have a little point cross point debate?

Joe: Yeah. A little debate. “I have an opportunity to convert $100,000 this year to the top of the 24% tax bracket. To do this, I would have to sell non-qualified retirement assets and pay a 15% capital gains on those to pay the tax I owe this year. So to net $24,000 for the tax on the conversion and have enough to pay the 15% capital gains tax, I actually have to sell $28,000. With $28,000 no longer growing for me, do I really come out ahead? I need to factor in the loss of 20 years of growth for the $28,000. Don’t I? Here are the calculations I did. Looking 20 years down the road and assuming money doubles every 10 years for ease of calculations.” So she’s saying- this is Christine from Seattle-

Al: – for calculation.

Joe: So she’s saying, all right here I have this money in a retirement account. That’s going to grow for me. And then I have this money outside of a retirement account. That’s going to grow for me.

Al: So let’s compare.

Joe: So let’s compare. Because I have this other money that’s going to the IRS if I pay the tax. So I don’t think this makes sense to do a Roth conversion. So she’s going to convert $100,000 and pay the tax bill upfront, yields $288,000 that comes out tax-free. $100,000 minus $28,000 tax on conversion equals $72,000 times 2 is $144,000. Growth of 10 years is $28,000. You follow that math, Al?

Andi: $288,000.

Al: Yeah. Yeah. So 10 years, it becomes $144,000. After 20 years, it becomes $288,000, which I agree. That’s a correct back of the envelope assumption.

Joe: “If I don’t convert that $28,000 that she would have paid to taxes is going to keep working for me. And I have $512,000 that’s taxed when I take it out. $100,000 plus $28,000 times two equals $256,000, and then 20 years of growth, $512,000. If my thinking isn’t flawed, then it must be- it seems I could pay a roughly 44% tax rate and still net the same as if I do conversions now. And I don’t think my tax rate will be that high in retirement. At least I hope not. It’s summer, so I’m drinking Mount Gay and Tonic with a lime.” A lot of gin and tonic drinkers.

Andi: Read on.

Joe: Al, I think you got to switch. Start being a gin and tonic guy.

Al: Okay. I like rum, but maybe I’ll give it a shot.

Joe: All right. “That’s a smooth golden Barbados rum, by the way, not gin.”

Al: Oh, so you’re talking my language now.

Joe: Yeah. God, I just talked too soon, didn’t I?

Al: Andi said read on.

Joe: Yeah, I know. It’s not Gin. Andi’s always right. “Don’t knock it until you try it. Very smooth and refreshing. And Al might even like a little splash of pineapple.”

Al: Oh Christine, I’m positive. I would like a splash of pineapple in that.

Joe: I would vomit. “I look forward to hearing your spitball and probably make fun of my throwing all these numbers around and using terms like net and non-qualifying like I know what I’m talking about. I’m talking to you, Joe. But I love you all anyway.” And I appreciate you, Christine in Seattle.

Andi: With a heart. Thank you, Christine.

Joe: Yeah. Thank you. God, I must just like blowing a lot of people up over the years.

Al: Apparently. That’s what seems to but Christine still loves you. And in fact, Christine, love the hearts. Keep them coming. We like to feel loved.

Joe: All right. Her math is flawed.

Al: It is flawed. Agreed. What do you see?

Joe: Yeah, I don’t know what calculator she’s using. Maybe it’s an abacus.

Al: I can tell you what she did wrong. So the $100,000, you don’t add $28,000 to it. It just means you didn’t pay $28,000. So let’s start there. So the $100,000 after 10 years multiplied by two is where $200,000 times another 10 years times two becomes $400,000, not $512,000.8But you take $400,000. I’m just going to use the same tax rate that she used, 28%. Okay, 20% tax and $400,000 is-

Joe: 24%. 24% she used.

Al: Well, she used 28% in her other calculation.

Joe: Oh. Because she had to pay some capital gains on the 24%.

Al: So same. Same. So $112,000 is the tax. Subtract it from $400,000. What do you know? You get that same exact figure, $288,000. And that’s true every time you do this calculation. And for people that think they’re falling behind, cause they got less assets, you’ve got the same spending purchasing power because you don’t have to pay the tax. Now, how this gets better, by the way, is maybe you put your investments in your Roth that have a higher expected rate of return, right? Or maybe you convert in a lower tax bracket. And so you end up paying taxes later. There’s lots of ways that this can work, but that’s what’s wrong with this calculation. It’s actually same same.

Joe: So to say another way, let’s say, because I want to use her example in the sense of saying, all right, let’s say I have $100,000 that’s in a IRA. And I have $25,000- I’m going to keep the math even simpler. Just for doubling purposes. I got $100,000 in a retirement account. I have $25,000 outside of retirement account. So when I look at my statement from whatever brokerage house, it’s going to say, I have $125,000. So Christine listens to this terrible show called Your Money, Your Wealth® and she converts the $100,000 into a Roth IRA. The IRS is going to say, you know what, Christine, you owe me $25,000 for that conversion because you’re in the 25% tax bracket, please send $25,000. So Christine sends them $25,000. Now she looks at her statement and she only has $100,000 shown on the statement. So in most people’s mind, they’re like, yeah, why would I do a conversion? Because $125,000 is going to grow to a bigger dollar figure than $100,000. And I agree with that 1000%, if you ignore taxes. Because now I have $100,000. Let’s say I convert it, it’s in a Roth IRA. That $100,000 doubles over 10 years and then it doubles again. So I have $200,000. Now I have $400,000. Let’s just say it doubles over 10 years and 10 years from now. I have $200,000 in a Roth. That’s all mine. I bought out my partnership from the IRS. I can take that money and do what I want with it. However, in the other example, I had $100,000 and $25,000 in 10 years, that doubles. So my retirement account grows to $200,000 and my brokerage account grows to $50,000. So I have $250,000. So at that point, if I pull the $200,000 out of the retirement account at 25%, what is that? That’s $50,000. It’s the same same. No matter how you want to look at this, how it becomes to your advantage to have different pools of money is A) you get the partnership and the middleman out of the game. So now all of that money is 100% yours tax-free. You take the likelihood of future tax rates off the table. Wherever tax rates change to, if they go down, if they go up, you bought the tax today and you take that off the table. I think more importantly, when you have a strategy that you can take money from different pools to control your taxes in retirement, this makes the biggest difference in the world. Also, there is no required minimum distributions in a Roth IRA. Also, as it continues to grow and compound, if you die prematurely and it goes to your spouse, it goes to your spouse tax-free. If you die, both spouses die prematurely, it goes to kids or grandkids or nieces or nephews, it goes to them tax-free. It is forever, forever tax-free. So we talked about this last week, Al, would you rather have $7,000,000 in a Roth IRA? I’m going to cut you a check right now today, or $10,000,000 in a retirement account, what would you rather have?

Al: Yeah, I’ll take the $7,000,000 any day because it’s- I’ve got complete flexibility on pulling money out. See, that’s the thing is if all your money is in an IRA and you want to pull extra out for a trip or for to buy a car and it throws you into higher bracket, you’re stuck. But if you’ve got a Roth, you can pull whatever out of your IRA that you normally do and then get the rest from the Roth, stay in that same lower tax bracket. You just have so much more flexibility.

Joe: Right. So you have to look at the purchasing power of the money, not necessarily what’s on your statement. Hopefully that clears that up.

Roth Conversion, Annuities, Real Estate in Self-Directed IRA Strategy? (Erick, CA)

Joe: “Hi Joe, Big Al, Andi. This is Erick from California. My wife and I found your podcast last year and have been binge listeners ever since. Love, love, love your shows.” Wow. Thank you, Erick. “I drive a 20-year-old Toyota. My wife drives a 10-year-old Mazda, drink of choice, water. I know we are boring people.” Yes, you are. We are not going to finish this email.

Al: That’s it?

Joe: That’s it.

Al: Erick, you’re cut off?

Joe: “Here’s some background information. I’m 69 years old and plan to retire in the next year. Wife is 60, stay-at-home mom. Annual salaries $200,000, net rental income after all expenses $30,000, equity on primary residence is $2,000,000.
And $1,000,000 in the rentals. My traditional IRA and 401(k)s, $3,000,000, $2,000,000 in equity markets, $400,000 in several deferred income annuities that will give us roughly $30,000 of joint lifetime income if we start taking them next year. $600,000 in another rental property held in self-directed IRAs, which generate $15,000 of annual net income that flows back into the IRA, Roth IRA of $10,000 in mutual funds. Brokerage account, $200,000. My wife’s Social Security at 70 is $56,000. Wife’s Social Security at FRA is $18,000. Oh- my Social Security is $56,000. Wife’s $18,000. Annual expenses $120,000. I wish I had listened to your podcast and started Roth conversions a little bit earlier. I know it’s kinda too late, but never late is- but late is better than never.” There we go. “My questions are, number one, when and how much should I be converting each year on top of our living expenses? After I retire, my wife will still need health insurance before we qualify for Medicare.” Most of his, what does he got? Everything’s in a retirement account sounds like. $3,000,000- $2,000,000 dollars, or $3,000,000 in 401(k)s?

Al: Yeah, that’s the majority. Yeah, even his rental property is in an IRA, looks like.

Joe: “I would also like to convert those traditional IRA annuities to Roth IRA annuities before initiating lifetime income so that all annuity incomes will come out tax-free. I understand that all IRAs are aggregated, but what do I do to avoid the 5-year rule on earnings distribution in case that my first Roth contribution account on those annuities are held in different companies? What to do with my traditional self-directed IRA rental property? What is the best withdrawal strategy?” Man, this guy’s got a lot of questions. “What is the best strategy to fill the gaps? And we would also like to leave a legacy.” Anything else, Erick, you wanna just pile up on this?

Al: This is like a whole show, Joe.

Joe: This like 8 questions.

Andi: This is a full retirement plan spitball analysis he would like thank you very much.

Al: Where do you wanna start?

Joe: Gotta get my calculator, I gotta get some software.

Andi: Gotta get a drink.

Joe: Oh yeah. Gotta hire some staff just to help us run some numbers.

Al: Let me, I’ll tell you what, I’ll take the first one on the fly. How much should I be converting each year? First of all, it’s never too late. So you didn’t miss the party. It’s-you can still do it. 69 years old. You’re probably gonna live till 90 or 100, got plenty of time. So I’m just going to go on what you told us. You got an annual salary $200,000. I’m just going to go with that. Just make this super simple. The top of the 24% bracket, which is a pretty low bracket based upon historical times, is like $365,000. So based upon this one number, you could convert about $165,000 and stay in the 24% bracket, which would not be a bad idea. However, you have to have the money to be able to pay the tax. So you got to figure that out. But if you just look at the tax brackets you’re in. 24% is not staying. The 24% bracket’s going to be 28% in just a couple 3 years. So that would be a good idea if you could afford the tax to pay. But that’s how you think about conversions is you look year by year, look at your tax bracket and you fill up whatever tax bracket makes sense based upon your retirement plan.

Joe: So” I would also like to convert those traditional IRA annuities to Roth IRA annuities.” I don’t know how many annuities that he has, but he has $400,000 in several of them. I don’t know, you have room to stay in the 24% tax bracket. You could convert one annuity, two annuities, 3 annuities, whatever.
You convert and you just pay the tax on the conversion. So some annuity companies might let you break the contract. As long as you keep it with that same annuity company. I don’t know where your annuities are held. We don’t sell annuities. It depends on what he wants to do. He wants a guaranteed lifetime income stream. So- that’s tax-free. Sounds good to me. So convert the annuities. Let’s say you’ve got, I don’t know, 5 of them and they’re $100,000, $75,000, $50,000, whatever, you have room of at least $100,000 plus in that 24% tax bracket, just convert one each year. I don’t know.

Al: Yeah. I like that too. Yeah. Check with your annuity company because they have different rules on how to do this. And I think most of them allow that. Wouldn’t you say, Joe?

Joe: Yeah, sure. The IRA rules, but then you’d look at, okay how did you fund the IRA? He funded it with a product that will give him a guaranteed lifetime income stream. So instead of funding it with a mutual fund or with a stock or with a CD or whatever, it’s just an investment. So if you wanna convert the IRA, it doesn’t necessarily matter what’s in the IRA, you can convert it as long as you pay the taxes on the IRA and then that investment holds true. And then when he turns the guaranteed income on it’s gonna come out tax-free because now it’s in a Roth versus in a retirement account.

Al: Right. I guess what to do with the traditional self-directed IRA rental property. You know what, you may not know that you can have an IRA that invests in real estate. It doesn’t have to be stocks and bonds or that sort of thing. It could be like a rental property, but you have to have a special kind of IRA. It’s called self-directed and there’s certain companies that do this, Schwab, Vanguard, Fidelity. No, they don’t do this. It’s a separate company, to hold property. So it looks like Erick has property in a self-directed IRA. You can do whatever you want. You could sell the property in the IRA, you don’t pay any current tax because it’s in an IRA. Then you could roll that money to another IRA if you want to, you could keep the property in the IRA, it’s just personal choice. The tough thing about properties in an IRA is they require a lot of work. And a lot of times when people get older, they may not want to be the property manager and do all this stuff that you have to do. So you might want to sell it, but you don’t have to. You can just keep it in there. You will have to take a required minimum distribution, right? And if that’s your only IRA, which it’s not, but if it were, you have to take a required minimum distribution. And if there’s no money in the rental property self-directed IRA, then you’re in trouble, right? You can’t distribute property to count as a required minimum distribution. To me without spending like a half an hour, there’s a lot of reasons I don’t like to have real estate inside of an IRA, but it can be done. And if you have it, which you do, it’s personal choice. You do whatever you want.

Joe: Yep. I agree. We could- not a huge fan of having real property inside a retirement account. Retirement accounts
are awful from a tax transfer, especially if you have an illiquid asset as Al alluded to. Back in ‘08, remember that when people, some people absolutely love real estate and that’s all they believe in and that’s all they want. And they have these retirement accounts. So they just either load up on, first and second trustees and real estate. And then in ‘08, ‘09, we saw disasters happen with, people lost so much in real estate. It was in their retirement account. You can’t take losses in a retirement account. But if it was outside of a retirement account, you can, you have the better tax advantages if it’s outside of your retirement account as well. But he’s got it there. You can keep it. You can sell it. You can do whatever. Hopefully that helps Erick. Thanks for listening to us. And binge, binging. That’s scary stuff.

Al: Do you ever binge our show?

Joe: Never.

Andi: He’s only heard one.

Joe: Yeah. One episode. I’ve listened to one episode.

Al: Did you make it all the way through?

Joe: No. No. I just was like, who’s this marble mouth guy? He’s a jackass.

Al: I don’t think I’ve made it through an episode either. But for me, Joe, it’s because I already did it and I don’t have to relive it.

Joe: That’s right. That’s right. Live the journey, buddy.

Andi: See at a glance all the numbers that affect your financial strategies as you live that journey: get this year’s tax brackets and capital gains tax rates, retirement plan contribution limits, tax on Social Security, Medicare premiums, and all the current credits, deductions, exemptions, distributions, and exclusions, when you download the 2023 Key Financial Data Guide from the podcast show notes – it’s the exact same guide the Joe and Big Al use when they’re spitballing for you during the YMYW podcast. One listener said recently that, basically, this guide alone is worth the price of admission! In other words, it is priceless. To download the 2023 Key Financial Data Guide, to Ask Joe and Big Al your money questions, and to share YMYW with your friends, just click the link in the description of today’s episode in your favorite podcast app, go to the show notes, you’ll see all of that just before the episode transcript.

Can a Disgruntled Attorney Quit and Retire Now? (Billy, Joplin, MO)

Joe: We got Billy from Joplin, Missouri. “I love the podcast. I’m a disgruntled attorney that would like to quit. I like Coors Lites. I like a nice fruity cocktail with some vodka and juice. I’m 57 years old. My wife is 60 years old. We have no debt and own our home. We have about $100,000 in stock index funds inside our Roth. We have $2,400,000 in stock index funds and $250,000 in a bond index fund inside our traditional IRAs. We have $200,000 in cash. I have a deferred income payment that will pay me $100,000 per year for 10 years, starting in 2025. I’ll be near the maximum Social Security payment when I take it around 69 years old. I think our retirement budget will be $155,000. Can I retire now?” Alright, disgruntled attorney. I think all attorneys are somewhat disgruntled.

Al: I don’t think I know one that’s not disgruntled, but maybe there’s one or two out there. Anyway, you know what I think-

Joe: I’m a disgruntled financial planner.

Al: Yes. That too. So you want $155,000, you’re getting $100,000 a year for the next 10 years. So that’s probably a deferred comp program. So you need $55,000 or, compared to $2,500,000, that’s like a 2% distribution rate. Check. That’s just fine. But that $100,000 goes away. So you’re just going to have Social Security, whatever that is. So your distribution rate’s going to go up. But so are your assets because you’re only using about 2%. So that you should be growing your assets. You should be just fine, Billy. I’m going to spitball and say, yeah, I think you can retire.

Joe: Yeah, the only issue that he has is that he doesn’t get that deferred comp until 2025.

Al: So he’s got to bridge the gap, right?

Joe: You got to bridge the gap of $155,000. He’s got $2,400,000. So you take a couple hundred from there. Let’s just call it. He’s got $2,200,000. He’s going to take a 1% or 2% on top of the deferred comp, call it $2,000,000, $2,000,000 is going to grow to $4,000,000. 4 times 4 is $160,000 plus his Social Security.
He can even draw down more of that $2,400,000, Billy. Yeah, I give it a go. I give it a green light Charlie here.

Al: Me too. Two thumbs up.

Joe: Yep. Quit your job. Stop being disgruntled. Have some fun. Play some golf. Stop suing people.

Just How Bad an Idea Is Relying on the Lottery for Retirement? (Zach, Tuscaloosa, AL)

Joe: Got Zach from Tuscaloosa, Alabama. “Hey, Joe, Al, love the podcast. My wife says it drives her crazy when we go on long road trips in the car, although she’s starting to warm up to Big Al. And always asks me why his wallet’s so big.”

Al: That is a good question.

Joe: Giant wallet. Very successful individual right there. It’s kinda like George Costanza’s wallet, but full of $100 bills versus coupons.

Al: Yeah. I don’t keep credit cards. I have just the good stuff.

Joe: Just cash. “I told her, I have no idea. Anyway, my question today is sort of a goofy question, but how bad of an idea is relying on the lottery as an answer to retirement? I have family members who go across state lines just to play and they say that they haven’t hit big yet, but believe that if they play long enough, they are due to win big. I want to show them how investing can be just as exciting for their future as playing the lottery. But how should I go about doing so? Should I show them analytics over the past 30 years of how the stock market has performed? Or should I create a PowerPoint presentation by taking today’s dollars and illustrating what it could be in 20 years with a reasonable rate of return? I’d appreciate any wisdom either of you have on this matter. And also Joe, you really have mellowed out over the past few months. Love to see it.” What the hell’s going on with this?

Al: The softer side of you is coming out maybe now that you’re married with children.

Joe: Yeah. I don’t know. I don’t think so. I’m more stressed than I’ve ever had in my life. “My wife and I usually drink a little hanky panky from time to time.” Drinking some hanky panky.

Al: I think they missed a word. “I think my wife and I usually drink beer and sometimes have a little hanky panky.” I think that’s what the-

Andi: There is actually a hanky panky. It is gin, vermouth Frenette Branca. So yeah it is a drink.

Joe: A little hanky panky. What was it?

Andi: With an orange twist.

Joe: A little sex in the driveway?

Andi: Sex in the driveway. Yes. That was the other one.

Al: Got it. Okay.

Joe: All right. “And we only drive one car. It’s 2017 Smart-

Andi: For Two Pure. And I’ve got it up on screen for you. It’s a little tiny car.

Al: Oh, one of those little tiny ones.

Andi: But it’s actually called the 2017 Smart For Two Pure.

Al: Never heard that name. I’ve seen those cars on the road though. Actually, I should say I’ve seen them, I’ve seen them in the neighborhood. I don’t think I’ve seen one on the freeway.

Joe: Weren’t one of those- isn’t that the whole same car that you could jump in? You would park it anywhere and then you could jump in another one? Smart cars?

Andi: I think you’re thinking about one of those businesses that, where you can drop off and pick up cars.

Joe: Yeah. They were all over downtown San Diego. And now I haven’t seen one of those in years. Just like the whole scooter phase. Remember like you’d rent a scooter and then you would just throw it anywhere. It was just like litter everywhere.

Andi: Apparently Zach and his wife actually bought one.

Al: I think you can still park it anywhere because it’s so little you can fit-

Andi: Then you just have to worry about somebody else trying to get into it and drive it away.

Joe: But I haven’t seen one. I don’t know if that business is still in-

Andi: I can’t remember what they were called.

Joe: Smart Cars, right?

Andi: No, I’m talking about the business where you could actually pick up and drop off the vehicle.

Joe: The car, I thought it was called a Smart Car, but-

Andi: That’s the name of the car. This one is a Smart For Two Pure.

Joe: This is Smart For Two Pure. All right. Lottery. I got nothing for you here. Tell him something.

Al: Here’s what I have to say. You’re never going to convince them that stock market is more exciting than a lottery. A lottery win. That’s gotta be like near the top of the list. But what you can show them a couple of charts and show them, you know what, if you start with this today and you add this much per month, you’re going to end up with this. You don’t need a big, long PowerPoint. Just tell them and just say, you know what, it’s not as exciting, but it’s more of a sure thing. How about that?

Joe: How much are we talking about here? I wonder. So these guys-

Andi: They’re talking about it’s for the entire retirement.

Joe: They’re going across state lines. So they’re buying in Alabama. They’re going down to Florida. Yeah, they’re taking road trips to buy power balls. I wonder how much money we’re talking about here on a monthly or annual basis.

Al: Who knows?

Joe: Because, from there, then you could probably look at, all right this is what you’re spending on Powerball tickets and take that same amount and put a 7% rate of return on a monthly or annual basis and run that out over 20 years and say, you probably have more certainty if you invested this, and this is what your end results going to be versus, I don’t know, what are the odds of someone winning the lottery? It’s like one in 100,000,000 or something?

Al: It’s quite low. I used to know the CEO that the- so his strategy was to invest properly, right? A little bit at a time, rate of return grows over time, but he still did the lottery every week because that was going to be the difference between a good retirement and a great retirement. That was his thinking.

Andi: The actual odds are 1 in 292,000,000 or 0.00000003%.

Al: It’s probably more likely to be hit by lightning 100 times before you win the lottery.

Joe: Oh, yeah. All right, Zach. Good luck with that. I could just see Zach with his whole family. They all got little hanky pankys out, drinking them.

Al: As soon as he pulls out the PowerPoint, he’s going to lose it.

Joe: He’s got the PowerPoint presentation ready to go. Oh, boy. Alright, well good luck. Well, that’s it for us. Hopefully you enjoyed the show, keep the questions coming, we’ll keep answering them. Show’s called Your Money, Your Wealth®.

Andi: Joe’s show opening frog, his stalker, and Hijack in the Derails at the end of the episode, so stick around.  Help new listeners find YMYW by sharing the show with your friends and colleagues, and by leaving your honest reviews and ratings for Your Money, Your Wealth® in Apple Podcasts, and any other podcast app that accepts them.

Your Money, Your Wealth® is presented by Pure Financial Advisors. Click the “Get An Assessment” button in the podcast show notes at YourMoneyYourWealth.com or call 888-994-6257 to schedule your free financial assessment, in person at one of our seven offices around the country or online, a time and date convenient for you, no matter where you are. Chances are, one of the experienced financial professionals at Pure will be able to identify strategies to help you create a more successful retirement.

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.

The Derails



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.

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC, a Registered Investment Advisor.

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