Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 00:44 – Financially Speaking, Should Old Bear Marry His Honey? (Northern Kentucky, near Cincinnati, OH)
• 08:20 – Navigating Finances When Separating from Your Spouse (Sebastian, VA)
• 14:52 – Watch Going Solo: Navigating Your Financial Future Single on YMYW TV, Download the Going Solo Guide for free
• 15:22 – How Much is Enough for Retirement? When Can We Take Our Foot Off the Gas? (JC Penney & Laura Ingalls Wilder, Kansas City, MO)
• 28:10 – How to Bridge the Long Gap Between Retirement and Social Security (Paul with the Big Wallet)
• 38:29 – Calculate your free Financial Blueprint
• 39:00 – Can I Retire at Age 58? Where to Save? Should I Do a Roth Conversion Ladder in Retirement? (Aspiring Adventurer, OR)
• 50:49 – YMYW Podcast Outro

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Transcription

Intro: This Week on the YMYW Podcast

Andi: Financially speaking, should Old Bear in Northern Kentucky marry his honey? How can Sebastian in Virginia navigate his separation? That’s today on Your Money, Your Wealth podcast number 515. Plus, Famous Missourians want to know, how much is enough for retirement and when can you take your foot off the gas? Can Paul with the Big Wallet Bridge the long gap between retiring and claiming Social Security benefits? And can Aspiring Adventurer in Oregon retire at age 58? Click or tap Ask Joe and Big Al On Air in the episode description to send in your money questions or to get a retirement spitball analysis. I’m executive producer Andi Last, and here are the hosts of Your Money, Your Wealth, Joe Anderson, CFP and Big Al Clopine, CPA.

Financially Speaking, Should Old Bear Marry His Honey? (Northern Kentucky, near Cincinnati, OH)

Joe:   All right. Let’s get right to it. We got Old Bear and his Honey, Big Al.

Al: Okay. Northern Kentucky, huh?

Joe: All right. “I discovered YMYW after I exited the workforce 15 months ago, and I’ve been binging your podcast ever since. It’s the only podcast that I’ve listened more than 3 times.”

Andi: Dang. That’s pretty good.

Al: That’s saying a lot, Joe.

Joe: 3 times.

Al: Yeah.

Joe: “I can’t believe how much I enjoyed listening to you while I’m working out trying to stave off the grim reaper as long as possible. In an older episode, Joe said he wanted to expand the range of questions, and he specifically mentioned relationship advice as a topic he wanted to explore. So here goes.  Should I marry this lady?”

Al: Oh.

Joe: See I’m expanding our horizons.

Al: Well, why not? This will be fun.

Joe: Yeah, relationship advice.

Al: Okay.

Andi: I can’t wait to hear this one.

Joe: I’m really good at it. I’m really good at it.

Al: You are amazing.

Joe: All right. So here’s the facts.  “He’s 62, recently retired. No earned income anymore. Taxable assets is $770,000. He’s got retirement accounts of $780,000 and he’s got tax-free assets of $1,000,000.” 1,000,000 tax-free assets. That’s all Roth.

Al: That’s quite impressive.

Joe: “In diversified stock funds.”

Al: Yeah.

Joe: Yeah, we see thousands of individuals. How many people do you, do we see that have over $1,000,000 in a Roth account?

Al: I can’t remember one. I mean, I’m sure we’ve had some, but it’s very rare.

Joe: Yeah. Millions and millions in retirement accounts.

Al: Right.

Joe: Zero dollars in Roth.

Al: Right.

Joe: Because they, well, no, I don’t. Never qualified.

Al: Yeah, never qualified. Or maybe they just started doing something, they got $40,000, whatever.

Joe: Yeah. But $1,000,000, that’s pretty impressive.

Al: Yep.

Joe: 62 years old. “He’s got a little debt, $200,000 mortgage, soon will be spending $440,000 on a home renov. I anticipate about $50,000 in Social Security when I claim it at age 70. So the lady in question-“ alright, “-she’s 44, works in a low income job. Most of what she earns goes to raise her two children,14 and 19.  She has full custody and receives child support from her ex-husband. Savings is about $20,000 in a traditional 401(k). No debt. Very frugal. I love her so much.”

Andi: Because she’s frugal.

Joe: That’s it. Love is the answer.

Al: Yeah.

Joe: “We plan on moving in together when the home renov is completed this year. We intend to continue living in this sinful state, at least until the children stop receiving child support in 4 years.”  Sinful state.  “Does it make sense to get married at this point?  I’ll be 66 and on Medicare. She’ll be 48, probably still working for a bit, but not at full retirement age.  Due to her career field, there’s no expectation of a huge salary or an increase in her future. Our spending target will be about $90,000 a year today’s dollars. We don’t feel any pressure to get married, but from a financial perspective, does it make sense to do so at some point? And if so, when?  The Old bear and his Honey.  We like our margaritas.”

Al: Margaritas, okay.

Joe: The Old Bear. I wonder if she calls him Old Bear and he calls her Honey.

Al: I’m guessing yes.

Joe: Well that’s sweet. Isn’t that cute?

Andi: I think this is the first time we’ve seen an 18-year age difference.  That in itself is pretty impressive.

Joe: 18 years.  So what is he, 62? She’s got a 14-year-old and a 19? So when I’m 62, I’m going to be like the Old Bear.

Andi: Yep.

Joe: I’m going to have like a 14-year-old.

Al: That’s about right. This is you.

Joe: Yeah, this is just fast forward 12, 13 years.

Al: Not completely, but partially. So what do you think? Marriage advice? Marriage counselor?

Joe: Well, you never really want to get married for financial reasons.  Especially when you’re holding all the cards here. But we’ve had this question in the past.

Al: We have.

Joe: So does it make sense to get married from a tax perspective?  I think yes, in a lot of ways it does. Because she doesn’t have a huge income. And you could double up the tax brackets as you’re creating income of this $90,000 that you want to draw from. But, on the other hand, he doesn’t have that much tax deferred assets.

Al: Right.

Joe: Where he could draw and stay in the 10%,12% tax bracket, single, because he’s got such a giant amount in Roth.

Right. Although Social Security will add to it.

Al: Sure. So I, yeah. So first of all, I’m going to say you marry for love. Let’s get that.

Joe: I wonder if Old Bear’s ever been married before.

Al: I don’t know. But if you’re strictly talking finances, from a tax standpoint, yes, it’s better to be married than not because you have the same brackets when you’re married 10%, 12% and so on. But it’s when you’re married you’re much longer to get to the next- higher income to get to the next bracket.

Joe: Yeah, like what 12%, $50,000 roughly married’s $100,000.

Al: Yeah at the 12% bracket, right? and so yeah. So, so from that standpoint, yes, it makes sense to get married. It also makes sense to get married from the standpoint that if you’re older and you pass away, she would get your Social Security benefit, which would probably be greater than her own. So that would be a reason. Some of the cons financially is it’s, it looks like Old Bear’s got more money than Honey, so make-

Joe: He’s got $2,500,000. She’s got $20,000.

Al: Yeah. So, so make sure Old Bear, if you want the assets to go to her, great. But if you want them to go partially to someone else, make sure that you’ve got that figured out in a trust or will or something of that sort. But yeah, financially, sure. Why not? Except for waiting for the child support, which is, yeah, once, once she gets married, she probably wouldn’t get the child support. So that makes sense. But I, don’t really ever want to say get married because of finances. You get married because you’re in love. And in the financial part, Old Bear does make sense.

Joe: It’s two stepchildren right off the gates. Yeah. Yeah, and then he’s gonna do something and then they’re gonna say you’re not my dad. Old Bear.

Andi: Wow, this sounds like it’s coming from experience.

Al: They are gonna say that aren’t they?

Joe: You can’t tell me what to do. You’re not my dad. Go find Honey, Bear.  Alright, well, yeah, I agree. From a tax perspective. But, I don’t know, you got a lot of money, you’ve done really well. You love her so much, though, Bear, why don’t you go for it?  That was the just, invite Big Al to the wedding.

Al: To me, that was the key. I love her so much.

Andi: I’ve got a question. At what point or at what dollar figure does it make sense to have a prenuptial agreement?  Joe: At any dollar amount.

Al: It, yeah, it depends, like, for example, let’s say Old Bear has no beneficiaries and he wants it to all go to her, then great, no, no big deal. But as long as Old Bear has a beneficiary, then yes, you want a prenuptial, or at the very least, you want some kind of trust agreement stating where those assets go to when you both pass away.

Andi: Thanks for that.

Joe: Yeah, at 62, he’s not getting younger, but he’s at the gym. He’s grinding out the gym getting chiseled.

Al: She’s going to keep him young.

Joe: Yeah, 44.

Al: Yeah. All right.

Navigating Finances When Separating from Your Spouse (Sebastian, VA)

Joe: Okay, here we go. “Hey, Joe, Al, love the show. Been listening for the last few years. I’m currently in the process of preparing a separate- preparing for a separation and would appreciate your expertise in navigating the financial aspects of this transition. Specifically, I’d like your guidance on the following-“  So we got Big Bear was loving and wanting to get married, and then we got Sebastian here from Virginia, he wants to-

Al: – go the other way.

Joe: Yeah, he’s going the other way.

Al: Yeah.

Joe: Specifically, he wants some guidance here, Big Al. “Number one, how shared assets and debts are typically divided, and how can I protect my financial interests?”  Okay, where’s he at, Virginia?

Al: Yep.

Joe: All right. “Immediate financial measures I should consider to safeguard my finances during this period.  And third, potential long term financial implications such as taxes or impacts on retirement accounts and strategies for planning ahead. Any help and spitball would be extremely helpful.” Okay. Not a lot here.

Al: No.

Joe: He’s like, I’m going through a separation, going through a divorce. What are the steps I should be taking at this point? Al: Well-

Andi: You know something else to take into consideration, I’ve seen people who have gotten separated, been separated for 6 months a year or something like that and gotten back together and so they never actually got divorced. So he says he’s going into a separation. Do we know that they’re gonna end up divorced? So what do they do at the interim time?

Al: Yeah, good question. I think-

Joe: Go to counseling and-

Al: – try to work it out.

Joe: – try to work it out.

Al: I think Joe, depending upon their relationship and how serious, I think you bring up a good point, Andi, how serious this separation is, maybe you’ve got certain things that are joint credit, like loans and credit cards. Maybe you want to separate that if you don’t fully trust your partner. Maybe you want to get your own credit cards, have her get her own credit cards, and so forth. If there’s joint loans, maybe try to work at separating those. Now, a joint loan typically is like a mortgage, for example, and so the mortgage would probably go with whatever spouse would get the property. Typically, one spouse would get the property, the other one would get other assets, or the property would be sold and the assets would be split. So, it, so I think maybe look at your joint credit, figure out what you want to do with the home, if you have one. And if you want to sell it, it makes it easier. If you want, to keep it, then it would be much better to get your name off the loan and just have your spouse or, if you’re in the loan, just have it be your name and so your spouse isn’t on it.

Joe: I think number one is inventory. You want to take a look at exactly what you have, what she has or he has, and she has.  What do you have in joint? Do you have a living trust? Do you have retirement accounts? So just take the inventory of exactly what you have. You know, Al, you touched on the debts, but assets, in most cases, get split evenly.  Depending on how those assets came to be. Did you inherit them? Are they still in separate property or did you grow them together?  But I would assume that, you know, you’re going to split those evenly. A couple of things and a couple of mistakes that we’ve seen too, is that retirement accounts, if they have a big IRA or 401(k), let’s say you do or she does or vice versa. You can’t look at that entire account balance because you have to pay taxes to get those dollars out. So I’m married and let’s say I have $1,000,000 retirement account, and we also have $1,000,000 home with no debt on it. It’s like, okay, well, you could take the home at $1,000,000 and I’m going to take the retirement account. Well, that’s not necessarily a fair split just because I have to pay ordinary income tax to get out of my retirement account, depending on what the growth is of the primary residence, you could get the 121 exclusion and it’s capital gains tax.

Al: Right.

Joe: So I think you take inventory. You want to take a look at everything that you have and then kind of go from there to say, all right, well, if it’s going to be split evenly, what should that look like moving forward?

Al: I think Joe, that’s such a good point. Like, let’s say you have $500,000, you got $250,000 in a cash account, checking account and $250,000 in a retirement account. Those are not equal because the cash account, you already paid tax, on the retirement account you have not. So you got to figure out the estimated tax from that to get an equivalent number.

Joe: Yeah. Or if you had $250,000 in Roth. Versus a $250,000 retirement account, that Roth is worth way more.

Al: Correct, because there’s no taxes to be paid.

Joe: Yeah, and you paid a bunch of taxes trying to get it in there already, right? Alright, immediate financial measures. So, I think you do that. I mean, how to safeguard your finances. If you have an inventory of what you have and you have the statements.  So, that’s your inventory, so that safeguards at least the spouse can’t take the money and run. Right. There’s a record of that. But I think you, you said it right too. With credit cards, they could run up credit cards on you. I’ve always seen that in some terrible divorces. You know, long term financial implications? Yeah, you’re going to lose half your assets.

Al: Yeah, and what’s typical? I’m not sure anything’s typical. It depends upon the situation. What I’ve seen is either the house is sold or one spouse or the other gets the house. And if one spouse gets the house, the other house gets more assets, right? They, because they got to, they get, they got to be compensated for the one partner or one spouse getting the house. So you just have to do the math. And when you do the math, as we said, the retirement account is not as valuable as a, like a non-retirement account or a Roth, which is even probably better because that’s all tax-free.

Joe: Yeah. If you’re miserable though, you know, I don’t know.  I would go, just start over.

Andi: You wouldn’t go to counseling?

Al: Oh, now we-

Joe: No, I would not go to counseling. I’m just- I’m just-

Al: You’re done. Well, I mean, so well, right. I mean it-

Joe: I know people stay married for a long time just because they don’t want to pay their spouse dollars.

Al: That’s right. Yeah. No, it happens a lot.

Joe: I’ll cut a check tomorrow if I was that, you know, if my spouse cheated on me or something like that. I dunno. But. That’s just me, I guess. Yeah. Yeah, there is significant financial implications.

Al: I think the best thing I would say is find an attorney that specializes in this, because they’re really the ones that generally do the split, and they’ll take care of all these things that we’re talking about and make sure that you haven’t missed anything.

Watch Going Solo: Navigating Your Financial Future Single on YMYW TV, Download the Going Solo Guide for free

Andi: So many retirement planning strategies are for married couples. But what if you’re getting separated, or you’re divorced, or you’re single? Watch Going Solo: Navigating Your Financial Future Single this week on Your Money, Your Wealth TV. Joe and Big Al empower you to map out your journey, create a budget, manage debt, and strategize for retirement on your own, whether you’re a single baby boomer, genXer, or millennial. Check it out and download the companion guide just by clicking the links in the episode description.

How Much is Enough for Retirement? When Can We Take Our Foot Off the Gas? (JC Penney & Laura Ingalls Wilder, Kansas City, MO)

Joe: Moving on here, Big Al, let’s see, famous Missourians J. C. Penney and Laurel, Laura Ingall Wilder, that’s Little House on the Prairie.

Andi: Yes.

Joe: Missouri.

Andi: Yes.

Joe: Iowa. Isn’t it?

Andi: No. Well, Laura Ingalls Wilder is famous, is a famous Missourian. So at the end of this email they say, we can’t come up with a cute couple name so we’re asking you to do it for us. So they said they were from Missouri. So I found the two most famous people I could find in Missouri.

Joe: But Laura Ingalls, and her father’s name was Charles.

Andi: Why do you know that?

Joe: Because it’s, Wilder was, like, James Wilder, that Laura married, and then she had a sister named Debbie? Who’s the, and then she turned blind? Come on, who’s with me?

Andi: I’m shocked that you know all this.

Joe: Little Penny, and then who was, Penny’s-

Al: 40, 50 years ago. How do you remember that? You’re even-

Joe: I’m a steel trap. My memory is a steel trap, Al.

Al: I guess so.

Joe: No, my parents loved this show. And they just would reruns over and over and over and over again.

Al: Got it, okay.

Joe: And then in Minnesota they would play, when I was in high school, they would play Little House on the Prairie reruns on, you know, the local channel.

Al: Got it.

Joe: Channel 9, you know, that was in ABC or CBS or NBC affiliates.

Al: And that was your favorite show.

Joe: No, that was the only thing on. So I dunno. And my parents loved it, and so I was like, eh, let’s, but Big Al, I don’t know. I can’t believe I just admitted that.

Andi: Me too.

Joe: Yeah. I knew the whole thing. But I thought it was Iowa. I think it was Missouri.

Andi: That might be the case for the actual TV show, but Laura Ingalls Wilder, the writer of Little House on the Prairie, is famous for being from Mansfield, Missouri.

Joe: Oh, see, I didn’t know that there was an actual Laura Ingalls Wilder.

Andi: She’s the author of the Little House on the Prairie books for children.

Joe: Oh, okay. There you go, there you have it.

Al: Alright, do we have a question?

Joe: Yeah, we got “Dear Joe, Big Al, and Andi. I’m 80, and I have about $30,000,000-” Cool!  There you go. Laura Ingalls Wilder.  “-3 personal houses, a city full of rental properties, and a trust fund.”  She’s got a whole city, Al.

Al: Yeah, a whole city.

Joe: Oh man.

Al: In Missouri.

Joe: This is great.  “I was wondering if I have enough to retire.”  Yes, you’re good.  “Not really, but this is what I keep hearing on your show.  And I just can’t seem to relate to some of the content. I also wonder to myself, how much is enough? And at what point do I start to take the foot off the gas?  And do I actually have enough?” Oh, alright. So here’s the real deets. Okay. He’s not 80 and has $30,000,000 and 3 personal homes in a city full of rental properties.

Al: What is the real deet?

Joe: Here’s the deets, man. “I’m 52, my wife’s 53. We live in KC, Missouri.  And I’m the primary source of income as wife is busy with the grandkiddo who lives with us and we take care of our aging grandparents who live nearby.” Alright, “I drive a 2013 Corolla, my wife drives a 2020 Sienna minivan, I listen to your show while walking in the mornings and love it!”  Boom!  “I think you guys have great chemistry. And I’d like to hear Joe read the letters, which I’m-“ What, why does everyone love me just bumble?

Al: They, it’s, comic relief. They like it.

Andi: People love the authenticity, Joe.

Joe: Because I, just learning how to read.

Andi: Along with your kid.

Joe: Yes.

Al: You are improving.

Joe: Oh, man, you should hear the stories.  Once upon a time.

Andi: You can start reading the Laura Ingalls Wilder books. Joe: Oh, hey.

Al: I love it. Love it.

Joe: “I like to hear Joe read the letters.  Which is why I’m writing and not recording this. I look forward to the new episodes each Tuesday, and disappointed when there’s not one during the holiday season.”

Andi: There’s always one, it’s just sometimes a compilation, but understood, JC Penney.

Al: Okay.

Joe: Alright. “We have 3 cats. My wife likes a good craft beer and a hard cider. And I’m a big fan of Hefeweizen. But my doc has recommended no alcohol.  And that sucks.”

Al: That does suck. That sucks, y’all. That’s terrible.

Al: You’re, can you imagine being 52 and a doc says no more?

Joe: I would find a new doctor, Big Al. Easy as that.

Al: Get a second opinion.

Joe: A second opinion.  “I’m in health care, and I won’t tell you what I do because those jokes just write themselves. Currently making about $170,000 a year, but will most likely be taking a lower job, paying about $120,000 for less stress, and right on my career with the federal government. I’ve been working for the feds for about 22 years and plan to retire at age 60. I’ll get a first supplement, 75% of my Social- of my SS in addition to my pension for a couple of years from 60 to 62 then start Social Security at 62. And my wife will start Social Security as well. My pension will be roughly $48,000 less 10% so wife can keep 50% of my pension after I kick it. Pension gets a diet COLA annually.” Oh that’s kind of cute.

Al: I like that.

Joe: “Estimated Social Security for me is $30,000 and the wife would be half of mine, so $15,000, total $45,000. So we would have fixed income of about $90,000. I have roughly $500,000 in my TSP account with $100,000 of this in the Roth.  Don’t have a bunch of cash but have about $10,000 in savings account and $10,000 in a separate IRA. Currently have about 24% going into my TSP with 18% of that going into the Roth. But will reduce that amount if I can do about 10%, if I take that lower paying job.” Alright. “We have a house that we owe about $115,000 on and we’re currently worth about $450,000. Not super interested in refinancing as it’s 3.25% rate. One more wrinkle, I have about $70,000 worth of work that needs to be done at the home. I was not anticipating this. Do I take that out of the TSP loan at 3.4% payback over 5 years? Do I take out a conventional loan to pay it, but then interest is like 7% and pay it off over a longer time period? How do I approach this?  I anticipate our future spending in retirement will be about $105,000 per year, so the shortfall will be $17,000. I have a couple of spreadsheets, but I’m not an engineer. I think this can work  and even maybe have a bit for emergencies or extra travel if necessary. But was wanting the spitball to see if I’m on track or am I missing something? If there’s a glaring detail that would derail my retirement plan. I can always work a couple more years to age 62 and that would increase my pension by about 10%. But I sure do hate trading away my life is I had a health scare, almost took a dirt nap last year that definitely made me rethink some things. Love what you guys do. Keep up the good work. Best regards. Can’t think of a cuter funny name or funny couple name. So leaving it up to you.”  So there you go. You got JCPenney and Laura Ingalls Wilder.

Al: That’s got quite a name, quite a combo.

Joe: I don’t know if that’s funny or cute.

Al: Hey, I got a great story out of you though.

Joe: Yeah.

Al: True.

Joe: There you go. Man, a little health scare. Those are always- you know, that sucks too.

Al: That does. I almost took a dirt nap. That doesn’t sound good.

Joe: That doesn’t sound fun. No.

Al: No. That must be why you can’t drink alcohol at the moment.

Joe: Yeah. A little health scare.

Al: Yep. More than a little.

Joe: So, okay. Okay. Let’s see.

Al: So I get the question is how to fund $70,000 worth of improvements that need to be on the home.

Joe: Yep. Well, so $17,000 shortfall at $17,000.  Let’s, oops, $17,000.  03. So let’s say at a 3% burn rate, that’s $560,000 and he’s got that. So I agree with him.

Al: Yeah.

Joe: I think from a retirement perspective, he’s got $90,000 of fixed income. You know what? So $90,000. Just- If I were to generate $90,000 of fixed income that was guaranteed, Al, I would need over $3,000,000. Right? You agree with that, Al?

Al: I do.

Joe: And so-

Al: At age 60-

Joe: Yeah, when he’s saying, oh, I don’t know if I relate because everyone has all these dollars, I mean he’s got the equivalent of several million dollars himself.

Al: Right. Right.

Joe: So, anyway.

Al: Yeah, no, I like that. But how do you pay for the loan? I mean, how do you pay for the home?

Joe: I do not take a TSP loan. Nope, I just take a conventional loan, 7%, pay it over a long period of time.  That’s what I do.

Al: And why wouldn’t you do the TSP loan?

Joe: I don’t know.  Because paying after-tax dollars to put back into pre-tax?

Al: It is tricky when you do that, right?

Joe: I hate that.

Al: Yeah, because you get the money for tax-free, but then you’re paying it back. You have to pay tax on that money, and then the net you pay back, and it seems like it takes forever to pay off.

Joe: Yeah, I don’t know. I’ve taken out a 401(k) loan a long time ago, and I was like I don’t want to touch that.

Al: Unless it’s an emergency.

Joe: Yeah. I think he could qualify for just a conventional loan.

Al: I might get a home equity loan. Keep the conventional loan. Try to pay it off as fast as you can. Maybe I, I hate reducing TSP contributions, but he’s got so much fixed income. Maybe you’ve reduced it a little bit. Try to get that thing paid off in 5 years with a HELOC. Keep your 3.25% rate intact.  I’d also probably figure out this is $70,000. Is that a hard number? Can that be slow played a little bit?

Joe: Well, I mean, a TSP loan, he can only take off $50,000 anyway.

Al: True. That’s true. But I agree with that. I wouldn’t do TSP. I get a home equity loan and I try to, I would just try to pay that thing off more quickly by probably reducing my money going to the TSP for a few years.

Joe: Yeah, you, the $70,000’s gone, so you miss out on the compounding effect of the $70,000 dollars growing in the overall account. And you gotta pay that thing back with after-tax dollars.

Al: You never make it up.

Joe: Yeah, it’s just Yeah. Yeah, I’d much rather just take, yeah, I like a HELOC, and that’s what I would do too.

Al: Yeah, and plus if, if, you don’t get that paid off by the time you retire, then it’s all taxable. See, that’s, that can be dangerous too.

Joe: Yeah, if you take it out of the TSP.

Al: Yeah.

Joe: Yep.

Andi: So how much is enough for retirement? When can he take his foot off the gas?

Joe: He can take his foot off the gas now, because he needs $550,000 at a 3% distribution rate today. So that means he needs $566,000, and I believe he has more than that today.  $520,000 today at 52?

Al: But I bet you the pension doesn’t really kick in until 60.

Joe: Yeah. So, let’s say if he stops saving entirely, that $522,000 at age 62 is gonna be $1,000,000 roughly, 7% over 10 years, might be a little bit less, might be a little bit more. But on average, you know, 10 years. So now you have $1,000,000. 3% on $1,000,000 is $30,000. He needs $17,000. Let’s say that $17,000, give inflation over 10 years, maybe he needs $25,000. 3% of $1,000,000 is $30,000-

Al: By then he can probably get by with 3.5% distribution.

Joe: Sure.

Al: Yeah, I think I would take the, I would take the less stressful job. I would reduce the TSP contributions.

Joe: Yeah, you gotta get your health. You’re young, man. 52?

Al: That’s the most important thing right there. And then, get a HELOC and then just reduce the TSP contributions. Try to get that thing paid off as soon as you can.

Joe: Yeah.  Well, I’m glad you’re still with us.  And yeah, just lay off the booze for a little bit, get a little workout, take a less stressful job and then get right back in the game.

Al: Then you can drink again.

Joe: Just right back there. Right back in it.

Al: Have a Hefeweizen.

Joe: You’re having a Hefeweizen.  Let’s get those on ice.

How to Bridge the Long Gap Between Retirement and Social Security (Paul with the Big Wallet)

Joe: Okay. We got Paul with the Big Wallet. “Hey, Andi, Joe, Big Al.  I asked the question that you answered in 2023 on Roth conversions.  That’s not the topic here. In Joe’s reference to me as Paul with the Big Wallet, has stuck as my new nickname with my kids. So thanks for that.” I think-

Al: I wonder if that’s good or bad.

Joe: Big Paul’s got giant wallet. Just love it. They want to get into that wallet.

Al: They probably do.

Joe: “I look forward to the podcast each week and I’ve learned so much over the last few years. Besides the content, highlight for me is Joe’s reading when rushing through the question and pronouncing words like Hyundai,  Tuxen-“

Andi: – it’s Tucson.

Joe: Whatever.

Al: You’re still doing it.

Joe: Still doing it, still calling it Tuxen. “Comedy gold for me.”

Al: Whether it’s intentional or not, huh?

Joe: “Even especially because it’s unintentional.” It’s definitely unintentional, my friend. Do you think I come here every week just to sound like a complete utter moron?

Al: It gets a laugh. Maybe you do.

Joe: People are like, your role at the firm is what again? “I’m hoping for a little spitball on our situation that involves what I’m hoping to be relatively-“yeah, you know, meet with these other firms. They’re like, yeah, listen to your podcast. I was like, yeah, we got a couple of Joe Anderson’s on staff.  All right. Back to Paul with the big wallet.  Why did we call him Paul with the big wallet? He must have a giant cash.

Al: He must have a lot. Well, we’ll find, I guess we’re going to find out. He’s going to tell us.

Joe: All right.  “He’s hoping for a little spitball in our situation that involves what I’m hoping to be a relatively long gap between me retiring and starting to draw Social Security, and what kind of withdrawal rate makes sense during those years versus the years receiving Social Security.” We call that bridging the gap, Paul.  Bridge the gap. We gotta build a bridge.  “Details. Wife and I are 59 and have a job. And my wife no longer does. Kids Launched!  I’m looking to go half time at 60, retire at 61 or 62. Current income is about $500,000. And half-time income for those one to two years is expected to be $250,000. I’m hoping it’s one year instead of two years for the half-time work.  He’s got conventional tax-deferred accounts of $1,000,000, brokerage company stock of $1,000,000, equity in the home, and vacation condo of about $2,000,000. Low interest loan on the home is $100,000. We’re saving about $180,000 per year over the last several years, and plan to maintain that until I go half-time, then saving about $50,000 that year, or years. So by age 61, I’m expecting to have $2,300,000 saved.”  That’s why he’s got the big ass wallet.

Al: That’s a pretty good wallet.

Joe: “I’m knocking on wood as I type that, we will have about $250,000 in inheritance coming, but hoping that will not be until around age 70, so I tend to ignore it. Social Security will be me at 60 $40,000 or at 70, $55,000, wife at 66 will be $15,000 or $20,000. No pensions for either of us. Looking at expenses during retirement to be about $150,000 a year. Question.” Finally. Thank you, Paul.  “What I’m looking for is a spitball on how do we evaluate the years between retiring and taking Social Security when ballparking withdrawal rate. If I use 61 to retire, which is what I’d like to do, we will have 5 years without Social Security and drawing down on what will be $2,300,000 pretty quickly at $155,000 a year. At 6.7% burn rate at 66 when Social Security kicks in, I’m thinking we’ll have $1,800,000 left and drawing down closer to 5%. Expenses at $155,000, less Social Security at 55, we can get that to 4% by selling our vacation condo at that point for about $550,000 dollars, which we will not have an issue doing so to make our numbers work if it looks like we need to do that.” All right? “Ballpark, spitball, does that, does this look like we’re on track?  We’re on the right track. Burning down the total savings during those years between-“

Andi:- in those in between years.

Joe: Yeah, “- burning down the total savings during those in between years, it’s kind of freaking me out.  But if we can end up near 4% at age 66, I think we will be close. My last question to you in 2023 was related to Roth conversions as a high earner. You guys were split on doing it now with Al saying, I could do it, but he probably would only do a small amount. We didn’t get a small amount to do, but we opened up a fund, Roth accounts, but we’ll wait until we drop our income during the half-time working years to do more. Occasional Coors Light.  Or a heavier craft beer for me, a little red wine for the wife, no pets currently, but a spur of the moment decision to get a rescue dog is never too far away.  Paul with the big wallet.”  Alright, Paul.  I don’t know if I care for those numbers all that much.

Al: They don’t quite work out, do they?

Joe: How old is big Paul here?

Al: Paul is, they’re both 59.

Joe: Oh yeah.

Al: Yeah.

Joe: He wants to retire in two years.

Al: Yeah. He wants to, let’s see, at age 61, he wants to work half-time or let’s see, I’m looking to go half-time at 60 and retire at 61 or 62. He goes from $500,000 of income to $250,000.  I hate to say this.

Joe: So he wants an 8 year bridge.

Al: Yeah.

Joe: Get it to age 70.

Al: Yeah. Paul with a big wallet. I would work half-time a little bit longer than one or two years I think based upon that spending. Now if you could cut the spending the numbers work better. But what I think what we’re looking at, at age 60, you know, maybe with Social Security coming maybe a 4% distribution rate and you’re 6.7%, you know, maybe a 4.5% distribution rate. But it’s just too far out of whack at least for my comfort.

Joe: I mean, you could run scenarios all day long, right?

Al: Yeah.

Joe: You get the financial planning software out, you plug in the numbers, you put in the assumptions, and I think the numbers would say it would be fine.  But I think Paul with the big wallet is smarter because he’s already doing the spreadsheets himself. And he’s like, man, I’m going to burn $155,000 from my account with no other fixed income for 6 to 7 years. Until he takes Social Security? I mean, that’s a huge amount.

Al: I’d be uncomfortable.

Joe: Right, that $2,300,000, he’s running it as like, let’s just assume I get a certain rate of return. How about if the market blows up?

Al: Or goes down in that period of time, which it could.

Joe: Well, that’s what blows up means.

Al: Yeah.

Joe: Okay. That means bad. If the market’s really bad.

Al: Thanks for educating me.

Joe: I mean, right? He’s like, oh my God, now my big wallet is not a big wallet, it’s like a purse wallet, it’s like a coin wallet. Right. You don’t know what that is. You know what a coin wallet is?

Al: I know what a coin wallet is. You don’t, you shouldn’t know, you’re too young.

Joe: Well, my parents used to play a lot of poker.

Andi: They were watching Little House on the Prairie.

Joe: Yeah, while they were watching Little House on the Prairie.

Al: Play poker.

Joe: Yeah, and they had to, you know, they’d play for quarters and dimes. So they had these little coin wallets.

Al: Well, I guess that’s what I think. I think you either cut spending or you work part-time for a few more years to make this work. That’s what I would do anyway.

Joe: Well, how about claiming Social Security a little earlier?

Al: You could.

Joe: So at 66, he’s got $40,000, so he’s $105,000. Let’s say at $100,000-

Al: Maybe you claim it on your wife first and let yours run a little bit more. I still would want to work a little bit longer, I think.

Joe: So, let’s say he claims at 66. He’ll probably need about $2,700,000 at 66. If I’m looking at a 4% distribution rate. He’s got $2,300,000 right now. Right. Right, he’s got $2,000,000 today. The $2,000,000 at $155,000 burn rate, the equity in his home, condo, $2,000,000. I don’t know.

Al: Well, and he’s got a potential inheritance, but you always hate to count on that.

Joe: Yeah, the vacation home is worth $500,000.

Al: Yeah, and I don’t know, is that net of closing costs and taxes? Or I don’t know.  It’s tight enough that I would want to kind of  run some scenarios with different things. Maybe if you take Social Security at 64, maybe this works better. I don’t know.

Joe: I keep going back to the behavioral aspect of this.  He feels like he’s got a big ass wallet, because he does. It’s $2,000,000. But that $2,000,000, after a couple years of retirement taking $150,000 out, so over two, 3 years, right now that’s $300,000, $450,000, $500,000-

Al: Right.

Joe: The market doesn’t cooperate with you.  Now that $2,000,000 is $1,500,000.

Al: It can happen.

Joe: Right, he’s gonna feel a lot more comfortable with that two in front of it versus a one.

Al: I guess what we’re saying is there’s really not much cushion here. In fact, I think there, there’s, I don’t think there’s quite even enough to do it. But cutting spending would be one way to go. Working part-time for a little bit longer would be a way to go. Selling your vacation condo, that would be a way to go. All these things, I think you kind of do all 3 simultaneously, and then I would feel more comfortable. I’m not sure I’d feel comfortable with this scenario, Joe.

Joe: Yep.  And I agree with you on that one.

Calculate your free Financial Blueprint

Andi: Have you given our Financial Blueprint tool a try yet? It’s a free and self-guided way to calculate the likelihood that you’ll have a successful retirement. Click or tap the Financial Blueprint link in the episode description. Input your current cash flow, your assets, and your projected retirement spending, and it’ll output a detailed report with three different scenarios that map out your possibilities, with actionable steps to take now to achieve your financial goals in the future. Get your Financial Blueprint for retirement. Click or tap the link in the episode description to get started.

Can I Retire at Age 58? Where to Save? Should I Do a Roth Conversion Ladder in Retirement? (Aspiring Adventurer, OR)

Joe: All right. Let’s see. We got an Inspiring Adventurer. Oregon.  That’s the name. Inspiring Adventurer?

Andi: Aspiring Adventurer. Yes.

Joe: That’s what this person put in?

Andi: Yes.

Joe: Wow.  “Greetings all.  Really enjoy the show.  I didn’t know I liked financial podcasts until I came across yours.” Oh, wow.

Al: How about that?

Joe: “Live in Oregon. I’m 51 years old, female, single, no kids. No, I don’t drive a Subaru.” Oh, BS. You had one before. Guaranteed.  Guaranteed. You live in Seattle. You got a Subaru.  “I drive the 2019 Mazda CX 5.  With the girls, I drink a little pear ginger lemon drop.”  Oh. “With the boys, I typically like an Irish mule.” Oh, very good.  “I have no dependents.  No family financial responsibility, as both parents are now deceased. I would like to retire in the Spring of 2032 at age 58, which is when I’m eligible for my pension. I’ve worked in the 911 public safety industry for over 30 years, and I’d really like to be done.”  The 911.

Al: I don’t blame ya.

Joe: Yeah. So is that, like dispatch, or police person, fire person?

Al: Doesn’t say, but, it, whatever it is, it’s stressful.

Joe: Yeah, 911, I would not want to do anything with the old 911.

Andi: For 30 years, imagine that.

Joe: A lot of stories.

Andi: Yeah.

Joe: I wonder why-

Andi: Aspiring Adventurer has built up some resilience.

Joe: I would be drinking these pear ginger lemon drops after every shift and an Irish mule.  “I’m looking forward to less trauma, less drama, and more travels exploring with the dog. The Rundown. $128,000 current salary. Typical 3% COLA every year until I retire 2032, $30,000 yearly contributions in the 457 can either do ROTH or pre-tax. Currently pre-tax due to taking inherited IRA distribution. This keeps my MAGI low enough to fully contribute to the Roth IRA, max contributions to HSA and Roth IRAs. My home is worth $350,000. Plan to retire in it. Here’s the savings. $53,000 in cash, emergency funds, $320,000 in brokerage, $28,000 in HSA, $220,000 in the 457 pre-tax, $100,000 in the Roth, $61,000 in the Roth IRA, $182,000 in the IEP account, individual account that is part pension system, pre-tax money that will be rolled into my 457 at time of retirement, $154,000 in inherited IRA that needs to be emptied out in 2032 due to the SECURE 2. 0 rules, projected retirement income, $80,000 estimated pension.”  Okay. That’s pretty cool.

Al: That’s great. And by the way, about $1,100,000 in assets.

Joe: Hell of a job.  You “got $3300 a month in Social Security or $4100 if she waits until age 70. I think I’ll need about $100,000 to live in my go-go years-”  I guarantee you drive a Subaru if you’re saying go-go years.  “-as I want to travel for the first 5 to 10 and then get closer to $80,000 in my slow-go years.” Alan, are you in your slow-go years or are you in your go-go years?

Al: I’m still in the go-go years.

Andi: He’s in the hyper go-go years.

Joe: “I didn’t do a great job saving early on, so I’m trying to do the best I can to make up for it. I know you like the Roth money, so here is my spitball question.”  What color Subaru should I be purchasing upon retirement?

Al: That would be good.

Joe: “Do I appear to be on track to retire at 58? Should I go back to Roth contributions in my 457?  And not to worry about pushing myself out of the income window for a Roth IRA contribution since the Roth contributions in the 457 would be more Roth dollars. Then should I take the $8000 I would normally put into a Roth IRA and put into my brokerage account instead?” Go Roth in the 457. You can always do a backdoor Roth. You don’t have any IRAs.

Al: Yeah, and the inherited IRA doesn’t count for your own IRA, so, yeah, you don’t have any IRAs, so the pro-rata rule doesn’t, and aggregation doesn’t count.

Joe: “Do I need to- do I need to plan a Roth conversion ladder in retirement?”

Andi: What is that? I’ve never even heard of that.

Joe: That’s just converting dollars every year.

Andi: Yeah, just, one year after another, like a little ladder. Yeah. Well, let’s answer the first question. Do I appear to be on track to retire at 58? The answer is yes.

Joe: Yes. Absolutely. You got a giant pension.

Al: And I’ll give you some numbers. $1,100,000 today, 7 years, 6%. You’re adding about $40,000 a year. You end up about $2,000,000 at a 6% return.  You’re spending at that point 7 years from now, $100,000 will be $125,000, your pension is $80,000, your shortfall is $45,000 into $2,000,000, that’s a 2.3% distribution rate. That doesn’t even include Social Security. So, this looks really good. So, yeah, you’re on track for sure.

Joe: Yeah, by the time you claim Social Security, you’ll probably be at a surplus. You’ll have more fixed income than what you’re spending.

Al: That’s probably true.  So this looks fantastic.

Joe: Yep. “My income will dip from what it currently is, plus the inherited IRA distributions. I might go down one tax bracket. I don’t have millions of pre-tax, so would be spending plan- so would a spending plan to spend down the pre-tax money first be the way to go? Or do I need to think about doing Roth conversions? Thank you for any input. I’ve learned a lot from your podcast in a very short period of time. Much appreciated. Happy holidays. Happy New Year. Aspiring Adventurer.”

Al: You know, I just got back from Australia, and they say adventure.

Joe: Adventure.

Al: Adventure.  So that’s, I like that word.

Joe: Got it.  What’s the cliche? What do people say in Australia? Andi, aren’t you from Australia?

Andi: Put another shrimp on the barbie.

Joe: Yeah, there you go.

Joe: A little shrimp on the barbie.

Andi: Yeah. But they don’t actually say that. They call them prawns.

Joe: Prawns.

Al: Prawns. Prawns.

Joe: Pawns and prawns.

Al: We were on a tour and we, you keep hearing things like, look at the agriculture. It’s like, okay, this is an adventure. Look at that structure.  I got that part of the lingo down.

Joe: Wow.  Man, I feel like I’m in Australia right now.  Roth conversions. Let’s see. What does she, here’s what I would do. I would totally go to Roth now. Her income is $128,000 current salary. Your salary is going to be $80,000 plus Social Security. I would not, you might be in the exact same tax bracket once your full fixed income is in retirement, as it is today.

Al: When you add the pension, yeah, it’d actually probably be higher. Because you add the pension and Social Security and required minimum distribution if you don’t do Roth conversions. Yeah, I would agree with you.

Joe: So, she doesn’t got a ton like she said. She’s got $220,000 in the pre-tax account.  So I would flip everything to Roth. At $128,000 you can do a backdoor Roth or you can just, you know, so, yeah, you’re getting more money into the Roth regardless because you’re not fully funding. Now does she have a 403(b) as well?

Al: Doesn’t say she does.

Joe: I don’t, maybe it’s just a 457 and then she’s got the IAP account.

Al: Right. Yeah, and if you look at the 457 pre-tax, IAP, and the inherited IRA, it’s $600,000 of deferred that all needs to come out.

Joe: Right. If you could do $600,000? I don’t see that.

Al: Yeah, let’s see, pre-tax, 457, $220,000, $182,000 IAP, and $154,000 inherited.

Joe: Oh!

Al: I had to add the inherited because it’s got to come out too.

Joe: Yep.  Yeah, I liked flipping everything to Roth and then looking even at doing conversions if we can do inner-plan conversions at $128,000 of gross income $30,000, $40,000, so she’s probably at what, $75,000 of taxable income?

Al: A little more probably.  Well, no, actually you’re probably pretty close, probably right in that ballpark.

Joe: So $75,000, of taxable income, $80,000 of taxable income as a single taxpayer in the 22% tax bracket?

Al: 22% bracket goes up to-

Joe: – single probably, what, $90,000 something?

Al: Yeah, $100,000. Okay, we’re, wait a minute. Yeah. $100,000. Yeah. $100,000 and 24% bracket goes to $192,000.

Joe: So 22%, the 22% might go to 25%. We don’t know how long that’s gonna be.

Al: Sure.

Joe: I would take advantage of the 22% tax bracket as much as you can and try to get as much Roth IRA dollars as possible. So let’s say if you flip everything into Roth, you’re not gonna- your taxable income switches from $75,000 now to probably $100,000 because of that $30,000, right?  Maybe a little bit more. And so as long as I stay out of the 24% and stay in the 22%, that’s what I would be toggling.

Al: Yeah, there’s no reason to go into the 24%.

Joe: So I would, if, putting all the dollars into Roth would have $1 go into the 24%, then that’s the $1 that you would want to go pre-tax.  And then you could do a backdoor Roth contribution with- I mean, you could take a distribution from the inherited IRA. And then you could actually then put that distribution into an IRA. Right. And then you could convert it.

Al: You could. Yeah, you could. There’s different ways to do it.

Joe: Because that would still be an after-tax contribution that would come from an inherited IRA that you pay tax on to go in after-tax and then you convert that, you put that into a Roth. So, you’re just paying taxes there. Because I don’t think she’s spending that. I think that’s going into the brokerage account.

Al: I think so. And I think, I mean, one of the things is then when you do retire, continue the Roth conversions because you’re going to be in a lower bracket still, right? And by the time you get, if you don’t do that, by the time you have Social Security and your required minimum distribution, you’ll actually be in a higher bracket than you are now. That’s why you’re wanting to do this.

Joe: Well said, Al.  Well said. Well, that’s it.  Killed it. Mary,  Mary-  I don’t even know what town I’m talking about.

Andi: Were you going to say Merry Christmas?

Joe: No, I was going to say, I don’t know, but Laura Ingalls Wilder’s sister is named Mary.

Al: Oh, there you go. You pulled it out of the hat.

Andi: Or something.

Al: Let’s, let’s do a fact check on it.

Joe: Yes. I am, I’m going to, I’m going to binge watch Little House on the Prairie. Like it. Oh, keep you guys informed here. Okay. Very cool. that’s it. Thanks for listening. We’ll be back again next week with a little bit more Your Money, and a little bit more Your Wealth®.

Al: I like it.

Joe: All right. We’ll see you next week. Thanks, Andi.

Andi: Thank you.

Al: Bye Bye

YMYW Podcast Outro

Andi: Follow YMYW in your favorite podcast app, leave your honest ratings and reviews in Apple Podcasts and all the other apps that accept them, subscribe, watch us, and join me in the comments on YouTube, and tell a friend, neighbor, or stranger that we’re making fun of finance over here at Your Money, Your Wealth.
Schedule a free financial assessment with the experienced professionals on Joe and Big Al’s team at Pure Financial Advisors to get an in depth look at how you’re doing now to ensure you’re prepared for a happy adventure in retirement. Click or tap the free assessment link in the episode description or call 888-994-6257 to schedule yours.

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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