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

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 25, 2021

Maxing out Roth IRA, 457, and HSA – check. Pension – check. What else should you be doing to prepare for a successful retirement? (And do 40 chickens play a part?!) How do pension and Social Security fit into your equity and fixed income portfolio mix? Should you be more aggressive with Roth conversions? When planning for early retirement and considering inflation, is a 5% equities growth rate a good rule of thumb? Will a Spousal Lifetime Access Trust (SLAT) protect assets from a tax time bomb? Plus, an overview of the SECURE Act 2.0. 

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Show Notes

  • (00:55) Retirement Spitball Analysis: Maxing Retirement Savings, a Pension, and 40 Chickens. What Else? (Jon)
  • (05:02) How to Incorporate Pension and Social Security in Equity and Fixed Income Portfolio Mix? (James, AZ)
  • (12:08) Retirement Spitball Analysis: Should We Be More Aggressive With Roth Conversions? (Dustin, MN)
  • (22:14) Early Retirement Spitball Analysis: Can I use a 5% Growth Rate for Equities? (Diego, Maryland)
  • (29:51) Should We Set Up a Spousal Lifetime Access Trust (SLAT) for Asset Protection, Given the Upcoming Tax Time Bomb? (Hawk, Scottsdale, AZ) 
  • (40:23) SECURE Act 2.0 Overview

Free resources:

Pursuing a Better Investment Experience

Will Inflation Affect Your Finances in 2021? The Outlook for Inflation and What To Do About It

SECURE Act 2.0: 10 Ways the Proposed Law Could Change Retirement Savings

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Today on Your Money, Your Wealth® podcast #327, it’s another round of YMYW retirement plan spitball analysis. Jon’s maxing his retirement savings and has a pension – what else should he be doing, and how do 40 chickens figure into his plans? How should James in Arizona incorporate his pension and Social Security in his equity and fixed income portfolio mix? Should Dustin from Minneapolis be more aggressive with Roth conversions? With inflation, should Diego be using a 5% equities growth rate in his early retirement plans? Should Hawk and Lady Hawk in Scottsdale use a Spousal Lifetime Access trust to protect their assets from a tax time bomb? Plus a brief overview of the SECURE Act 2.0 bill passed by the House Ways and Means Committee last week.  I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP®, and Big Al Clopine, CPA.

Retirement Spitball Analysis: Maxing Retirement Savings, a Pension, and 40 Chickens. What Else? (Jon)

Joe: “Hello Joe and Big Al. I’m 36 yo. I drive a 2012 Civic and have put 284,000 miles on it since I bought it new. No pets, but I had 40 chickens at one time prior to COVID.”  What the hell is wrong with you? 40 chickens?

Al: He likes eggs, I guess.

Andi: Jon doesn’t specify where he lives, he might be someplace where 40 chickens make sense.

Joe: I could say something. “I will have a public pension that will replace 88% of my income at 57; no debt; home is paid off. I make $45,000 a year. I save $6000 every year to max out my Roth IRA, which is a total of $32,000 in small-cap, land, and value 50/50. I max out the family HSA every year, $7800 with a total of $23,000 all in small-cap value. I have a 457 plan with $167,000, split 19% in VIIX and 81% in VRMPX. I don’t have a 403(b), but I could. Which means I can max the 457 at $19,500 and a 403(b) at $19,500, totaling $39,000. But since it’s tax-deferred, it would only impact look like to take-home pay as I invested $28,500. Also I have a brokerage account of $14,000-” So he makes $45,000 a year, and he’s saving all this money?

Al: Look at that. And he’s got a great pension.

Joe: And he’s got 40 chickens. What the hell’s he-

Al: I think he’s got nothing to worry about. He’s got food for life and he’s got 88% pension-

Joe: “I don’t really plan- ”

Al: If he wants to eat, he could just go grab one of the chickens too.

Andi: Let’s hope he’s not a vegan like you.

Al: It doesn’t say.

Joe: “I don’t really plan to touch any of this money, as I assume if I need more of my income, I just pause investing for the time-” Wow, this guy’s saving like 50% of his income. He’s just playing with chickens all day. I don’t know what the hell’s this guy’s doing.

Al: He’s got extra time-

Joe: After COVID? COVID killed the chickens or something? He’s like, yeah, I had all these chickens prior to COVID. Why would you- like COVID, you’re at home, wouldn’t you keep the chickens? Or did they eat all the chickens because of COVID?

Al: Because they lost his salary, had no income? And there weren’t enough eggs to make the food.

Joe: Oh God. “If I need more of my income I just pause investing for the time being. I feel like I’m far behind in all this investing. Not sure what I should be doing otherwise. Also, I have $600,000 in life insurance policies, so I’m worth more dead than alive as my dad has always said too. What am I missing? Look forward to Joe making fun of me.” Oh, what are you talking about, Jon? Never make fun. All in good spirit. That’s right. “Thanks for the advice.” Jon. You wrote in your email that you had 40 chickens. What do you want me to say?

Al: He wanted you to make fun of him. That’s why he wrote it. He didn’t really say how many pigs he had or whether he’s got cows or horses.

Joe: I think he’s doing great. He’s 36 yo, right?

Al: Yeah, it’s amazing.

Joe: So he’s good, man. He’s going to have 88% of his income at age 57, so he can retire in 20 years, has no debt, paid his house. He’s saving crazy amounts of money. And yeah, I love it. I don’t really see a- that big of a fly in his overall strategy or plan.

Al: I don’t either. I think it’s perfect. I think he’s got extra money to buy more chickens if he wants.

Joe: Diversify.

Andi: Get those 40 back.

Joe: Yeah.

How to Incorporate Pension and Social Security in Equity and Fixed Income Portfolio Mix? (James, AZ)

Joe: We got James. He writes from Arizona. “Hello, Joe, Al, and Andi. Thanks for the podcast and the valuable information you share with us listeners. I would like to get your thoughts on how to incorporate a pension and Social Security within the fixed income portion of my portfolio. Do you recommend this approach? Or do you keep those separate from the allocation percentages?” So James is asking Al, is that I got a pension and Social Security, can I just count that as, like, my bond allocation of my portfolio?

Al: So in other words, I don’t need any bonds. Because I got plenty of fixed income.

Joe: Correct. I guess another way to look at that is like- what was the name of the book that- he was all into human capital and he kind of looked at it that way. If you have fixed income sources coming in from Social Security and pensions and so on, you have to look at that present value allocation into your overall asset allocation, right?

Al: Yes, I do remember that. I forget the name of the book, too. We interviewed him, the author. I remember.

Joe: Yeah, yeah, yeah. He’s a good guy. “As an example, we have $1,500,000 in retirement in taxable accounts. So we want to take 4% each year or $60,000. My pension is $20,000 per year. Our Social Security will be $40,000 per year. That provides $120,000 in total income with half coming from pension and Social Security. If we want to have a 50/50 equity and fixed income allocation and the 50% fixed income is covered with pension and Social Security, can we invest 100% of what is in the retirement taxable accounts into equities to cover the 50% of the portfolio? If you do not agree with this approach, I would appreciate hearing your thoughts and how you incorporate pensions and Social Security into the equity and fixed income portfolio mix. Much appreciate it.” And James, that’s a very good question. And Al, I guess I’ll let you kind of take a crack at that.

Al: It’s my turn, OK good. See what you think. I like to separate it, Joe. So in other words, I like to say, what is your need? What is your shortfall? You take your spending need of $120,000 and your fixed income is $60,000, so you still need $60,000. So I like to look at that compared to your overall portfolio. And of course, that’s 4%. But then a couple of things that I would say. One is we kind of want to make sure you have enough safety in your portfolio to ride out a long-term market downturn. So if you need $60,000 a year, you can multiply that by 5 years. You could multiply by 10 years, let’s say 10 years to be ultra-safe. So that’s $600,000. So if you agree with that, then you would want $600,000 in fixed income divided by $1,500,000, which comes out to be 40%. 40% bonds, 60% stocks. Now, that’s just- that’s one way to look at it. A second way to look at it is, what rate of return do you need to be able to generate a 4% cash flow distribution? And interestingly enough, the 4% rule came from somebody investing in a 60/40 portfolio, 60% stocks, 40% bonds for a 25-year period. That doesn’t guarantee that’s going to work. But over the likelihood, that’s probably a 90% plus chance that you’ll have enough money over your retirement, which is- when the study was done years ago- was over 25 years. So anyway, in both analyses, 60/40 to get a 4% distribution, 60/40 to have $600,000 in fixed income, I think that’s the number.

Joe: I agree with both those statements because how I would look, you have to look at it, what is the demand for the portfolio? What is the portfolio meant to do? In the portfolio, in this particular scenario for James, is that it needs to create $40,000 dollars of income. No, $60,000 of income from the portfolio, he’ll be pulling 4% of the portfolio. So he’s like can I keep that 100% equity? Because my true income need is $120,000. So $60,000 is going to come from the portfolio. $60,000 is going to come from pensions and Social Security. So half of my income is already met by other fixed income sources other than my portfolio. So can’t I just keep that 100% stocks because half of my income is already covered and that’s my fixed income? I like his thinking, but I think it’s flawed just a little bit because he has to look at what the demand is for the portfolio because if he’s got 100% stocks and he’s pulling 4% out-  do we know how old James is? No, no idea.

Al: We don’t.

Joe: I don’t know. Maybe if he was 75, I’d be fine with it.

Al: I think that to me, Joe, that the lower the demand on the portfolio now it’s- now you’ve got a little more flexibility. You can take more risk if that’s what you want to do to save for charity or your kids. Or you can take less risk because you don’t need to take as much risk. But I think the 4% rule was originally designed as 60% stocks, 40% bonds. And that’s kind of what he’s wanting to do.

Joe: No, I agree. He needs a little bit more safety because if he had 100% equities within that portfolio and he’s pulling 4% out, and the market drops, let’s say 20%. And so now he doesn’t have- that 4%, just went up to 7% or 8% and he could go into asset depletion mode. If he’s fine at the end of the day, just living off of $60,000 from his fixed income sources, by all means, just keep it in equities. Because he could eventually live off of $200,000 a year if he has a really good bull run. But if he hits a bear market at the wrong time, it could blow up his entire plan. So we’re fairly conservative. So we look at constructing the portfolio, what it needs. If you’re taking that big of a distribution, I like Al’s idea.

How do you know for sure whether you’re on the right track for retirement if all you get is a few minute, off-the-cuff spitball analysis from Joe and Big Al on YMYW? Imagine what you could learn from a comprehensive, one on one, personalized financial assessment with a CERTIFIED FINANCIAL PLANNER professional on Joe and Big Al’s team at Pure Financial Advisors. It’s free, just like this podcast, it doesn’t obligate you to anything, and it’s a deep dive into your overall financial picture to identify strategies to save you from paying unnecessary taxes, to ensure your portfolio is matched to your risk tolerance, and to help you achieve your retirement goals. Anybody anywhere in the country can visit YourMoneyYourWealth.com and click “get an assessment” to schedule a free financial assessment at a date and time that’s convenient for you. 

Retirement Spitball Analysis: Should We Be More Aggressive With Roth Conversions? (Dustin, MN)

Joe: We got “Hi Joe, Big Al and Andi. I found you guys a month ago while searching YouTube for you-know-what.” You know what he’s talking about there, Big Al?

Al: I would guess that mega backdoor.

Joe: You-know-what. You put it you-know-where.

Andi: That’s the one.

Joe: “Since then, I’ve listened to a couple of episodes a day on Spotify while driving my 2009 Sienna to our neighborhood park in the Twin Cities and walking my black lab, Kirby, around the ball fields. I love your show and would appreciate your thoughts about the financial plan I developed for my wife and myself. (DERAIL!) I’m nearly 62 and plan to retire in a few years. My hot wife is 54, drives a 2017 Honda CRV, and plans to retire at 60. We’re in good health and hope to live to our ’90s. We have two grown independent sons and would like to leave a legacy if possible. I think we’ll be OK financially, but I’m concerned our pre-tax retirement dollars are growing faster than we can convert them. Retirement pre-tax, $1,500,000; Roth IRAs, $1,000,000; brokerage accounts, $200,000; savings, HSAs, $100,000; house, $400,000. Our cash portion has dropped a bit the last few years due to college tuition, family vacations and funding backdoor Roths while maximizing our company and retirement plans. I recently reduced our company contributions to the 6% match level in order to rebuild our cash, to give us a little bit more flexibility in retirement and pay those taxes for future conversions. Our annual income, including interest and dividends, is $235,000. After applying the standard deduction, our taxable income is $210,000, putting us in the 24% tax bracket. We’ve done Roth conversions of $120,000 each over the last 3 years to max out this bracket. We plan to continue the $120,000 conversions in 2022 and ’23 and then bump them up to $200,000 and 2025 and ’26, when my employment income stops, assuming the current tax brackets are still intact. I’m planning to take my company pension at age 65 as a lump sum of $350,000 and rolling it into an IRA instead of the taking $1600 a month, 100% joint and survivor annuity option. Assuming a 6% return on investments, 80% stock funds our retirement assets at the end of 2026 would be $3,500,000, $1,400,000 pre-tax including the pension lump sum and $2,500,000 or $2,100,000 in Roth. We estimate needing $120,000 for our annual expenses in retirement, 3.5% inflation on that which will put us in the 25% tax bracket when the previous brackets, are reinstituted in 2027. We plan to delay Social Security till 70 and should be about $4000 a month for me and $2500 for the wife. She will also get a nurse pension of about $200,000 a month. That kicks in at age 65.” So we got $8500 a month of fixed income, Al.

Al: Ok.

Joe: ” In retirement, we will draw down from the pre-tax to supplement any shortfall from Social Security pension income and continue Roth conversions within our tax bracket. Does this sound like a reasonable plan or am I missing something? Should we be more aggressive with our conversions? Thanks for sharing your knowledge, you guys rock. Dustin from the Mini-apple.” Interesting.

Andi: I just want to say in 5 and a half minutes, you managed to read that question with hardly any problems at all. Fantastic job.

Joe: Thank you. I’m really practicing my reading at night.

Al: This should be on the “best of” someday.

Andi: Totally.

Al: That’s the best question ever, Joe.

Joe: I’ve been practicing. Go home, and I just read stupid questions over and over and over again, so I’m prepared.

Al: We also have a picture of Kirby, the black Lab. So that’s cool.

Joe: Beautiful dog. I don’t know. What do you think, Al?

Al: I don’t have any problems. What are you thinking? I think that the Roth conversion, he’s a $210,000 right now, the top of the 24% is $330,000. So he’s saying you do another $120,000. There were so many numbers here. I lost track of what’s what, but that would be at the top of the 24% bracket. I like that. I like that a lot. And plus there’s not a lot of money outside of retirement accounts to pay for the tax. So that seems like a good amount to me.

Joe: He’s converting $120,000. That’s where all the cash went. He’s taking this- Kirby out to lavish vacations.

Al: Well, kids, college and vacation, stuff like that. But yeah. No, I don’t-

Joe: OK, well, let me do the math here real quick. He is- let’s see. He’s 62 years old. 10 years, let’s say the retirement plan grows to $3,000,000.

Al: Well, that I don’t understand because it’s already $2,500,000.

Joe: No, $1,500,000 and then $1,000,000 Roth. So he’s already got $1,000,000 in Roth. $2,500,000 is total.

Al: I know, but he’s saying that his pre-tax is going to be $1,400,000 in 10 years, it’s already $1,500,000. So something’s wrong there.

Al: He said $3,500,000, $1,400,000 pre-tax because he’s doing the conversions out.

Al: Oh, he’s factoring that in maybe, huh?

Joe: He’s factoring the $120,000 conversions.

Al: For X number of years. OK.

Joe: Let’s say he doesn’t do any more conversions at $3,000,000. 4 times 3 is $120,000, $120,000 plus Social Security- let’s see, he’s going to be at $200,000, call it total income with the wife’s pension, Social Security and everything else. I’m guessing, I don’t have my calculator today for some reason- minus the deduction, $25,000. So let’s call it $175,000 of income at that level- he’s in the 22% tax bracket?

Al: Actually he’s just made it into the 24%, barely. $173,000 is the break.

Joe: Most of it is in the 22% tax bracket. Right?

Al: Yeah exactly.

Joe: So he’s converting in the 24% tax bracket and if he didn’t do anything at all, most of his income is going to be taxed at the 22% tax bracket. It’s going to convert to the 25% potentially, is what he’s thinking. So let’s convert it to the 24% to get to the 25%. I just- I don’t know. If I was him, would I want to continue to do the conversions to the 24% when I already have a $1,000,000 in a Roth? It doesn’t- he doesn’t have $5,000,000 in a pre-tax account, it’s $1,500,000, he’s got $1,000,000 in a Roth. He’s going to have good fixed income. I think I would rather have the liquidity. So he’s going to stop saving to build up his cash. Because his cash is getting blown from the conversions. So I would want to rerun the numbers a little bit. I don’t mind his plan. But I don’t think it’s as efficient as he probably could get it.

Al: I guess what’s hard to say is we- there’s a lot of information here. We kind of need to put this into a software program to kind of look at all the variables. But me personally, I like the idea because having more in Roth gives you more flexibility. He would still have, according to his calculations, $1,400,000 pre-tax. And so theoretically, $1,400,000- what’s that going to produce? That’s- let’s call it $60,000.

Joe: Yes, $60,000.

Al: $60,000 plus Social Security, plus whatever else I guess, minus the standard deduction. He could be right at the bottom of the 22% bracket. So then maybe- his Social Security though would still be probably fully taxable. I haven’t factored that in yet. So anyway, I don’t know. I think it’s- I think the concept is fine. I think I know where you’re going, though, Joe. And that is, when you get to a certain point, when you got enough Roth IRA, do you want to keep being so aggressive? Because basically, if you keep converting in the 24% bracket and you end up in the 12% bracket, then you kind of overpaid for the conversion.

Joe: There’s going to be a point where he wants to stop converting. Because he’s converting it so much. These are big clips, $120,000 a year to get to the top of the 24%- the 24% tax bracket’s giant.

Al: It is.

Joe: And then it’s like now I converted so much money out and then, wow, I don’t really have a lot of my retirement assets left to take advantage of the 12% tax bracket and the 22% tax bracket or the 15% and 25% depending on where tax rates go. So that’s where he’s- that’s the planning where- you’re right on, Al. You kind of read my mind there. That’s where I would want to get that thing dialed in a little bit more because you don’t want to over-convert and then end up being in a lot lower tax bracket potentially.

Al: But of course, the unknown is we don’t know what tax brackets are going to be in the future and maybe they’ll be higher given that we’ve got so much national debt. So this helps mitigate that possibility.

Joe: You’re right. Just keep converting. I just wanted to have a little bit more conversation on it, I guess. Just wanted some dialogue.

Al: That was kind of fun because usually we’re on the opposite sides of that one.

Joe: I know. I know. I had to take the other side, Al. Just gotta do it. Thanks, Dustin from Minneapolis. Appreciate your email.

Early Retirement Spitball Analysis: Can I use a 5% Growth Rate for Equities? (Diego, Maryland)

Joe: Diego writes in from Maryland. “Cheers to the gang. Long time. First time. I’m a classic do-it-yourselfer trying to get free information from generous and mag-

Andi: – nanimous,

Al: magnanimous?

Joe: – magnanimous- what the hell is that?

Andi: It means generous. It’s another word for generous. Magnanimous.

Joe: “- magnanimous folks like you. I have put together our personal net-worth statement and use that to project our growth, to get a general time frame for retirement when retirement is feasible. In addition to being a do-it-yourselfer, I’m also one of those wackos trying to retire early between 45 and 55.”

Al: Nothing wrong with that. Remember my plan, Joe? I was going to retire at 47.

Joe: How’d that work out, Big Al?

Andi: How old are you Al now?

Al: 64. Just turn 64. While in Hawaii, I might add, which is where I’m at right now as we record this show.

Joe:  “My wife and I are in our mid-30s; got $65,000 in cash not earmarked for retirement; $650,000 in equities earmarked for retirement; no fixed income. The equities are split evenly between a taxable brokerage account and a Traditional 401(k) and a Roth 401(k); low-cost, globally diversified index funds- “ yada, yada, yada. “My two questions, if you’re generous enough to answer them, are: If I take the nominal growth rate for the equity, say, 7% and subtract the ballpark inflation rate, say 2%, can I use a 5% growth rate for equities to keep figures in today’s dollars? Alan?

Al: I would say, no. That’s not the best way to do it. Use the 7%. But if you think inflation is going to be 2%, then inflate your expenses 2% per year till you retire to get a sense of how this actually works out. I don’t think this math works the same.

Joe: I don’t think so either. So what he’s saying is that take your $650,000 of assets, grow them at 7% for the next- what is he? he’s 30 years old? Wants to retire in, let’s call it 25 years or 15 years? I’m sorry.

Al: Yeah, mid-30s. Call it 15, 20 years.

Joe: So just run that out 15, 20 years and whatever that you’re adding or contributing to those plans, put that into your overall equation and then use your expenses. And so some- I would break down my expenses. If you really want to get to the nitty-gritty on this. Your mortgage is going to be flat because it’s a fixed payment, but you’re going to have other expenses that are going to grow higher than 2%. You’re going to have other expenses that might grow at 2%. So you could use kind of a blended rate there. So that’s how I would look at it and look to see what your shortfalls are or surpluses and then kind of go from there. That’s how I would look at your planning. If you want to do a quick back-of-the-envelope, maybe you can do something like that. “The market has been pretty strong and has been pretty much- been up pretty much the whole time I’ve been investing. So it feels like using $650,000 in equities earmarked for retirement is an artificially high starting point. Do you have any rules of thumb I could use, such as keep the 7% growth rate, but instead of starting my projections at the current value of the equities, start them at 80% of the value, essentially assuming we’re always on the verge of a 20% market decline, but assume that long-term growth rates will still average out to 7%, or is the current value always the best starting point? Thanks for the discussion. Hope you found at least one or two points when reading this to make a joke because Lord knows your listeners tune in more than just financial advice.” I guess we joke a lot, we just make fun of people all day.

Al: We talk in circles. We talk-

Andi: At least you do, Joe.

Joe: I do not make fun of anyone. I’m just reading the questions and I’m just giving my opinion. I don’t know if that’s making fun. We can’t say that in today’s environment.

Al: I would just say I’d start with the real starting point. $650,000. I mean, you don’t- there’s going to be a correction. Sure. But who knows when. And 7% is a fairly conservative number if you’re 100%  equities. I mean, the S&P itself has over 100 years, has gone up almost 10%. If you just look at a single asset class and then if you look at small company value companies, that- he’s got some blend here. Those have gone up more over the last 100 years. No guarantee on the future whatsoever. And stocks are volatile. But yeah, that’s what I would do. I would just start with the $650,000 and throw in 7% and see what- And then I would probably use the 3% inflation rate for my expenses and see how they came out. And just compare this two by the time you get the age 45 or 50 or 55, whatever.

Joe: At our firm, we used 3.5%, so we use 6% and 3.5% inflation. So a nominal true rate of return is a couple percent, so we feel that’s fairly conservative. So you could do it- if you want kind of back-of-the-envelope, a little spitballin’. Yeah. Use 5%, because the way we just explained it, that’s a lot more work.

Al: It’s a lot more complicated.

Joe: Yeah, it’s a little bit more complicated, but I like where he’s at because he’s like, you know what man? I got $650,000. I’m in my mid-30s, I’m a whacko. I’m a little FIRE freak and I want to get out of- so but I want to be conservative. Should I bust this thing down 20%? I mean, what he’s looking at is, I think on the right track, he’s being conservative with his numbers. Instead of saying, hey, I got $650,000, I was making 15% over the last 6 years. I’m going to continue to use that because I know what stocks to pick or the funds are going to continue to perform this way. He’s looking at it is like, wow, I’ve had- I got lucky. I’ve got a really good run over the last several years. Every year that I’ve invested, I haven’t lost money because the markets have accumulated to a degree that I don’t know is feasible anymore. So should I just take a look and give myself a 20% haircut right now? So, no-

Al: You don’t have to. It’s conservative. And we like being conservative. You know, use 5% if you want. Do the inflation rate on expenses, start lower. If it works out, you’re in pretty good shape.

Joe: Yeah, appreciate it. Like the questions coming in today.

Al: Yeah, pretty good.

How would inflation impact stocks and bonds, the value of the dollar, and your portfolio, and what should you be doing about it in 2021? Check out the blog post and companion video on inflation, by our Director of Research, Brian Perry, CFP®, CFA®, in the podcast show notes at YourMoneyYourWealth.com. You can also download our free guide on Pursuing a Better Investment Experience, read the transcript of this and nearly all of our previous podcast episodes, send in your money questions to be answered by Joe and Big Al on YMYW, and share all these financial resources from the podcast show notes as well. Just click the link in the description of today’s episode in your favorite podcast app to get started. 

Should We Set Up a Spousal Lifetime Access Trust (SLAT) for Asset Protection, Given the Upcoming Tax Time Bomb? (Hawk, Scottsdale, AZ)

Joe: We got one here. “Greetings from Hawk in Scottsdale, Arizona.” Hawk.

Al: That’s got to be a nickname from military days, I betcha.

Joe: Hawk. “Dear Roth, Big Roth and the Last Roth. Roth it, Roth, Roth, Roth Roth. Annuity spitball ladder. We’re long time listeners, big fans and I’m a binge listener, embarrassed to say we’ve listened to your podcast over dinner several times.’

Andi: I’m so sorry, Hawk.

Joe: What the hell is wrong with these people?

Al: I think that’s wonderful.

Joe: I think it’s absolutely ridiculous.

Al:  They got the little- they know the podcast go on while they please pass me the ketchup, or the-

Joe: Grey Poupon- Oh, honey, this pot roast is absolutely delicious. Oh, wait, Big Al-

Al: Did you hear what Joe just said?

Joe: Oh, my God, Big Al is so smart. Don’t you think so, honey?

Al: I feel honored to be part of their dinner conversation. What do you think, honey? Do we have enough Roth? What did they say?

Joe: Can you pass me some salt, please?

Al:  I’m thirsty now after listening to this.

Joe: Creepy. All right, here it goes. I’m sweating now, I just see myself at Hawk’s dinner table. “Married, 3 grown kids, 4 grandchildren. We are both 52 yo, 52 years old, and plan to be fully retired and funded 2026, just a few years away. We both have worked 60, 80 hours a week for years and years, and we are done. English Bulldog named Ralph.” Oh, Hawk, I’m going to get an English bulldog. I had one growing up. Was named Mugsy.

Al: Name him Ralph just in honor of Hawk.

Joe: I think so. “I drive a big white 2010 Ford F250, goes anywhere, does anything, runs on Jack Daniels.”

Al: I think that means that driver runs on Jack Daniels.

Joe: That was good, Al.

Joe: “My wife drives a boring no fun 2012 Volvo SUV and won’t get a new vehicle. She said there’s nothing wrong with her car. Says it says it’s decisions like this that will let us retire earlier. Then she points out that Big Al would agree with her.”

Al: I do agree. I think that’s right on.

Joe: I’d get rid of that POS and get a new car.

Al: I would stick with that Volvo. It’s a perfect car.

Joe: No way. Get something sexy. “Combined income a year is $450,000; home is worth $850,000 with a mortgage balance of $230,000, 3%, 5 years left. Retirement financial focus is $6,300,000, so about $4,000,000 in Traditional 401(k)s; $500,000 in Roth; $400,000 in cash; $1,600,000 net after-tax from private equity stocks sold upon leaving company that will be used to fund brokerage account with low fee tax advantage funds. That puts our portfolio around 60% qualified, 40% tax-free or advantage. We look to spend $180,000 a year, which is a 2.8% distribution rate; debt free other than the mortgage; no car loans, my wife makes sure of that. Oh, $50,000 a year combined Social Security at age 62 or 72 at full retirement age. We have been very blessed.”

Andi: Yes, you are bragging, Hawk.

Joe: I know. Yeah, it’s like my wife gots to get a better car because I can afford anything.

Al: I like the Volvo.

Joe: “My beautiful wife is the brains of our outfit and set us up very nicely. We are both consultants but she is really good at it. It has not been without cost though. We each travel extensively for work, don’t get to see each other very much. Instead, we have worked hard to save, save, save, save and get off this treadmill. Recently there’s been much talk regarding drastic estate tax exemption reduction, step-up in basis elimination, etc.. I realize you guys don’t have the crystal ball. Joe, don’t make Andi have to edit this-”

Andi: Because he said he realizes you guys don’t have crystal balls.

Joe: Oh. Well, Big Al, I don’t know. “-  but you probably see where I’m heading. The tax time bomb. Isn’t this the biggest issue here? We will work on that by putting the you-know-what into you-know-where.” You know what that is, Al, right?

Al: Yeah, that’s getting more money in the Roth out of qualified. Can you see it?

Joe: You got your crystal balls going? You can read through the lines here? “What I’d like to get is a little spitball idea on asset protection. Our CPA mentioned SLATs, Spousal Lifetime Access Trust. What are your thoughts? Pros and cons? Other ideas for us to consider? Irrevocable sounds scary, but some of the proposed tax changes sound scarier. Thank you all for what you do. Hawk and Lady Hawk. P.S. No limerick yet. I haven’t quite worked it out. I’m thinking something about tax increases in Nantucket.” I like it. I know where he’s going with that. Very good. OK, Hawk. Is this Hawk? Right?

Andi: Yep.

Joe: And Lady Hawk?

Al: This is Hawk.

Andi: This is the first time I’ve ever heard Spousal Lifetime Access Trust. What is that?

Joe: That’s just a grantor trust. They just put stupid names on this stuff. I’m assuming- I’ve never heard of it either, but I’m guessing it’s an irrevocable trust that you can put money- let’s say one spouse, whatever the- what’s the exemption per person right now, Al? About $11,500,000?

Al: Call it $11,500,000 and it could go down to $3,500,000 or $5,000,000 per person, under Biden, we’ll have to see.

Joe: I guess let’s see- a spousal lifetime access- so one spouse puts the $11,000,000 in there. The other spouse is probably the beneficiary. The beneficiary can live off the income to maintain the spouse’s level of income. Or maintain a certain standard of income. So this would avoid any type of estate tax. So let’s say the estate tax- because his total net worth is, what, $7,000,000? I wouldn’t be too concerned, Hawk. I mean, you’re a big baller, but you’re not that big, where you got to be looking at SLATs. You’re giving up control because what this will do is avoid estate taxes. So I don’t know- how much money would you put in there? You could pass right now. $25,000,000. What’s Biden saying with the estate tax? He wants to repeal some of it, bring it down to, what, $3,500,000? So that’s $7,000,000 a couple.

Al: $3,500,000 to $5,000,000 per person. Which would be double that. I think that it’s been a while since I looked up SLATs. I think you’re right, Joe. I think it’s an irrevocable trust. You get the money in, I think you do reduce your exemption, but you reduce it at the current value. But the current value-

Joe: It’s an estate freeze.

Al: It’s an estate freeze. But you’re not, at the moment. Let’s see, did I read this right? Yeah, they’re about $6,300,000. So if it goes down to $5,000,000, it’s still $10,000,000. I think it’s way too early. We don’t even know what’s going to happen yet. I wouldn’t be too concerned about that yet.

Joe: He’s in his ’50s.

Al: Now, if he had $50,000,000. I would say, OK, that’s a pretty good idea because now you can lock in on the $11,500,000.

Joe: Because you’re going to spend some of this. You already said you’re going to take a 3% or 2.5%- like a 3% burn rate. So all of a sudden you put X amount of dollars- half your net worth, or liquid net worth into a SLAT. The spouse has access to it. She’s the beneficiary. But it’s still irrevocable. How about if you get a divorce? How about you die? There are other things I think that could blow this thing up potentially.

Al: I think the beneficiary is someone else, like your kids. But the spouse has income rights as long as they’re living. I think that’s how it works. But you get it out of your estate. It’s been a while since I looked at that. I think that’s what that does. But yeah, I would say Hawk, it’s way too early. You’re not in a- you don’t have enough assets to worry about this yet and there’s lots of other things you can do that are simpler, should we get to a point where the exemption is a lot lower. So I wouldn’t worry about it yet.

Al: What are some of your ideas that you would recommend to someone else that are simpler. I mean a SLAT is pretty simple. You’re just taking the assets into a grantor trust.

Al: I think Hawk said he’s got kids and grandkids. So the very simplest one is you just give $15,000 away each year to each beneficiary. That’s a simple one. And another one would be you could do an estate tax freeze just on a particular asset that you had that you thought was going to go up in value and reduce your exemption at that point. Like, let’s say if the exemption goes way down, maybe just some of the- I don’t know-

Joe: What about- what was Kenny’s favorite?

Al: He liked the QPR.

Joe: QPR, qualified personal residence.

Al; Yeah, that’s another one. And you got family-limited partnerships that you can do. Some people just say, forget it, I’ll just buy life insurance policy if there’s any tax. I mean, there are all kinds of ways to do that. I just think it’s too early right now.

Joe: Yeah, I agree. Totally agree. Very good. Great question. Thanks, Hawk. Appreciate it.

SECURE Act 2.0 Overview

Joe: Hey, Alan, I’m getting more questions on the SECURE Act.

Al: The SECURE Act, really. So that’s what, like a year and a half old.

Joe: But the SECURE Act 2.0.

Al: Got it.

Joe: Securing a Strong Retirement Act 2021.

Al: Got it.

Joe: You like? It’s catchy, isn’t it?

Al: Yeah, it is.

Joe: You heard of this bill? Yes, I have.

Joe: Do you think it’s going to pass?

Al: Who knows. Right? It’s anybody’s guess at this point. Maybe parts of it will.

Joe: You know, the SECURE Act was kind of a-

Al: It wasn’t that secure.

Joe: It wasn’t.

Al: I remember- What was that guy’s name? Jamie something?

Andi: Hopkins.

Al: Hopkins. Thank you. So he talked to us about it and he had written an article of maybe the 10 or 12 important things that came out of it. And even he on the air said, yeah, it’s not much.

Joe: There’s nothing here. A lot of fluff. I got a few. Just to keep our listeners informed.

Al: OK, good.

Joe: Increasing RMD age to age 75.

Al: Now that one, that one I think could happen.

Joe: But it’s not going to do anything. It doesn’t matter. Most people spend all of their money at 60.

Al: It helps the people that have more money than they know what to do with.

Joe: Exactly. The people that have a ton of cash in their retirement accounts, it’s going to help them. So, there you go. Auto-enrollment in retirement accounts. I think that’s a good thing.

Al: That is a good thing. That actually has been proven to help because it’s harder to say I don’t want to do this than it is to just let it happen.

Joe: Let’s see, indexes on IRA catch-ups.

Al: Yeah, I think they’re already doing that.

Joe: I know. I guess it’s automatic because it’s been $1000 over the last couple of years and then they increase it like every 5 years.

Al: They usually go up in increments of $500. So maybe next year it’s going to be $38.50.

Joe: I think this- the higher catch-up limits for ages 62, 63, and 64, they’re moving that from $5000 to $10,000.

Al: Interesting. OK.

Joe: I’ve also heard with the higher catch-up limits that it’s going to be Rothification, that you can’t do it pre-tax, it’s going to be after-tax Roth contributions. So that we’ll see there. I think that’s better. Student loan payments for employer matching.

Al: Interesting. OK.

Joe: So some of our listeners are probably going through this where they’re paying off student loans and they can’t necessarily fund their overall retirement. And so they’re kind of stuck. It’s like, well, if I could just put a couple- and they’re missing out on matching. They’re missing out on free money that’s going for their retirement and a compound effect of that is hundreds of thousands of dollars long-term. So that’ll be interesting to see how they monitor that. I’m paying my student loan payments and are the employers kind of matching their student loan payment as in other 401(k) or employer plan?

Al: The employers may not like that one.

Joe: Yeah, we’ll see. Well, I think it’s a good perk. We’re matching our employees.

Al: Yeah, but that’s for their 401(k), not for their student loans.

Joe: No, they’re matching in the 401(k) if they prove that they’re paying into their student loan.

Al: I understand. But what I’m saying is that they’re not putting it in the 401(k) right now and they’re just paying the student loan, then the employer’s not doing anything. So it’s going to be more expensive for employers. That’s what I’m saying.

Joe: Not necessarily. We have employees that are not putting money into the 401k) plan. If they didn’t have a student loan, they would be, is my point. So it would be the same same.

Al: True. All I’m saying is right now they’re paying a student loan, so they’re not putting money into a 401(k), so therefore the company’s not matching. So if we go to this-

Joe: College should just be free.

Al: Oh boy.

Joe: Pay off all the debt.

Al: You’re going to get some calls on that one.

Joe: I do not believe in that. Sorry. So few other things. Boosting small employer, those MEPP plans, they get a little bit of a credit. Putting ETFs in 403(b) plans and then opening the door for ETFs and variable annuities. I have no idea – someone on the ETF board of trustees-

Al: – got in close with the annuity people.

Joe: Yes. So stay tuned. This bill is actually- I don’t know, I give it a D+. The SECURE Act 1.0 was a D.

Al: So you’re giving this a little bit better rating.

Joe: It’s not securing anyone’s retirement. SECURE Act is what-

Andi: Setting Every Community Up for Retirement (Enhancement).

Joe: – or something stupid. Setting every community person up for security retire-

Al: Well, they come up with a name and then they have to spend all this time reverse engineering to figure out what the acronym should be.

Joe: Right.


Derails about those 40 chickens, Kirby, and Big Al’s winter jacket at the end of the episode, so stick around. Learn more about the SECURE Act 2.0, access all the free financial resources, read the episode transcript, ask your money questions, and schedule a free financial assessment, all in the podcast show notes at YourMoneyYourWealth.com – just click the link in the description of today’s episode in your podcast app. 

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