Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 00:46 – Should the Asset Location of Our Accounts Be Independent of Each Other? (Kevin, Denver)
• 08:54 – CTZE – Any Other Ways to Maximize Our Tax-Free Retirement Strategy? (Jim & Pam, Orange County)
• 17:19 – Watch How to Build a Recession-Proof Portfolio on YMYW TV, Download the Recession Protection Guide
• 18:00 – Should We Sell a Rental Property and Invest the Proceeds? (Ned, Tokyo, Japan)
• 25:37 – Got a Late Start on Roth IRA Savings. Should I Prioritize Roth, Brokerage, or 401(k)? (Bob & Bridgette, WI)
• 34:49 – Next Week on 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

Andi: You’ve got your tax-free Roth accounts and your tax-deferred retirement accounts. Should you invest the same way in each? Kevin in Denver wants to know. Jim and Pam in Orange County are eligible for combat zone tax exclusions. How else can they maximize their tax-free retirement strategy? Until Joe Anderson returns next week, Susan Brandeis, CFP® spitballs with Big Al Clopine, CPA, today on Your Money, Your Wealth® podcast number 537. Plus, should Ned in Tokyo sell his Bay Area rental property and invest the proceeds? And Bob and Brigette in Wisconsin got a late start on Roth IRA savings. Should they be prioritizing saving in Roth, brokerage account, or 401(k)? I’m Executive Producer Andi Last with Susan Brandeis, CFP® and Big Al Clopine, CPA.

Should the Asset Location of Our Accounts Be Independent of Each Other? (Kevin, Denver)

Andi: All right, next up is Kevin in Denver. He says, hi, Andi and the boys. It’s been a while since I reached out and the retirement clock is ticking louder and louder. I couldn’t bear listening to myself, so I’m leaving it up to Joe, or in this case, Andi, BLUF, which I believe is bottom line upfront. Should the investment mix of our Roth accounts and tax deferred accounts be independent of each other, or should I take a holistic view of all the accounts when determining a total asset mix? He says, I currently have a total investment mix of 60 30 10 stock to bond to cash. However, my Roth accounts are invested 90% stock, 10% bonds. When I subtract out all the Roth allocations from the total mix, this results in a more conservative 53, 36, 11% mix. In my tax deferred accounts, the wifey and I currently have 75% in tax deferred and 25% in Roths. She’s invested slightly more aggressively due to her youthful demeanor. I. My spending plan is to use the tax deferred accounts first and delay tapping into the Roth only in years when a little bit of WA Roth withdrawal will keep us out of the next new tax bracket or Irma bump. I figured this will help me, a lovely and younger bride when she eventually becomes a single taxpayer and could ultimately become another gift to my daughters when they take over the estate. Still drinking the barrel aged imperial stouts and driving the 98 Toyota Avalon. It’s up to 350,000 miles, but I’m picking up a new F-150 Lariat tomorrow, so I’ll have something to pull home on wheels when we finally say goodbye, the daily grind, and we no longer need to sleep. On the ground. Thanks as always for your witty and wise spitball, Kevin in Denver and then Big Al’s additional information if relevant to your response, since I know he reads these ahead of time. Yes, Kevin is definitely a longtime listener, $3.1 million in retirement. The house is paid off value of 850 k. Wife has a pension of 38K level for life at age 66 plus. Social Security of 15 K. She’s 55 and retiring at 60. His Social Security will be 53 K at age 70. He’s currently 61, retiring at age 63 15K a year. land rent in Dakota, which is also my extended care policy, valid, valued at 500,000 if I choose to sell it. Currently saving $66,000 a year into Roth and HSA, spending about $129,000 per year. So what say you spit ballers.

Al: Well, Kevin, well, first of all, great question, and I can’t believe you drove an Avalon for 350,000 miles. So, and it’s a Toyota, so duh, right?

Andi: Yeah. Those things will just go and go. So, but now he is in the Ford land. I guess

Al: I, I remember when, our kids were young, we got a Toyota Corolla station wagon, and it was the little car.

And as one of our friends said, well, it’s a, good car for a little family. Yeah. Which, it was. And my sister-in-law, Donna, she said, you should never buy a Corolla because they never stop running. You’ll never be able to sell it.

Susan: Is that what happened?

Al: we did sell it

Susan: after how long though?

How many miles did it have long when you sold it?

Al: Well, not that many. It was probably over a hundred thousand, but the kids got bigger, so they didn’t, yeah, they didn’t fit anymore.

Susan: But it could have gone kept going if you It could

Al: have, I’m sure it did for somebody,

Susan: for sure It did.

Al: Yeah. But it was, it was a four cylinder and going up Delmar Heights Road, that was a little, that was a little trick.

Almost had to get out and push it. But anyway, it did run, it, it ran the whole way. Great question. So, so the question is, okay, I got Roth accounts, I’ve got deferred accounts. He doesn’t mention non-retirement accounts. Maybe he’s got some of those. And do you kind of figure out your retirement strategy for each, or do you do a holistic, is each account the same or what’s the best approach?

What? What do you think, Susan?

Susan: Well, since a Roth account, when it’s, when the money comes out, is taxed at 0%.

Al: Yeah.

Susan: You’d probably wanna put your assets that you think are gonna appreciate, so you’d wanna put assets that are gonna appreciate the most, ’cause they’re never gonna be taxed again while in your tax deferred account that’s.

Every dollar that comes out is gonna be taxed at the highest of rates you would wanna put your assets that aren’t gonna appreciate as much. ’cause they’re gonna be taxed at that rate anyways.

Al: Yeah. Well, yeah, well said. And, so when you think about, you know, probably the best way to approach this is to take a look holistically.

Like what rate of return do you need on in your portfolio to make your retirement work? You know, is it. 4%, 5%, 6%. If it’s 11%, maybe you’re not quite ready to retire yet, or maybe you gotta work a little bit longer. So there’s limits to this, but figure out a portfolio that, the safest portfolio possible to be able to create that rate of return.

Right? So that’s step number one. And then step number two is figure out where you have these assets. So I got some in Roth and some in A IRA and some in a non-retirement account. Do all three of those look the same? Maybe you came up with 60, 40, 60% stocks, 40% bonds, and the answer is no. As Susan just said, you wanna put your higher performing assets or high expected performing assets in the Roth because you get rewarded for that growth by paying no tax.

So what are higher performing assets? Stocks versus bonds. So bonds are safer. They’re not as volatile, but they don’t grow as much over the long term. Maybe you wanna put those in your retirement account. Maybe you wanna put your stocks in your Roth, you probably won’t have it. A hundred percent, but you’ll favor the stocks in the Roth.

Of course, you’ll still put stocks in your IRA likely, but that’s where you want your safer money, your more aggressive money in the Roth. ’cause over the long term, you’ll be happy, right? Because you’re not gonna pay taxes, on that, on those dollars. So I think it’s a, you know, when, we see clients, and potential clients, it’s so common to have exactly the same assets in each category.

Susan: Yeah, it really is. And especially when you’re accumulating. You know, you may not have the different pools of money, but then as you get closer into retirement and you build that up and you haven’t looked at what the appropriate. Allocation is in each one. That’s very common.

Al: Yeah. And I think the other thing that tends to happen is people, like, maybe they got an inheritance.

So they, they think of this as different. They think of, maybe they think of it differently than what they might do for their other money. And it really, it’s, when it’s your money when you’re in charge of it, think of it all together holistically. Right. And manage it that way.

It’s not that, oh yeah. I, or I just got, I just, you know, just got a, A restricted stock grant. I got all this money, so I’m gonna invest this way. Right. No, it’s all part of your portfolio. Take a holistic look, right? Yeah. And then figure out which assets should go into which category.

Susan: Yeah. And I think that’s really important.

’cause if you, know, pick and choose. What you think is important, you’re missing that opportunity.

Al: Yeah. So we talked about, like the Roth, you wanna have higher, expected return assets, like stocks, maybe, the regular ira, 401(k) where you get taxed on the money that comes out, you don’t necessarily want your highest growth there.

What about a non-retirement account, a brokerage account? What, would you think about that?

Susan: Yeah, so for a brokerage account, you’d wanna be invested in capital assets that get capital gains treatment. So that’s one thing. And then also two. If you’re in a higher income and you. Have fixed income it income in it, you’d wanna look at using potentially like muni bonds that would have tax free income.

Al: Yeah, that, that’s exactly right. And you probably will have some, bonds in your non-retirement accounts, but to the extent that you have ’em, yeah, just go ahead and get municipal bonds if you’re in a high enough tax bracket. That would be the way to think about that. But that’s a great question and we get that all the time and I’m.

Kevin, I’m glad you asked it, and I’m stoked to hear your Avalon made it 350,000 miles and even more stoked to know you’re getting a new car.

CTZE – Any Other Ways to Maximize Our Tax-Free Retirement Strategy? (Jim & Pam, Orange County)

Andi: Perfect. Okay, the next one is from Jim and Pam in Orange County, California, and I realized after the fact, I think this is Jim and Pam from the office. anyway, hi, Big Al, Joe. Three questions. Number one, requesting a retirement spitball analysis. Assume 60-year-old retirement timeline don’t include Social Security. Jim and Pam Say, two. Anything else I should be maximizing with my current tax-free situation? Three. I have opted for after tax brokerage savings over a 529plan because my effective tax rate is very low and my kids will have access to my GI Bill. I prefer flexibility, but wanted your take on potential pitfalls with that strategy. My mother recommended the show to me about four years ago. Thank you, mom. as I was getting into personal finance and I haven’t stopped listening since as an avid golfer and a Hawaiian vacation enthusiast, the big Al and Joe team is a slam dunk and a perfect way to deal with traffic.

Al: Yeah. You know, I think, yeah, I think you found your right. Show, Jim.

Andi: Exactly. he says, I am 35 and my lovely wife is 36. We have two young children under the age of six. It would take less time telling you what we don’t like to drink than what we do like. However, to keep it simple, we prefer is sliced scotch, Spanish reds, and just about any beer we drive two overseas beaters, a 2009 Toyota Highlander, and a 2010 Mazda five. I’m an active duty military officer with 13 years of service. Thank you for that service, Jim. And my whole family is currently entering year two of three of an overseas assignment in a combat zone tax exclusion zone, which has presented some unique financial opportunities. I plan on retiring from the military at 20 years and picking up a new career. My wife has been in and out of the workforce, but plans to return to work once we’re done with overseas assignments, assume we will continue to save at least $60,000 per year. Thanks for the spitball and for all you do. Here are the numbers combined. Roth TSP 240 K, Roth IRAs 805K. Traditional IRA, none as we were able to convert what little we had last year. Tax-free after tax brokerage, 160 5K, high yield savings account, 205K total net worth $515,000. Income is 156,000 net. Thank you CZTE.

Al: Combat zone tax exclusion.

Andi: There we go. Annual saving 235 for the TSP, 14,000 for the two IRAs. 23,000 for the after tax brokerage for 60,500 total. No debt. Desired spending is 175,000 in today’s dollar.

and military pension is $80,000 a year in 2032. Future dollars and Cola adjusted from Jim and Pam.

Al: Wow. Well, Jim, first of all, thank you for your service combat zone. That’s pretty heavy duty. And, maybe some of our listeners and viewers may not know in a combat zone your wages are tax free. So that’s why the wage, that’s why the taxes were low and therefore he was very clever.

You know, when there’s low taxes, you wanna figure out what strategies could potentially work for you. And Roth conversions is, was perfect, right? Yeah. Get that money to tax free environment. So, okay, well first of all, I love questions from 35 year olds, 36 year olds, and, a 30 5-year-old, 36-year-old that has 500,000 so rounding, right?

Incredible. I, Jim and Pam, I did not have that, so congratulations. That’s, a great job. And furthermore, Susan saving. 60 grand a year.

Susan: Yeah,

Al: that’s, are you saving that?

Susan: No, I’m not saving that.

Al: I put her on the spot Andi.

Andi: Hey, at least she’s honest.

Al: Yeah. Well, and I wasn’t at that age either. And anyway, so, okay. Well, Jim, I did a little math for you. Okay. So, here’s what I did. You start with $515,000. I said 25 years. You said you wanted to retire about 60. I did a 7% rate of return favoring. I often do 6% to be more conservative, but 7%, just ’cause you have a longer timeframe adding 60,000 a year, you end up with those assumptions of six and a half million.

So that, that’s a, pretty hefty sum. But we always gotta compare that to what your goals are. and you wanna spend 175,000 in today’s dollars 25 years from now at a 3% inflation rate. Believe it or not, that’s 370,000, right? And so we’ll take the three 70, that you wanna spend with, subtract your military pension.

I inflated that. I get about 135,000 ish, something like that. So. You’re short spend three 70 fixed income, 1 35. You need 235,000 from your portfolio at six and a half million. Portfolio, your distribution rate. So we divide the two together is 3.6% is below the 4% that we like to see. this looks very, good to me exactly what you’re doing, even if you’re a little bit higher, I would say anyone that can save $6 million can sort of write their own retirement. That’s even if you spend a little bit less or maybe a little bit more in certain years. But that I, would say he’s on track.

Susan: I would say he is on track. I’d agree with you too.

Al: So what about, is there anything else that, he should be doing, for, they should be doing in their current tax situation?

What do you think? Anything come to mind?

Susan: Well, one thing I do see is about the 529and the GI Bill.

Al: Okay. And that was actually the next question. So we’ll go right to that. So, 529plan, right? Which is, putting money in for your kids in college 529plan. How does that work, Sue?

Susan: So how it works is you put the money, you put the money in, and it’s gonna grow tax free.

And then it, when you use it for qualified education expenses, it’s not taxed.

Al: Got it.

Susan: And if you were to take it out for. That isn’t for qualified education expenses, then the gain on it will be taxed owner income and you’ll get a penalty.

Al: Right.

Andi: So, okay, so then how does the GI Bill work? Because he’s saying he’s got that over and he’s suggesting using that since the kids will have access to that. So the 529 is not necessary.

Susan: Well, and here’s the thing. For the GI bill, for the public, if you’re going to an in-state university, it’s free tuition. And then for a private. University, it’ll pay up to about 30,000 per year. So if you’re looking at what the appropriate amount to save, if they, if your kids are gonna plan on going to a state university, then there may not be anything I.

to save up for, to pay for that,

Al: right? So, so in that case, the 529plan wouldn’t necessarily be needed.

Susan: Yeah, wouldn’t be needed. Now, if you wanted to go to a private school, that’s gonna be more than the 30,000, then it may make sense.

Al: Right, right. So anyway, it’s not a complete answer, but it sort of depends upon what your goals are longer term.

So that’s why you do a 529 plan, is if you, the, kids really would be thinking of going to a private college or maybe outta state college where it’s gonna be more than $30,000. Maybe that’s the right way to go to get someone there. But, yeah, gi, the GI Bill is, it’s a great thing. It really is. And there’s a reason for that. It’s because look at what he’s doing. He’s in a combat zone. Right. Protecting us.

Susan: Yeah. I can only imagine where that is in the country.

Al: Yeah. So anyway, I commend you, Jim. I think, what you’re doing is great. Keep it up. lot.

Andi: Is there anything else that they should do tax wise?

Al: Yeah, I, we don’t have a lot of suggestions just because I. He’s doing everything so well, right? But, to the extent that he’s got $165,000 in a brokerage account, maybe make sure that’s tax efficient, right? Maybe make sure you’ve got index funds over mutual funds. Index funds generally are, or ETFs, that they’re more tax favored when you get out of the combat zone and your pay is higher and you higher tax bracket, maybe you get some municipal bonds. So, you know, so there’s some things that you can do there, but, I would say by and large, keep doing what you’re doing. It’s great.

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Should We Sell a Rental Property and Invest the Proceeds? (Ned, Tokyo, Japan)

Andi: Our next question comes from Ned, who is in Tokyo, Japan. Wow. He says, hi, Joe and Al. We would love a spitball on what to do about our rental property in the San Francisco Bay Area. My wife and I make a combined $400,000 a year. My wife doesn’t drink, but I occasionally drink a Keran beer. And where of course it makes sense. You’re in Tokyo. Yeah, that makes sense. Yeah. I’m 55 planning to retire in one year, and the wife is 54. Plans to work another four or five years. We have financial investments of $2.3 million, half a million in a Roth, IRA 1.2 in an IRA 0.4 million in a brokerage account, 350 K in 529for two kids that are 19 and 17 and 148 K in a savings account. He says We have two rental properties. One of the properties we bought. For $420,000, the rental property is currently valued at a million with two and a half years of mortgage remaining 52,000 at 2.75% interest rate, what collects the, rental income of 34,000 annually? Pay 9,000 in expenses and insurance and 8,000 in property tax. Question, would it make more sense for us to sell the property? Invest the proceeds about $800,000 after commissions and taxes, et cetera, in a brokerage account earning a conservative 6%. The income gen generated from investing would far exceed the income generated from renting the property out. We’d appreciate a spitball from you. Thanks in an additional information that he forgot to include. We have no pension, but expect to collect Social Security when we’re in our late sixties, so that’ll be about $50,000 a year. We have rental income from our second property of about $20,000 a year after expenses. We expect to spend about 120 K in, per year in retirement when the kids leave for college, and we have an empty nest. I love listening to your show and get a lot of value listening to other people preparing for their retirement. Thanks.

Al: So Ned, well first of all, Tokyo, that’s pretty cool. I’m actually going there next week.

Andi: Oh, perfect.

Al: On vacation. Maybe we’ll run into you.

Andi: So, it’s not a big place or anything Al.

Al: No.

Susan: Could you imagine if somebody just saw you in Tokyo? In Tokyo?

Al: Well, yeah, I wouldn’t expect that.

Susan: Oh, I can’t wait to hear. I can’t wait to hear what happens.

Al: But I do like Kirin beer, so. Perfect. do you like Kirin beer?

Susan: I do. Yeah.

Al: Yeah. Kind a lighter beer.

Susan: It is a lighter beer. Yeah. Yeah. It’s the refreshing,

Al: yeah. Refreshing. Yeah. Yeah. Yep.

Susan: More sophisticated bear.

Al: More sophisticated. Okay. I’ll go with that. So, rental properties, this is a lot of, people have rental properties and they do rather well, right? They buy a property, particularly in this case, in San Francisco area, California. Most places in California have done rather well rental property wise.

And, you know, w. Maybe you could talk about a rental property. You know, cash flow is properties in, California. Do they generally have pretty good cash flows or pretty poor cash flows, or what would you say?

Susan: I would say in California, given that the property values tend to be higher, the cash flow doesn’t do as well as, let’s say, Texas, or places where the assets aren’t as high.

But there is appreciation in California when you buy a house. If you look at. You know, it does appreciate, so there’s two parts. There’s the cash flow. California usually doesn’t cash flow as well. But there is appreciation, which is tends to do better than other parts of the country.

Al: Yeah. In this example, you bought the home for 420,000 and now it’s worth a million.

Susan: Yeah,

Al: I would say that’s a pretty good appreciation. That’s pretty good. Yeah. So I think the way you want to think about this is do a little bit of numerical analysis, right? So look at your income versus your property value. So you tell us that you’re collecting 34,000 of. Income, 9,000 expenses and 8,000 in property taxes.

So you’re netting about $17,000 and your property is worth a million. Okay, well that’s not too hard math that’s a 1.7% cash on cash. So is that good or bad? It’s typical for California, but it’s not a very good asset for cash flow, for ca for retirement if that’s what your goal is. and this is what happens a lot when people invest in areas like California where there’s a lot of appreciation and they never wanna sell, right?

They, don’t, wanna pay the tax, they never wanna sell. And the, problem with that is you then have this appreciating asset that will benefit your kids. You’re not necessarily benefiting from that with the lower cash flow. And I’m not saying that’s the wrong answer. Maybe that’s the right answer.

Maybe you’re, fine with the cash flow, but generally in high appreciating states like California, you do better selling or you do better doing a 10 31 exchange into a property maybe outta state or a triple net lease that has a better cash flow or maybe an apartment.

Andi: That was gonna be my question was whether or not it makes sense for him to actually sell that asset and buy something in another state that would actually produce more income.

Al: Yeah, it could be. And I’ve owned outta state and I’ve owned apartments and both have their headaches.

Andi: Yeah, I guess that’s the other question. Do you wanna manage a property anywhere in the United States when you’re in Tokyo?

Al: Yeah. Well, especially that. Right? So, so, so, but, you know, just doing a little bit more math, I looked at your situation just based upon what it is right now and.

And you wanna spend about 120,000 a year. So that’s cool. and if you don’t sell either one, your rental properties, you’re netting 17,000 on one, 20,000 in another. So you need about 83,000 from your portfolio. Divide that into your total assets of about 2.3 million. That’s a 3.6% distribution rate when you do retire.

Yeah, that’s, pretty good. You don’t necessarily need to sell. Yeah, but if you do sell, the cash flow will be even a little bit better. So it just depends. If you’d like to spend a little bit more and have a little bit more cushion, then you might consider selling, either paying the ta, tax cashing out, and, you know, then, you know, we talk about a 4% distribution rate on your assets instead of what you’re getting, which is 1.74% is better than 1.7 Andi, no matter how you do the math.

Andi: Yeah, no question.

Al: But I guess, I guess what I’m saying is he doesn’t have to sell ’cause I think it works either way.

Susan: Yeah, no, he doesn’t have to sell. And if it’s peace of mind or there’s something you’re keeping up at night, then you know, it may make sense. But as far as getting him to retirement, it works.

Al: Yeah. It, kinda looks good either way. So, if it were me, ’cause I owned real estate for a long, time.

Andi: And you like, and you were in Tokyo.

Al: Yeah, and I was in Tokyo. I would sell, it’s a lot of hassle. I probably would, I’d swallow hard on the taxes, but I, might consider that or I might consider triple net lease. Or, Delaware statutory trust, that’s a whole nother category that you can sort of go into, right. But, but at any rate, yeah, there’s, different options, to, to, and I keep looking at the wrong camera, don’t I? But that’s okay. Yeah, no, you’re in a great position. I don’t think you have to sell. I think you can keep ’em both if you want to, but if you want a little bit better cash flow, a little bit more cash to work with, maybe a little bit, Easier retirement in terms of flexibility, in terms of less stress. ’cause landlord landlording, has a certain amount of stress then yeah, I think selling is great. But I don’t think you, I don’t think you have to.

Got a Late Start on Roth IRA Savings. Should I Prioritize Roth, Brokerage, or 401(k)? (Bob & Bridgette, WI)

Andi: the next one is from Bob and Bridget in Wisconsin. Love the show. Somewhat new listener over the past six months. Well, thank you Bob and Bridget. I Inca enjoy the occasional cold beer, any kind, really. my wife loves a mimosa, preferably with her feet in the sand of a Caribbean beach. In the white sand of a Caribbean beach. Found your podcast as a recommended podcast in my Apple Podcasts app. I’m 51. Wife is 49. Looking forward to retirement sooner rather than later. Here’s the data. I have 1.7 million in 401(k), 40 K in a Roth, 401(k), 50 K in a brokerage, and 110 K in a cash or money market account. My projected Social Security at 62 would be $26,000 a year. My wife’s at 62 would be 21,000 a year. A year. My wife also has a pension that she could start collecting at 57, which will be 23,000 a year. Continue to put 30,000 a year into my 401(k) and Roth 401(k) combined with a 5% employee match. Combined annual salary of 260 K. The house is paid off. The kids are gone and my only debt is my truck and SUV loans at a combined $1,100 a month for another three or four years, would like to shoot for retirement at 62 for me and 60 for my wife a year or two earlier if possible. Annual spending is estimated at 150 k. Is that doable? Also, I got started late with Roth contributions through my 401(k) at work. Should I be focusing more on funding that now rather than my traditional 401(k) or friending my brokerage or another account? Or should I just keep putting it in my 401(k)? I read differing in opinions on this, but you all seem to favor the Roth, of course. I appreciate your spitball analysis. Thanks.

Al: All right, Bob and Bridget in Wisconsin. great questions. a whole bunch of them. So maybe, Let’s, tackle the first one, which is, is this doable? And, Sue for this, I did a little math. Okay. So, So if, you just kind of, so I, I think the Bob went, wants to retire in about 11 years, right?

He said 62 and he’s 51 now. So I just took current assets. So 1.9 million, 11 years at a 6% rate of return, adding about 30,000 a year. I. I get about 4 million, which is another gigantic number, right? But you always have to compare it to your expenses, right? And so your expenses, in this case, you wanna spend about 150,000 in today’s dollars.

11 years, I just did a 3% inflation rate. You could do more or less, whatever. So I get about 210,000, right? 210,000 minus your pension, which I. And I didn’t even include Social Security yet. I just did pension. I get 32,000 index for inflation. I get, I don’t know, about 178,000 shortfall. That’s what you need from your portfolio.

Divide that into 4 million. You get about 4.4, 4.5%. I. Which it’s not quite at the 4% that I would like to see. However, I haven’t even included Social Security. So I think when you consider Social Security, Sue, I think it looks just fine. And you know, when you’re talking about something 11 years out, it’s hard to know exactly what you wanna spend. And what tends to happen is people will spend what they can. And if they can take one vacation instead of three, then that’s what they do.

Susan: Yeah. Or as they get closer and they wanna take three vacations, they may see it may make sense to work longer or they’ll adjust to make sure that they can do what they want in retirement.

Al: Yeah. And I think a lot of people, they, retire and then they fi they figure, you know what, it’s, I don’t really like playing golf every day, or I’m trying to figure out what to do. Right. Yeah. And so it’s like maybe, maybe I wanna work part-time. Yeah. And that can help things a little bit too.

Andi: Is this someplace where he, like maybe doing a test drive of retirement might make sense. Try it a little bit or, you know, back off on the amount that you’re working or something like that to see how it goes first.

Al: Yeah, I think that’s, I think that’s ideal for almost anybody if they have the ability.

Now, not, all jobs have the ability to test drive your retirement. Right. Which basically means what if you could work halftime for a while instead of full-time or 10 hours a week and try it out, right. And see how it works and. Maybe you like it, maybe you don’t. Maybe you continue working part-time, Andi.

’cause that, you know, that can be, a good way to go to help supplement retirement Sure. And keep your mind sharp. Right. and give you a purpose to get up. All these things I think are really important.

Andi: And as you’re earning a little bit less and it’s giving the opportunity to see how it is that your assets are going down during that time, you can see how it feels psychologically as well.

Al: Yeah. And a lot of times, like, like if you’re wanting to spend, let’s say, 150,000 or 200,000, whatever the number is, and you realize, well, maybe I can’t really quite do that. Okay. I don’t wanna work full time, so I’m gonna figure out how to spend a little bit less. Yeah. That, that, that happens all the time too.

Yeah. Okay. Well let’s, so he got started with Roth conversions through his 401(k) at work. He got started a little bit late. Right. So his salary’s about 260,000. Should he be focusing more on like a Roth 401(k) or traditional? what do you think Sue?

Susan: Well, given that the majority of his liquid assets are in a Roth, he has one point, or in a 401(k) is 1.7, it would make sense to start diversifying out of the pre-tax that’s gonna be taxed at the highest of rates and start.

Moving money to a Roth, so either doing it with conversions or through the 401(k) or both.

Al: Yeah. Or both. Yeah, I would agree with that. You think of, 1.7 million really, over time, maybe over another 10 years, it could double, right? So it could be, you could be, three and a half million, or so, maybe approaching 4 million and, RMD required minimum distribution on a $4 million retirement account, right?

That would be about $160,000 a year. Plus your Social Security, plus your pension, plus whatever other income you have. So just think about that. I, agree with you, Sue, because I mean, 260,000 is a high salary. It’s really good. Yeah. However. Our current tax rates right now are, they’re lower than they’ve been actually for my entire career.

Susan: Oh, really?

Al: Yeah. I didn’t know that. which at that salary, it’s in a 24% tax bracket, 24% tax bracket. I mean this, I. A few years ago would’ve been in the 28% bracket plus it probably would’ve been subject to alternative minimum tax, potentially, which could have been even a higher bracket.

Yeah. So I like the idea right now of taking the current dollars in the 401(k) and, putting more in the Roth, maybe even a hundred percent in the Roth to build that up. ’cause there’s not that much in the Roth right now.

Andi: So you’re talking specifically about contributions though, or

Al: Absolutely.

Andi: Or are you talking about converting a hundred percent.

Al: could, do, either. but the trick with the hard part about that is there’s not unlimited resources, Andi, to pay the tax.

Andi: Exactly.

Al: Yeah. And because of that, I, probably wouldn’t do a lot of conversions right now. I would just sort of switch my traditional 401(k) into a Roth just to start building up that part. That’s what I would probably do.

Susan: Yeah. If you imagine if you started now in 11 years. What would be in building up the Roth?

Al: It’d be, yeah, it’d be amazing. Yeah. So, or funding my brokerage accounts. should, is it, we get this question a lot too, you sue, which is, should I fund a brokerage account or put the money in the Roth?

Susan: You know, it depends. If it’s, if this is for retirement, I would recommend it putting in the Roth because it’s never gonna be taxed again. If the, if you’re saving for. You know, an event or a time. Then in the next few years, then I would put in a taxable account and a brokerage account. But definitely if it’s for retirement, putting it into a Roth.

Yeah, because of that tax free.

Al: So like if it’s for a down payment for a home or for maybe for

Susan: a wedding, like a kid’s wedding or

Al: wedding, a big,

Susan: you know, whatever.

Al: You gotta buy a car,

Andi: A trip to Japan!

Susan: Something

Al: A trip to Japan. Yeah, you gotta go to Tokyo.

Susan: Big expense then. If it’s something that I need before retirement, then I would put it in a brokerage account.

Al: Yeah.

Susan: And make sure that it’s invested in a capital asset or something that’s gonna get tax treatment. Yeah. Preferential treatment.

Al: Yeah. ’cause I guess paying zero tax is better than capital gain.

Susan: Yeah. It’s,

Al: I like the zero tax rate. That’s a pretty good rate. Well, so Bob and Bridget, hopefully that helped you out a little bit and Andi, I guess that’s gonna do it for us.

And what a pleasure to have you reading the questions. I would say it’s more succinct and understandable, but not quite as funny, but as

Andi: No, that’s exactly, yeah.

Al: But, It was, it was really fun to have you read the questions and, it was fun for us to answer ’em.

Andi: Yeah. Thank you. And Susan Brandeis, CFP®, thank you so much for joining the show today.

Thank you for having me. It was great.

Al: Yeah. So for Susan Brandeis, myself and you, Andi, you just listened and or watched another episode of Your Money, Your Wealth®.

Next Week on YMYW Podcast

Andi: If all goes according to plan, we’re finally getting the band back together next week, with Joe and Big Al and me, just like it was before. Tell a friend. Leave your honest reviews and ratings for YMYW in Apple Podcasts, and jump into the comments with me over on our YouTube channel. Links to all of ‘em are in the episode description.

Your Money, Your Wealth is presented by Pure Financial Advisors. A retirement spitball is great, but it’s not a complete financial plan. Schedule a free and thorough financial assessment with one the experienced professionals on Joe and Big Al’s team at Pure, and learn whether your plans align with your retirement needs and goals, whether your investments are aligned with your risk tolerance, how to minimize your taxes in retirement, and more. Whether you want to meet in person at one of our 12 nationwide locations, or if you’d rather have a face to face meeting from your home office via Zoom, you can book yours by clicking or tapping the Free Financial Assessment link in the episode description. Or give us a call at 888-994-6257.

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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