David Cook

David Cook is a Senior Financial Advisor for Pure Financial Advisors. David uses his deep knowledge of financial markets and planning strategies, along with his passion for helping people, to assist his clients in achieving success and comfort in their financial lives. While working with clients to navigate some of the most difficult financial landscapes [...]

Andi Last

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
May 31, 2024

Sunshine in Orange County has been waiting patiently since January for a full Retirement Spitball Analysis: how are her assumptions for rates of return and inflation, her plans for Roth conversions, her asset allocation and asset location, her tax planning, her retirement income and retirement spending plans, and so much more? What missed opportunities is she overlooking?

So many excellent Retirement Spitball requests have come in that Your Money, Your Wealth® hosts, Joe Anderson CFP®, and Big Al Clopine CPA can’t handle them all. 

On these bonus episodes, called YMYW Extra, producer Andi Last enlists the help of the experienced professionals on Joe and Big Al’s team at Pure Financial Advisors. In today’s YMYW Extra number 1, thanks to David Cook, CFP® from Pure Financial’s San Diego headquarters, Sunshine finally gets her Retirement Spitball Analysis.

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Show Notes

  • (02:35) Rate Assumptions
  • (05:58) Retirement Spending
  • (06:54) Retirement Income Strategy
  • (12:08) Retirement Planning: Asset Allocation vs. Asset Location
  • (15:50) Sequence of Returns Risk
  • (17:53) Social Security Tax Torpedo
  • (20:01) Goals & Questions
  • (22:50) Other Strategies: Qualified Charitable Distributions
  • (24:23) IRMAA & Tax Optimization
  • (26:37) Likelihood of Success & DIY Tools

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Andi: Sunshine in Orange County has been waiting patiently since January for a full retirement spitball analysis. And today, on this bonus episode of Your Money, Your Wealth®, what I’m calling YMYW Extra, Sunshine is finally gonna get a spitball.

I’m producer Andi Last, and you, the YMYW listeners, have sent us so many excellent retirement spitball requests that Your Money, Your Wealth® hosts, Joe Anderson CFP®, and Big Al Clopine CPA can’t even handle them all. So I’ve enlisted the help of senior financial advisor David Cook, CFP® from Pure Financial Advisors’ San Diego headquarters to help out.

And even though Joe and Big Al aren’t the ones doing the spitballing here, it’s important to note that this is still just a spitball, for educational purposes only. Even though you’ve given us a lot of details, we don’t know everything about your financial situation, so don’t take this to the bank! Dave, thank you so much for pitching in. I really appreciate it.

Dave: Of course. Thanks for having me, Andi. It’s good to see you again.

Andi: Yeah, you as well.

Dave: I’m looking forward to it.

Andi: So this is a long email, which is why Joe and Big Al have been skipping it since January, because if you listen to the podcast regularly, you know that Joe has a little bit of trouble with the words.

Dave: This is dense. Yeah, it’s dense.

Andi: Yeah, that’s a good word for it. So I’m going to try and crank through it as quickly as I can and then we’ll see if we can pull it apart.

Dave: Sounds like a plan.

Andi: “Greetings! Currently discovered your podcast, I enjoy your show and the spitballing. Thank you for sharing your financial wisdom and providing valuable info to your listeners. Your answers to my questions below will be greatly appreciated. My best friend forever calls me Sunshine. Single, no kids, live in Orange County, Southern California.”

Now Sunshine doesn’t say whether Sunshine is a she or a he, so I’m gonna go with she, and Sunshine, I apologize in advance if that’s incorrect.

Dave: Yeah, a fella, Sunshine? I think that could be… she’s single. She’s got no kids and she’s ready to retire.

Andi: Yep. “Retirement start date, January 1 of 2025 at the age of 65 and a half. Vehicle is a new Lexus UX” and her choice of beverage is Silver Oak Cabernet Sauvignon with dinner. Dave, what’s your drink of choice?

Dave: Oh man, you know what? These days it’s probably a good Japanese whiskey. I don’t drink a lot of red wine, but if I’m going to drink red wine, Silver Oak is on that list.

Andi: Wow, Japanese whiskey?

Dave: I know, it’s kind of fancy, I know. I kind of got it with my brother started me on that, and it’s kind of cool thing.

Andi: I’m going to be honest here, I didn’t even realize that Japan had a whiskey industry.

Dave: Oh yeah.

Andi: Wow, okay.

Dave: They’ve become artisans in the whiskey field.

Andi: Very cool, excellent. Learn something new every day on YMW, and it’s not always financial.

Okay, so Sunshine’s assets, let’s just, encompassing everything, $6.4 million invested, and about $2 million in property. So that includes $4 million tax-deferred, that’s broken out 85 percent equity and 15 percent guaranteed; $2 million taxable; $400k tax-free, and then, like I said, $2 million in property – that’s home and rental value minus mortgage.

Rate Assumptions

So then next we get into rate assumptions. Sunshine is assuming a 5 percent rate of return for all investment accounts, a 3 percent rate of inflation increase for rental income, spending, withdrawals from tax-deferred and taxable accounts, saving into Roth; a 0.75 percent rate of increase for dividends, a 2 percent rate of return for the tax-free account, and a 50 percent effective tax rate based on 30 percent ordinary incomes, 15 percent long term federal capital gains, and 10 percent California state tax for the total of ordinary income and long term capital gains. So right off the bat, I already know that at the end of this email, Sunshine asks, what do we think of the rate assumptions?

Dave: She does.

Andi: So what do you think of the rate assumptions, Dave?

Dave: Yeah, I think you know, she’s conservative for at 5 percent for her investments, and I think it’s sometimes it’s better to play a conservative assumption game when you’re looking at returns. I think the last 15 years where interest rates were very low, inflation was very low. Even a 60 to 70 percent allocation of stocks, you probably were going to squeeze a 5 to 6%. It still might be a little conservative. She’s got plenty of assets. I think it’s better off to play that conservative game. Her rate of inflation is a little bit low. I would probably push that up. We’ve been seeing 3 percent rate of inflation assumptions for years. And never in my career did I ever think that we’d see the CPI getting close to 10 percent – double digits. And I don’t think we’re going to get back to the 1 and 2 percent world. I would probably bump that up to maybe four or something. You know, here at Pure we use something a little bit higher, closer to four. We will use a higher rate of inflation for medical expenses, for college tuition. We’ll take some items out and increase the inflation more than, say, general living expenses. So it’s a little low. When she says here the 2 percent rate of return for her tax-free account, that’s, that’s bringing up some red flags.

Andi: Okay?

Dave: If you have a tax-free account, let’s say it’s a Roth. The idea that it’s tax-free is only for the growth of the account. If you have assets that are in there that aren’t earning much of a return, well, you’re not really getting the benefit of the tax-free growth. You know, we’ll talk about that asset allocation versus asset location, different things. But 2 percent for cash maybe? Or 2 percent for maybe Social Security inflation over the time? But I wouldn’t use a 2 percent rate of return on my Roth money. But that’s, that’s something we can really get in the weeds there.

Taxes, again, taxes are, right now, based on her income, depends on if she’s going to be spending a lot more money out of her IRA while she’s also doing conversions, which is something that she talks about. She’ll likely be close to that. She’ll be in the 32 percent bracket for ordinary income, but that also would push her capital gains rates probably closer to 18 and a half. So there’s a few nuances there. She’s doing a really good job at getting some assumptions and really thinking about this, you know, and I, I have to give her a lot of, a lot of credit for going through and looking at all the detail.

Andi: Yeah. We’re just through page one of this email so far.

Dave: Halfway through the page one.

Retirement Spending

Andi: Okay, so let’s continue on “retirement spending.” She’s planning on $200k a year before tax the first year. That’s 2025. “And of that retirement spending, 50 percent is essential living and 50 percent is discretionary.” Now that’s also thinking ahead, because a lot of people don’t break it out like that.

Dave: Yes. That’s amazing. I will give her a lot of credit also because a lot of times when I try to pull the expenses out from clients and ask them, you know, “what are you spending?” Oh, they’ll give you some crazy-

Andi: They ballpark.

Dave: And it’s usually very low, it’s very low. And it’s almost a hundred percent wrong right out of the gates. They don’t, they kind of forget the, you know, gifting to kids, or the big trips, you know, or her Silver Oak. That sometimes is usually not included in people’s living expenses. So I have to give her a lot of credit by stating, putting in paper, that half of her income or half her expenses are discretionary. That’s, that’s, she’s ready. She’s ready for retirement.

Retirement Income Strategy

Andi: Okay, now, onto the next one. “Retirement income strategy, taking into consideration Roth conversion and RMD.” Here we go! “Between the ages of 65 and 81, starting at age 65 in January of 2025, initial annual withdrawal of $250K from the tax deferred, with 50 percent allocated for expenses, and begin saving 50 percent into the Roth account. Then the RMDs start at age 73. Then between ages 65 and 82, starting at age 65, initial annual withdrawal of $120K from the taxable account for expenses. Then, additional fixed ordinary incomes including: rental incomes between the ages of 65 and 78 starting at $12k the first year. Rental starting at 49k at age 79 when the rental mortgage will be paid off. Dividends and interest of $15k starting at age 65 from the taxable and tax-free accounts. Gradual decrease based on values of the taxable and tax-free accounts. And Social Security benefit of $57k starting at age 70.”

So she’s putting off Social Security until age 70. All right, next we’ve got “withdrawal from the Roth account: only when the total incomes listed above are insufficient to meet expenses, including the tax payment. For example, when balances in the tax-deferred and taxable accounts fall below the expected withdrawal threshold. Assuming no change to my plan in the future years, and that my calculations are accurate, this strategy will result in: at age 82, the tax-deferred account will be depleted from prior years. Roth conversions and expense withdrawals yet retains a balance of about $250k to sustain the ongoing RMD contributing to income. At age 82, the Roth account will have a balance of about $6 million. At age 85, the taxable account will be depleted from prior year’s withdrawals, and yet retains a balance of about $17,000.” Any comments on that just yet?

Dave: Yeah, I was gonna say obviously she’s thinking way ahead. Right?

Andi: Seriously. Yeah.

Dave: 16 years.

Andi: I don’t think I’ve seen an email like this, ever.

Dave: Yeah. I wonder if she’s got a spreadsheet?

Andi: Ya think?!

Dave: Or a couple. I imagine it’s pretty, again, using that word dense again, it’s probably a pretty dense spreadsheet. But yeah, I think obviously it’s good to have some long-term ideas, throw some assumptions in there, kind of get a long term perspective. You also want to break it down into what’s going on now. I see that she’s expecting to take, you know, about 250 from the tax deferred and only half of that can be converted and half was gonna be used for expenses. She’s got $2 million in a taxable account that she’s going to be in a very advantageous tax situation. If she leaned more into spending down the taxable account, maybe not take as heavy of a distribution from her tax-deferred accounts, that would leave her more room for Roth conversions.

So she could do a couple hundred thousand dollars in Roth conversions and likely still be able to be in that 24 percent bracket, maybe slightly getting in the 22, but I mean the 32, but what pushes her in the 32 would likely be her dividends that come from the taxable account.

And again, that would not be taxed at 32%. It’d be taxed at the long term capital gains rate. I think she’d probably better, if she’s really trying to convert while these tax brackets are a little lower, I would probably lean a little bit heavier than the $120,000 out of her taxable account. Spend a little bit more from the taxable, take less from IRA and spend it, and more from IRA to convert it.

But obviously, always looking at the tax brackets. You know, you know, she’s, you know, as I mentioned, that 24 percent tax bracket is where you definitely want to try to fill up as much. Then when you’re starting the 32 percent bracket, it gets a little bit unsavory if you’re gonna be converting. Especially with somebody who doesn’t have kids and she’s not worried about grandkids and inheriting these assets. She’s talked about giving, giving some rental properties to charities. So maybe you don’t have to be as aggressive, but I would certainly try to slim down that $4 million tax-deferred pool, because she knows there’s going to be a big RMD down the future. So convert it and then spend it, of course.

Kind of moving into the, you know, she mentioned Social Security at age 70. You know, I think that’s, that’s going to be the general, you know, rule of thumb if you think you can live in your mid-80s. It would give her more room from a tax perspective to do some things that she’d like to do from a conversion perspective. But yeah, I think my only thing there was just focusing more spending down maybe the taxable, because she’s got 2 million there. She did a really good job of, of accumulating there and she’s got some favorable tax treatment there. And then using that, that room that she’s not using for IRA distributions for income, she could convert more.

Andi: Remember, if you want a Retirement Spitball Analysis of your own, click the link in the description of today’s YMYW Extra in your favorite podcast app to Ask Joe and Big Al On Air. I’ll do my best to have the fellas answer your question on Your Money, Your Wealth®, or I’ll feature you in a YMYW Extra segment with one of the experienced professionals on Joe and Big Al’s team here at Pure Financial Advisors, like Dave Cook, CFP®, from Pure Financial in San Diego, who is joining me today to spitball for Sunshine in Orange County.

Retirement Planning: Asset Allocation vs. Asset Location

Alright, so let’s talk about what her retirement planning strategy is.

Dave: Sounds good.

Andi: “First, employ a Roth conversion to eliminate the RMD tsunami. Adjust tax deferred portfolio asset allocation to 75 percent stock ETF and 10 percent bond ETF, 15 percent guaranteed. Rebalance the portfolio annually, utilizing the balances of guaranteed income and bond ETF to navigate market downturns and emergency. Also, implement the same asset allocation in the Roth account. Perform annual review and replan with adjustments depending on net worth. Employ tax loss harvesting to potentially reduce taxable account long term gains.”

“Mitigate sequence of returns risk during market downturns by, one, reducing or eliminating Roth conversions. Two, reduce the rate of withdrawals. Three, reduce expenses. Four, avoid or minimize withdrawals from market investments. Also, sell the rental, resort to a reverse mortgage, or downsize in the event of financial depletion or long term care need arises. And then also, understand IRMAA concept, recognize my retirement income will affect my premium for Medicare, built in this extra cost in living expenses.” So she’s already planned for that. “And understand Social Security tax torpedo concept, recognize up to 85 percent of benefit will be taxed, built in this extra as ordinary income tax.” So, in terms of her retirement planning strategy, what are your thoughts, Dave?

Dave: Yeah, so, to Sunshine’s advisor who sent this question in…

Andi: Exactly! Or is Sunshine the advisor for somebody else?

Dave: Yeah, this is about where I started thinking, hmm, okay. This is, there’s a lot of meat on this bone, but there’s some good things in here, for sure.

The one thing, you know, she talked about the tax deferred account, her IRA, being 75 percent allocated to stocks. And then implementing the same allocation in the Roth account. Again, this is where we get into asset location. You know, so the 75 percent stock portfolio, 25 percent bond portfolio, and she kind of breaks it down into growth, value, international. That’s what you would call asset allocation, right? That’s the science of trying to build a diversified portfolio of assets that don’t correlate with each other, have a different correlation with each other. So that gives you that, say the only free lunch and investing they say is diversification. So that’s asset allocation.

She’s got some issues there, but then she goes into asset location by saying she’s going to have all the accounts the same.

Andi: Yeah, she says, “implement the same asset allocation in the Roth account” where that’s when you get into asset location, right?

Dave: Yes, there is a whole science behind that as well. Because each investment has its own different tax implications. You know, for example, a stock is going to be taxed differently than a bond. If you own a stock, and if it’s outside of a retirement account, you get dividends if it’s a U. S. company, most likely those are qualified dividends and so they qualify for a special tax treatment that’s long-term capital gains. If that stock is in an IRA, paying you dividends, well, you don’t get that qualified dividend rate, you have to pay ordinary income tax. So, same thing with a bond. A bond is going to, for the most part, unless it’s a tax-free municipal bond, let’s just say a standard corporate bond, you, you’re going to pay ordinary income on the interest that you earn. Now, the art of asset location is saying, okay, if my, if I want to try to match my investments with how those accounts are taxed, and we talk a lot about on this podcast about the three pools of money: your tax-deferred, taxable, and tax-free. All accounts have a different taxation to them. Well, so asset location would mean you’d want your Roth, if you’re going to get more growth, and this money is not, she says she’s not going to touch this Roth for many, many years unless she absolutely has to. So she’s got a long time horizon in that Roth. She can take more risk in her Roth and own more equities. And get a benefit from it.

Sequence of Returns Risk

So same thing with an IRA, you know, she’s worried about the sequence of return risk. Another thing that she brings up here is, you know, that sequence of return risk is if you retire, and it’s the first couple of years of retirement, we run into a nasty recession and the markets really go down. I had clients that were retiring in January, February of 2020 going into COVID.

Andi: Oh, my.

Dave: Very scary, right? But we have contingency plans. We have a thing, we have ways to manage that. A lot of that is by, Oh, in your IRA, you have maybe more bonds. So you don’t want your, you don’t want your IRA having a super high growth rate. Matching the rate of your Roth, because that means your RMDs are going to be higher. All of the growth that you have year by year, you’re splitting that with Uncle Gavin here, if you live in California, and Uncle Sam, if you’re, for the U. S. taxes. So, you’re, sure, great. Your IRA went up 20 percent last year. Fantastic. High five. But guess who else is high fiving you? Uncle Sam, because he just got 20 percent return on the taxes that you own.

So, so asset location would say, well, maybe have your IRA a little bit more conservative. Yeah. maybe 40 percent stocks, 50 percent stocks. And then in her taxable account, where she gets long term capital gain treatment, she can do the tax loss harvesting, that more heavy in equities. And of course, her Roth is more heavy in equities. So I would definitely not allocate those across the same –  you’d want to make sure that you have a household allocation target of certain amount of bonds that gets you through that sequence of return risk. You can rely on bonds for three to four years and not have to worry about touching stocks if that’s the case.

And then that allows you to start putting more bonds in your IRA. It’s stable. You’re not pushing your RMDs up faster and then you’re benefiting by able to tax loss harvest in your taxable account if the market is volatile. And in your Roth, if we do have a nice recovery and you have a long time horizon, that takes a lot of the risk out of that particular allocation if you’re heavy equities and you’re Roth, because you’ve got time on your side.

So that would be the concerns, that I would bring up is just, you know, is employ a better asset location strategy.

Social Security Tax Torpedo

Andi: And does she have to worry about the tax torpedo concept with her Social Security?

Dave: No. They’re, you know, with Social Security, the most of your Social Security that’s going to be taxable is 85%. And for a single that’s at about $34,000 of AGI. She’s going to blow through $34,000 right out of the gates, her dividends, her interest that she’s earning. Even if she takes all the conversions that she does, her Social Security, her, all of her income is going to, she’s never going to likely be in a situation where she’s going where half of her Social Security is taxed. Well then the following year, she adds a little bit more.

Because what happens, let’s say 50 percent of your Social Security is taxed. And then you push above that 85%, well then, now 85 percent of your Social Security is taxed, but then you’re adding other incomes in other areas. And it’s something that, if you, let’s say you do a conversion, you’re adding taxable income on the conversion, but then you’re adding more taxable income on Social Security. So sometimes you’re adding $2 of taxable income, even if you’re only adding one real dollar of taxable income on the return.

Her, she doesn’t have to worry about it. It’s not even something that’s even going to be in her ballpark to even worry about. So it’s more about, I think, knowing what tax bracket she’s in year by year. I know she’s trying to match this thing out over 16 years. It’s really looking every year, you know, because we know the tax laws are going to change here in another couple of years. And it’s just making sure you have a process that allows you to go without diving in too deep into the tax code. Just do a simple breakdown of your tax return.

How are your rentals? You know, depreciation that she’s going to, you know, pay off her, rental here pretty soon. That’s going to help her with cashflow, but she’s going to lose some deductions. Just knowing year to year how to under- how to read your own tax return and know how to apply that for the current year. Like we’re here at sitting in, in May of 2024. Most CPAs are looking or last year, we’re looking next year, also 2025. I’m looking at 2026. You know, going out 15 years, 12 years, that’s a little tough. But you want to have a long term vision, but you want to be able to strategically, every year, know how to map it out.

Goals & Questions

Andi: All right. So let’s get into the goals and the questions and see whether or not we’ve covered all the bases here. “Goals: Ensure financial security throughout my lifetime, assuming a life expectancy of 100. Maximize retirement income without jeopardizing that goal, and then minimize any remaining funds at 100 with the exception of intended contribution of my properties to charitable organizations,” which you mentioned earlier, and we hadn’t even gotten to it yet, but you’ve done your show prep – which I’m so not used to, because Joe and Al will just roll on the fly. Al will sometimes do some calculations, but I appreciate you coming prepared. Thank you.

Dave: I got big shoes to fill.

Andi: All right. So then the questions, let’s just see what we’ve covered. “Are the assumptions too conservative or optimistic?” We covered that one. “Are my retirement income and retirement planning strategies considered sound?”

Dave: I think her income target is perfect. Right now, she’s only assuming maybe a 4, 4.1 percent distribution rate, and that doesn’t consider when Social Security comes in, and when she gets a bump in, in her rental income when that mortgage is paid off. So, rental, I mean, her retirement income, I think she’s going to be at more than fine. She’s ready for retirement. As I mentioned, some of the strategies that I think she would consider, I think, I think the asset location is one. Asset allocation, she might be, probably, she doesn’t need to take a lot of risk. Her assumption for rate of return is 5%. She, her allocation of say 75 percent stocks, 25 percent bonds, that’s probably close to a 7 percent target rate of return. That’s probably more risk than she needs to take.

Andi: Yeah.

Dave: Do you need to take more risk just for the sport of it? You know? Is it just for sport? Because you, you’re okay with risk? Some people don’t need it. Some people want to take it just because they enjoy that side of- but if she’s more worried about leaving this money to charity and wants to spend it, then she probably doesn’t need to even take that much risk. You know, so I’d probably readjust her allocation down a little bit, especially as we’re going into a situation where, you know, with this economy, I think we are seeing a little bit of a slowdown and there’s going to be likely some, some fallout as, as interest rates kind of remain high, remain elevated. So it’s probably a good time, especially if she’s looking to retire in January.

Andi: In January, yeah.

Dave: So that’s just right around the corner. So for me, I would probably bring her allocation down a little bit, a little more conservative. And then from there, once I understand her allocation, I would split up that allocation into a tax diversification strategy where her Roth is going to be more generous for stocks, her IRA is going to be more stable, so she’s not going to worry about sequence return risk. She can get rid of that by having more bonds in a place that she can get access to. So those are some of the things that I just see.

Other Strategies: Qualified Charitable Distributions

Andi: “What additional key retirement planning financial principles should be applied to those strategies?”

Dave: Yeah, other than, you know, that, we’ve, you know, possibly, if she doesn’t convert as much as she’d like and she does have a really nasty required minimum distribution, more than she needs, well, there’s always a QCDs, a Qualified Charitable Distribution that she can use when she gets to RMD age to kind of gift some of those dollars out.

Andi: Explain that a little bit, how that works.

Dave: So it’s kind of like a, so once you become RMD age, so for her, it’s 73, let’s say her RMD is $140,000. And let’s say she only needs $80,000 of that to actually live, for her living expenses in retirement. So she’s got $60,000 of excess RMD that she’s going to have to pull out and pay taxes on it. Well, let’s say she does have some charities lined up. She can, let’s say, gift $20,000 to the local hospital or, or a school or, or a charity or church. That reduces her RMD by that $20,000. So it doesn’t, it’s not taxable to her, but then she gets it as a deduction if she’s itemizing. So it’s kind of a two for one tax step tax deal. So that helps if, you know, reduces her RMD and it also gives the money to charity.

Andi: And that goes directly out of the RMD to the charity, correct?

Dave: Yep. Directly from the IRA, and it gets a check sent directly to the charitable institution. Yep.

IRMAA & Tax Optimization

Andi: “What specific changes would you recommend enhancing my strategies? For example, adjusting the retirement asset allocation, expense amount, withdrawal amount, assumption, Roth saving, et cetera.” So obviously we’ve talked allocation and location. Are there any other changes that you would recommend – or suggest, because we don’t make recommendations unless you’re an actual client – for enhancing her strategies?

Dave: Yeah, and I think her distribution rate’s fine. Her assumptions, probably a little tweaking, like I said on the we’ve talked about that on inflation. Yeah, I think she’s done a really good job of planning and really getting ready for retirement. She did mention IRMAA. It’s something to think about. I don’t know if there’s going to be a lot for her. She’s going to likely be in that 2.6 times limit. So IRMAA is that income uh…

Andi: Income related monthly adjustment amount for Medicare.

Dave: Bam! I’m glad you said it.

Andi: Well, I’ve screwed it up previously, so I had to make sure I got it right once.

Dave: I was like, help me, and you did. So yeah, IRMAA is going to be something that it’s kind of odd because it goes, it looks back two years, you know, but like if you look at the 2024 numbers, for her, you know, for 2024, it’s about $110,000, anything below that, she’s going to be in the standard $174 Plan B for Medicare. And then it just goes up from there. She’s, with her target for living expenses and conversions, she’s going to be between $206,000 and probably $300,000 AGI. So that’s going to put her in that 2.6 times, you know, so that’s roughly about $452 a month versus $174. But I think she’s practical. She mentions in there that she doesn’t necessarily want to have the IRMAA drive her tax strategy.

Andi: Yeah, she says, “while I understand this strategy may not be optimal for tax saving, I’m concerned that pursuing tax optimization, such as IRMAA, Social Security torpedo, will lead to more money left behind. Any tax optimization suggestions that will maximize income during my lifetime without significantly increasing the amount left behind?” So, she kind of wants to spend it now while she’s here to do so.

Dave: Yeah. And I think that’s good that she’s got a good, you know, I would say frame of mind looking at this stuff. And I have some situations where people really try to put themselves in a corner to live into this IRMAA, but they, they’ve got plenty of, of retirement assets that they could have a better retirement lifestyle, but for IRMAA purposes, they’re trying to spend below where they really could be spending. And it hurts your lifestyle and it, it’s one of those things where it is, it’s good to know. It’s good to know where it’s at and be mindful of it, but you don’t want it driving your retirement decisions.

Likelihood of Success & DIY Tools

Andi: She says, “What’s the likelihood of success” in achieving her goals? Which I realize, obviously, this is truly a spitball. So you can’t say, “Oh, yeah, you’re right on track 100 percent” or anything like that. But it looks pretty good, would you say?

Dave: Yes, I would say it looks really good. She’s put herself in a good position where she does have, she already, she has about 400, 000 in the tax-free pool. She’s got some money in the taxable. So she’s given herself some, herself some tax control. And we, that’s one thing we always, we preach about is having income control, tax control, when you try to build yourself a retirement income, like a pension stream of income for yourself. So, she’s done a good job there. She’s at a very reasonable distribution rate.  She’s going to be taxed, unfortunately, as we all are. There’s no way around that. It’s just a matter of how do we manage that the best, where I, I don’t think taxes are going to go anywhere but up. And so, taking advantage of the lowest tax brackets we have in our lifetime now makes sense. But I’d say yes. I’d give her a gold star for that.

Andi: And then her last question, I can actually answer this one. She says, “what DIY software or tools would you recommend that can validate my calculations and scenario and help planning?” And we obviously have the EASIretirement.com free retirement calculator. E A S I retirement.com. It is kind of a spitball as well. You know, the data that it’s going to give you is based on the data that you put into it. But it’s a great way to put in the information and then you can tweak it and kind of see how that changes things further down the line and what it’s going to look like for you. And then, as you get to the point where you’ve got that all mapped out, and of course, it’s going to tell you, oh, yeah, you’re 99 percent on your way to retirement success. That’s the point at which you want to talk to an advisor and get some more strategies and do some more planning.

As you look at this, Dave, is there anything else that we haven’t covered? I mean, we’ve covered a lot. We’ve covered pretty much the whole soup to nuts. But is there anything that we’ve left out?

Dave: No, I think it’s good. I think she is ready for retirement. Sunshine is ready to retire here in the sunshine state and I think it’s going to be, she’s ready. She’s definitely ready.

Andi: Isn’t the sunshine state Florida?

Dave: It could be.

Andi: That’s David Cook from the San Diego Pure Financial Advisors Office. Dave, thank you so much for helping out. I appreciate it.

Dave: Appreciate it, Andi. Thanks for having me.

Andi: All right. So there you have it, the first episode of YMYW Extra, a little bonus content for the Your Money, Your Wealth® faithful. Sunshine, thank you so much for your question, and for your patience. Now, for the audience, what’d you think? Join the conversation on our YouTube channel and let us know. Now that comments are newly opened, I’m in there responding to you and taking notes, because the show would not be a show without you.

In addition to the retirement calculator I mentioned earlier, which you can use for free at EASIretirement.com, we encourage you to check out all our free financial resources. We’ve got helpful guides and white papers, a blog, and educational videos to help you get retirement ready. You can also subscribe to the YMYW newsletter, so you never miss Joe and Big Al on the Your Money, Your Wealth TV show and podcast. And when you’re ready to get serious about crafting your retirement plan, schedule a free financial assessment with one of the experienced professionals, like Dave Cook, at Pure Financial. Click the links in the description of today’s episode wherever you get your podcasts to access all of these free resources. Help us grow Your Money, Your Wealth® by sharing the show, and by leaving your honest ratings and reviews in Apple Podcasts and any other podcast app that accepts them.

Your Money, Your Wealth® and YMYW Extra are presented by Pure Financial Advisors, 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.



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.

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