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
September 19, 2023

Can Sven and Olga in Minnesota shorten their working years? Should PJ in Michigan take his pension lump sum or the annuity payments, and should he maintain an aggressive asset allocation in retirement? Plus, the fellas spitball early retirement strategies for Joe in Massachusetts and Nick in California, and they discuss how to tell the difference between post-tax contributions and pre-tax funds converted to Roth at tax time for Victor.

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Show Notes

  • (00:45) Can We Shorten Our Working Years? (Sven & Olga, MN)
  • (07:50) Pension Lump Sum or Annuity? Aggressive Asset Allocation in Retirement? (PJ, Michigan)
  • (23:31) Can We Retire at Ages 55 and 52? (Joe, MA)
  • (29:54) Help Me Spitball Some Retirement Goals (Nick, CA)
  • (35:07) Post-Tax Contributions and Pre-Tax Funds Converted: How to Tell the Difference? (Victor)
  • (39:40) The Derails

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Andi: Can Sven and Olga in Minnesota retire early? Should PJ in Michigan take his pension lump sum or the annuity payments, and should he maintain an aggressive asset allocation in retirement? That’s today on Your Money, Your Wealth® podcast number 447. Plus, the fellas spitball retirement strategies for Joe in Massachusetts and Nick in California, and they discuss how to tell the difference between post-tax contributions and pre-tax funds converted to Roth at tax time for Victor. If you’ve got money question or want a Retirement Spitball Analysis of your own, go to YourMoneyYourWealth.com, click Ask Joe and Big Al On air, and send in your details! I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Can We Shorten Our Working Years? (Sven & Olga, MN)

Joe: Let’s start with Sven and Olga from the homeland.

Al: Minnesota. How about that?

Joe: “Dear Joe, Big Al, Andi. I enjoy listening to your show while walking. After finding your podcast, I have significantly reduced my listening of true crime, which has greatly put my husband at ease.”

Al: Wow. No more crime mysteries, huh? Your Money, Your Wealth®.

Joe: All right. “And I find YMYW informative, funny, and although Joe is a little arrogant, I enjoy it.”

Al: Are you?

Joe: I guess I’m an ass. “Keep up the great work.” I don’t try to be-

Al: Yeah, you’re just being you, maybe that’s how you are.

Joe: I guess so.

Al: I think you’re fine.

Joe: All right. I could be angry. Maybe it’s my anger. I need to go to anger management.

Andi: You could be angry? You’re not sure if you are or not?

Joe: Sometimes. “We have no pets. Our cars are unimpressive. Our adult children are fully launched. My husband’s drink of choice is an old fashioned, where I enjoy Cosmopolitans and a light beer. But never together. I’m hoping you can provide a spitball, not advice, if we are on track for retirement or even if we could consider shortening our working years. Here’s the relevant data. I’m 55, husband’s 57, plan to retire at 58. And the husband, 52. We are debt-free.”

Andi: 62, by the way.

Joe: I’m sorry. 62. Thank you. “401(k) is currently $3,300,000, Roth accounts $173,000, HSA $50,000. Upon retirement, I will start my pension at $26,000 a year. Hubby will take Social Security at 62 for $22,000 a year while I’ll delay mine to age 70 at $44,000 per year.” Like that strategy there, Big Al?

Al: That works. That’s what we say, the bigger benefit, wait till 70, if you can.

Joe: Okay. But he’s going to take his at 62. She’s going to push hers out to age 70.

Al: Yeah, I mean, it’s a fine strategy. If he wants to push his a little bit more, maybe they get a little more, a bit more benefit, but it’s going to be a higher distribution rate.

Joe: “We are currently at the top of the 24% federal tax bracket, 9.85% in Minnesota. We each save $30,000 into the Roth 401(k) each year and qualify for a 4% match. I’m estimating we’ll need $210,000 per year gross. My spreadsheet says I’m okay. Do you agree? Could we quit earlier? Appreciate the spitball.” All right, so they need $210,000 gross.

Al: Yeah, so I did a little math here. So let’s- they’re starting at about $3,500,000. And by the way, I want to make a point.

Joe: Why would you use a gross number? How do you know what taxes are going to be?

Al: I, well, right. But if most of their stuff is in pre-tax, it’s going to be relatively high tax, right? So maybe that’s pretty close.

Joe: But what do you think she’s guesstimating as tax?

Al: I have no idea.

Joe: Right.

Al: So I’m going to go with her figure because we don’t know any different. So using her figures-

Joe: But I guess-  I’m sorry to interrupt you, but my point is that if I’m doing planning and I’m doing a spreadsheet, I think I want to use a net number, not a gross, and then you add taxes on top of that. So here’s my net expenses, and then you want to inflate that by whatever inflation rate that you think is going to happen over the next 20, 30, 40 years? So we like to use 3.5% and then you plus taxes on top of that. So your net expenses plus COLA plus tax, is probably how you should look at it.

Al: Oh, I don’t disagree. I’m just going to go with what she said. Cause she wants a spitball, are we okay? Or are we close or what do we think? So I’m starting with $3,500,000, which is what they have approximately. And I’m assuming they’re adding about $72,000 a year with employer match. I’m assuming a 6% return. And I’m going to- she wants to work 3 more years. He wants to work 5 more. So I’m going to split the difference, 4 years. So they would end up with about $4,700,000. And their expenses, if they’re $210,000 right now gross, they would be $230,000, $240,000 gross. So, and then if you subtract hubby’s Social Security, if they decide to go that route, they’re at a 4% distribution rate. And so I think it works at age 60, when you got a bigger Social Security payment coming. I think if you don’t have any big Social Security payment coming, then you might want to be closer to 3.5% at age 60 distribution rate. But I do think this works. Now to go back to your point. I agree. It’s better to look at net. Because taxes are something you can manage with Roth conversions and other things like that.

Joe: And I would like to understand what they’re estimating the tax to be. So she’s doing 24% plus 9% state is, so she’s running that on what her living expenses are because most of her income is taxed at ordinary income?

Al: Yeah. And some people use the marginal rate as their tax rate.

Joe: Right, right. Versus effective rate.

Al: Right. Which is completely different. So yeah, there’s a lot of unknowns here. But basically on the numbers that we were given, I think this looks okay. I really do. I do wanna make one comment for our listeners, and that is and we’ve heard this before, why does everyone have $3,000,000, $5,000,000, $2,000,000? And the truth is we read the questions that are sent to us. So, I don’t really care whether it’s $3,000,000, $30,000,000, $300,000. It doesn’t really matter.

Joe: The math is the same.

Al: The math’s the same, the concept’s the same. But I would say this for our listeners, those of you that are approaching retirement and you’re short, send us an email so then we can talk about how to fix that. I’m- we’re happy to do that. So don’t get the idea this is just for wealthy people.

Joe: We’re cherry-picking?

Al: No we’re not cherry- We’re reading every single question. We don’t get-

Andi: It’s true. I will, I’ll account for that. But yes, I give the guys all of the emails that the listeners send in and they answer all of them.

Al: So if you’ve got $50,000 and you want to retire next year and you’re spending $100,000, then send us that question and we’ll talk about what’s possible. You probably can’t retire at the same expense level, but we’ll tell you how to enhance it.

Andi: How will you generate income in retirement? After a lifetime of saving, making the transition to retirement means facing a whole new set of challenges.  As you plan today, you face a very different retirement landscape than the ones your parents saw! We’re living longer and may need to rely on that retirement income for much longer. Go to the podcast show notes and download our free Retirement Income Strategies Guide, newly updated for 2023. It explains how to answer 5 questions you need to ask yourself before you retire. Learn about the sources of income that are available for you in retirement, how to maximize your Social Security benefits, and how to develop a retirement income strategy that meets your needs. Click the link in the description of today’s episode in your favorite podcast app, go to the show notes,  and download the Retirement Income Strategies Guide for free. 

Pension Lump Sum or Annuity? Aggressive Asset Allocation in Retirement? (PJ, Michigan)

Joe: We got “Hello, YMYW team. My name is PJ and I’ve been a loyal listener since 2017. I listen weekly and sometimes save episodes for later. For example, the recap on how pension lump sum versus annuity payments, episode 354, saved it.” Wow. P. J.

Al: Nice.

Joe: Settle down.

Andi: He actually grabbed the MP3 and is keeping it so he can listen to it multiple times later.

Joe: Yeah. Don’t you want to listen to that one, Big Al? Annuity Payment vs. Lump Sum?

Al: I haven’t listened to that.

Joe: It’s so exciting.

Al: Maybe I should. Maybe it’s that good.

Joe: Oh. “Those recap shows are very helpful, Andi, thanks. If YMYW was a hip hop band, Andi would be DJ mixing the beats, and Joe and Big Al would be MC spittin’ those old school spitball stories, yo.”

Al: Maybe we should do one with music.

Joe: “I’m already too old to FIRE, and one of the few listeners, apparently, that actually likes his job. So, FIRO’s my goal.

Andi: Financial independence, retire old.

Joe: Ah, I got it.

Al: No, it’s optional.

Joe: Optional. Oh, okay.

Andi: I thought you guys talked about this once before and it was- FIRO was old.

Joe: “Big Al’s my hero these days.” Wow PJ.

Al: Yeah. I knew I liked him.

Joe: Yeah. “He’s FIRO in his 60s globe-trotting and drinking root juice in exotic lands while still working at the job he obviously enjoys based on all the laughs on the show. He seems to be living the good life. And what I inspire to be decades- in decades or so-“

Al: In a decade or so.

Joe: I got it. “How many flights per day is Big Al doing now, by the way? Stair flights, not beer flights.”

Joe: Remember those? You just run up and down your stairs at your house.

Al: Yeah, probably. I don’t know. I count steps more than stairs but I probably do about 15 or 20 flights a day. On average.

Joe: It’s impressive.

Al: Yeah. What do you do?

Joe: Very impressive.

Andi: Was that impressive or oppressive?

Joe: I don’t know. I would, I don’t know. I don’t count my steps.

Al: You don’t. So you wouldn’t know.

Al: It’s actually, if you put your phone in your pocket, it counts it for you.

Joe: I do the Peloton. I try to do 50 miles a week.

Al: That works. But it’s super annoying. You ever do a little Peloton?

Al: No.

Joe: I just, I can’t listen to the people, so I listen to podcasts. And then these people wear, you know, like, full biking outfits. And they’re in a spin class. And it’s terrible.

Al: So you pretend like you’re in a spin class?

Joe: No, I just, I don’t even watch it. I just want to look at the time and calorie burn.

Al: Got it. Got it. Okay.

Joe: Alright. Okay, “I’ve heard all the talk of the Midlife Crisis on this show recently and I’m finally writing in after these years because I’m having a little one on my own here lately and hope you can cut a track about my situation.” Very witty.

Al: Yeah, it is. Yeah, he is.

Joe: “I live here in Michigan, drive a 2021 Ford Bronco Sport, which is really fun to drive on the sand dunes over on the west side of the state. My lovely wife, KK, and I are high school sweethearts and we are both 51 yo. We have 4 kids and a golden retriever. The oldest are launched, one in college and one in high school. Lovely KK enjoys a Corona, no lime, while floating our backdoor pool all day.” She’s floating in there, huh?

Al: But with the with Corona.

Joe: Yeah.

Al: I could do that.

Joe: Got it. He likes “an All Day IPA, which is brewed here locally in Grand Rapids, not too far from where we live. All days, all day, all summer, I like to say. My good life is the summer day.” Well, he lives in Grand Rapids.

Al: Yeah. Yeah.

Joe: It’s miserable there in the winter.

Al: Summer would probably be the best time, especially in the pool.

Joe: “You can’t beat the Michigan summers, long sunny days, beautiful weather and rarely hot and muggy. So you can be outdoors all the time. Love it. A lovely KK brags to all her friends that she’s retired. But in reality, we made the choice to lower the family lifestyle and go to one income for the benefit of the kids several years ago, and she is killing it. Our kids are turning out great. I never want her to have to run that rat race ever again. I want her home chilling and looking like fire.” Wow. PJ.

Al: Financial independence, retire early.

Joe: Got it.

Al: I wonder what she wants. Anyway.

Joe: She’s on fire.

Al: She’s loving it, I think.

Joe: “My goal is to FIRO at 60, hopefully still working at the job I enjoy, staying out of KK’s hair during the week, and building an ever bigger wallet, but with the freedom to call it quits whenever I damn well choose, and the peace of mind that if they turn the tables and kick me out, I don’t need to work.  I want a minor six figure income in retirement-” Minor.

Al: Minor. Okay.

Joe: Not major.

Al: Is that $100,000 or is that $170,000?

Joe: Major would be $900,000.

Al: It would.

Joe: Minor would be on the low side.

Andi: $100,000.

Joe: All right.

Al: -on the very low side.

Joe: “But if we need, we could tighten up the belt. KK’s already got her pool and the house and college expenses will be paid out by then. I don’t like supporting Uncle Sam and Aunt Whitmore-” Whittiermore. Oh, that must be the governor.

Al: That’s the governor of Michigan.

Joe: Michigan. “-any more than I have to. So I’d just like to pull enough from the taxable accounts to get us to the top of the 12%, or 15% if it goes there, each year which should be about $115,000 before taxes, leaving us about $100,000 to spend. Here’s our numbers. Income, $170,000 before bonus. Pre-tax IRAs, 401(k)s, $530,000. Roth IRAs, $110,000. No brokerage, all cash is going to fund college expenses and mortgage for the rest of my working years. Contribute max to the HSA, about $16,000 to pre-tax annually. That includes the 401(k) match. Plus some extra Roth contributions if it happens to be a nice bonus. Social Security wise, I plan to have KK claim at 62 and me at 70, and she will switch over to the spousal benefit at that time. My PIA, primary insurance amount, is $3690 and hers is $1390. If we do early/late claiming strategies, that should give us roughly $970 a month from 62 to 70, which is 70% her PIA. And then $5950 a month after 70, which is 124% of my PIA 130%.” Okay.

Al: Sounds right.

Joe: “Is my math correct? If she files at 62, does she get a 30% of 100% of my PIA or 30% of 124% of my PIA?” If she claims at 62, she’s going to receive her benefit at 62. She’s going to receive 30% of her primary insurance amount at age 62.

Al: Okay. That’s about right.

Joe: So, if he claims at 70, the spousal benefit is not based on him claiming at age 70. The spousal benefit is always 50% of full retirement age.

Al: Correct.

Joe: So, if she claims her benefit at age 62, she’s going to receive 30% of hers. And then, if she then tries to claim the spousal benefit when he claims his benefit at age 70, the most that she’s going to get is 50% of the benefit at his PIA. So, it’s-

Al: True. Which is, and then it’s reduced because she collected early.

Joe: Correct. So it’s going to be, I don’t even know what the math would be because she’s always going to have, because it’s two benefits. So they true up on the spousal, right? So she’s going to claim her benefit and then they true it up on the spousal. But since she’s claimed hers at 62, she’s always going to have that haircut. So he’s thinking, hey, is she going to get 50% of my benefit at 130% or 124%, but it’s gonna be less than that because she’s claiming a benefit at 62.

Al: Yeah, that’s right. I’m gonna say if his PIA is 36, we’ll call it $3600. So $1800 is half, take 30% away from that, you know, probably whatever that is. Call it $1200, $1300, which maybe is more than hers, maybe it’s close with inflation. I don’t know.

Joe: Well, hers is $1390. It’s going to be almost identical.

Al: It’s going to be pretty close.

Joe: Pretty close. There’s not going to be much more-

Al: Yeah, agreed.

Joe: “-is I guess what our point is. “I’m confused here because the spousal benefit maxes is out at her age 67, but I’m taking mine at 70, so the spousal benefit is based on my age 67 benefit of my age 70 benefit. It’s too confusing.” Well, we just kind of straightened that out. “I could also just throw in the towel here for a spitball. If we both file at 67, the math is easy. I get 150% of my PIA about $5535 per month. I also have a defined benefit pension plan promised to me at age 60. The lump sum is estimated to be $1,400,000, or I can take an annuity payment with a 100% survivor at $6500 a month, plus early Social Security supplement of $1730 a month, which pays out at age 60 until I turn 62. I got these estimates from my company’s website. They let you enter a salary increase in input, so I used a 2% to be conservative. If I’ve run these numbers- if I run these for years, and the core amount increases each year, but the Social Security Supplement always stays the same. So I think the core payments are in today’s dollars and the Social Security Supplement payments are in future dollars. Again, so confusing.” Man, how long have we been going here?

Al: About 3 segments.

Andi: Almost 10 minutes.

Joe: “Do you think I should take a lump sum or the annuity payment? I’m thinking here, not only about the numbers, but the tradeoff between market risk. If I take the lump sum versus the inflation risk, if I take the stream of payments.  And I also need to think about the lovely KK. She definitely does not listen to YMYW.” Capital DOES NOT. “Asset allocation wise, the portfolio is aggressive. 90% stocks/10% bonds. Globally diversified with a strong SV tilt. Small value tilt. I know I’ve got the pension as a big fat bond, basically, and I can handle the volatility. If I were taking the lump sum, definitely I would get a lot more bonds and cool the jets, say 60/40, but I take the annuity payments and run a market crash in our early 60s with the aggressive portfolio. Do you think KK would want to kill me?” Yes. “I want to stay aggressive with the portfolio, but I also enjoy breathing, too. Seriously, though, do you- do many people successfully keep with an aggressive portfolio in retirement, or is that a pipe dream? Seems like a lot of people get very conservative once retired, so I want to be realistic here. Most importantly, do you think I can be like my hero, Big Al? Do you think I have a good shot of FIRO by age 60? Or should I tighten the belt now and/or plan to work longer to reach this goal? Thanks again. Your show is the best. Respectfully, PJ from Michigan. Drinkin all day. Hoping for some spitballs to fly my way.”

Al: Oh boy.

Joe: I’m exhausted.

Andi: Hey, Joe, can you answer PJ’s question in the next segment?

Joe: We got to take a quick break. We’ll be back in just a second.

Joe: Welcome back to the show. The show’s called Your Money, Your Wealth®. We’re answering PJ’s question here.

Al: Well, let me start with the last question. “Do you think I have a good shot of being FIRO?” Financial Independence Retirement Optional. So I think if you look at current assets. $660,000, I think he’s adding around $30,000 a year, go 6% for 9 more years, which is, I think he’s 51, wants to do this at about 60, ends up with about $1,500,000. Okay. Age 60-

Joe: $40,000.

Al: Yeah. $40,000 ish. Right. Actually $60,000.

Joe: $80,000-

Al: $60,000, 4%-

Joe: $90,000.

Al: We’ll just use 4%. It could be 3.5%, whatever, 4%, that’s $60,000. And the pension he mentioned is $78,000. So that would be $138,000 in today’s dollars. And he wants to spend low 3 figures. Okay, but if you take $138,000 of income, which includes the 4% distribution and then present value that for inflation, that’s about $106,000 in today’s dollars.

Joe: This doesn’t even include Social Security, right?

Al: Correct. It’s not including Social Security. So that plus Social Security, but we really don’t know what low 3 figures is, but this is 3 figures, not even including Social Security.

Joe: Yeah. I think he’s right on track for sure, at age 60 if he can continue to save what he’s saving. Does he take the pension or the lump sum?

Al: That’s a great question.

Joe: So then you look at the internal rate of return and how long is he going to live? Do you want longevity insurance?

Al: Well, it’s 100% survivor. So how long are they both going to live- jointly?

Joe: So I could figure that out, but I didn’t prepare that. So-

Al: Well you do a much more complicated thing. I just take the payments times 12 divided by the amount and I get 5.6% which is if there’s a cost of living adjustment, then that’s a- that’s probably a good thing to take the payment stream. If there’s no cost of living, that would probably be too low. So that’s my quick back-of-the-envelope spitball.

Joe: Yeah. Does he take the lump sum? What would you do? Take the lump sum? Take the pension? You want to control the risk? Or do you want to transfer the risk?

Al: If there’s cost of living, I would take the payments. I’d take the pension.

Joe: He’s aggressive. 90/10. So if he takes the pension, then I’m fine with him taking 90/10. If he doesn’t take the pension, he absolutely needs to tone down the rate.

Al: Yeah. More like 60/40.

Joe: Here’s the reason why, PJ, is that it’s the sequence of return risks is what kills people’s retirement. Right? Not to be blunt or arrogant there. Right. But let’s say he’s got $1,000.000. So here’s the math. Let’s say you lose 50% one year and you gain 50% the next year. People think, well, I’m down 50%. I gained 50%. I’m back to square one. Well, if you’re down 50% at $50,000, 50% on $50,000 is not $50,000. So you don’t even have your money back. You’re not even back to square one. So if you’re taking money from the portfolio at the same time, it’s very difficult to get caught back up. And so when we talk about a 4% or 3% distribution of what you can take from the portfolio, if the market tanks on you and you’re very aggressive, it’s going to be difficult to maintain that distribution rate.

Al: Yeah, I completely agree. And even if you take my number of getting $60,000 from the portfolio, right? So what you might want to do is, in your portfolio, which presumably would be about $1,500,000, you probably want to have at least 5 years of safety, so that’s $300,000. So $300,000 divided into $1,500,000, that’s roughly 22% bonds, the rest stocks, so I would probably go more like 80/20 instead of 90/10 if these numbers are right.

Joe: Yeah. On a conservative basis, it’d be nice to look and say, hey, you know, I’ve got $1,500,000 sitting in my liquid assets and I have $70,000 fixed income pension coming in. Let’s say if you blow up your portfolio, you’re still living pretty good lifestyle with the big pension and your Social Security.

Al: Right. That’s true too.

Andi: Learn investing strategies that’ll help you establish a foundation to achieve your financial goals and improve your odds of investing success. Register for our free Investing 101 webinar on Wednesday, September 27th at noon Pacific time. Financial planner Sumit Mehta, CFP® from Pure Financial Advisors will talk about how to start thinking seriously about your financial future, goals to set, the psychology of money, the basics of managing your finances, and more. Then, get your money questions answered in real time during the open Q&A session with Sumit. Click the link in the description of today’s episode in your favorite podcast app. That’ll take you to the podcast show notes, where you can register for the free Investing 101 webinar on Wednesday, September 27th. Sign up now!

Can We Retire at Ages 55 and 52? (Joe, MA)

Joe: We got “Gentlemen, I’m a new listener. Love the show. I’m hoping to get a retirement spitball. I’m 46. My wife’s 43. We hope to retire when I’m 55 and she’s 52.” It’s pretty aggressive.

Al: I like it if you can. That’d be FIRE.

Joe: When did you try to retire the first time?

Al: Well, I didn’t completely want to retire, but I sold my practice at 47, 48, and I was hoping to work a lot less because I had real estate, which then-

Joe: That was 20 years ago?

Al: Almost. It was 2005. That’s when you and I met. 2005.

Joe: 20 years. Oh, my God. “We have $1,900,000 in retirement assets.” At 46 years old?

Al: It’s amazing, right?

Joe: What is- he just load up on Tesla or Netflix? “$545,000 in Roth accounts, $1,300,000 in traditional accounts.”

Al: Wow.

Joe: Is this math right? At 46 years old?

Al: I’m not sure how, but I guess they’re saving a lot.

Joe: Yeah. Okay, oh. “We each max out the entire $66,000 in 401(k) contributions each year, $22,500 employee contributions, $20,500 employer contributions, and the remaining $23,000 in after-tax contribution with our 401(k) plan, immediately converts to Roth. We each also max out the backdoor Roth at $6500.” Well, that kind of explains it. “We have $350,000 in a Vanguard brokerage account and contribute approximately $50,000 a year to that. Our portfolio allocation is 80% stocks/20% bonds. Our expenses are approximately $17,000 per month. We are each estimating Social Security benefits at $2500 at 62 and $1500 monthly pension at 60. Can we retire early at 55 and 52? If we have a paid-off phone, a home and no debt. I drive a 2016 Toyota 4Runner and drink an IPA or lager, as long as it’s ice cold.” It’s Joe from Massachusetts.

Al: Right. Okay. Let me take a stab at this, Joe.

Joe: Yes. Yes. Start now.

Al: Okay. So, so it looks like Joe’s got about $2,300,000 to start with, between retirement accounts and brokerage account.

Joe: No, no.

Al: Yeah, no, that’s right. Because the Roth and the traditional add up to the $1,900,000.

Joe: Oh, so $1,900,000 in retirement assets. So it’s not $1,900,000 plus $545,000 plus $1,300,000-

Al: No, no.  It’s $1,900,000 plus call it, I’m rounding it to $400,000. So we’re starting with $2,300,000. Best I can figure, there’s a lot of savings here. It’s saving about $195,000 a year, 9 years, 6%. I get $6,100,000. That would be the amount that they would have. And at a 3.5% distribution rate, in their 50s, maybe even you wanna use 3%, but I’m using 3.5%. That produces $213,000 of available money to spend. And in current dollars considering inflation, that’s about $163,000 in today’s dollars, which is about $14,000 a month. So it’s not quite $17,000, but it’s pretty close. Right? So if you wanted to spend the $17,000 a month, then you’d have to be closer to $266,000 of future expenses. You’d bring in $213,000, so you’re not quite there. But here’s what happens with a lot of people that want to retire, and I’m all for that, is they end up working lesser. They end up working part time or they lower their expenses or they sell their home and downsize. There’s lots of ways to make this work. And this is a pretty aggressive spending level, but it based upon their savings, they can probably pull it off. It’s- they’re not that far off, I guess.

Joe: Yeah. That’s impressive.

Al: I think it’s super impressive.

Joe: Being able to, I mean, here’s the benefit of having plans like that. And is he self-employed probably? Employee and employer.

Al: Hard to know.

Joe: It doesn’t really tell us how much he-

Andi: Yeah, he doesn’t mention his salary.

Al: But I’m guessing if you spend $17,000 a month, you’re making a lot because you’re also spending – you’re also saving a $200,000 a year. So it’s probably pretty high income. And again, for our listeners, write us your questions with, you make $30,000 a year and you got $20,000 saved and you don’t want to retire in 3 years, we’ll help you out.

Joe: Yeah, I have no other comments. I think looking at what he’s doing, what I would like to see is probably yeah, I don’t know, there’s, this is pretty good.

Al: Yeah, it’s amazing actually.

Joe: I mean, with the amount of money that he can save, by having the after-tax component of the plan and being able to convert, I mean, so you can just really jam pack this thing. And if it automatically converts, so he’s doing the mega, megatron. Yeah, I’d like to see maybe a little bit more savings in the non-qualified account if he wants to retire, if she wants to retire at 52 just because-  what’s the distribution strategy? He can take money out of a 401(k) plan at 55 with the rule of 55. But she’s going to be 52. So are you going to deplete his? Is there a brokerage account? Are you going to do like a 72T tax election to get money out of the plan? Do you want to be a little bit more flexible? I don’t know what tax bracket he’s in now.

Al: Sure. Yeah. A lot of things we don’t know.

Joe: I don’t know what tax bracket he’s going to be in the future. So you could probably switch up some of the resources that he has. Because the biggest resource, even though they got a ton of money saved, it sounds like they got a ton of income. And so then it’s just looking at where are you putting the income? He needs just to figure out how much money should he be saving? Is $66,000 enough and where should he be saving it? And then from there, what target rate of return should it be shooting for?

Al:  Yeah. So just as a reminder, if you’re 55 and have a 401(k) and you’re still working with that employer and then you retire, you can actually, you have access to your 401(k) at age 55 without penalty. Yes, you’ll pay income taxes on it, but you won’t pay a penalty. If those things aren’t true, you got to wait till 59 and a half like everyone else with IRAs.

Help Me Spitball Some Retirement Goals (Nick, CA)

Joe: It goes, “Hello, Joe, Al, and Andi. My name’s Nick. First, I’d like to thank you for putting together a informative and entertaining podcast. My wife and I are both 41 and live in California with a 6-year-old child and a Chorky Yorkie.”

Andi: Chihuahua Yorkie.

Joe: “I often think about your podcast while I shower-”

Al: TMI.

Joe: “- because I listen to you on the way to work.” So he’s – so Nick’s in the shower.

Al: He’s getting prepared. Oh I can’t wait for the show. What are they gonna talk about this time?

Joe: Oh my god. Terrible.

Andi: He thinks about it while he is in the shower. That’s Wow.

Joe: He’s getting prepared.

Al: No, I understand.

Joe: “Your show is often the highlight of my day.” Nick, we gotta find you a life here. “Either you are that good, or my life really sucks. But nevertheless, I’m grateful for this wonderful podcast, and I share it with a few of my money nerd buddies. And we’ll talk about it during our weekly lunch. My drink of choice is a cold, hazy IPA in the summer or a nice bourbon on the rocks in the winter. I drive a super rare 2014 Accord plug in, 171,000 miles on it. And my wife drives a 2014 Lexus V8 ISF.” Not sure what that is. Sounds like pretty fancy.

Al: Sounds like it, V8. Anything V8’s fancy.

Joe: “I was wondering if you can help me out and spitball some of my retirement goals. When is the best time for me to roll over my IRA to a Roth? My job also offers a 403(b), which I do not invest in at this time, but how I can maximize that to my advantage. We both would also like to retire around age 55, and we’d need about $100,000 of income yearly.” You know, our listeners are getting better with the questions.

Al: Yes.

Joe: They’re giving us probably the right amount of data for us to at least kind of maneuver some numbers here.

Al: Yeah. The only thing I would say is keep it to one page max, not two and a half or three.

Joe: Nick’s all right. He’s a half a page.

Al: No, Nick is perfect. And here’s the reason. Not that we don’t enjoy reading it. It’s just that we and our listeners lose track of everything.

Joe: I’m trying to read this and I can’t- “Income, $240,000. Rental cash flow, $25,000 to $30,000 a year. Primary residence is $500,000, which is paid off. Three rental properties worth about $775,000 in equity. He’s got a rollover IRA worth $325,000. Wife’s pension, $100,000 at 50. Wife’s deferred comp, $145,000. My Roth $42,000, my 457 $3000, 529 plans $16,000, HSA $3000, brokerage $125,000, cash $215,000.” So can he retire? What’s that all total up?

Al: Yeah, so here’s the answer. The answer is yes. So if we start with $650,000 and then I don’t know what you’re adding to it. I just ran this with no additions, 6%, 14 years, it’s worth $1,500,000, conservative 3% distribution rate. So that’s $45,000. Plus your wife’s pension of $100,000 plus your rental properties of $25,000. That’s $170,000. You want to spend $100,000 even with 3% inflation in 14 years, that’s $151,000. That doesn’t even include Social Security. So I would say, yes, this works, Nick.

Joe: Very good. So-

Al: And I didn’t include the cash for the rental or increases in rental income and all of that sort of thing.

Joe: So deferred comp, $145,000. Couple things to think about there is- that there’s a certain distribution that needs to come out. So there’s planning that goes along with that. So it’s your wife’s deferring her comp to a later date, but she has to pick the date prior to her deferring the comp of when that money comes out. That’s going to be taxed at ordinary income. So strategies as he’s thinking about, you know, this is top of, really high level spitball to say, does he have enough assets? The answer is yes. But then what Nick needs to be doing is really strategizing on how these different things come into play. He’s got a 403(b). Does he want to take advantage of that? He’s got the 457. Does he want to max those out to reduce current income? He’s at $240,000 now, I think with the deferred comp and depending on how much money his wife is deferring from the deferred comp and when that dollars going to come out, I want to supplement that with Roth or brokerage accounts. So just be watching tax brackets and you want to utilize those accounts as much as you can. Once you’re in high brackets, then go pre-tax. Once you’re probably in the 24% tax bracket or lower, I would go all Roth.

Al: Yeah. And when you’ve got a big pension like that, Roths are even more important because that’s all ordinary income.

Joe: But is that a lump sum at $100,000 or do you think she’s getting $100,000 a year.

Al: I’m, well, that’s a good question. It says pension, so I’m assuming it’s income. That was my assumption.

Joe: I’m assuming it’s just $100,000.

Al: If that’s the case, then my math’s wrong.

Al: It’s way off.

Post-Tax Contributions and Pre-Tax Funds Converted: How to Tell the Difference? (Victor)

Joe: Got Victor writes in, he goes, “Hey, my name is Victor. I’m 55. I drive a Ford F150 company car.”

Al: Wow. Interesting company.

Joe: Yeah.

Al: Gotta haul stuff for that company.

Joe: I love it. “My drink of choice is Jack and Coke.” Ford F150, Jack and Coke.

Al: You could picture it, can’t you?

Joe: I can. Just- Marlborough reds- “I originally rolled a 401(k) from a previous employer into my existing IRA and I think I made a mistake. In the future, how can I tell the difference between post-tax contribution versus pre-tax I converted?” Okay, so. He made a mistake that he had post-tax money in his 401(k) that he rolled into an IRA?

Al: I think that’s what he’s saying.

Joe: I think we need a little bit more information, but in the future, it should stay on your statement. So if you have post-tax dollars- so here’s the mistake. If you rolled it over, the person that was rolling it over, your plan administrator, didn’t say, Victor, you have $20,000 of post-tax dollars. Where should we send these monies? You know, shame on them, right? I guess it’s still your responsibility. And if you did it online and you just moved everything into an IRA.

Al: Yeah, but couldn’t- he’s still working at the company, roll it back into the 401(k). You’re not allowed to roll the after-tax part. And once you’ve done that, then you can convert that to a Roth.

Joe: I’m thinking out loud here. If he put after-tax dollars into an IRA, that’s an excess contribution.

Al: No, it was a 401(k) that he rolled.

Joe: Yeah, but he had after-tax dollars in the 401(k). You can’t put after-tax dollars into an IRA from a 401(k). That would be like a contribution ’cause it’s after tax.

Al: I don’t think so. I think it’s the other way around. You can’t put after-tax money in an IRA into a 401(k).

Joe: I think he might work on both sides of the street .

Al: I dunno. But. Anyway, my thought-

Joe: But he doesn’t know what the after-tax dollars are.

Al: Yeah, that’s the first step. You have to find out what that is.

Joe: He has no clue. And then try to roll it back to the 401(k). You’ll only be able to roll the pre-tax amount. You’ll be left with the after-tax and then you can convert that to a Roth IRA and you’re in a much better spot.

Joe: Yeah, that’s dicey. I don’t know if it’s going to be that simple.

Al: You have to check it out, but that’s what I think. And of course we’re spit balling. Yes. This is not advice.

Joe: Right, right, right, right. But in the future, because the question was in the future. And this is for everyone. Understand if you have after-tax dollars. Because, you know, we see a lot of IRA accounts. And it’s like, okay, well you have an IRA and you have a 401(k), and they’re like, yeah, I’ve been making contributions all along. And it’s like, well, have you been taking a tax deduction? No. Well, what’s the basis in the IRA? I have no idea. Luckily there was, there’s the 8606 form that their accountant has been filing for them. And so then you can look at the basis in the IRA. So if you have basis in an IRA, it would be on form 8606, and then that’s the back of the your 1040 or your tax return.

Al: Yeah, no, I agree. But I think this was all done in a 401(k), so the accountant’s never done anything. That’s my thought.

Joe: Alright, that’s it. Great job Andi, great job Big Al.

Al: That was fun, yep.

Joe: We’ll see you next time. Show’s called Your Money, Your Wealth®.

Andi: Counting steps in the Derails at the end of the episode, so stick around. Help new listeners find YMYW by, number 1, telling your friends and colleagues about the show, and number 2, by leaving your honest reviews and ratings for Your Money, Your Wealth in Apple Podcasts, and any other podcast app that accepts them.

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The Derails



Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this broadcast and does not represent that the securities or services discussed are suitable for any investor. Investors are advised not to rely on any information contained in the broadcast in the process of making a full and informed investment decision.

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