Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 00:58 – How Should a Pension-Rich 50-Year-Old Invest? Should They Even Bother with Roth Conversions? (Reno, OR)
• 10:30 – Should I Borrow $500K in a Margin Loan to Invest? (Michael, VA)
• 23:01 – We’re Getting $2M From Selling the Business. Annuity, Charitable Trust, or Bite the Tax? What About Whole Life Insurance? (Husker Fans, Nebraska)
• 34:14 – Can a Frugal Mountain Couple Bridge the Gap to a $60K Pension? (John & Lib, NY Catskills)
• 41:13 – Outro: Next Week on the YMYW Podcast

Free Financial Resources: 

Emotionless Investing Guide – free download

Financial Blueprint – free, self-guided

Retirement Rebound: 5 Plays to Help You Score a Comeback – YMYW TV

Guides | Blogs | Educational Videos | YMYW Newsletter | Subscribe on YouTube

Watch today’s podcast episode on YouTube:

Transcription

(NOTE: Transcriptions are an approximation and may not be entirely correct)

Intro: This Week on the YMYW Podcast

Andi: Today on Your Money, Your Wealth® podcast number 585, Joe and Big Al spitball for folks who are already winning and thinking about getting fancy with it. Reno in Oregon is 50, and his pension is so big he’s not sure why he would need to convert to Roth. Michael is considering taking out a half-million-dollar margin loan to juice his returns. What do the fellas think? Tune in for the surprising debate. Husker Fans just pocketed two million from selling their business, and here come the product pitches: should they buy annuities, set up a charitable trust, or just swallow the tax? And finally, John and Lib on Waltons Mountain – or rather, the Catskills – aren’t sure if they’ve saved too little or too much. Can they bridge the gap until their pension? Watch and follow YMYW on YouTube, turn on notifications so you don’t miss a thing, and join me in the conversation in the comments: what do you think these folks should do? I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

How Should a Pension-Rich 50-Year-Old Invest? Should They Even Bother with Roth Conversions? (Reno, OR)

Joe: Reno. Reno, Oregon.

Andi: Reno from Oregon.

Joe: Reno’s the name, not,

Andi: Yep.

Joe: I thought there could be a city.

Andi: Nope. They signed it off, “Thanks, Reno,” so…

Joe: All right. Okay. “Greetings, John Big Al. My wife and I are 50 and can retire at any time.” look at you. What the… “My wife and I are 50 and can retire at any time with state Oregon, for now, pensions.”

Al: Pensions, okay.

Joe: All right. Any time. then, you do it, bro. Go for it. All right. “We are projecting to retire at the end of the year and starting to draw on our pensions in January of 2027. Current income, $265,000 a year combined. Projected pension, 170 grand.”

At 50.

Al: Yeah. That’s- I- … that’s pretty good.

I-

Joe: What did you sign me up for? … wonder what Reno did.

Al: worked for the State of Oregon. I, would think,

Joe: City council?

Al: Yeah, or fire chief or s- I don’t know.

Joe: I don’t…

I would say, yeah. project pension, 170. Home value, $622,000, no mortgage.

Al: Yep.

Joe: They got about $1.8 million in total investments. So they have a 457, a Roth 457, a 401, Roth IRA, Roth 401, 401, brokerage account, et cetera.

So call it $2 million if we’re rounding.

Al: Yeah. Sure.

Joe: They got zero debt, not even a car payment. “The reduction in yearly income will not be an issue for us.” Man, you are just loaded with confidence. Why even write in? I think- I mean, you got this thing dialed. “I can retire any time I want to-

because I got $168,000 pension from the State

of

Oregon.”

So- Ore- Oregon …

Al: does he wanna make sure he still can? I don’t- If he only wants- s- We’ll find out what the question is … ”

Joe: My investing mentality is not to put my money in funds that will yield the highest returns.”

Al: Okay. is to put money in funds that-

Joe: Oh.

Al: Yeah.

Joe: it is. He want- “My investing mentality is-

to put my money in funds where my mouth is.” Confidence. For the highest- High returns …

Al: highest returns. Yep.

Joe: All right.

Al: Okay. ”

Joe: Those investment dollars are going to be used for vacation, other homes or anything else I want.” Okay. Gosh.

Al: Do you think his wife gets a say in- Oh, my gosh … that too, Joe?

Joe: It’s like, “Bottom line-

I don’t need a withdraw to maintain a lifestyle. I just want money to enjoy life in retirement. I have a few questions, though, to maximize my returns and limit taxes.” Oh, he does have some questions.

Al: Okay, here we go. ”

Joe: As soon as I retire, granted any time I want- … I wanna roll over my 457, 401s and 401s to my own Charles Schwab account to have more control over what I invest and to limit the fees.

What type of accounts?” Roth, traditional brokerage, et cetera, would you spitball I roll over my accounts to? So I limit my current tax rate and limit my tax liability over, when I make withdrawals. I’ve considered investing in the following and would like your opinion. All right, he wants a little semiconductor ETF.

Oh, go for that one, for sure. Love it. Love semiconductors. I mean, they’re hot right now. I know, they’re…

Al: Yeah.

Joe: Super hot.

Al: They’re, and they’re getting hotter.

Joe: Guide Stone Funds. Never heard of Guide Stone. Maybe Andi can help us out here.

Andi: We got- That is a faith-based fund family.

Joe: It’s… Oh, okay.

Al: Okay.

Joe: All right.

So that’s cool.

Al: Yep.

Joe: Vanguard InfoTech.

Al: Oh, I got some more tech there,

Joe: right? Love tech. Invesco Trust, Fidelity, Fidelity SemiCon- Oh … he must-

Al: He likes-

Joe: He loves those semiconductors … tech. What are your thoughts? Respectfully, Reno. Okay. All right, Reno. Couple, thoughts here for you.

Al: What do you got?

Joe: So yeah, you take your 457s, 401s, and you roll them all into an IRA at Charles Schwab.

Al: Yep.

All

Joe: You don’t wanna put them in a brokerage account because then they would be subject to ordinary income tax. You roll everything into one IRA at Charles Schwab. So if you have multiple retirement accounts, you consolidate, into one account at, at your brokerage. If you have Roth accounts, Roth 401s-

roll it into one Roth IRA. Yep. If you have outside money in a brokerage account, open up a brokerage account and put it in there. And then you look at, all right, what is the distribution strategy? What is your tax strategy? What, how much income do you need to derive from the overall portfolio? And then you can kinda start planning out what your investment should look like, versus like, “Hey, I like semiconductors.

Should I buy a bunch of ETFs?” I, have no idea.

Al: Yeah. I think you’re, right on. I, the way I would say it, I would do probably do Roth conversions to the top of the 22% bracket based upon 168,000 of income. And I don’t know if there’s other income, but you take away the, standard deduction, 32,000, then probably you could do a Roth conversion of 60 to $70,000.

They got about 1.1, 1.2 million in, in, deferred.

Joe: Yeah, deferred.

Al: And they’re only 50, so they can just about get it all converted over time if they want to, right? They don’t have to, but they, can. I, I-

Joe: He, he says he doesn’t need the money, right?

Al: Yeah.

Joe: So you’re trying to convert as much as you can to stay in the 22% tax bracket, and then- I don’t- then do whatever you want with the money

Al: yeah, now, and I guess we should clarify, e- if- even if you don’t need the money, you do it to keep yourself out of higher tax brackets later.

When that account grows and your required minimum dist- distribution grows, you do it for yourself. You have, if you have kids, even better, right?

Because they’ll get the money tax-free, and that’s a great benefit for them. So I don’t think he mentions kids, but anyway. Yeah, I think a lot of people get confused, Joe. It’s like, I don’t, wanna do Roth conversion ’cause it, I don’t really need the money.” if it’s, for charity, then great.

But, if it’s for your kids, or even as for yourself, you may wanna stay out of higher brackets later.

Joe: Yeah, you just take the uncertainty of higher brackets off the table.

Al: Yeah, Especially ’cause he, it sounds like he wants to spend it for vacations and-

Joe: Yeah …

Al: whatever he wants.

Joe: Yeah, whatever he wants, dude.

Yep. he’s in great shape, $170,000 pension.

Al: Yeah.

Joe: Hell of a pension. It’s, So yeah, congrats. You can retire at any time, and I think you know that,

Al: Reno. I don’t- Yeah, that’s, why he’s pretty confident.

Joe: I don’t have any, specific recommendations for you in regards to the investments.

Al: I, I don’t either. I think, you know, we, I guess one thing I would say, Joe, is, when it comes to retirement, we, kinda tend to think about preservation a little bit more than growth. Now, if you don’t need the money, it’s a little bit different. Preservation means diversified, globally diversified portfolio.

You got some of everything. So you’re not gonna hit a home run, but you’re not gonna lose everything, right? Now, if you really want this, if, you wanna go for the highest yield, then, go for it. What you pick is, it- it’s anyone’s guess, right? Because the market has priced it currently with what it believes the future potential return is.

So, it’s very hard to outsmart the market. Now, maybe you, can. you know, most people can’t. Even fund managers, Joe, they, because of the fees that they have inside their fund, have a hard time beating the market just because of all the fees. So anyway, but if you can do it, great. And, s- in some cases, it’s kinda fun to do it, so you go for it.

‘Cause this is extra money, so whatever.

Joe: No.

Al: Yeah.

Joe: You’re more or less speculating. You’re not necessarily investing. If you wanna double down on semiconductors, go for it. Yeah. but just understand, you know, there’s w- the, risk that you’re taking, you know, you, he’s got the triple Qs in here. That’s cool.

Al: Yeah, that’s true. That’s, fixed income or what is that?

Joe: Triple Qs?

Al: Yeah. Or what is that?

Joe: Stock market.

Al: Oh. It’s all stock,

Joe: yeah?

Al: Yeah. Got it.

Joe: I would say, I think it’s a Russell 2000.

Al: Okay. QQQ.

Andi: QQQ  is the Invesco NASDAQ 100. NASDAQ.

Joe: NASDAQ 100.

Al: Okay, cool.

Joe: NASDAQ.

Al: Good to know.

Joe: Yeah.

Andi: So Reno is loading up on semiconductors. Michael, coming up, is considering borrowing half a million dollars to pile into tech stocks. And the math may totally work. But the decisions are risky because it sure sounds like they’re driven by what feels exciting in the moment. And that’s an expensive habit for an investor. According to JP Morgan, between 2001 and 2020 the average investor’s self-directed portfolio performed 4.6% worse than the S&P. That’s…. Not great.  Our Emotionless Investing Guide tells you which biases are costing you the most. Herding, being influenced to follow trends, is the biggest of ‘em. The guide also shows you how to build a process that takes your emotions out of investing to make your plan more bulletproof. If you’ve ever crashed and burned on a stock that the internet told you is a sure thing, this guide is for you. And our Learning Center has dozens of free guides on everything from lowering your taxes to maxing your Social Security. Download the Emotionless Investing Guide and any of our other free guides, at the links the episode description. When you fill the form to request a guide, choose “podcast” in the “how did you hear about us” dropdown.

Should I Borrow $500K in a Margin Loan to Invest? (Michael, VA)

Joe: We got Michael from Virginia.

Al: Yep.

Joe: “Hey, Joe, Al, I’m considering using a margin loan at Fidelity and wanted to get your professional perspective about moving forward.” Professional perspective.

Al: Okay.

Joe: That’s- I like that. I don’t know if we’re gonna give you a professional perspective, but it sounds

Al: very- We’ll, do our best.

Joe: Yeah.

Andi: Still, at least spitball for you.

Joe: Yeah. “Fidelity is offering me up to $500,000 marginal on an 8% rate. My plan would be to invest a portion of the borrowed funds into a long-term equities, either a mix of high-quality tech stocks, Microsoft, Google…” What’s ABGO? I should know that.

Andi: I don’t know. I’ll find out for you

Joe: or more conservative names like-

Andi: Broadcom is AVGO.

Joe: Oh, Broadcom. Semiconductors. Yeah, so Broadcom. Oh, okay.

Al: Yep, yep.

Joe: Yep.

Al: Yep.

Joe: Played golf with a, pretty high up executive at Qualcomm.

Al: Qualcomm, okay.

Joe: When Broadcom was gonna buy Qualcomm.

Al: Yeah,

Joe: okay. That was- he said, he was pretty stressed about that- Yeah … that situation.

Al: I suppose,

Joe: yeah. All right. Yeah. I digress.

Okay.

Al: He wanted to buy them.

Joe: All right. let’s see. So d- he was gonna buy tech stocks or maybe more conservative names like, what, is that? Costco, Waste Management.

Al: Yeah.

Joe: Cintas. Is that C-T-A-S? What’s- C-T-A-S

Andi: Yeah, it’s Cintas. You’re right. Uniforms. Fa- facilities services.

Al: Okay.

Joe: Yep, my brother worked at Cintas.

Al: Yeah. Look at you. You’re just a wealth of information.

Joe: I am killing it today. That 50 per- that 50% sleep’s gone.

Al: You know, that’s-

Joe: I’m telling you, man, it’s just making me-

Al: Man, I got 53% … delirious. So we’re, both on the same wavelength I think.

Joe: Oh, yeah. “This would be my first time using margin for long-term investing.

For context, I’m 37, married with two young kids, five and two. Household net worth is approximately 1.3. Stable income, 200,000. 230 base at a tech firm. No immediate liquidity needs. My main questions are, one, using a $500,000 margin loan at 8% reasonably gives me…” let’s see. Is- “Is using a five- Yeah … is using a $500,000 margin loan at 8% reasonable given my financial situation in long-term timeline?” Number one, okay.

Al: Yep.

Joe: “What level of risk should I be aware of, especially around margin calls or market downturns? Number three, are there specific times of stocks or allocations you would recommend or avoid when using margin at this scale? Number four, is there a safer or more tax efficient alternative to achieve similar long-term growth?

Appreciate your guidance on-

Al: Okay …

Joe: whether this strategy makes sense or should be adjusted before taking action. Thanks. Michael.” What do you think? 37 making- Yeah … $230,000, stable income in a tech firm. I don’t know if you have stable income today in a tech firm.

Al: I don’t either. And the, net worth probably includes the home, but still, great job for a 37-year-old.

Joe: Yeah.

Al: I wrote three words. Don’t do it.

Joe: Oh, come on.

Al: I would, not do it. So y- so point, counterpoint. Would you?

Joe: Yes, why not? Come on. Okay, so let’s talk about what, is a margin loan?

Al: Yeah, let’s, start with it.

Joe: And, how does it work, right? So you’re, lending… The, brokerage account is lending you money to buy more stocks.

Yeah. So you have $500,000. Let’s say you have a million dollars and you’re getting $500,000 of margin. So instead of a million dollar portfolio, you have a $1.5 million portfolio. Okay? So let’s say the market goes up 10% on 1.5 million. Sure. So that would be $150,000.

Al: Yep.

Joe: So instead of 10% on a million dollars, which would be 100,000, you’re gonna make 10% on 1.5 million, which is $150,000.

Al: Yeah, 15% return.

Joe: Not bad. You got 15% versus 10. I like 15% versus 10. So if you wanna juice this thing up, you wanna take on a little bit more risk, you put margin on it so you’re taking, you’re, just getting more purchasing power to buy more stocks. You’re leveraging up to buy more stocks. We use leverage all the time, especially in real estate, right?

You use a mortgage to buy your house.

Al: Yeah, it’s the same concept with real estate.

Joe: Same concept.

Al: And rental real estate, as you know, you can get a lot better return, right? But, rental real estate generally is a little bit more stable- than the market.

Joe: You, you, wanna look at the, volatility of it, and can you bear the volatility of it?

Because whatever goes up, it’s a double-edged sword. Whatever goes down, you’re gonna feel the same thing on the downside. So if the market drops 10%, guess what? You’re not down 10%.

Al: Yeah.

Joe: You’re down more than 10%.

Al: Yeah, you’re down 15.

Joe: You’re down

Al: 15. And, it goes exponentially from there.

Joe: And then, yeah, and then it’s like it could freefall on you, right?

Al: Yeah. If, you pick… Like, let’s say you do a concentrated position and you pick the wrong stock.

Joe: Stock goes down 30.

Al: Yeah, or it goes down 50%. Then there’s margin calls, and you’ve lost 250,000 ’cause you borrowed probably, you know, you, you lost no f- yeah, you lost 500,000. You have a million total.

Joe: Yeah, you lost probably everything.

Al: Almost, yeah. Yeah, we- they- they’d call it before you get to the loans. You’d pay off the loan, but yeah, you wouldn’t have much left over.

Joe: So d- do you wanna use more stable stocks? Do you wanna use… I don’t know. I wouldn’t use individual names. You could use ETFs, right? So you could have a basket of stocks.

would you wanna use the full $500,000 margin? I don’t know. Why don’t you test it out with 50,000? Yeah. And just see how it kind of works and how… You, gotta get comfortable with this ’cause be- it’s complex. Yeah. And if you don’t know what margin call is, and you don’t know how this works, and you don’t- Yep

right, I, would probably- Put my t- very little toe in the water first

Al: Yeah, I think that’s good advice if, it’s gonna be a-

Joe: 70 years old, he’s gotta learn at some point. It’s like, okay, once he’s 57, yeah, you’re not gonna do this.

Al: Yeah.

Joe: And once you’re 67, you’re, the, he’s got three words for you, right?

Yep Do not do this.

Al: Don’t do it. but, also-

Joe: If you’re building wealth, like we talked about before, I don’t know, it, it, Yeah … it could make sense.

Al: but at 8% interest, that, that’s pretty high. So you’ve gotta, you’ve gotta-

Joe: We’ve gotta pay the man …

Al: pretty good borrower to get okay.

Joe: That’s, it, right?

Al: I would do this with rental real estate at a, even a 6% interest rate.

Joe: what’s your, what, o- okay, what, can you get right now for, what’s a, 30-year mortgage today?

Al: it’s a little over- Six? … six, yep, a little over six. Yep.

Joe: So let’s see, if I’m, jumbo loan, it’s probably closer- More … to the eight?

Al: It’s at least seven. Seven. Probably. I don’t know. I’m not really sure, but yeah, call it, let’s call it seven.

Joe: But if I’m buying rental real estate, I’m not gonna get the same r- rate as my primary, am I?

Al: No.

Joe: No. It’s probably gonna be higher.

Al: Could be higher, yep.

Joe: So it’s- Yep … probably closer to this.

Al: It could, let’s say eight, you know, probably closer to that.

But the difference in my mind is like let’s say you put 20% down, Joe, and, and, I’ll use, so it’s a million dollars. You put $200,000 down in, in real estate.

Joe: You’re talking real estate.

Al: Real estate. Yep. yeah, sorry.

Joe: So now you’re levered

Al: 80%. Yeah, so your money, 200,000, bank’s money, 800,000. But typically real estate doesn’t really fluctuate or generally as much as the stock market.

Now, it could in a great recession again. Yeah. And as you know, it happened to me. it can happen. It can. But, it’s, a little bit less likely. But anyway, 200,000, it went up, 5%, right? So it went up 50,000 on your $200,000 investment, so that’s a 25% rate of return. Now, y- you may have negative cashflow and you gotta calculate all this stuff, but that’s how you get some good return on real estate.

But if it goes down 20% and you have to sell, then you’ve lost everything because you don’t, you hardly have enough money to close the deal and pay the mortgage. So it’s leverage. It’s a double-edged sword. The reason why I wouldn’t do this, ha- partly is due to the 8%. So I don’t like the risk, first of all, but I don’t like that interest rate.

If the, if a globally diversified portfolio would earn 7 or 8%, and historically S&P stocks have earned call it 10%-ish over 100 years- little, a little under 10.

Joe: But you’re gonna make 15.

Al: If you pick the right ones. that’s my concern

Joe: Or you can make more, right? You could. If you pick a stock that’s up 30-

Al: You could

right?

Joe: So I don’t hate the idea-

Al: Okay …

Joe: for a small portion of the portfolio. You’re 37 with a $1.3 million net worth, so you’re in the top 1%. You know?

Al: Yeah, So I think

Joe: I- And, so you take a little bit, very small chunk, and if you wanna play with it, then y- to, to understand, to learn how all of this…

I mean, I think it’s a really good education for someone at 37 that’s making good money, that likes to save and is curious about markets. but it, if, you hit and y- you make good returns, then what, happens is that, all right, let’s do a little bit more, let’s do this, or let’s try this with your stock and then- we stay in that overconfidence right? And it just completely blows up on you.

Al: Yeah.

Joe: so no, I’m not against margin. full disclosure, I have a margin account on my personal account. I only have $50,000 in mine, not 1.3, so.

Al: Oh, okay.

Joe: I need a, I need to get a big wallet- You need- … like Big Al …

Al: you need to boost that up and get some more margin.

Joe: Yeah, that’s why I grind. That’s why I continue to grind.

Al: I, guess I think of margin loans for short-term liquidity or bridge loans. but y- Well- But also, you know I’m older, and as you get older r- y- you’re less interested in risk.

Joe: Yeah, for sure.

Al: Yeah.

Joe: and then there’s, what, I think what, the, what, is very common too, if you have a lot of money in a brokerage account, is like a pledged loan which is similar. So let’s say instead of, So I’m going to receive a loan from the brokerage account, and a lot of advisors recommend this, a lot of brokers do too, is that, all right, here, instead of selling the stocks, why don’t we just take a line of credit from the portfolio to- Yeah … to create cashflow and income.

So it’s like, all right, I’m just taking cash and I don’t necessarily have to sell my stocks, especially in a down market when you don’t wanna sell the stocks. So th- there’s several different uses for, this type of strategy. is it risky? Yes. do you wanna be a little bit more sophisticated in the strategy to understand really what you’re getting into?

The answer is absolutely. is there a safer or more tax-efficient alternative to achieve similar long-term growth? you’re using leverage, right? To… No, I mean, if you’re not using leverage-

Al: It’s safer …

Joe: it’s safer, right? So the, you, there’s no free lunch. Yeah. There’s no free lunch.

Al: Yeah. I remember a client years ago that used a margin loan to buy a home, but that’s when the margin loans were 2%.

They were lower than mortgage interest rates, and so why not, in that case? Just be aware, if there’s a margin call, you need to have other resources to put back in the account or pay off that loan.

Joe: You know you’re in the movie Margin Call?

Al: I don’t think so.

Joe: Such a good movie.

Al: Is it? Okay. I’ll watch it tonight.

Joe: You should. Yeah. Really good. Kevin- Spacey, Demi Moore.

Al: Oh.

Joe: I might go ahead and- … the guy from The Mentalist. Have you ever seen that show, The Mentalist?

Al: I think I’ve seen it once. I forget who that guy is- Yeah, me too … but I can picture him.

Joe: Very attractive man.

Al: Yeah. I-

Joe: Bl- flowing hair.

Al: Flowing hair.

You, you wish you had that?

Joe: I do. I do. I try to, I- You could get a- I use a blow-dryer every morning- you could get- … try to match that …

Al: You could get a wig and make it look similar probably.

Joe: I’m gonna try. yeah, that was about the great financial crisis-

Al: Yeah …

Joe: Margin call. So.

Al: Yeah, I saw The Big Short a couple times. I enjoyed that one.

Joe: Yeah. Too Big to Fail. Seen that? That’s a good one.

Al: Yeah, I’m sure it is.

Joe: Yep.

Al: I witnessed it in real time.

Joe: Yeah, I know. So did I.

Andi: So did I.

We’re Getting $2M From Selling the Business. Annuity, Charitable Trust, or Bite the Tax? What About Whole Life Insurance? (Husker Fans, Nebraska)

Joe: All right, we got, Husker Fan.

Al: Okay.

Joe: All right. “Hey, guys. Love your show. My husband and I are 48. My husband is a partner in a business that is in the process of being sold.”

Al: Okay.

Joe: His portion of the sale will be approximately $2 million.

Al: Nice. Okay.

Joe: He will retain 5% ownership of the company. Our current income together is $200,000. I’m only working part-time. We will max out his 401(k) and have a profit-sharing plan that I cannot contribute to. We maxed out our backdoor Roth IRAs for the both of us, have some stock investments, and have about $500,000 in high-interest savings accounts. We also have some whole life insurance with cash value. Our questions are this. Number one, what would you recommend doing with the money from the sale of the business? Annuity? Charitable trust? Bonds?

Al: Okay.

Joe: Oh, boy.

Al: A lot of choices.

Joe: Number two, not totally related, but what are your thoughts on whole life insurance?

Thanks a bunch.

Al: Okay. Maybe we do the first one first.

Joe: Okay. So- All right, so they’re selling a business of $2 million.

Al: Yeah.

Joe: They have $200,000 of income currently. He’s gonna sell the business, still retain ownership, so apparently he’s gonna still work there and still have income.

Al: Yeah. Sell part of the business, I guess- They retain …

Joe: they’re maxing out the 401plans. They have a profit-sharing plan. They do back doors. They have some Roth, some stock investments. Then they have $500,000 in a high-yield savings account.

Al: Yeah. Doing a lot right.

Joe: Doing a ton. So okay, let’s talk about b- annuity. 48 years old. Al, what do you think? Annuity?

Al: I wouldn’t.

Joe: No. I mean, what an annuity is insurance, and what the insurance you’re buying with an annuity is income or longevity insurance. You’re 48 years old. You want more growth in the overall account. Unless you wanna retire tomorrow.

Al: Yeah.

Joe: It sounds like he still has ownership in the company. They’re gonna have a couple million bucks. They have a lot of things going on. Yep. the annuity is the last thing that I would buy.

Al: Yep.

Joe: charitable trust. Do you think they’re talking to a insurance salesman?

Al: Probably.

Joe: Maybe.

Al: Yeah, and they have the life insurance policy on top of it. So-

Joe: Charitable trust so let’s talk about that.

Al: That’s actually a tax strategy, not an investment. But let me explain. So a charitable trust is where you put your stock in the charitable trust, also known as a tax-exempt trust. Charitable remainder trust, I think, is what they’re talking about here. You put your stock in.

It has to be a C corporation. It cannot be an S corporation. That does not work with an S corporation. A C corporation it does work. You put your stock in before the company, before your shares are sold. The company has to approve it first of all, ’cause if, unless it’s a public company, then you can do whatever you want.

But then the trust sells the shares, pays no taxes currently. You get a distribution income stream for life, and that income stream is taxed at some at ordinary income and some at capital gains, but it’s a great way to avoid the taxation, Joe, in the very first year. Upfront. You will pay the tax over time, but you’re paying it slowly over time, where you got all this principal working for you during that time.

That, it’s not a bad tax strategy. It’s not an investment, though, ’cause a charitable remainder trust, you invest inside the trust just like you would invest if you didn’t put it in the charitable remainder trust. So either way-

Joe: Yeah, you would buy stocks, bonds, mutual funds. You could buy an annuity.

Al: Yeah. it’s a tax strategy.

The… And since we’re on the subject of tax, I would say you, you look at tax-loss harvesting. That would be a- another strategy.

Joe: But would you do this? Would you do the charitable trust?

Al: Probably not 48? Because I’m 48 and I still have 5%, and I would probably want more liquidity,

Joe: Would you do it at 68?

Al: Maybe- Yeah … if I had plenty liquidity. Yep.

Joe: I think 68 probably makes more sense than 48.

Al: ‘Cause- I, I agree …

Joe: 48-

Al: Yeah …

Joe: ” You’re like, am I gonna go back to work, not back to work?” Because- Yeah … you- you’re putting the money into the trust, and then you’re setting up a distribution strategy. So when do you flip the income on? Do you flip it on right away, or do you wait for some triggering event? Maybe you do that.

Al: You could.

Joe: Would you lose a lot of control?

Al: Yeah, I wouldn’t at 48.

Joe: You do save the upfront big tax.

Al: Yeah.

Joe: if you die prematurely, 100% of the ta- the trust goes to the charity.

Al: Yeah, and that’s why the, let’s say their financial advisor maybe wants them to do it because they sell a life insurance policy- Oh

right, to, to cover the $2 million that got put in. So if you die prematurely, that $2 million goes to charity, but your family gets $2 million from a life insurance policy. The way these work, by the way, you put the dollars in, you get a lifetime distribution. It’s designed that you get 90% back, charity gets 10% at the end of your life if you lived to life expectancy.

If you live past life expectancy, you’ll get more than 90%. If you die prematurely, charity gets more than 10%. So that’s why, s- you often see life insurance, Joe, offered along with these, especially when you’re young.

Joe: Yeah, but I don’t know if it’s ever worked out where Y- you know, where you walk away with 10%, g-

Al: it- charity

Joe: … it’s almost impossible. It’s 10% of the principal balance of the day that you put it in to figure out the tax deduction is kind of- that’s true … how it works

Al: And, but that’s-

Joe: But that 10% that the remaining balance to charity is still growing as well, which could- Yeah.

Al: It’s calculated actuarially based upon a presumed rate of return, which-

Joe: Correct

Al: never really works out. It never works out. But that’s the other thing, too, is with a, trust, a charitable remainder trust, 10% of the $2 million you get as a tax deduction in that year because it’s presumed that charity will get 10%. So there are some benefits, but at 48, when I would probably like more liquidity, I don’t think I would do that.

Yeah. I would bite the tax, and then I would invest that $2 million, or whatever’s left after tax, into a globally diversified portfolio.

Joe: Yeah. It’s just like your 401(k) plan or your IRA plan. Just because it’s outside of a retirement account, so people then it’s like, “Do I have to do something different?

Should I buy an annuity? Should I do this charitable remainder trust? Should I just buy bonds? What should I do?” No, it’s the same strategy. What target rate of return are you looking for? And then build that portfolio around. So if it’s in a retirement account, a Roth account, or a non-qualified or a brokerage account because of the sale of the business, you still wanna have the same investment strategy philosophy.

Don’t, like, segment your investments based on w- the, tax classification. You wanna look at asset location, which is also, you wanna probably have maybe a more tax-efficient approach depending on if it’s in a, brokerage account versus a retirement account. But it’s not like a product switch.

Hey, I wanna buy an annuity. If you’re gonna buy an annuity, I would probably buy the annuity in the retirement account Just because any income coming out of the annuity is ordinary income, any income coming out of a retirement account is ordinary income. If you take the principal from the sale of the business and you put it into an annuity, the principal will always come back to you tax-free.

But the income that it generates is gonna be taxed at ordinary income, so you lose tax diversification.

Al: You lose cap- you lose capital gains.

Joe: Yeah, you lose capital gains. Yeah, Or l- if, I had that much money in a non-retirement account, I wanna do tax loss harvesting, which we were talking about earlier- so I could get the income, you know, tax-free potentially.

Al: Yeah, No, 100% agreed. A globally diversified low-cost ETFs or index funds would be the way to go, especially because this money was made from a concentrated position, and he’s still got a concentrated position, 5% ownership. And hopefully that works out well, right?

But with the 2 million that you take out, you pay the tax, you, really wanna make sure that, that’s safe so it’s not concen- ’cause you made some money, so you really wanna protect that for your future retirement. Maybe the 5%, maybe that grows big like the other, and that would be awesome, and if it doesn’t, you’re, you still got the $2 million in which you’re not taking a ton of concentrated risk.

So that’s what I would do. One more thing I would say tax-wise is check with your accountant whether this would be active or passive investment. Because if it w- it’s passive and you’re an employee, and there’s an argument for that, you will save the 3.8% net investment income tax. So check with your accountant. Different accountants have different opinions on this, but that, could be a big savings right there.

Joe: What’s your thought on whole life insurance?

Al: I prefer term myself. Okay. Yep. You?

Joe: Yeah. No, I’m not a big fan of whole life insurance- … to be honest. Term, I think, works out fine. if there’s a need for permanent insurance-

Al: Yeah, which there would be if you did a charitable remainder trust, potentially.

Joe: Yeah, but how many-

Al: At 48.

Joe: Yeah, at 48. That’s a long time of paying premiums.

Al: it is, but it’s also if you get in a car accident the following year- The-

Joe: … that’s a lot of assets gone.

Al: Yeah. Yeah.

Joe: Yeah. So I would be careful with the strategy. It sounds like there’s, some advice going on with Husker fans here

Al: Maybe.

Joe: Yeah so I would keep it simple at 48. I think you, just have to bite the bullet a little bit and pay the tax. and then I would wanna have a globally diversified portfolio. I would wanna use an asset, or an, I guess, asset location strategy.

Al: You know, you think about a Husker fan, probably lives in Washington State

Joe: Husker.

Nebraska.

Al: Oh. What am I thinking of?

Joe: I don’t know.

Aaron: Husky. Husky.

Joe: Husky.

Al: Husky. Sorry. I was gonna say no tax in Washington- Oh, okay … but he doesn’t live there.

Joe: Yeah. He lives in Nebraska.

Al: Got it. Got it. Okay.

Joe: All right. Congratulations on the sale of the business. Hopefully that works out for both of you and your husband. All right.

Andi: The right money move often depends on a number you haven’t run yet. You can’t know if you’re taking too much risk, or not enough, until you map it all out. And if you’ve been flying blind, you may be behind. This week’s Your Money, Your Wealth TV show is called Retirement Rebound, and Joe and Big Al walk you through five plays to get your retirement back on track, the levers that most people don’t realize they can pull, plus the fourth-quarter risks that can wreck your plan, like having too much riding on one stock. Watch the TV show, then do a stress test with our free, self guided Financial Blueprint tool. Give it a few numbers and it’ll show you the good, the bad, and the ugly, whether you’re on track for your retirement goals, and what you can actually do about it right now. The links in the episode description will take you to both the YMYW TV show and the free Financial Blueprint.

Can a Frugal Mountain Couple Bridge the Gap to a $60K Pension? (John & Lib, NY Catskills)

Al: Okay. Where are we?

Joe: We are, we’re moving on here to the Catskill Mountains of New York. Hi.

Al: Okay. Nice.

Joe: This is John and Lib from Waltons Mountain.

Actually, the Catskill Mountains in New York. What is Waltons Mountain?

Al: You know the show Waltons, I think?

Andi: I think John and Lib- They lived in the Waltons

is a reference to The Waltons, yes.

Al: Yeah. Yeah.

Joe: Oh, wow The Waltons. L- these people are young. I would-

Al: maybe their parents watched it.

Joe: let’s see. Let’s, keep reading here. And I’ll do my assessment.

Al: Okay.

Joe: Okay, first, hope Andi is doing okay. Andi, are you doing okay?

Andi: I’m doing okay.

Al: Yay. Good.

Joe: Okay. Down to business. Requesting a spitball. We are in no way ballers like most of your callers, but I wanna see if I can retire at 57 when my pension of 60,000 kicks in.

Al: I’ve never heard it said that way.

Joe: Yeah. I’m no baller like all your callers. you know what a shot caller is?

Al: no.

Joe: Oh, okay.

Al: You?

Joe: Oh, yeah.

Al: Okay.

Joe: They’re ballers.

Al: They’re… Okay. All right. I’ll look it up later.

Joe: Oh. I don’t think you’d like that movie, Al.

Al: Oh, it’s a movie, okay.

Joe: Well-

Al: I probably wouldn’t.

Joe: No. You-

Al: If, you like it, I probably

Joe: wouldn’t … d- definitely you would not like that movie.

Al: Is there violence?

Joe: A little bit.

Andi: The synopsis is, “A former businessman and convicted criminal tries to adjust to his new life in prison by becoming part of a gang.”

Al: Oh, okay. All right. that’s- Wow … yeah, okay.

Joe: Shot caller.

Al: I can’t wait.

Joe: Okay.

Al: I’ll go home… Annie, you wanna see a light movie tonight?

Joe: It’s not light, no. It is not light.

Al: I wouldn’t think so.

Joe: But yeah, he had to go in the gang to survive.

Al: Okay.

Joe: He had a couple cocktails at dinner and got in a little car accident and-

Al: Oh, and that was it

Joe: and then, yeah. Yeah, okay. Wow. Prison.

Al: Okay.

Joe: “But I wanna see if I can retire at 57 when my pension of $60,000 a year kicks in.”

Al: Okay.

Joe: All right, “Medical will be covered as well. I’m 53, hubby 54. he’s a veteran who collects disability. We have $300,000 saved in tax-deferred, $200,000 in tax free, $50,000 in a brokerage account, and $50,000 in a Roth IRA.

I currently make $110,000 as a government worker, and contribute 23% of my paycheck into my Roth 457. We live in a paid for home, and have an apartment in Manhattan that I rent out, making about $1000 a month. The mortgage on that is $130,000 left, and it’s worth about $375,000. I would collect Social Security at $3200 a month if I wait till 67.

Hoping I can bridge the gap with my savings until I collect Social Security. Honestly, we don’t spend much. We like being home on our mountain, and occasionally go on a few vacations a year. Really hard to figure out what we will spend in retirement, but I can’t imagine it more than I already make. We have a nice life, and never go without.

I’ve been frugal since I started this job 25 years ago. We don’t spend a lot. I love your show. I drive a lot and listen to the podcast while driving around for work. Too much driving, which is why I wanna retire. I drink coffee and water, and the hubby has a beer now and then. Thanks for your time, and happy 2026.”

Al: Great.

Joe: Yeah, it’s almost June.

Al: Well-

Joe: So I think she’s a baller. And a shot caller. Look, she’s doing fine. She’s got a rental and-

Al: She’s doing fine. Yep, I agree. Yeah, I mean, if… I, don’t really know. She didn’t really say what she spends, but-

Joe: She’s guessing maybe $100,000.

Al: Well-

Joe: Cause that’s what she currently makes.

Yeah. Minus ta- well, hold on. She saves-

Al: She saves 23%, so y- I think she- Minus tax … I think she’s spending about 70.

Joe: Yep. So $110,000 minus $25,000

Al: savings, minus, whatever, $15,000 tax. Maybe $10,000 tax. So $70,000, $75,000. Pension’s $60,000. $12K rental income. Good.

Joe: Yeah, the math works pretty good.

Al: Works very good.

Joe: Yeah.

Al: If… Yeah, so yeah, this… Yeah, go for it. Th- this looks good.

Joe: Totally. $60,000 a year kicks in. She’s almost making as much with the-

Al: Yeah, now there’ll be a little tax on that, but-

Joe: Yeah …

Al: I mean, 12%

Joe: bracket. What have they got saved? Almost a million dollars?

Al: Three- Yeah, they got, they got- Four … they got 6-

Joe: Five-600.

Al: Right now.

Joe: 600 and some change.

Al: Yeah,

Joe: And if they save 23% of their income. She wants to retire at 57. How old are they?

Al: Yeah, she’s 53. So Joe, I get, f- 600,000, four years, 6%, adding 25K. That’s about s- 850.

Joe: Yeah.

Al: That’s great. Totally. You know why this works so well is because they’ve kept the spending down.

Joe: Spending down. She’s got a giant pension.

Al: Yeah, so sometimes we have people with four or five million who can’t possibly retire.

Joe: Totally.

Al: Other people with less than a million, yeah, no pr- you got extra.

Joe: Yep. Live it up. They go on a few vacations a year.

Al: Yeah.

Joe: I don’t know why they call themselves John and Lib from the Waltons.

‘Cause- From Walton’s Mountain.

Al: the, it was the, was the-

Joe: There was John and Lib in The Waltons, was there? there-

Andi: John and Olivia were in The Waltons, the classic CBS TV drama from 1972 to 1981 set in the Depression/World War II era in the Blue Ridge Mountains of Virginia. John-Boy Walton.

Joe: Lib?Did they call-

Andi: Olivia. So shortened to Liv. So I, I don’t-

Joe: No, it was Lib. Lib.

Andi: Yeah, I know. Lib. It’s the closest-

Joe: Olivia …

Andi: I can come up with.

Joe: Okay. Olivia. But they didn’t… Did they live… Their last name was Walton. They didn’t live on Walton’s Mountain.

Al: I think they might have called it that.

Andi: I think they did. I don’t know.

Al: Yeah. Yeah, I think they called it that. And maybe it’s in the Catskill Mountains. I don’t know.

Andi: It’s in the Blue Ridge Mountains of Virginia.

Al: Oh, never mind. Yeah. Never mind.

Joe: Okay.

Al: Okay. Anyway, this John and Lib, this looks good.

Joe: Good night, John-Boy.

Al: Boy, you know that.

Joe: Killed it.

Al: So you’ve seen it before.

Joe: Come on. I still travel. All right, that’s it for us. Anything else? I think I’m gonna go get a good night’s sleep tonight, I think.

Al: Yeah, me too. I think that-

Andi: Get that sleep score up, will you please?

Joe: I am. I’m gonna get it up.

Al: Yeah. But next week, let’s both try to get a low sleep score and-

Joe: Yeah, I’m down for that

Al: Do another good show.

Joe: Let’s do it. All right, if you want questions answered, we’ll answer them hopefully in a six-month time period. Go to YourMoneyYourWealth.com. Thank you, Andi. Wonderful job. Big Al, great to see you in person.

Al: Yes, and same. Good to be back.

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

Outro: Next Week on the YMYW Podcast

Andi: Next week YMYW is all about Roth conversions, tax bracket arbitrage, effective tax rates and non-elective contributions for Walter and Skyler, California Dreamin’, Mike and Carol, and Westley and Buttercup. As you wish.

Your Money, Your Wealth is your podcast, and this show would not be a show without you. Leave us your honest ratings and reviews in Apple Podcasts. Because we appreciate it when you do.

Why not share this episode with a friend considering a fancy money move? Oh, you’re the one thinking about it? The experienced professionals on Joe and Big Al’s team at Pure Financial Advisors will look at your whole picture and help you create a safe roadmap, free of charge. Click the link to the free assessment in the episode description, or call 888 994 6257 to book yours. Meet online in the comfort of your own home, or in person at one of our locations in San Diego, Seattle,   Chicago, Denver, Salt Lake City, Nashville, Davis, Los Angeles, Irvine, Brea, and Prescott.

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

_______

Listen to the YMYW podcast:

Amazon Music

AntennaPod

Anytime Player

Apple Podcasts

Audible

Castbox

Castro

Curiocaster

Fountain

Goodpods

iHeartRadio

iVoox

Luminary

Overcast

Player FM

Pocket Casts

Podbean

Podcast Addict

Podcast Index

Podcast Guru

Podcast Republic

Podchaser

Podfriend

PodHero

podStation

Podverse

Podvine

Radio Public

Rephonic

Sonnet

Spotify

Subscribe on Android

Subscribe by Email

RSS feed

YouTube Music

See All Platforms