Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 15 out of 100 top ETF Power Users by RIA channel (2023), was [...]

Alan Clopine

Alan Clopine is the Executive Chairman of Pure Financial Advisors, LLC (Pure). He has been an executive leader of the Company for over a decade, including CFO, CEO, and Chairman. Alan joined the firm in 2008, about one year after it was established. In his tenure at Pure, the firm has grown from approximately $50 [...]

Andi Last

Andi Last brings over 30 years of broadcasting, media, and marketing experience to Pure Financial Advisors. She is the producer of the Your Money, Your Wealth® podcast, radio show, and TV show and manages the firm's YouTube channels. Prior to joining Pure, Andi was Media Operations Manager for a San Diego-based financial services firm with [...]

Published On
May 21, 2024

Will building a new home delay Janelle’s early retirement? Can Mike and his wife retire early at ages 50 and 55, and how much should they convert to Roth? Maria and her partner keep their finances separate – can Maria cover her own expenses in early retirement? Plus, Joe and Big Al explain the difference between FDIC insurance and SIPC insurance for Edward, who wonders if he should spread his assets between banks for protection. Fajita Willy needs a spitball on his MYGA (multi-year guaranteed annuities) retirement strategy. Nancy wants to know if mandatory seismic retrofit expenses are tax-deductible. And how should Lee manage Roth contributions and IRMAA now that his Social Security disability has finally been approved and he’s received 5 years of back pay?

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Show Notes

  • (01:02) Will Building a New Home Delay My Early Retirement? (Janelle, CO – voice)
  • (07:35) Should I Spread Assets Between Banks for FDIC Insurance? (Edward, IL)
  • (13:16) Multi-Year Guaranteed Annuity (MYGA) Retirement Spitball (Fajita Willy, TX)
  • (21:09) Is the Mandatory Seismic Retrofit Expense Tax-Deductible? (Nancy, Tarzana, CA)
  • (22:47) My SSDI Was Approved and I’ve Received 5 Years of Back Pay. How to Manage Roth IRA Contributions and Medicare IRMAA? (Lee, Jacksonville, FL)
  • (28:33) Can We Retire Early Next Year at Ages 55 and 50? How Much Should We Convert to Roth? (Mike, NY)
  • (34:57) My Partner and I Maintain Separate Finances. Can I Cover My Own Expenses in Early Retirement? (Maria, Chicago suburbs, IL)
  • (42:06) The Derails

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Andi: Can Mike and his wife retire early at ages 50 and 55, and how much should they convert to Roth? Maria and her partner keep their finances separate – can Maria cover her own expenses in early retirement? That’s today on Your Money, Your Wealth® podcast number 482. Plus, Joe and Big Al explain the difference between FDIC and SIPC for Edward, who wonders if he should spread his assets between banks for the insurance protection. Fajita Willy needs a spitball on his MYGA retirement strategy, that is, multi-year guaranteed annuities. Nancy wants to know if mandatory seismic retrofit expenses are tax-deductible, and how should Lee manage Roth contributions and IRMAA now that his Social Security disability has finally been approved and he’s received 5 years of back pay? I’m producer Andi Last with the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA. We’ll kick things off today with Janelle’s priority voice message: Will building a new home delay her early retirement?

Will Building a New Home Delay My Early Retirement? (Janelle, CO – voice)

Janelle: Hey Andi, Joe, and Al. My husband and I are both retired military and we live in Colorado. I enjoy whiskey or bourbon neat or a dry red wine. He likes most beer styles, but his daily drinker is Coors. We have two standard Labradoodles ages 1 and 4 and two daughters ages 11 and 14. I drive a 2012 Honda Odyssey to be replaced, hopefully within the next two years, and he drives a 2008 Toyota FJ Cruiser with a big lift for navigating Colorado’s mountain roads. Our details are, we’re both 47 years old. I’d like to retire from my second job at age 55. He will probably work until 60 or 65. However, I’ve decided to build a new home. At roughly 1.5 million. And I’m worried this is going to keep me working longer than 55.

Our financials are we make a combined annual taxable military pension of 133, 500. Non-taxable VA disability combined at 82,000. Both of these are adjusted annually for inflation. And our W-2 income is 137,000 for me, 62,000 for him. Both with a roughly 3 percent annual increases. We have 670,000 in a traditional IRA, 700,000 in a Roth IRA. Roth TSP is 150,000. 75,000 in cash and 75,000 in a brokerage account. At my new job, I have a Roth 401(k). I have 15,000 in there, but I’m contributing the annual max, plus 8, 200 in company match, all going into the Roth. I’ll keep doing this until I stop working. At age 67, our estimated social security benefits will be 3, 500 for me and 2, 900 for him.

Our kids both have full GI Bill benefits and 75,000 each in 529s. So, after we close on this new house, at the end of the year, our estimated monthly payment will be roughly 8,000 with taxes and insurance, and I hope to put an additional 2,000 principal per month for at least the first five years, and hopefully we can refinance to get a lower monthly payment as we get closer to retirement.

Including that house payment, I expect our annual spending to be roughly 240,000. I think this isn’t going to change very much after we retire. So do you think this house purchase will derail my plan for an early retirement? I’m looking forward to hearing your spitball. And can I use the rule of 55 with my company’s Roth 401(k)?

All the sources I read state withdrawals are taxable. But I can’t find a reference specifically for the Roth 401(k) versus a traditional 401(k). Thank you.

Joe: All right. A lot to chew on there. Okay. So, congratulations.

Al: Yep. Yeah. Everything, Janelle, going well.

Joe: Yes. Going right. Very good. So, Military, well, I wonder, she’s got to have been a doctor or something, 135,000 plus the VA.

Al: Yeah, right.

Joe: Well, that’s combined, I guess.

Al: Well, combined, but still. Yeah, really good.

Joe: Some good salaries. So they got 200,000 coming in right now at age 47.

Al: Right. Pensions.

Joe: Just the pensions. And then they have another 200,000 roughly coming in as income. So they have roughly 400,000 plus today coming in as income.

Al: That’s what it looks like. Yep.

Joe: The question I have for you, Alan: the 240,000 that she wants to spend is, do we have to throw the mortgage of 8,000 on top of that? Or is that inclusive of that?

Al: No, she says it includes it.

Joe: Okay, so 240,000 a year. So he’s going to continue to work. He makes…

Al: He makes 60,000. So we take the 200,000 pension plus the 60,000. So it’s 260,000, 270,000, whatever. Yeah.

Joe: Alright. And they need 240,000. They have 1.5 million in investable assets.

Al: Yeah, 1.7 million. And they’re adding to it.

Joe: Yeah, they’re maxing this out.

Al: It seems okay, right?

Joe: Yeah, it seems great.

Al: Now, I guess the only wrinkle could be VA disability. I mean, we’re assuming that’ll continue. Sometimes, you know, you have to, from time to time, you have to re-qualify. So if that goes away, I guess it could change a little bit. But based upon the numbers that we were given, this looks really good.

Joe: Yeah, really good. I don’t see…

Al: And, and you figure she’s 47, she wants to retire at 55, not quite 10 years, but with all the money they’re adding to their 1.7, they probably could be at 4 million at that point.

Joe: Right. The only thing that concerns me is that why would she want to take money out of the Roth IRA at age 55? So the rule of 55 is being able to take money out of a qualified plan if you separate from service from that employer at age 55.

Al: Right.

Joe: So most people think it’s 59 and a half. That’s an IRA. That’s not a 401(k). So, if you retire at 55 from that employer, keep it in the 401(k) plan because you can take distributions and avoid the 10 percent penalty. So, she’s thinking, hey, can I take my Roth 401(k) out? Can I use the rule of 55? I would question why you would want to do that in the first place because you have other assets, you have non-qualified assets, plus you have huge pensions. So, maybe for an emergency? But you have other Roth assets that you would be able to draw from if they change the rule or anything like that in regards to the Rule of 55. I would roll the money into the Roth IRA, take it out of the 401(k) because it’s FIFO tax treatment, first in, first out.

Al: Yeah, you could always take out your contributions.

Joe: And they got 700,000 in a Roth IRA.

Al: Right. Yeah, and they’ve got it currently between cash and brokerage. It’s 150,000, presumably over the next eight years they’re going to be adding quite a bit to it with these pensions. So it seems like there’ll be a lot of cushion there.

Joe: Yeah. So I like how she says, I bought the house.

Andi: I noticed that too. I was wondering about that. She said, I’ve decided to build a house. Wow.

Al: Yeah. I caught that too. I thought, okay.

Joe: Yeah. Should have some red wine with my wife. They’d have a lot in common.

Al: Got it. All right. You could picture it already.

Joe: Oh yeah. That’s why he’s a daily Coors Lite drinker. I got you. I got your back brother. All right, congratulations folks. Yeah, you’re good to go. Let’s go to the next question. Do I gotta read this or we got another voicemail?

Andi: You gotta read this one. You gotta read them from here on out.

Should I Spread Assets Between Banks for FDIC Insurance? (Edward, IL)

Joe: Oh, okay. Let’s see here. Let’s go to FDIC insurance here. We go, hey, great show. I listen while exercising.

Al: Oh, okay.

Joe: This just gets you jacked, doesn’t it? I guess. He’s doing deadlifts right now. Can’t wait for a question on FDIC insurance. He’s just gonna, he’s gonna max out.

Al: He’s gonna pause, mid-workout.

Joe: Oh, he’s, no, he’s gonna hit his max. He’s gonna PR. I don’t drink much due to a heart attack. Oh boy. Ooh. That’s why he’s working out. Sorry to hear that. But I’m partial to Lone Star Beer. I drive a 2022 Toyota Highlander Hybrid on my way to and from golf.

Al: Okay, nice.

Joe: I’m a little confused on how FDIC insurance covers my brokerage account. I have multiple IRAs at different investment companies. For example, I have a rollover IRA, a Roth IRA, and an after-tax account at Schwab and at Vanguard. Is the coverage per account per brokerage? That would mean I have 750,000 each at each brokerage and 1.5 million in total. I’ve been buying JP Morgan CDs lately. Maybe I should spread it among different banks. All right, so, a couple things. I don’t know, I think you probably know the rules, Al, but a few things to consider in a brokerage account is that there’s SPIC insurance, not FDIC insurance, but he’s looking at FDIC insurance for the CDs that he’s purchasing through JP Morgan Bank.  But if you have a mutual fund that is different than a CD, so I can see why people get concerned with FDIC insurance, because if a bank goes under, run on the banks and all that other stuff that we’ve seen in the past, that you could potentially lose your money.

Al: Right.

Joe: You could lose money in a mutual fund as well, but that has nothing to do with, let’s say, an obligation to pay – if the company goes bankrupt, you lose. Yeah. So then it’s like, well, can I have insurance on my stocks? Well, yes and no. So SPIC insurance versus FDIC, I just want to make sure that there’s a total – it’s different.

Al: Yeah, I think that’s a good point. That’s well said because FDIC insurance is what you have at a bank. 250,000 per account, and if you have different kinds of accounts, like an IRA versus non-IRA, you get, 250,000 each. Plus there’s rules on trust beneficiaries. And so we’re not going to go into all of that. You can actually extend that out a bit if you’re married even more. But that’s banks. That’s FDIC. The bank goes bankrupt. You lose your money. FDIC comes in. Now SPIC, the Securities Investor Protection Corporation. So this is different. This is if a brokerage firm fails, not your investments. Right? So you, you have a stock, you have a mutual fund with stocks in it. All the stocks go to zero or the one stock you have goes to zero because the company fails.

Joe: SPIC is not coming in.

Al: Nothing. Yeah. It’s not insurance for that. This, this is if the brokerage firm goes out of business and for some reason loses, which I don’t know how they would because it’s still your assets. Right?

Joe: Right. I never understood that. And maybe I’m not smart enough to understand. Maybe someone can write in and explain it to me. But I own Google stock at Charles Schwab, hypothetically. I don’t, but let’s just say I did. Charles Schwab goes out of business. I still own the Google stock, I don’t own Charles Schwab’s stock.

Al: Right, exactly, unless somehow the paper trail got confused, I don’t know.

Joe: I would imagine Fidelity then would come in and buy Charles Schwab for pennies on the dollar.

Al: Yeah, right, and that’s exactly-

Joe: Or Vanguard, or all these other, you know, LPL, or all these other brokerage houses would come in and purchase those, the clearing house.

Al: It seems like a pretty low likelihood that this would come up, but yeah, I think that’s the most important point. This is not ensuring your investments. This is ensuring the brokerage firm going bankrupt. And for some reason they can’t find your investments, which seems fairly unlikely. But anyway, it’s 500,000 per account. 250,000 of that is for cash. So there is that protection. And then just like with FDIC, if you have different kinds of accounts, like an IRA versus a Roth IRA versus an individual account versus a trust account, you can get that protection at each one. I personally don’t think it makes any sense to go to different brokerage firms for this protection. I don’t think it’s that important. That’s my personal opinion. I think you’re fine at one.

Multi-Year Guaranteed Annuity (MYGA) Retirement Spitball (Fajita Willy, TX)

Joe: All right. From, uh, Fah…

Andi: Fajita Willy.

Joe: Fajita Willy, alright, from Texas. I thought that was Fajita from Willy, Texas. Yeah. Anyway. Alright, we got Joe and Al, love your show. Got an issue – by the way, this is all caps, so is he screaming to us?

Andi: Yes. So you have to read it like that, Joe.

Al: Yes, it’s like, pay attention. With emphasis.

Joe: Okay. Got an issue that I’m not sure what to do, if anything. First, we drive a Chevy Malibu and a GMC Arcada. Yeah.

Andi: Acadia?

Joe: Acadia. Both 2017. I know what a Chevy Malibu is, but never heard of it. GMC Acadia.

Al: I bet’s a big car, I’m guessing.

Joe: Yeah. Well, GMC.

Al: Yeah. Yeah.

Joe: You’re a grown ass man. Drive a GMC.

Al: Yeah, You’re right. You have to pass the qualification. Oh, there it is. Yeah.

Joe: It’s giant. Let’s see. Two Australian shepherds, love a good cab and pino and brandy old fashioned sweet. All right, little favorite Wisconsin drink my parents loved and I’m continuing the tradition. All right. Spitball question. We have about 5.4 million dollars total 363,000 in Roth IRAs, 802 in taxable after tax, and 2.3 million in pre-tax IRAs. Of which 924 are in MYGAs. Averaging 5.5 percent and mature at various time frames from 3 years to 10 years. MYGA. You know what a MYGA is?

Al: Multi Year Guaranteed Annuity. I had to look that up because I didn’t know.

Joe: So, averaging 5.5, so getting a little decent rate of return. The numbers don’t add up to me, but that’s alright.

Al: Yeah, I don’t know. The numbers he gave us are not 5.4 million, but we’ll keep going.

Joe: Okay. They got annual income of 130,000, all of which is from the MYGA. Interest and dividends- okay, so it’s from the interest in dividends and from the stock portfolio. 65 years old, wife is 64. She’s taking her Social Security, approximately 1,600 a month. I’m waiting until 70, which will be 4,300 a month. Our expenses match our income. Our income in RMDs will definitely affect Social Security treatments and Medicare premiums, though I’m not sure I should worry about that. Because at RMD age, they’re looking at 144,000 of first year, so it’s pretty big RMDs.

Al: Yeah, it is.

Joe: All right. Okay, I can only do so much with MYGAs since they are locked in, but I do have about 1.4 million in non-MYGA pre-tax money in stocks in a rollover IRA. I could turn off the after tax MYGA withdrawals, about 2 million of the 2.9 million of total MYGA balance. Now this is really, with the MYGA, I’ve got, MYGA,

Al: MYGA, MYGA, MYGA, MYGA. I thought he said this MYGA balance was-

Joe: 900-something.

Al: No, 924. Anyway, so now it’s 2.9, it grew, in the time we read-

Joe: Look at it grow! Look at those MYGAs grow!

Al: Yeah, right. All right. Okay. Very good.

Joe: And just do Roth conversions with my non-MYGA pre-tax money to use that as monthly income instead of the MYGAs currently – how many times am I reading MYGA? My God! I’m saying MYGA a lot.

Al: I’m guessing this is the first time you said MYGA this year, maybe this calen- maybe this fiscal year.

Joe: Oh boy. All right.

Al: Okay. Go ahead.

Joe: Our advisor says to use the RMD starting at 73 for income, but not sure this is the best plan. All right, this is confusing. So let’s just, here’s the problem with looking at things in this manner, is that he’s collecting investments. It’s like, alright, well I bought this annuity, then I’m gonna buy this annuity. And he is like, alright, well I’m gonna take the income even if I don’t need the income. It’s like, well, why are you buying products that will give you income if you don’t want the income? Especially if it’s taxed at ordinary income rates? Then he’s looking, Hey, my RMDs are gonna get killed because I have all this, MYGA income and then I have my RMDs on top of that. So, but the MYGA is part of the RMD. You don’t have to take the income out of the retirement account. You can let that continue to grow in the retirement account.

Al: True.

Joe: can then buy, or keep it in cash, or have a diversified portfolio, or you could buy another annuity. You could convert your MYGAs. It’s not, just don’t think of it as a product. Look at it as a shell of your IRAs. All of that is going to be tax-deferred and taxed at ordinary income coming out. So if you’re buying product that is outside of your retirement account for income that you don’t necessarily need to spend, and that income is getting taxed at ordinary income rates, you have a tax problem in a sense. I don’t know if it’s a problem, but there’s just inefficiencies in what they’re doing.

Al: Yeah. And so I think that, I think the bigger issue and the bigger question, starting with your first number that you have 2.3 million in pre tax IRAs, the second number is 2.9 of MYGA only, which is anyway, don’t really under, but let’s say 2.3 million. And you’re 64, RMD started at 73, so you know what? It could be worth 4 million at that time. We’ll just pick a figure. 3.5, 4 million. We’ll just say 4 million. 4 percent roughly, so about 160,000, right? Now you’ve got 144, that’s about right. You know, that’s what I would expect for an RMD. So when you add that to your Social Security and other income, yeah, it’s a big number. So then the question is, should you be doing Roth conversions? That’s really what the question should be here, and the answer is yes. Because you’re going to be in a high tax bracket, particularly considering in 2026, we’re supposed to get our old brackets back. So you will be in a higher bracket then than you are today. So that’s a perfect time to consider Roth conversions right now.

Looking at a MYGA, a multi-year guaranteed annuity. Just think of that as your bond mix, or your safe mix, or your-

Al: It’s an investment.

Joe: It’s an investment. So, stop com-part-mentalizing.

Al: Very good. Yeah, you got it.

Joe: I’m getting so good. I’m reading Curious George. Just making my vocabulary.

Al: You’re very good about enunciating every single syllable slowly.

Joe: I was a little nervous using that word, I’m not going to lie. But it’s like, all right, how much money do you have in retirement accounts versus non-retirement accounts? And then what is the income need, right? So that’s how you start constructing your overall portfolio. And if you want to have all fixed, guaranteed products, that’s totally fine. But if I’m thinking about why people purchase annuities is because it’s a guaranteed income in a sense. So he’s looking at guarantees, which are great, but what tax bracket is it going to be in and what is his after-tax rate of return? So the last thing a lot of people want to do is pay taxes on income that they don’t need. They would much rather maybe pay a capital gains tax or have it come to them as tax-free. So when you do Roth conversions, you want to be tax-efficient with your other investments to keep income off of the tax return so you can leverage the amount that you convert even more.

Al: And he didn’t ask us about, is he okay to retire? We’re going to assume he’s okay. He’s got a lot of assets, a lot of income. So this all looks good.

Joe: Yeah. Who cares? You’re going to pay more tax to the IRS, but you’re going to live safely.

Al: Yeah. But can you do it more efficiently? Yeah. I think you look at some Roth conversions between now and RMD age.

Andi: FDIC stands for Federal Deposit Insurance Corporation, in case you were wondering, and the fellas meant to say SIPC, which stands for Securities Investor Protection Corporation, not SPIC. Fact is, the stakes are high when you’re trying to create financial security for your future, no matter whether you’re a Millennial just getting started saving for retirement, a Gen-Xer like me and Joe, juggling all of life’s competing demands, or a Baby Boomer like Big Al, eyeing the finish line. Watch Financial Planning at Every Age, the latest episode of Your Money, Your Wealth TV. Joe and Big Al will guide you through the financial strategies and goals that each generation should implement that can mean the difference between a retirement of scarcity or abundance. Click the link in the description of today’s episode in your favorite podcast app to watch Financial Planning at Every Age, and to download the Retirement Readiness Guide. Then share Your Money, Your Wealth and the financial resources with anyone you know, from any generation, who would benefit from YMYW’s fun and free financial education.

Is the Mandatory Seismic Retrofit Expense Tax-Deductible? (Nancy, Tarzana, CA)

Joe: What is this one?

Al: The one we skipped before.

Joe: Nancy? All right. Let’s go to Nancy. Mandatory federal retrofit expense, all right, you just take this, Al. What is this?

Al: This is Nancy from Tarzana, California. So she’s asking is the mandatory federal retrofit expense a deduction from taxation? So basically-

Joe: What is that?

Al: -what she’s asking is, well, she was probably in an area that had earthquake damage. And so the county or the feds are making her retrofit her home at a certain cost, right? In some cases, the cost is pretty expensive. It can be tens of thousands, if not hundreds of thousands of dollars. So the question-

Joe: What is retrofit?

Al: It means, you try to get your house up to code, you know, to-

Joe: Oh, older home.

Al: -withstand earthquakes, maybe rebar. I don’t know. I’m not a contractor. Don’t ask me that.

Joe: Sounds like it. I like rebar.

Al: I’m guessing more rebar. Anyway so the question is, so I got to do it. I’m required to do it, by the feds or the county or whoever, do I get a tax deduction? And the answer is no. It’s a personal expense. It’s not really a tax deduction. It does add to your tax basis. So if you sell the home later, you got less of a capital gain. Interestingly enough, this is in California. California does have, it’s called the California Residential Mitigation Program, but that’s a 3,000 tax credit. Right. So, and the feds do have some minor credits on home efficiency improvements. So check out that, but the answer is basically no, there’s not much you can do here to get much of a tax deduction.

My SSDI Was Approved and I’ve Received 5 Years of Back Pay. How to Manage Roth IRA Contributions and Medicare IRMAA? (Lee, Jacksonville, FL)

Joe: All right. We got a Lee from Jacksonville, Florida. He goes, Hey gang, I’m done. All the intros, a couple of years, so I won’t bore you with the pleasantries.

Al: We already know everything, apparently.

Joe: Okay. Insert Joe’s quippy remark here.

Al: You got one?

Joe: Wow.

Andi: They see you coming, Joe.

Joe: Shots fired by Lee. I know you would rather opine on my riveting inquiry. Oh, now he’s messing with me. This is a retirement question, but the backstory is a little bit different. I was recently approved for SSDI. Good thing. It took over five years from the date I submitted my initial application. Bad thing. I received a back paycheck in March for about five years’ worth of back pay. Back pay. That’s a really good thing. All right. Now two problems are arising out. First, my wife has very good salary, and now we’re going to far exceed IRA income limits to contribute to the IRA. We have already put a few thousand dollars in both hers and the spousal Roth this year. I know we are not supposed to take the amount contributedm plus any gains out, but how is the gain calculated? How do I get that out of the Roth IRA in this case without any early withdrawal penalties? So he’s contributed to Roth IRAs. So, he got this back pay, and he’s like, well, our modified adjusted gross income is higher than the limit, so we’re disqualified from a Roth contribution, we gotta take it out.

Al: Yeah, and you have to take it out by October 15th of the following tax year.

Joe: It’s a re-characterization is basically what you’re doing.

Al: Correct. And so what, it’s the, the computation’s not that complicated. It’s your contribution amount relative to the total balance. You know, you’d get that percentage.

Joe: So you look at, okay, you put in 2000, she put in 2000, that’s 4,000 of contributions and the account is worth 4, 200 bucks.

Al: Yeah. Right. So if it’s just that, right, then you pull out the 4,200 bucks and you’re done. But if you got others, let’s say you have a hundred thousand in there and you contributed 2000, right? So now you’ve got a hundred thousand total. So it’s like, well, if the account went up, whatever, then 2 percent of that’s related to your contribution. And 98 percent is not. You can’t pick and choose investments. In other words-

Joe: It’s aggregated.

Al: The whole account is aggregated regardless of how it’s invested. And in fact, if you have a bunch of IRAs, Roth IRAs, they’re all added together. So it’s just look at them as one account. That’s the aggregation rule, right? And so you figure out how much to pull out based upon that.

Joe: So, your contributions are going to come out, there’s no penalties, there’s no taxes, those, that’s just re-character, it’s just a re-characterization of your contribution.

Al: Yeah, it turned out you weren’t allowed to do, but you didn’t know that at the time, which is why they allow you to re-characterize.

Joe: And then you take a look at the, this is what I would do. You take a look at the overall account and say, well, what did the overall account do? Was it positive? And if it was positive 5%, then you would take the 4,000 of what your contribution was plus 5 percent of that, which is a couple of hundred bucks.

Al: That works too.

Joe: And then you take the 4,000 out and then you pay ordinary income tax on the 2,000.

Al: That’s right. You take 4,200 out, you pay tax on 200 only because that’s your gain. There’s no penalty. You just pay tax on it. Because basically it’s as if you never did that.

Joe: Correct. All right. So second question he has, is this also going to affect my Medicare IRMAA in 2026 due to this year’s large back paycheck? Had I got my disability on the onset date, I would have received my pay over the years. It would not have sent me over the IRMAA limits. Does the IRS SSA take this into an account? And so, yeah, there’s exceptions. There’s like six exceptions for IRMAA.

Al: There’s a bunch of exceptions. Here’s what I would tell you. There’s a form called SSA-44. SSA-44. Look up that form, fill out that form. It’s not going to happen automatically. You have to request the exception to be considered. But fill that form out. Maybe they’ll do it. Maybe not. Sometimes it’s hard to get this stuff through, but then-

Joe: Well it took five years to his-

Al: Well, right. So-

Joe: Syeah, another five years, they’re going to make the exception after you paid five years of IRMAA.

Al: And the issue is this, is that your income this year affects how much Medicare tax you pay or Medicare premium, sorry, that you pay two years from now. So that’s the issue. So if you had a big lump sum, it could affect, you may have to pay higher premiums in two years from now. And so this form SSA-44 allows you to indicate why this was such a weird year and get their comments on that.

Andi: Try the free retirement calculator at EASIretirement.com and spitball your own retirement readiness. That’s E-A-S-I retirement dot com. If you spend just a few minutes to create a login, enter your income, savings, and expenses, you’ll find out if you’re on track. You can adjust your spending or savings and see in an instant how it changes your entire retirement future on an interactive chart. Switch between optimistic, average, or pessimistic assumptions for inflation and returns to make sure you’re prepared for every eventuality. EASI stands for education, assessment, strategy, implementation. You need all four to create a successful retirement plan, and the free retirement calculator at EASIretirement.com can help. Then you want to take the next step: schedule a one-on-one with a live human financial professional from right there in the calculator to review your results and create even more strategies to meet your retirement needs. Start calculating your retirement wellness now for free at EASIretirement.com – that’s E-A-S-I retirement dot com

Can We Retire Early Next Year at Ages 55 and 50? How Much Should We Convert to Roth? (Mike, NY)

Joe: We got, hey, Joe, for the purpose of this email, please refer to me to Mike from New York.

Al: Okay. All right. Mike from New York.

Joe: Okay Mike from New York. Hey, Joe, Al, and especially Andi.

Andi: Thanks, Mike.

Al/Joe: Especially, especially.

Joe: Looking for a little spitball here. But first the essentials. We live in New York City. It’s just New York, sorry. Drink of choice is a nice little cabernet. I drive a 2019 Subaru Outback. The Mrs. drives a 2020 Honda Passport. Our financial scenario is as follows. We have 500,000 in cash, all right. We have 700,000 in brokerage accounts. We have 2.7 million in retirement accounts. We also have 842,000 in Roths. Our house is paid off and it’s worth 600,000.

Al: So if you’re keeping track, that’s about 4.7 million.

Joe: Jeez, Mike, you gotta step up your automobiles here. You live in New York. He’s loaded. Drive a 2001 Subaru hatchback.

Al: Still got some life in it.

Joe: Yep, that’s why he’s got 5 million bucks, I’ll tell you that. Alright, we would like to retire next year. I’ll be 55, wife will be 50. I assume this is possible, given our spending will be about 120-150,000 annually. I’d like to take advantage of my cash and brokerage money and do Roth conversions early and often. I’d also like to take advantage of the ACA credits, assuming they will still be available when the time comes. ACA credits, Big Al. He’s got 5 million bucks.

Al: That’s right. Let’s get some government subsidy on my health insurance.

Joe: Alright, let’s see. I can also tap into about 300,000 of 401(k)s using the rule of 55 if that helps. First of all, do you think we can retire next year? If so, can you suggest a conversion amount over the 5-to-20-year plan to achieve this? Thanks for all you do. All right. First of all, Michael, congratulations on having a very substantial net worth.

Al: Yeah. Very substantial. Well, let’s just call it 5 million. Let’s just say at 3 percent distribution rate at that age of 55, that’s 150,000. You want to spend between 120 and 150 should be fine.

Joe: So then it’s the order of distribution. So you’ve got 500,000 in cash, 700,000 in brokerage accounts. So that’s 1.2 million. So that would give you roughly 10 to 12 years of income. You’re 55 years old now. I wouldn’t worry about the rule of 55.

Al: Yeah, you don’t need it.

Joe: I would do conversions-

Al: Me too.

Joe: -and I would not worry about the subsidies, because the taxes down the road are going to be a lot more expensive to you than the subsidies. And how you would want to calculate that is that, let’s say you miss out on a couple thousand bucks in subsidies, you just add that to your effective tax rate, and that’s the math that you would want to look at.

Al: Yeah, I agree with that. Although subsidies are worth a little bit more than that. So sometimes 10- 12,000.

Joe: He’s got three million dollars in retirement accounts and he’s 55 years old.

Al: I know. I’m just adding some color to what you said. That’s how I would look at it too. Andplus for those trying to figure out what’s going on here, either you have your income really low. So in other words, you don’t have to pay for your health insurance. You only have to pay for part of your health insurance because the federal government subsidizes, because the way this was set up years ago was not based upon net worth, it was based upon income. Right. And so if you’ve got a whole bunch of money in retirement accounts and you have tax sufficient brokerage accounts and the like, then you may not have much income, maybe you qualify for that, but you can’t do Roth conversions at the same time because that’ll push your income up. So you pick one or the other. So that’s what we’re getting at. Me, personally, I would skip the subsidy. To me, I guess we can talk morals. To me, that was meant for something other than people with 5 million. Yeah, exactly. But to each his own, whatever, just so you understand the rules.

Joe: As tax planning, you want to use the rules to your advantage, of course, if you get the subsidies. But the math that- From a math perspective, what I want Mike from New York to do is to look at and say, what is his retirement income strategy? Because he’s only spending 120,000. So over the next 10 years, 12 years, then Social Security is going to kick in. So he’s got a lot of money in brokerage accounts, he’s got a lot of money in cash, and he’s got a giant amount in retirement accounts.

Al: Giant. Right.

Joe: And so the amount of dollars that he will be pulling from that retirement account will probably- the growth factor on the retirement account is going to be higher than his distribution.

Al: Yeah, you figure retirement accounts are 2.7 million, it could double twice before his RMDs. Right. Yep.

Joe: And then, so now, this big pot of wealth that you worked your tail off to build. So much is going to go to the IRS that way. Just because so much has to get pulled out. You’re going to be in the highest tax bracket. You’re going to lose half of it. The last thing I know, New York state tax isn’t cheap either.

Al: No, it’s, it’s not. And particularly, he didn’t say whether he lived in the city or not, but city would make it even worse.

Joe: So, don’t trip over dollars to pick up pennies. Look at your entire picture from a longevity play. If you have short life expectancy, then nothing really matters. But, yeah, I would run the math to figure out A, what this strategy should look like. And Al, you haven’t said this in a while, but it’s like, if people would look at their finances, like, from a 20-year perspective, they would make such totally different decisions if they just look at it year by year by year by year.

Al: Yeah, and this is the problem when you go to your CPA and you ask them should I do a Roth conversion? And they’re looking at your taxes.

Joe: They’ll be like hell no, you’re gonna miss your subsidies.

Al: Why do you want- right. Why would you miss the subsidy? Why would you pay this tax when you don’t have to? Wait till 20 years for the RMD. But your CPA doesn’t know you’ve already got two and a half million in IRAs that’s probably gonna be worth seven, 8 million at RMD age.

Joe: Right. Because the, the CPA’s not looking at those accounts ’cause they don’t need to at that point because-

Al: They don’t have the access to ’em. Why, how would they know?

Joe: It’s deferred. It’s nothing shows up on the retirement or the tax return.

Al: So that, that’s an example of looking at one year at a time you would make a different decision. If you look at 20 years, like what’s it gonna be 20 years from now? Oh, I better start chipping away at this by doing Roth conversions. That’s the concept.

My Partner and I Maintain Separate Finances. Can I Cover My Own Expenses in Early Retirement? (Maria, Chicago suburbs, IL)

Joe: We got Maria coming in from the Chicago suburbs. Speaking of Chicago, I’m gonna get on a flight to Chicago here in a little bit.

Al: You are. How about that? Say hi to our friend Dan.

Joe: How about that? A little Chi-town. I will turn 57 soon and would like to retire at 62. I earn 270,000 a year. Net worth is approximately 1.3. And have the following assets in planned annual contributions. Alright, so pre-tax is 5. 50. They’re gonna Put a lot of money in there. After tax Roth is 125. They got a house. So let’s get to the meat here. My goal is annual expenses of 108,000 after tax in today’s dollars. I plan to take my deferred comp upon retirement over five years, netting an estimate 45-50,000 a year. Currently invested 60/40 and will move towards more conservative as I get closer to that age. I will take Social Security at 67. I have a small inflation adjusted pension with flexible start date that I plan to take at 69 as longevity protection. Alright, this provides an additional 11,000 a year, starting at 69 with a 3 percent inflation increase. Make up the balance of approximately 58,000 to 63,000 after the pension starts with after tax withdrawals. This will require a start moving more to Roth upon retirement when I’m in a lower tax bracket. Finally, I live with my partner but have separate finances. I mention because I do have some flexibility. Notably with health insurance during the three-year gap, partner retires three to five years after- three to five years after me, but the expenses above are what I would like to draw from my own assets and income. Okay. I like to drink red wine. Now, who doesn’t?

Al: I would do too. I agree with that.

Joe: Drive a 2012 Infiniti G37X. We have a one year old Brittany. Brittany. What’s a Brittany?

Andi: I believe it’s a dog.

Joe: Well, I would imagine.

Andi: It’s spaniel. Yeah.

Joe: Okay. It could be any dog named Brittany too.

Al: That’s what I was thinking.

Joe: Love your podcast. Well, we love you too. I’ve learned so much since I discovered it. Would greatly appreciate your spitball analysis and any comments or suggestions. Oh, that’s a cute little pup.

Al: Yeah, that is cute. Okay. Well, let me start here, Joe, because where she talked about her assets. She put bullet points under things that weren’t supposed to be bullet points. So if you add the 401(k) plus the company retirement account, plus the deferred comp, plus the Roth, plus the brokerage, she’s got about 900,000 to start. Let’s just go with that.

Joe: Of liquid assets.

Al: Liquid assets, not including our home. Okay. And so here’s what I did. I said, and then she’s adding a lot of money. That’s what the second number is. I guess how much money she’s adding to the, she’s adding 120,000 to these accounts for the next five years. I just did a 6 percent rate of return. She’ll have almost 2 million bucks at that point. Okay. And she wants to spend 108,000, which is a little high.

Joe: It’s including tax?

Al: Well, I don’t know. It just says my annual expenses are 108, right.

Joe: 108 after tax.

Al: After tax. Yeah. So, so-

Joe: When they say that that’s inclusive of tax.

Al: Yeah. Inclusive of tax.

Joe: So put the tax in there.

Al: Yeah. Yeah. Okay.

Joe: Well, or no. Or do you add the tax?

Al: let’s see, 108 after tax.

Joe: So you pay tax and then you net out 108?

Al: Yeah. 108 is after the tax.

Joe: Got it. Got it.

Al: Hence after tax.

Joe: So many bullet points on this email.

Al: I know it’s, it’s confusing email.

Joe: It’s like 50, 25. I’m like, okay, I’m going to just skip that.

Al: Anyway, let me, let me just summarize the math, then we can answer the question. So it’s a 5.7 percent distribution percentage at age 62. However, that’s not considering Social Security of, you know, almost- well, call it 45,000 in a few years, and also there’s another 11,000 pension starting a few years later.

Joe: So let’s just say at age 70, her total fixed income is going to be roughly 60,000.

Al: Yeah, call it 60, 5560,000.

Joe: Okay, and so let’s say 108,000 is what she wants to spend today, plus tax. And that’s today’s dollars.

Al: That’s today’s dollars, yeah.

Joe: So you look at 62, you’ve moved that out eight years at, let’s say 3% inflation. What’s that? 150, 140?

Al: Yeah. Yeah. Call it 135. Yeah. Somewhere there.

Joe: 130. So then you take the 70 minus the 130. So that’s what, 60?

Al: Yeah, 60 into what she has, which is roughly 2 million bucks, so that works. But the problem is-

Joe: Is that gap.

Al: The gap. She’s spending money, so she’s not going to have the 2 million, right? So this is the tricky part, right? And so it’s, you know, you could probably make it, but it’s a little tight, right?

Joe: But she’s got the partner!

Al: Yeah, she’s got the partner to lean back on and-

Joe: Hey, partner!

Al: And also, the other factor here, always, always, is can you, if you need to spend a little bit less for a few years? Then if you can do that, then this could work just fine. But just be aware that, yeah, this, this is a, it’s a little tight. You can probably make it, but, but it’s like, this is not a slam dunk. I’ll just put it that way.

Joe: All right. Good luck, Maria. That’s it for us today. We’re going to shut her down.

Al: Shut her down.

Joe: Gotta get on a flight. Okay. All right. We’ll see you guys next week. Show’s called Your Money, Your Wealth®. Andi, wonderful job. Big Al great as always. And we’ll see you soon.

Andi: Lone Star beer vs. IPAs, Joe the quippy jackass, and the YMYW hangout in the Derails at the end of the episode, so stick around. If you enjoy YMYW, there are three things you can do to help us grow the show:
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Your Money, Your Wealth is presented by Pure Financial Advisors. Schedule a free financial assessment with the experienced professionals on Joe and Big Al’s team at Pure to learn how to make the most of your money and your wealth in retirement. Click the Free Financial Assessment banner in the podcast show notes at YourMoneyYourWealth.com or call 888-994-6257. Meet in person at any of our locations around the country, or online from home, and the Pure team will help you create a customized financial plan that suits your retirement needs.

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. As rules and regulations change, podcast content may become outdated. Investors are advised not to rely on any information contained in the broadcast in the process of making a full and informed investment decision.

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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