What is the risk with BDCs, or business development company funds? Edward in Illinois wants to know. Do Pebbles and Bam Bam in Kentuckystone have too much invested in T-bills? Are mutual funds or ETFs a better place for them to invest qualified money in the decumulation phase? Is there a difference between a traditional IRA and a rollover IRA? Keith in Connecticut is 34 and wants a spitball on whether his investments are appropriate for his time horizon. Plus, Gus in Philly needs a withdrawal strategy for his dad’s multi-year guaranteed annuities (MYGAs). Speaking of MYGAs, YouTube viewer Ken thinks everyone should invest in MYGAs and bonds, and nobody should ever pay a financial advisor. What do Joe and Big Al think? Finally, comments on your state of residence for tax purposes, the prorated sale of a primary residence, bonds vs. a pension, and focusing on PERMA – but what is it?
Show Notes
- 00:00 – Intro: This Week on the YMYW Podcast
- 01:09 – What’s the Risk with Business Development Company (BDC) Funds? (Edward, IL)
- 04:04 – T-Bills, Decumulation, IRAs, and Investing Strategies (Pebbles & Bam Bam, Kentuckystone)
- 11:21 – LIMITED TIME OFFER: Download the DIY Retirement Guide by Friday, Jan 17, 2025!
- 12:24 – I’m 34. Are My Investments Appropriate for My Time Horizon? (Keith, CT)
- 18:22 – Multi-Year Guaranteed Annuity (MYGA) Retirement Withdrawal Strategy for Dad (Gus in Philly)
- 22:34 – Just Buy MYGAs and Bonds and Don’t Pay an Advisor (comment from Ken, YouTube)
- 27:36 – Schedule a Free Financial Assessment with Pure Financial Advisors, Learn More about Pure’s Fees and Services
- 28:47 – State Taxes vs. State of Residency (comment from Greg, Temecula)
- 30:17 – Favor Questions from People with Less than $6M Please (comment from Ed, YouTube)
- 31:08 – Prorated Sale of Primary Residence (comment from Keith, YouTube)
- 33:01 – $1M Bonds vs. $40K/yr Pension (comment from Keith, YouTube)
- 34:54 – Focus on PERMA Already (comment from 7SideWays, YouTube)
- 36:11 – YMYW Podcast Outro
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Transcription
Intro: This Week on the YMYW Podcast
Andi: What is the risk with BDCs, or business development company funds? Edward in Illinois wants to know. Do Pebbles and Bam Bam in Kentuckystone have too much invested in T-bills? Are mutual funds or ETFs a better place for them to invest qualified money in the decumulation phase? Is there a difference between a traditional IRA and a rollover IRA? And Keith in Connecticut is 34 and wants a spitball on whether his investments are appropriate for his time horizon, today on Your Money, Your Wealth® podcast number 512. Plus, Gus in Philly needs a withdrawal strategy for his dad’s MYGAs, or multi-year guaranteed annuities. Speaking of MYGAs, YouTube viewer Ken thinks everyone should invest in MYGAs and bonds, and nobody should ever pay a financial advisor. What do Joe and Big Al think? And finally, comments on your state of residence for tax purposes from Greg, the prorated sale of a primary residence, and bonds vs. pension from Keith, and 7SideWays tells the fellas to focus on PERMA already – but what is it? We’ll find out. I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.
What’s the Risk with Business Development Company (BDC) Funds? (Edward, IL)
Joe: Edward. He’s in Illinois. He’s like, “I have been buying BDC funds. They are paying close to 10% dividends. And at least recently, slight nav growth and net asset value. And I don’t completely understand the risk of these funds. I know they make loans to businesses that can’t get traditional financing. I’m just wondering what the risk is. Drive a 2022 Toyota Highlander. Enjoy Miller Lite after golf. I played 100 rounds this year. Too bad most of them are forgettable.” 100 rounds.
Al: That’s a lot. And do you-
Andi: How many do you play, Joe, in a year?
Joe: Let’s see-
Al: You’re probably close to 100.
Joe: I’m probably over 100.
Al: But do you wait for after the round to be able to have your beer?
Joe: No, I have my beer before the round, during the round, and after the round.
Al: By the way, BDC is business development company funds, which are risky from the standpoint that these are companies that can’t otherwise get traditional financing.
Joe: It’s almost like, it’s like a private credit fund.
Al: Yeah, right.
Joe: Private credit today is, unbelievable. It is giant.
Al: It’s the latest thing, right?
Joe: Well, there was some laws that passed in regards to the bigger banks, and so for smaller companies to get financing, these banks started going private, private lending. So BDC would be one, an example of that.
Al: Right.
Joe: Where there’s, smaller companies are a little bit more risky. There’s probably underwriting that they couldn’t get a traditional standard loan.
Al: Right.
Joe: And so, I don’t know how many trillions of dollars are in private credit, but-
Al: As long as the economy’s good, you’re probably fine. But when economies turn, sometimes these things can have problems. Remember the subprime loans that essentially caused the Great Recession?
Joe: Well, if you think about return, there’s no free lunch. So, if you’re getting a good return on the money because there’s added risk, it’s a loan. So they’re lending these dollars out to these organizations and if these organizations are not around because of any type of turn in the economy, well, there’s, the return on Monday, the return on your money is going to be zero.
Al: Right. And so, said just very simply, you loan your money to a company, the company goes bankrupt, that loan is gone. You’re done. Right. So that’s the risk, is the risk of losing principal.
Joe: So you’re getting a little bit higher rate of return, 10%. So it’s paying close to 10%, Al.
Al: That’s a good rate. So there’s got to be risk and that’s, that’s what it is.
Joe: All right, yeah. So 100 rounds. Impressive. I wonder what the handicap is.
Joe: We are talking money. We got myself, Joe Anderson, we got Big Al. Andi Last, Aaron Townsend, he doesn’t, he just likes to stay under the radar, doesn’t he?
Al: He doesn’t even like to hear his name.
Joe: I know.
Al: That’s why we keep saying it.
Joe: Hello!
Al: Aaron, and if you missed that, Townsend.
T-Bills, Decumulation, IRAs, and Investing Strategies (Pebbles & Bam Bam, Kentuckystone)
Joe: “Hello to the YMYW team, it’s a follow up from Pebbles and Bam Bam in KentuckyStone, following your non-advised spitball from last year, here’s the new skinny following up on 4 questions.” Oh gosh.
Al: A 4-parter. All right, 67-years-old, Pebbles is 70, and, all right, “67-year-old retired Pebbles, 70 in 2027.”
Al: Yep.
Joe: “And 62-year-old BamBam, house paid, no debt, Pebbles has a qualified account of $3,400,000, $1,100,000 in a Roth, brokerage account of $260,000, we got T-bills of $700,000, we got I-bond of $10,000, collecting-“
Andi: “One damn I-bond.”
Al: Right.
Joe: “- collecting Social Security at $4000 a month, and then BamBam moved 410(k) to a Vanguard IRA, that’s worth $1,000,000. Still earns $50,000 a year and will collect Social Security at age 70, that’s $3000 a month.” Right. Got all this big, Al?
Al: Yeah. So if you’re keeping track, that’s about $6,400,000.
Joe: Okay. You’re good.
Al: We’re done with all the questions.
Joe: Yes, “Our goal is to move money to the Roth IRA up to the 24% tax bracket as often as we can while maintaining the cash to live on, to live off of and pay the taxes. Here’s our question. One is. One, is this too much money sitting in T-bills, even though the purpose of $10,000 a month living expenses, $120,000 a year, and the estimated quarterly payments of $16,000 federal, $14,000 state, while we convert about $250,000 to $300,000 a year to Roths? Is it too much sitting in T-bills?” Number one question, $650,000- No, not at all.
Al: No, not at all, because you’re using $200,000 a year for living and taxes, so you’re fine.
Joe: Okay, “Number two, during the decumulation phase, where is the better place for qualified monies to sit? Low-indexed mutual funds or low-indexed ETFs? Does it make a difference? What’s the rationale for either?” I think either/or is just fine.
Al: I agree with that. I mean, if they’re exactly identical, ETFs have a few slight advantages, but for the average investor, it’s almost nothing.
Joe: Yeah, I would agree with that. “Is there any difference between a traditional and a rollover IRA?” Yes, a rollover IRA is where you can roll it out of the IRA. So let’s say it’s coming from a 410(k), you’re going to set up a rollover IRA. You roll your 410(k) into the rollover IRA. If you ever want to move it out of the IRA, you can roll it out of the IRA into another qualified account. A traditional IRA is something that you set up that you’ve made contributions and took the deduction or you might have basis.
Al: Yeah, but they have the same rules and you can actually put the accounts together.
Joe: Yeah, you can consolidate.
Al: Not that big of deal.
Joe: Yeah. “Is there a better strategy to consider?” What, part of, hey, we don’t give advice does he not understand care? He’s asking very specific type of questions, but-
Al: Well, we’re just spitballing.
Joe: All right. This is not advice. Just a little compliance. FYI. Okay, “What are we missing? i.e., should we be refilling cash buckets too? Love the show, listening while walking our terrier in the woods. Pebbles loves old-fashioned, since we live in bourbon country. And drives a 10-year-old Lexus and BamBam likes the port. And drives a Honda convertible as he’s more-“
Andi: – continental.
Joe: Thank you. “Kisses to the team.” There you go.
Al: Oh, you like that, Aaron. Okay.
Joe: Alright.
Al: Well, is there anything else to consider?
Joe: I don’t know. Yeah, I think you should fill up some cash as you’re rebalancing the overall account. So, this is where it gets a little bit more complex, is he needs $120,000 a year. And he has roughly several million dollars in a retirement account that he’s converting. So he’s converting the IRA into a Roth. You probably don’t want to touch the Roth dollars. So to create the income that he needs to live off of he needs cash. Right that he has about $650,000 in cash or T-bills that he’s going to live off of. As he’s spending those down he’s going to run out of non-qualified dollars at some point.
Al: At some point, yep.
Joe: So the 3 month T-bills, all of that dollars is going to be gone. The brokered ETFs, he’s got about $268,000 there. That’s probably the next pool that he needs to draw from. So all of those dollars will be drawn down. And then your IRA and Roth monies will continue to grow and then at some point you have your RMD that you will have to take from your retirement account. And that’s probably gonna be over and above how much money that Pebbles and BamBam needs to live off of. Yeah. He has to look at how much money needs to come from the portfolio to have a lifestyle. And then that’s how much money that needs to be probably a little safer than your standard stock or stock ETF or index fund.
Al: Yeah. And there’s some different variables here, like BamBam is still working. So $50,000 of the $120,000 spending need is already covered. And then when Social Security kicks in for both of them, it’s about $80,000. So they may not need tons from their portfolio. I do agree that, with the thinking, which is, convert as much as they can because they are gonna have a tax problem. In fact, it’s over $4,000,000 in tax-deferred right now. So yeah, no, I like what they’re thinking. I agree with you Joe, that you want to get as much into the Roth as you possibly can but you have to be mindful that you need some of this money to live off of too.
Joe: And so, the amount of money that you’d live off of, whatever the shortfall is, right now I think it’s, if they’re spending $120,000 a year, so what, they need about $70,000 from their portfolio? And so, maybe at $70,000, you go out 5 to 10- 5 to 10 years and keep that pretty safe. So just to keep the math simple, $70,000 times 10 is $700,000 that you would want to have somewhat liquid.
Al: Yep.
Joe: And he has $670,000 roughly in T-bills.
Al: Right.
Joe: So I think he’s right on track there.
Al: Sure.
Joe: As he’s distributing those dollars, he probably needs to backfill the next years of income, depending on how conservative he wants to be.
Al: Right. Right. Yeah. Makes sense.
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I’m 34. Are My Investments Appropriate for My Time Horizon? (Keith, CT)
Joe: All right. We got Keith from Kentucky. “I was hoping to get a second opinion on the asset allocation and location. And if I’m taking on too much risk in my portfolio, and if I’m in a good spot to retire at 57, that’s the earliest age I’m eligible for a full pension from the government. If I wait until 62, I get a 10% raise on my pension. The multiplier becomes 1.10 instead of 1.0. I’m 34, very single and a USPS City Mail Carrier.” Alright.
Al: Okay.
Joe: Very cool. That’s what my aunt was a mail carrier.
Al: Oh, no kidding.
Joe: Yes. “Salary gross is $58,000 a year, $80,000 in a TSP, roughly $32,000 of that is in a Roth. Roth IRA is $20,000. He’s got a little small cap value ETF in there. He’s got some HSA cash. HSA investment-“Am I still going here?
Al: Yeah.
Andi: Yep.
Joe: With red, it gets me confused. “Are these good funds for my time horizon?” So his funds, Al, are like the S&P 500.
Al: Yeah.
Joe: He’s in the total stock market. He’s in some small cap. He’s 34 years old. I think those funds are just fine.
Al: I do too. And TSP, it’s, he says 40% C fund, which is common stocks, S&P, and 60% S funds, which is like 4000 different stocks, kind of more representative of the market.
Yeah, I agree. That’s fine.
Joe: Cool. Okay. “So if so, when should I- if I should take less risk, I have a USA pension plus Social Security, whatever left that even if it’s 80% of what it could be. I currently only do the 5% match and put that into the Roth TSP. Then I max out the Roth IRA and HSA through payroll deductions. Alright, quadruple tax advantage, ASAP. They match 100% of my 5% and my insurance provider gives me $1000 towards my HSA annually. He’s got a 6-year CD at $6000. Okay, no brokerage account. I had a question about a brokerage. In your opinion, if someone is not maxing out all of their tax advantage accounts like HSAs, IRAs, 410(k), first, should they not touch a brokerage account? I do not own a home but may want to buy one in 6 years when the CD matures. I have a 6-year-old German shepherd named Ellie. She’s a good girl. Would you recommend saving for a down payment on a house? Keep renting? Stop worrying so much? How’d you invest the HSA?” This is just rapid fire, Big Al. A lot of questions thrown at us.
Andi: I have a dog, should I buy a house?
Joe: You can buy ETFs, mutual funds, individual stocks, etc. “How do I stop worrying? I hear on the show about all these people with like $6,000,000 and they’re wondering if they can retire. And I’m over here not even making $60,000 annually. I have no idea how much I’ll spend in 30 years. I spend $2600 a month now. That’s what I take home roughly per two paychecks. I’m healthy, I don’t smoke, drink alcohol, I exercise, and I drive a 6-speed manual 2020 Suburban Cross Check that’s paid off. Thank you. And I hope to hear my rambling message on the show. Go Huskies. Keith from Connecticut.”
Al: There’s a lot there, but these are pretty easy to answer.
Joe: So, okay, first of all, Keith, I think at 34 years old, making $60,000 a year, you have a total of about $150,000 saved. So, I think that is awesome.
Al: It’s phenomenal. Yep. And the fact that you have a great pension plan, you’re going to be in great shape. In fact, Joe, in many cases, the people that are government workers that have a good pension end up in better shape than all these people that saved all this money and never learned how to live within their means.
Joe: Should he save for a home? Sure. I mean, I think you’ve got some money sitting in a non-qualified brokerage account six or an inner CD, $6000, continue to build up the cash and that will give you a nice little nest egg for a down payment. Keep renting. I mean, I think if you wanted to keep renting, the only thing is just outpacing inflation with rent.
Al: Right. I think it’s preferable if you can eventually buy a home, but it depends on the location that he lives. It’s in Connecticut. So it depends what part of Connecticut, whether it might be expensive or not. But yeah, I would say, and then the other part is, when should I take less risk? You only start thinking about that when you get much closer to retirement and you’re going to need to have access to the money. Or, if you just can’t stomach the fluctuations of the market, then you take less risk, you have more safety, so your portfolio doesn’t go up and down so rapidly.
Joe: I would say, when you get about 10 years from retirement, that’s when I would look at revamping the overall portfolio.
Al: Yeah, and you may not even make a change, but that’s when you start looking, right?
Joe: You’re 34 now, you’re going to retire at 57.
Al: And chances are with your pension, it’s going to cover a lot of your expenses. So you may not need a lot of safety. On the other hand, you may want more safety because maybe you want to increase your lifestyle in retirement so that there’s different ways to think about it. But for right now, growth is at age 34, growth’s important.
Joe: But what he’s doing is way more sophisticated than most.
Al: Of course.
Joe: Like he knows, okay, so he’s in small, value. He’s in an extended market, right? You know, he’s in the C fund. So what he’s doing is-
Al: It’s amazing.
Joe: It’s pretty good.
Al: Keep it up. Know you’re on a good path. And then don’t worry.
Joe: Yeah, stop worrying.
Multi-Year Guaranteed Annuity (MYGA) Retirement Withdrawal Strategy for Dad (Gus in Philly)
Joe: We got Gus in Philly goes, “Hi, Joe, Big Al and Andi. Thank you for my favorite podcast.” Thank you. “Great mix of information and lighthearted humor. My dad’s 95 years young and still pretty active. His drink of choice is Tullamore Dew and he drives a Buick Lacrosse. It’s a tank.” Drives. 95. Cruising.
Al: Yeah, that’s very good.
Joe: Alright. “He has a MYGA that started with a deposit of $40,000 that has now grown to $192,000 over many years. It yields 4% and will mature on 1-1-2026. He has the ability to take out $19,000 out without penalty in 2025, which we plan on doing, to put into his brokerage account. At his advanced age, it is unlikely that he’ll be able to roll the MYGA over into another multiyear option. So I’m looking for options that he can pursue that will not cause him to take a tax hit on the $120,000 gain. $198,000 balance, $40,000 principal, $19,000. 2025 plan, withdrawal, $20,026 plan withdrawal, equals $120,000 gain. Can you spitball some options that may allow him to defer the $119,000 gain so he can contribute to- Oh, “so we can continue to take about $20,000 a year out of gains over time and stay in a reasonable tax bracket. Between his pension, Social Security and dividends, he already is in the 22% tax bracket without taking any gains. Thanks for the show. Gus from Philly.”
Al: Well, first of all, MYGA is a multi-year guaranteed annuity. We’ll just get that out there. So it’s an annuity.
Joe: Right. So he put $40,000 in, it’s grown to $192,000. So any growth that’s in an annuity, is taxed at ordinary income rates.
Al: Correct.
Joe: So he’s got a little bit of a tax issue here of saying, all right, well, I’m going to pulling out $20,000 a year to keep him in the 22% tax bracket. Why isn’t he pulling more out? Because he’s well into the 22%. Just take more out to max out the 22%.
Al: And fill it up. And just till it’s done, right?
Joe: Because the 22% is going to go to, it could, it’s slated to go to 25%. I would also look at who’s the beneficiary? And what is the options at death? Is it a lump sum or can you annuitize?
Al: Right.
Joe: There’s different options for beneficiaries. So Gus is, maybe he’s inheriting this. What tax bracket is Gus in versus his dad?
Al: Right. Yeah. And if his dad, I mean, there’s nothing wrong with just taking $19,000 a year or whatever the amount is, whatever the plan should be. So you slowly get rid of it without getting into too high of a tax bracket. That’s what I would do.
Joe: Yeah. You could potentially take out more. Just maximize the bracket. It’s like, if you think- if you pay 22%- if you’re in the 22% tax bracket and you want to get it out in the 22%, might as well max out the 22%.
Al: Right. Yeah. Now, if Gus inherits it and he’s in a higher bracket, maybe the father just takes a lump sum and pays the tax. Yeah. calls it good.
Joe: Or if.
Al: There, there’s no way out of the tax.
Joe: Right. If, yeah, there’s no, if there is no way out of the tax, you’re going to have to pay the tax.
Al: There’s no secret here. It’s taxable. Yeah. Yeah. It’s taxable.
Joe: Yeah. The good news is you get a $200,000 gain.
Al: That is the good news, right.
Joe: And so, yeah, there’s, there is no magic bullet here. You gotta pay the tax and it’s just when you wanna pay the tax and minimizing the taxes. It’s a charitable, speaking of charities.
Al: Oh, yeah. Maybe you could offset some of the tax if Gus gives money to charity, maybe you could, you know, front load some stuff.
Al: If he’s above the standard deduction. I mean, there’s things that can be done, but the basic answer is it’s taxable. So you just have to decide how much you want to take each year to maximize whatever tax brackets you can.
Just Buy MYGAs and Bonds and Don’t Pay an Advisor (comment from Ken, YouTube)
Joe: All right.
Andi: Let’s go to Ken on page 24.
Joe: “I just buy MYGAs from A+ companies on the peaks, when the rates go above 5%. I have a bunch at 5.5% for 5 years, good tax referral, 10%, free withdrawals.”
Andi: This is a comment on our YouTube channel. So I said “Thanks for watching and sharing your strategy, hopefully you’ve got it mapped out to account for future taxation, and how the MYGAs fit in with your overall asset mix.
To which Ken replied-
Joe: “Yes. Doing Roth conversions each year, especially with the Trump tax rates, as low as they are, I built a $2,000,000 portfolio using bonds and MYGAs only. PS. I’ve never paid an AUM fee. No one ever should.” Okay, wonderful. Glad it’s working for you, is what our response was. You’re just having conversations here with Ken.
Andi: Well, it’s for everybody on YouTube to see.
Joe: Got it. Okay. “Now that I have safely landed in retirement with my 5+% conservative investments, I’ll use strategic investing for my excess cash in long term efficient capital gains investments.” What is strategic investing, Al?
Al: Whatever it means to him, it doesn’t say.
Joe: All right. Well, I think this is great.
Al: Yeah, I do too.
Joe: Wonderful, Ken.
Al: I think-
Joe: Great strategy.
Al: Yeah, 5%. That’s great. I mean, the stock market over the last 100 years has done 10%, but, but yeah, this can be-
Joe: If I could get a guaranteed 5%, I would take that all day long. Why wouldn’t I?
Al: Why not, right? It’s just that-
Joe: You built a $2,000,000 portfolio.
Al: Yeah, it’s probably enough, right? Yeah.
Joe: Yeah. But. All right, so here’s his next, comment here. “How many times do I hear CFP®s say past performance does not indicate future performance?” Well, okay. Probably often.
Al: That’s true.
Joe: “Yet they always then tell you to put their money in the market, even though it could take a couple decades to recover from the downturn. 2008.”
Al: So we still haven’t recovered. Have to wait till 2028. I think if you look at all the indexes, they’re quite a bit higher than they were, even at the low.
Joe: 2008.
Al: Yep.
Joe: “It’s like the CYA but then they need to get their money from their portfolio with AUM fees. So they put your money in the market, what do they care? It’s not your money. It’s not their money. Yet.”
Al: Okay, sounds like Ken doesn’t want an advisor. Which is great.
Joe: “Land your retirement by laddering 5% or higher bonds in MYGA on the peaks for 5 or 5 to 7 or more years. After you land your retirement income stream, then you can invest excess cash in the markets for the long term for growth and inflation protection and tax optimization.”
Al: Okay. Okay. Fair enough, I’m not sure that strategy didn’t work for the last 20 years when interest rates were 1% and 2%. Now it’s not a bad idea.
Joe: I’m not gonna argue with him. Whatever. If that’s what he wants to do, that’s what he wants to do. I don’t know why he’s harping on AUM fees. Doesn’t he know that there’s probably some sort of cost in regards to the MYGAs that he’s in?
Al: Yeah, well that’s a good point. Good point, yeah.
Joe: There’s no free lunch. Everything’s gonna cost you a little bit. Right. So then you just have to weigh out the cost of what you’re paying versus the value that you’re receiving.
Al: And some people say there’s no cost, but it’s in the return. You get less of a return.
Joe: Right. Right. How do you think banks make their money? Like a CD, well there’s no cost in the CD. Well they’re taking your money and they’re investing it elsewhere and they’re getting a lot higher rate of return and it’s called a spread.
Al: Right.
Joe: So, there is no free lunch anywhere. So if you’re happy with whatever return that you have, and you’re happy with the investments that you’re in, and you’ve landed your retirement, then God bless, I think that’s great.
Al: And especially if they’re safe and you’re able to pull this off, go for it.
Joe: Go for it.
Andi: So when he says he’s never paid an AUM fee and no one ever should, what would be the reason somebody should pay an AUM fee?
Joe: There’s multiple- There’s thousands.
Al: Many people don’t, investing is a mystery, right? So they just don’t know what to do, right? Or maybe they need help. Can I retire? Or maybe while they’re retired, am I spending too much and it’s ongoing planning? Or maybe I’m paying too much in taxes. What can I do to save taxes? On and on. I want to buy a house. Oh, I got to save for college. How do I go about that? What’s that? That’s why people hire advisors.
Quick answer.
Andi: Thank you.
Al: There’s more than that, but that’s what came off the top of my head.
Joe: Pitching your services, Big Al?
Al: I’m not actually even slightly.
Andi: Certainly not to Ken. He doesn’t need it.
Al: But I’m just trying to answer the question that Andi just posed.
Schedule a Free Financial Assessment with Pure Financial Advisors
Andi: For those wondering, AUM stands for “assets under management.” A fee-only financial advisor charges clients a fee that’s a percentage of the client’s total assets under management. And like Joe mentioned, other types of advisors get paid by earning commissions on investment products they sell you… like annuities. Seems like a conflict of interest to me. Pure Financial Advisors, the company the three of us work for, is a fee-only financial planning firm. But, there is NO fee, and no obligation, when you have one of the experienced professionals on Joe and Big Al’s team at Pure review your situation in a free financial assessment. When it comes to choosing investments, converting your savings into retirement income, legal strategies to lower your taxes, maximizing your Social Security benefits, or making major financial life decisions, working with an educated and experienced financial professional can give you more peace of mind. After your free financial assessment you can decide if you want to pay the fee for ongoing advice and portfolio management. I’ve included a link in the episode description if you’d like more details about Pure’s fees, and at least 15 ways that Pure can help you. Then just click the Get an Assessment button at the top of the page to book yours.
State Taxes vs. State of Residency (comment from Greg, Temecula)
Joe: We have some comments here. What are we doing here?
Andi: Yeah, you guys, the first one actually was a comment that was emailed in to me from one of our regular listeners, and the rest of them are YouTube comments.
Joe: Alright. Okay. “Hey guys, heard a couple of shows-“Hold on, let me start over here. “Hey guys, heard a couple of shows lately of people having homes in different states. And where they file their taxes for residency. My buddy’s 83-year-old widowed mother has a house in California and Nevada. She always files her state taxes in Nevada. California audited her and wanted years worth of bills. California determined she was living in California more than Nevada from when she started and stopped her newspaper at each house. So, if you have a CPA saying they will never figure it out, get a new CPA. Later.” Wow, that’s intense.
Al: Yeah, and that’s from Greg.
Andi: And that pretty much confirms, Al, what I think that you said in those two episodes where we’ve talked about this is that they will find out.
Al: Well, and especially California, Andi. California is very aggressive on this sort of thing. So, you, you can Google on YouTube, Nevada residency, and you can find someone that will rent you a PO Box for $400 a year or whatever. And try to say that will work for state residency. It won’t. And California is really good about catching these, Joe.
Favor Questions from People with Less than $6M Please (comment from Ed, YouTube)
Joe: All right. We got Ed. He goes, “Hey, please favor questions when the couple asking for a spitball has less than $6,000,000 to $12,000,000.”
Al: You know, we just read them as we get them.
Joe: “Many of us listen for guidance. And it’s ridiculous when the scenario asks whether or not they can flow $21,000 a month on luxury travel. Love the show, but it’s slowly becoming geared only towards Thurston Howell III.”
Al: Yeah.
Joe: We need more Gilligans.
Al: We do.
Joe: Yeah.
Al: Then send your Gilligan questions in.
Joe: Love it. Yeah, $6,000,000 to $12,000,000 sometimes. It’s like, come on.
Al: I know.
Joe: You’re just writing in to brag. Right. Not to brag. Well, and I have $50,000,000.
Al: And we even make fun of them sometimes.
Joe: It’s like, yeah, you did a great job. Yeah, I want to spend like $7 a month.
Al: You’re good. You didn’t need to ask us permission for that.
Prorated Sale of Primary Residence (comment from Keith, YouTube)
Joe: All right, we got a little comment here from Keith. He goes, “Good video as always.” Good video. Yeah. Looking good. Way to go, Aaron Townsend. “The first caller noted they are moving into their rental for two years to qualify as a primary residence. That may not save them as much as they think as the rules are clear that the gain in the sale is pro rata. For example, if this was a rental for 8 years, then they lived there two years after as a primary residence, and the gain was $500,000, then $400,000 would be taxable. It may even be more if they took depreciation or otherwise lowered their basis.” All right. Keith’s getting into weeds here. I like it. So.
Al: And that’s a true statement. And this has been true, I want to say since like 2007, ‘8, ‘9, maybe even earlier. But, in other words, it used to be you could move into your rental, live there two years, and get that $500,000 exclusion if you’re married, $250,000 if you’re single. And then the IRS started saying, no, you gotta do a proration between years of residence and years of, of rental. So that’s a true statement.
Joe: The rule’s different if I lived there as a primary residence first?
Al: Yeah, and that’s what’s weird, right? Yeah, because-
Joe: If it was my primary, then I moved out of it, I rented it out, then I moved back into it, then the proration is different.
Al: Yeah, there is no proration as long as you satisfy the two out of the last 5 years. But what they’re, what, I think what the IRS was trying to say is you can’t have 10 rentals-
Joe: And then just keep hopping into them.
Al: Right, exactly. Exactly.
$1M Bonds vs. $40K/yr Pension (comment from Keith, YouTube)
Joe: All right, so Keith, “Hey, I was a bit surprised there was any discussion on $1,000,000 versus $40,000 per year as a break-even is never.”
Andi: This is the, from somebody who had asked whether or not $1,000,000 in bonds, or a $40,000 a year pension is just like having $1,000,000 in, dollars in bonds.
Joe: “You could buy a risk free 30-year T bond paying 4.25% and get $42,000 per year, and 30 years later you’ll have $1,000,000 that would go to your heirs versus zero with an annual payment.” Very true. I don’t remember what, someone said, hey, if I have $40,000 pension, is that like having $1,000,000? And I think where were you going, where we were going with this, is that sometimes people don’t understand how much money that you would need in a lump sum to create the income of a $40,000 or $20,000 or $50,000 pension.
Al: Right, right. Yeah, that’s exactly what we were talking about. Given the choice, I’d rather have $1,000,000.
Joe: For sure!
Al: Right? And then I can create my income for $40,000 and I still have the $1,000,000. A pension goes away when you pass away. So yeah, Keith, that’s a true statement. I think we were, that’s what-
Joe: How many people have $1,000,000?
Al: Not too many.
Joe: Right.
Al: Yeah.
Joe: And so, but they have a $40,000 pension. And if they might have, let’s say a few hundred thousand dollars saved, it’s like, well, no, you have a lot more than a few hundred thousand dollars saved that $40,000 is almost like having $1,000,000 that you would have to invest in.
Al: Yeah. Yeah. Same, similar tax consequence.
Joe: A lot of recency biased here with these high interest rates too.
Al: Boy, that’s for sure. I mean, some of these are great strategies today and they weren’t very good 3 years ago and the last 20 years before that too.
Focus on PERMA Already (comment from 7SideWays, YouTube)
Joe: All right. We got another question here. It goes, “The math was easy.” Okay, I’m not really, I don’t know what-
Andi: This is in reference to one of our TV shows called “Your 11 Step Path to Financial Freedom”. He says, “the math was easy, so focus on PERMA after, already.” And I looked that up to find out what PERMA was, and that is actually, it’s the softer side of retirement. Positive emotion, Engagement, positive Relationships, Meaning, and Achievement or Accomplishment.
Al: Okay.
Andi: So, in other words, don’t focus so much on the money side of it, focus on what you’re going to do with your time in retirement. And how to flourish.
Al: You know what, Andi, we don’t really talk about that enough, but I think that, I think what you do, with your retirement and with your time, your, what your purpose is, what gets you up in the morning, your, children, your grandchildren, your friends, your spouse, this is just as important, if not more important, but this is a financial show.
That’s why we focus on that. But yeah, don’t forget that other part.
Andi: And that is, that whole theory of PERMA is from Dr. Martin E. P. Seligman, in case anybody wants to look that up.
Al: Okay, good.
Joe: That’s it for us. Show’s called Your Money, Your Wealth®.
YMYW Podcast Outro
Andi: Hey, thanks for watching and listening. Your Money, Your Wealth is your podcast! Click the Ask Joe and Big Al link in the episode description to ask your money questions or get a Retirement Spitball Analysis of your own. And if you enjoy YMYW, don’t keep it a secret – tell your friends, and leave your honest reviews, comments, and ratings for Your Money, Your Wealth in Apple Podcasts, and on YouTube. We appreciate it.
Your Money, Your Wealth is 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.
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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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