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Jack Dugan
ABOUT Jack

Jack is a graduate of San Diego State University with a Master’s Degree concentrating in Personal Financial and Tax Planning. Jack has been named as one of San Diego’s Five Star Wealth Managers 9 times through 2010-2021*. His personal business experience has enabled him to assist executives and individuals with comprehensive financial planning that “makes [...]

Andi Last
ABOUT Andi

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
June 18, 2024

Cinderella and her Prince Charming have a nest egg of $2.3 million and are hoping for retirement income of up to $150K/year. How should they coordinate paying for some big purchases, paying off debt, and collecting Social Security benefits as they plan for retirement? While Joe and Big Al each take some much-needed vacation time, YMYW producer Andi Last enlists the help of senior financial advisor Jack Dugan, CFP® from Pure Financial Advisors in San Diego to spitball on whether Cindi and her prince can live “happily ever after.”

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Show Notes

    • (02:28) Cinderella and Prince Charming’s Cars, Drinks & Pets
    • (03:38) How Much Retirement Income Can They Realistically Expect?
    • (14:05) How to Pay Off Major Purchases?
    • (15:35) Other Retirement Savings Strategies

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Transcription

Andi: Cinderella and her Prince Charming have a nest egg of $2.3 million and are hoping for retirement income of up to $150K/year. How should they coordinate paying for some big purchases, paying off debt, and collecting Social Security benefits so they can live happily ever after? That’s up next on this bonus episode of Your Money, Your Wealth, or YMYW Extra.

I’m producer Andi Last, and you, the YMYW listeners, have sent us so many excellent retirement spitball requests that Your Money, Your Wealth® hosts, Joe Anderson CFP®, and Big Al Clopine CPA can’t even handle them all. so I’ve enlisted the help of senior financial advisor Jack Dugan, CFP from Pure Financial Advisors in San Diego to help out.

It’s important to note that this is just a spitball, for educational purposes only. Even though you’ve given us a lot of details, we don’t know everything about your financial situation, so don’t take this to the bank! Here’s Jack’s spitball:

Jack, thank you so much for taking the time today. I really appreciate it.

Jack: Oh, my pleasure, Andi. Good, good to be here.

Andi: So tell me your status right now. Are you doing kind of the Big Al thing where he was hoping to retire at 47 and here now 20 years later, he’s still working?

Jack: Yeah, pretty much, pretty much the same. I just kind of- I’ve gotten rid of the majority of my clients and I’m just kind of hanging on to see where I can help out as needed. So I still feel like I’ve got enough in the game that I’d like to stay interested in it.  But on the other hand, I do like my free time.

Andi: There you go. And, and kind of like Al, he enjoys doing the podcast. So here you are. Thank you very much for volunteering your expertise in this case.

Jack: Oh, my pleasure.

Andi: All right, so let’s see what Cinderella has to say. So this email comes to us from back in January. That just goes to show how behind the guys are. So here she goes. She says, “Love your goofiness, guys. I am Cinderella because I married my Prince Charming 38 years ago. We now live in Washington State, moved from California to keep a little more money in our pocket. She drives a 2014 BMW 3X, just about to turn 100,000 miles on it. It works great. So she’s keeping this old ultimate driving machine until she has to replace it. Her husband drives one of 3 vehicles, a Ford F150 in the cold months, a 2018 550 Mercedes in the warm months, and when they’re traveling in their motor home, he drives it and the 2012 in perfect condition Mini Cooper they tow.”  Jack, what do you think about that, in terms of cars? I guess that’s kind of heading towards retirement, isn’t it?

Cinderella and Prince Charming’s Cars, Drinks & Pets

Jack: Well, absolutely. I love the fact that they keep cars, the, and I’m really happy to see she’s got a 2014 BMW.  The U. D. M. That she refers to. I’m really happy to hear that because my wife and I just purchased one a couple of years ago, and I’m hoping to get that kind of longevity out of it. So I’m really happy to hear that. I think that’s great. And they and the good thing is they’ve taken good care of their cars. They have the motor home, so they’re gonna have some fun. So no, they’ve done well.

Andi: All right.  “Prince Charming prefers a small batch bourbon, and she likes all of the spirits and will drink whatever spirit is appropriate for the occasion. Margaritas with Mexican food, for example.” Jack, what’s your drink of choice?

Jack: I like that margarita. I also like to have a little bit of a floater of Grand Marnier on that margarita. That makes it a premium, and that’s right up my alley.

Andi: I was gonna say, that sounds like it’s quite the premium drink. “Their dog Gizmo lives up to his name. He is a delight, however, and she is his emotional support human.” I like that. Very nice.

Jack: Very good.

How Much Retirement Income Can They Realistically Expect?

Andi: “Hubby is 67, Cinderella is 60, and she’s hoping for a spitball to gauge when she can retire and the max income they can realistically expect. She says, I’m hoping for $144,000 to $150,000, but don’t think we will get there. We’re both in good health, so this money will have to last us for 30 years, fingers crossed. Now, before you read my numbers, I know I should have saved more, but both of my parents died before they turned 60. So we chose to live like there was no tomorrow while trying to save something in case there was. We’ve traveled the world, had big homes and accumulated a lot of stuff. Sadly, I just found your podcast and didn’t have any financial goals. Joe, go ahead and let me have it for not preparing properly.” Joe wouldn’t do that. What do you mean?

Jack: Oh no, Joe would never jump on something like that.

Andi: Yeah, right.

Jack: I think, you know, just by looking at what she’s saying. I kind of agree with her, but I’m going to give her a C+ on, on the savings. I think she’s done, they’ve done a pretty good job and, and depending upon, I mean, when I was in undergraduate school, a C+ was, was all I ever needed.

Andi: Hey, it passes you, right?

Jack: That’s what all I needed.

Andi: All right.  “She says we did okay, but should have twice what we currently have because we had incomes that would have supported saving more.” Hey, they had a good time. So let’s get into the numbers. She says “Our current spending is roughly $9000 to $11,000 a month. Total is $2,300,000 in retirement and cash accounts. And here’s how it breaks down. $100,000 in two CDs, $60,000 in special savings accounts for a new roof and a new car, which will need to be replaced in the next couple of years. They’ll stop saving when the account reaches $115,000 in approximately 15 months.” Jack, what do you think about having separate accounts for specific purposes like that?

Jack: I think that’s a great idea.  Number one, we always want to have an emergency reserve and especially as they’re getting close into retirement, they want to have some excess money to where they have different choices to pull funds from. So good job.

Andi: All right, “$13,000 in her local credit union. Her 401(k) is valued at $1,000,000, roughly $80,000 of that is in Roth. However, starting this year, 100% will be in Roth until she retires. The hubby’s 401(k) is $1,000,000, all pre-tax dollars. Hubby’s IRA is $9000. Her IRA is $50,000. Her Roth IRA is $8500. They’ve got an after-tax brokerage of $125,000. Emergency fund $20,000, she says, which is light. Then she lists as an asset a Galapagos trip of $25,000.” I’m assuming that’s actually an expense.  Although it is an expense- it is an asset, right?

Jack: It will definitely be an asset after they go on that trip.

Andi: Right. “Total annual income is $444,000. So hubby sold his business and gets $5000 a month, but this ends in August of 2024. They’re going to use the buyout to pay down or pay off the house. And that is not included in that $444,000. Hubby Social Security is $3620 a month, which they are putting into the new roof and car account. She also makes $320,000 plus profit sharing for an average of $400,000 a year.  Now in terms of savings, she’s maxing her 401(k) at $30,500. Her employer matches roughly $12,000 a year. She puts about $21,000 into their brokerage accounts and they’ve got $6000 a year going to their credit union savings account. So total planned savings is $69,500 per year. And then unplanned with her profit sharing, she puts money into the new roof and new car accounts and into the emergency fund. Now, for Social Security, if she retires at 64 and 4 months, her monthly benefit would be $3,000. If she waits until full retirement at 67, it’ll be $3,700. Total debt is about $130,000. That’s $24,000 about, on the house, which will be paid off in June of 2024. and the motorhome is about $130,000 that is owing.” So, I guess her first questions are, let’s see, can they retire and when can they retire and what income can they realistically expect? And then she’s got another question at the end. So let’s talk about her numbers. Can she, can they retire? When can they retire and what kind of income is reasonable for them to expect, Jack?

Jack: Yeah. So let’s first of all, talk about their target for retirement is the dollar amount. And this is the one thing that I think most people, as we get closer to retirement, kind of mess up on and the reason I’m talking meanness is she’s making and I’m just going to round it off, she’s making $400,000 a year. Okay, so if I’m making $400,000 a year, she’s in a state that there’s no state income tax. So that’s good news but let’s just say she’s in the 24% tax bracket, so 24% of the of the $400,000 is roughly $100,000. So she’s going to have $300,000 worth of spendable income today. Now she’s saving almost $70,000 a year. So right now, from what I’m hearing, they’re living off of about $230,000. Where I get concerned is when somebody says, I think we can do it at $150,000.  And it’s like, well, whoa, whoa, whoa. Why did we go from $230,000 to $150,000? What are we cutting out? And is Gizmo not gonna be eating during retirement? So that kind of concerns me and I think it’s really important for people to take into consideration what is your income now. And realistically, how much different is that going to be in retirement. Because most of us, we want to live the same way tomorrow as we did yesterday.

Andi: And when you got more time, that means you spend more, right?

Jack: And that’s really the big thing. And plus, if she wants to retire early, which I think she can, but she’s 60, so she’s going to have a gap before she hits 65. So say, for example, she goes, I think I can work another couple of years. I can increase our savings, which would be a great idea. But so now if I have, if I, if I’m retiring before I’m 65, I’m not Medicare eligible. So now I’ve got another expense of healthcare, which depending upon how, whether her employer has been paying it now or whether she’s self-employed, I’m not sure, but if, if the employer has been paying it, now all of a sudden we have another $15,000 a year minimum.

Andi: And that’s something she didn’t even take into account in this, did she?

Jack: Exactly. So that’s going to be increasing the expenses plus every day Saturday, and we get to go do things, and we like to go out to eat, and we like to travel, and we see how expensive everything is.

Andi: $25,000 in the Galapagos.

Jack: Yeah, exactly. So those are the kind of concerns that I think they’re on. She’s on track. So one of the things that I think she should look at with Prince Charming, is looking at what is a reasonable amount of money that we’re going to expect in retirement. I think based on, you know, what they do for Social Security, he is currently taking Social Security, if I remember correctly, and he’s 67 years old. One thing he might consider, and this is just a thought, is he might be able to suspend his Social Security. Now, why would he want to do that? Well, the reason you might want to consider that is because then if he suspends it, he’ll continue to get the increases from then on until he was 68, 69, 70. Those increases are 8% a year plus the additional cost of living adjustments that come on top of it. So it’s something to consider.  But that being said, even if they- when if she was to take it, I think she mentioned about taking it at 64 or something like that, between the two of them, believe it or not, they’re going to have about $80,000 worth of gross income between Social Security. So they both got pretty good Social Security incomes coming in. So if I’m at $80,000 and I needed to, you know, I’m, I’m trying to get to be $150,000, which I think they need to go higher than that. But let’s just say with her information, well, that means I’m about $70,000 short.  Okay. Well, believe it or not at $2,300,000, you’re not that far off.  You know, you’re in pretty good shape. But I think … and we want to make sure that that glass chariot lasts throughout the entire retirement, I’d like to see that $2,300,000 to get up to be $3,000,000. That would be my target for them. Then they have a- if we use the 4% rule, they have a distribution of $120,000 a year plus the $80,000. Now they’re living off of $200,000. That’s a heck of a lot closer to where they are today-

Andi: Much more realistic.

Jack: – and we have inflation, I think it might be a little bit more realistic.

Andi: Yep.

Jack: The other thing from a tax perspective that I think they need to consider is she’s saying now she’s putting the money into her Roth account, which we love. We love to get money in the tax-free account, but one thing she might want to take a look at is if her income somewhere is around $400,000. Well, if that’s the case, the taxable income limit to keep me in the 24% bracket is right around $389,000. So it might make sense if I’m deferring money and I’m losing the benefit of that because anything over $389,000 is gonna be taxed at 32%. It might make sense to put that money in the tax-deferred. I know we want to get there. We want to get that out of that tax-deferred account. But if she retires early, say at that 64, well, then if she’s built up her savings in the non-qualified account, will be able to live off of that for a couple of years and be able to convert a whole bunch of money, $300,000, $400,000 into the Roth at that time at a much more favorable tax rate.

How to Pay Off Major Purchases?

Andi: Fantastic. Great strategizing. Okay. One last question that she’s got, “Would it be a good idea once the roof and car account is fully funded to use her husband’s Social Security money to pay off the motor home? If we did do that, it would only take 35 months to pay it off. Just shy of 3 years. Or should I stop saving for the car and roof and pay off the motorhome first so it would be paid off when I’m 63, which might allow me to retire sooner, or if the other number works out. Love, love, love your show. Andi is great. Maybe she should read the question for Joe.  However, I love it when he reads them. He does a great job and I love it when he makes an error because he makes a bigger deal of it than it is. Funny stuff. Love ya, Cindy.” Cinderella. Thank you so much for that. I appreciate that. And just for you. I’m reading the questions today. It just happened to work out that way.

Jack: And she didn’t make any mistakes.

Andi: Well, I don’t know about that.  So what do you think about which should be paid off first and how do you- how do you think she should work that Jack?

Jack: Okay. First of all, you want to look at is what’s the interest rate on the motorhome. I imagine it’s probably over  6%, 7%.  Might- I mean, I’ve seen loans that are for motor homes that are at 10%. So I’m not sure where theirs is. But if that was the case, anything over 5%, that’s got to go. We’ve got it- that’s gonna be a top priority. And the other thing too, to remember is once they get into retirement, they’re going to have the house paid off, which is going to be great. If we could get the motor home paid off now, it’s debt free for me and we’re in good shape.

Andi: Fantastic.

Jack: Cashflow is King and you’ve just reduced your cashflow needs.

Andi: Yep. And then that, yeah, it all works out that well.

Other Retirement Savings Strategies

Andi: So what other suggestions would you have for this couple, Jack?

Jack: I think the other thing that they want to do is try to build up that brokerage account so that when they do get into retirement, they’re going to have funds that they can pull out. So that’s going to allow them to do Roth conversions once he retired or once she retires. And her income has reduced dramatically. So I think that’s the focus would be, is yep, we’re going to get into that Roth conversion, but we’re going to have to put it off until she retires.

Andi: That is Jack Dugan, CFP® from the Pure Financial Advisors office in San Diego. Jack, thank you very much for stepping in and- and filling the shoes of Joe and Big Al here so that we could get some of these questions answered.

Jack: My pleasure.

Andi: Cinderella, thank you so much for your question, and for your patience. YMYW listeners, join the conversation on our YouTube channel. I’m in the comments every day, responding to you and letting Joe and Big Al what you think, because Your Money, Your Wealth is your podcast, and the show wouldn’t be a show without you.

Click the links in the show notes to get free access to helpful guides and white papers, blogs, educational videos and more to help you get retirement ready. You can also subscribe to the YMYW newsletter, so you never miss Joe and Big Al on the Your Money, Your Wealth TV show and podcast. To really make the most of your money and your wealth, you need more than just a spitball. When you’re ready to get serious about crafting a retirement plan customized for your retirement needs and goals, schedule a free assessment with one of the experienced professionals at Pure Financial.

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

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

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MSBA – The Master of Science in Business Administration (MSBA) degree is earned after successfully completing a bachelor’s degree from an accredited institution. A person holding this degree has pursued further study in an area of specialization (i.e. financial and tax planning). The typical length of time to complete the program is 1 to 2 years for full-time students.