Show Notes

• (00:00) Intro
• (00:57) Are My Estimates Solid for Early Retirement at Age 60? (Alanis, WA)
• (10:39) Watch Retirement Pop Quiz on YMYW TV and Download the Retirement Readiness Guide
• (11:20) How Much Money Do We Need to Retire ASAP? (Barney and Betty, NE New Jersey)
• (24:36) Can We Retire Now? (Daisy Duck, Emerald City)
• (30:48) Subscribe to the YMYW YouTube Channel
• (31:15) 7th Annual YMYW Podcast Survey Results
• (38:54) Comment: Keith Doesn’t Like Ed Slott or Roth Conversions
• (47:45) Outro
• (48:58) The Derails

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Transcription

Intro

Andi: Can Alanis retire early at age 60? With Barney and Betty’s spending patterns, can they retire ASAP? Daisy and Donald need retirement income for 40 years. Can they retire now? That’s all today on Your Money, Your Wealth® podcast number 493. Plus, we review the results of the 7th Annual YMYW Podcast Survey – congratulations to jemart for winning the Amazon e-gift card. And Joe and Big Al take on some critical YouTube comments from Keith following their interview with Ed Slott, CPA. If you’ve got money questions or want a retirement spitball analysis of your own, click the link to Ask Joe and Big Al On Air in the description of today’s episode in your favorite podcast app and send them on in. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Are My Estimates Solid for Early Retirement at Age 60? (Alanis, WA)

Joe: We’re gonna get right into it with Alanis, from Washington. We got “Joe, Big Al, Andi. Thank you for your entertaining educational podcast. I plan to retire in 10 years. I’m currently 50 years of age and single. I enjoy craft IPA and/or a margarita on the side- on our sour side, on the sour side, like some margarita on the sour side-” I thought she liked an IPA and a margarita on the side.

Andi: That would be you, Joe.

Joe: That’s exactly what I would do. I like a little IPA, a little margarita cutter.  “-and I drive a little Subaru Legacy.” Oh, she’s from Washington. I knew it. Perfect. “I live in the Washington state. So no state taxes. Little emoji, thumbs up.” Okay, cool. “Currently earning about $127,000 per year and spend about $70,000 per year. When I retire at age 60, I expect to have $53,000 per year from a taxable pension and 5 years later at age 65, this will increase to about $95,000 when my second pension begins. The pensions do not get a COLA.”

Andi: Do get COLAs.

Joe: “My pension-“ Oh, thank you. “My pensions do get a COLA.” All right.  That’s a pretty healthy, pretty healthy pension Alanis. “Currently have $230,000 in a pre-tax account that I’ve decided to no longer contribute to. I mostly did the- due to taking action from spitballs information you have shared on the show about increasing advantages of Roth accounts. Instead, I’ve started to contribute to my company’s new Roth option that just started being offered this year. I’ve started contributing $800 a month to that. I also have a Roth IRA with a private firm of $60,000. I’m presently contributing $665 a month and will be maxing out every year for the rest of my working years. Currently, for me, that’s $8000, as you know.  I estimate that I have about $460,000 pre-tax, $362,000 in Roth accounts when I retire in 10 years at age 60.” So she’s doing a little forecasting there, it looks like, you know?

Al: Yep. Got it.

Joe: She’s got a little “brokerage account that’s presently $50,000, however, I’m thinking of that as more of a fund for a car in several years or possible other odds and ends I may want or need. I just changed the contribution on that to $50 bucks a month. I estimate needing about $100 a month at age 60 when I retire to cover my medical premium, since I don’t qualify for Medicare at that time. This leads me to estimate my needed income at retirement of about $130,000 in future dollars, assuming the 3% inflation. During my first 5 years of retirement, that would be reduced around age 65 when I qualify for Medicare and pay off my home. This also happens to be the time that the second part of my pension income will begin.”

Andi: And just to cut in, she said that she’s estimating needing about $1000 a month for medical premiums, not $100.

Joe: Ooh. $1000. Right. Okay. Yeah. That probably makes a little bit more sense. Yep. Yep.  This is a marathon of a letter here.

Al: It’s a lot of stuff in there.

Joe: Oh, Alanis. “I will have my home paid off at age 66. It’s about $1100 per month principal and interest. I’m not really sure when I take Social Security, don’t usually factor that into my plan, although I do qualify, and if I remember correctly, the estimates I have gotten on the Social Security website indicate about $3000 a month at 67. I definitely don’t count on that much due to the current state of affairs with the system and my youthful age of 50.” Very youthful. Super young.

Andi: Hear, Hear.

Joe: It’s like the new 20.

Al: The new 20. Really? Okay.  You do look 20, come to think of it.

Joe: That’s the circles.

Andi: Joe and I are both 50 now. So yeah-

Joe: Andi and I go out there like, well, you guys 25? That’s 25 squared.

Andi: Not quite.

Al: Maybe double, not squared.

Joe: Yeah. Thank you. I don’t have my HP 12C with me right now. Okay.  “I’m not sure if this is helpful to my spitball, but the present value of my home right now is $690,000 and I currently owe $170,000. What I’m wondering and hoping you can spitball for me is if you believe that my estimate above makes sense and if it looks like a solid plan for retirement. Does it appear, based on what we know, that the estimated retirement account savings is going to be enough to bridge the 5-year gap that I’ll have between retiring with my partial pension at 60 and 65 with my full pension that kicks in and I qualify for Medicare? Are you seeing any problems with the way I’m thinking about my estimated needs? With what I’ve shared about my expected income and needs, would you feel comfortable retiring at age 60 if you had the same or similar circumstance? Any tips or suggestions are greatly appreciated. Thank you for your wonderful podcast. Yours truly, Alanis.”  Well, she’s gonna have a ton of fixed income, $100,000 a year. The highest income need she has is $130,000 right?  That’s with medical cost and everything else that’s gonna tone down to probably-  I don’t know. What is that?  The fixed income need at 65, I think is going to cover her living expenses. So it’s the bridge between 60 and 65.

Al: I agree. Yeah. And I, so the only thing I did is if you’re spending $70,000 now, I just took that at 3% over 15 years.

I got $110,000, not $130,000. Now I know Alanis added a Medicare in there, but, or health insurance before Medicare, but at age 65. You don’t have that. So maybe $110,000. If you’re making $100,000 and you need and you’re spending $110,000, you got $800,000 in savings. But yeah, the question is, how much of that are you going to use the first 5 years? But I think long term, this looks fine. I think that’s the key, though, is it probably works. It’s pretty close. You may want to work a little bit part time for those 5 years, just emotionally, so you don’t see your savings going down too rapidly. But yeah, I think you can probably make this work.

Joe: I mean, that’s, that is the key to this whole thing is the emotions again. Because what would happen from that 5 year bridge is that she probably won’t have enough liquid capital to provide her with the income that she needs, but it’s going to burn quickly, right?

Al: It’s going to feel- it’s going to feel bad.

Joe: It’s you’re going to see that account just slowly drain away and over that 5-year period, who knows how much money that you’ll have left, depending on how you invested and whatever happens in the market over that period. But then all of a sudden, the other pension kicks in. You got expenses that are going to go down. You’re going to have Social Security a little bit later. That’s also going to kick in. So your fixed income long term from let’s say age 67 and on is going to be just fine to cover your needs, but you’re probably, you’re going to have very little liquid cash left.  So that’s the key. Do you still want to see a balance of $500,000 or $800,000 or $300,000 sitting in your accounts? Most people feel that safety net comfortable, even though they have enough fixed income given pensions and Social Security. That’s the mind game that she’s going to have to play. But the numbers if you ran a whole, you know, calculus through your financial software,  it’s going to show she’s fine, I’m guessing, but, but the emotional roller coaster that she’s going to feel over that 5-year bridge is going to be pretty tough.

Al: Yeah, and so, and part of this is because you’re used to getting a paycheck, right? And so now you used to, at least you’re seeing your savings growing and then all of a sudden you stop working before your, all your fixed income kicks in and now you see your savings declining. It just, it’s, it can be tough.

Joe: Right. Look at how much people freak out when the market goes down 10%, 20%, right? Yeah. It’s like, oh my gosh. You’re, you are gonna be taking like 20% out per year.  $130,000 is a big nut with no fixed income? Or is she gonna have that first pension? That partial pension?

Al: Yeah. She’ll have the first amount, which is $50,000. Okay, so she’s gonna pull $50,000 a year. Hold on. $50,000 point.  So she’s gonna need probably $1,000,000 bucks. She’s gonna have eight- Oh, you know what? I take that back.

Al: Well, so maybe she’s short $80,000 for 5 years. That’s $400,000 Right. And she still has $800,000. Yeah. So it, I think it works and plus I would factor in Social Security. But even without it, I think this is okay.

Joe: Yeah. I love the math. I love how you’re thinking about it. You’re going to have fixed income single.  You’re going to be in a pretty high tax bracket. I think you’ll probably be in the same tax bracket in retirement that you are now. Tax rates are going to go up. So I love the fact that you switched to Roth.  I would maybe even consider converting because you’re in the 24% tax bracket. Might want to convert even a little bit of this more into Roth because with a $100,000 pension, unless she gets married, right?  But as a single taxpayer, she’s probably going to be in the 25%. Or maybe in- so, I mean, there’s a little bit of room there, potentially.

Al: Probably so, but even still, $460,000 of pre-tax, $360,000-

Joe: Yeah, that’s pretty diversified.

Al: That’s pretty good already.

Joe: Cool. Alanis, thank you so much. Congratulations on all your hard work. You’ve done a great job of accumulating the amount in the way, the way you’re saving. All at the beautiful young age of 50.

Watch Retirement Pop Quiz on YMYW TV and Download the Retirement Readiness Guide

Andi: How much money do Americans think they need when they retire? What percentage of Americans claim Social Security early at age 62? In this week’s brand new episode of the Your Money, Your Wealth® TV show, Joe and Big Al test your knowledge with an 18-question retirement pop quiz. Are you ready to retire? With each question on the quiz, Joe and Big Al have actions you’ll want to take now to secure your retirement in the future. Watch The Retirement Pop Quiz on Your Money, Your Wealth TV and download the free Retirement Readiness Guide. You’ll find links for both in the description of today’s episode in your favorite podcast app, or in the show notes at YourMoneyYourWealth.com, along with the episode transcript.

How Much Money Do We Need to Retire ASAP? (Barney and Betty, NE New Jersey)

Joe:  We got a little Barney and Betty from Northwest New Jersey goes, “Hey, Andi, Big Al, Joe, big fan of the show and greatly appreciate the combination of sound financial information and humor. Personally, I don’t think Joe’s sarcastic enough.”

Al: Really.

Joe: “Listened to the show a couple of years ago.”

Al: Wow. Okay.

Joe: Try to tone down. You get all hopped up on Celsius and you got to deal with life.

Al: You’ve toned down a little bit.

Joe: This is my outlet.

Al: I think once you started, you know, you had family, kids, I think you toned down a bit.

Joe: I’m coming back hotter than ever. We should really lay into this letter. All right, I’ll lay into you. I can take it. All right. “I’m currently 56. My wife’s 57. I recently switched from full time to part time work. I’d like Joe and Big Al to spitball for me the earliest that I can quit the part time work and fully retire.” All right, here we go, Barney. “For retirement savings currently have about $3,000,000 in-“ Okay. That’s enough. You’re good. You’re done.  Oh, I don’t know, can I retire. By the way, I got like $20,000,000- Please call me Barney and Betty. Cause I don’t want anyone to know I’m super loaded.

Al: Sounds like you’re, you’re ripping on him.

Andi: He can take it.

Joe: He can take it.  All right, “-$3,000,000in a pre-tax 403(b), $450,000 in 457 accounts, $150,000 in a Roth IRA, oh, $1,200,000 in a taxable brokerage account, $13,000 in HSA, oh, we have $1,300,000 in home equity.” Come on, dude.  “I make $315,000 per year for my part time work.” Oh, woe is me.

Andi: Part time, $315,000-

Joe: Oh, my God. Poor you. Part time, $300,000.  Most people don’t make that in a lifetime Barney.  “My wife works full time. She makes $250,000 a year.”  All right, “I contribute about $30,000 a year to my pre-tax 403(b), $22,000 into the 457, $8000 per year in the backdoor Roth. My employer contributes $40,000 per year into the 403(b), total $100,000 per year. This will obviously stop when I fully retire. My wife contributes $30,000 per year to her pre-tax 403(b), $8000 to the backdoor, $8000 to our HSA. Her employer contributes $23,000 per year into the pre-tax 403(b), total $69,000 per year.  My 3 kids will be off to college in 5 years. Their college is completely funded by the 529 plans.” It just gets worse and worse for this guy.

Al: Another one.

Joe: Yeah.  “In 5 years, we’ll sell our current home, buy a smaller house or a condo and net about $300,000 in profit.”

Al: Let’s add that to the total.

Joe: In terms of expenses, I spend $5000 a month. “In terms of expenses, my portion of the household expenses is currently $22,000 per month. This will decrease to $17,000 per month in 5 years when we downsize and have an empty nest. I currently draw $60,000 per year out of my brokerage account to cover the difference between my income and expenses. This difference will eventually be covered by the $300,000 profit from the sale of the house.  My wife will work until age 67, at which point our combined Social Security benefits will 100% replace her income. Thus, I think we can keep my wife’s income, her portion of the household expenses, and our Social Security benefits out of the analysis.”  And I’ve not heard anything bad yet.  Not even close.  Okay, “I like Kentucky bourbon with a little large round ice cube.”

Andi: Why has that become so popular?

Joe: Yeah, you know, I’m not that a big ice cube guy.

Al: You’re not.

Joe: Nope. I like the rocks. I’m here to tell you. The big ice cube just, I don’t know, it doesn’t do it for me.

Andi: I want to chew ice. The big ice cube doesn’t do it. I can’t do that.

Joe: I’m a chewer too. Yeah. I like to-  What is that?  Is that, just-

Andi: It probably means we’re OCD or something. I don’t know.

Joe: Yeah. Look at my pen. I chew on my pen. I chew on ice.  Alright.  “So, the wife. She likes little New Zealand Sauvignon Blanc.  I drive a 2021 Honda CRV. My wife drives a 2024 Hyundai Telluride. We have no pets. Do you agree with maxing my contributions to my retirement accounts? Even though this means taking some money out of the brokerage accounts?  I would like to retire as soon as possible and have several hobbies to occupy my time. My wife loves her job so she’s fine working until 67, 70 until I-“ what?

Andi: While I am-

Joe: “What total do the retirement savings need to reach for me to retire? At what age do we switch from 3% to 4% in terms of a safely yearly withdrawal rate on the retirement savings? Or should I just use 3.5% percent? Thanks for your spitball.”  okay. There’s a ton of assets here, a ton of income, a ton of savings.  Can he retire and do some cool stuff as soon as possible?

Al: Yeah, so he’s starting with $5,000,000, Joe, and the only problem is the spending. So, $22,000 a month, if you run that over the course of the year. I just divided that into 3%, just at age 56, I think he said he was.  That was one of his questions. When to use 3%, 3.5%, 4%. I personally use 3% around 50, 55, 3.5% at 60, 4% at 65. It’s not a hard and fast rule. It just gives us an idea, you know, a ballpark idea. If you take $22,000, divided by 3%, you’re gonna need about $7,900,000 and you got $5,000,000. So, but in 5 years when you’re spending is, $17,000, I think that’s no problem. So you could retire right now if you saved a little bit on spending. Otherwise you got to grow the portfolio a little bit for that kind of spending. But again, assuming that the spending is less later.

Joe: I got $8,800,000, Al.

Al: $8,800,000?  Okay. $22,000 times 12 divided by 3%.

Joe: Yeah. 03%  divided $8,800,000.

Al: You did? Okay. Yeah, I got $7,900,000.

Andi: It’s the Battle of the calculators on YMYW.

Joe: What do you have? You’re using your phone. I got an HP 12C here.

Al: It’s a HP app.

Joe: So, but what I’m confused about here. So “in terms of expenses, my portion of the household expenses is currently $22,000 a month.” So did you get $8,800,000, bud?

Al: I did.

Joe: So it’s-

Al: I must have done it too fast.

Joe: So $260,000 a year is his portion of the expenses.

Al: That’s what he’s saying. He’s saying let’s keep the wife’s out of there. She’s got- she’s covering her side and her income isn’t going to change because she retires and Social Security takes over.

Joe: Okay, and then so Barney makes $300,000 a year, right?

Al: Yeah, $315,000.

Joe: Okay, so he needs $260,000 after tax. He’s making $300,000. So with his savings that’s going into the 403(b) and the 457 plan, he’s taking money out of the brokerage account and he’s funding those accounts.  So I don’t know if that makes a ton of sense because he’s going to have a ton of money in retirement accounts. And they’re they want to spend high dollar in retirement. His wife makes $200,000 a year. She’s going to continue to work until age 67. So he’s taking money from a brokerage account that’s going to be taxed at a capital gains rate. He’s taking the money and he’s putting it into a retirement account. He’s getting a tax deduction today. But then the money grows tax-deferred, but he’s going to have to pay taxes on those dollars at a later date. So I think the math is all right well, what tax bracket are you in today? What tax bracket do you think you’re going to be in the future? It sounds like he’s relatively going to be in the same tax bracket. Because a ton of the money that they’re saving and all of this match is going into a qualified plan. So all dollars that are coming out is going to be taxed at ordinary income rates. So I don’t know if that makes- I would have of course to get my HP12C a little bit more exercise here, but I don’t know if that makes sense unless-  If, I’m going to take money from a non-qualified account and put it into a brokerage account to reduce my taxable income, I would do conversions and keep my taxes the same,  versus  what he’s currently doing. So, I don’t know if I like that move at all.

Al: I’m with you there because he’s already got $3,500,000 or $3,000,000 in retirement accounts. He’s adding to it. He’s still young. I mean, that thing can double twice. I mean, can you imagine what the RMD is going to be in the future? So I don’t really, the only reason I would take money out of the non-qualified account and put it into retirement is if I was doing Roth, just like you said.  Because then I’d like more tax-free, but yeah. Agree with you there. So I did a little fat finger, on my calculator. So $8,800,000 is the correct answer. Now, if you use 3.5%, again, this is just, to give you in the ballpark, even if you use a 3.5% distribution rate right now, you need $7,500,000. You got $5,000,000. So you can’t really retire right now at this spending level. But as you say your spending goes down $5000 per month in 5 years. Then it starts to look pretty good, right? So now you can I think you can make that so yeah, I think you will be on track.

Joe: He’s really close to be honest with you. Because there’s a lot of calculations that he needs to do. So if let’s say he retires as soon as possible. Tomorrow, you retire tomorrow. You’re going to have a large distribution rate, $264,000 into $5,000,000, right, is 5.3%.  It’s not awful. So you take 5.3% out of the overall account for the next several years. And then it’s going to be a little bit less because your spending is going to go down depending on what the portfolio does. What will kill him is the sequence of return risks. So if he retires today and takes 5.5% out because that money needs to last quite some time. But there’s all sorts of things that he could do to say, all right, well here, I’m going to spend $265,000 a year for the next, let’s say 15, 20 years. And then I’m going to tone that thing way down because I’m not going to be doing the hobbies. I’m not going to be traveling. I’m not going to have membership with the country club or whatever the case may be. So, you know, people spend a little bit higher in their first 10 to 15 years, and then they kind of slow things down and then they spend a little bit less, but then there could be healthcare costs. So I think he’s super close here. That’s- if I was him if I hated what you’re doing and you got $5,000,000 bucks and your wife is working full time making $200,000. See you later.

Al: I wouldn’t do that at the spending level of- me personally to me. That’s too rich of a distribution rate at age 56, but-

Joe: 5%?

Al: More than 5%.

Joe: But he’s going to get Social Security, he’s going to tone down his savings in a couple of years, his wife is working full time, he’s going to be-

Al: Here’s the problem with this kind of question, is we really need financial software to plug all this in, because there’s a lot of variables, so we’re just giving you a quick answer based upon what’s in front of us, and in my case, my phone, and Joe’s case his HP.

Andi: And this is why it’s called the spitball.

Joe: This is a big, wad, spitball here. For sure.

Al: Anyway, I wouldn’t retire just yet. Also, I’m just thinking about you still have kids that are at home.

Joe: But the kids are, I suppose, but the college is paid for.

Al: I, no, I get that. But then it’s like, alright, I don’t know. I personally, I would, I let the kids get through high school at least? That’s kind of how I would think about it.

Joe: If you could be flexible in your spending.  If it’s a hard fast, you know, $270,000 plus a COLA. Yeah, it’s, super tight, but, you know, down markets or things. If you, if most people spend a little bit more, some years, a little bit less, the other years, you know, it’s variable. That’s why you have to be looking at this constantly. And it’s a process. It’s not here’s a spit ball when you’re 57 years old. And then you’re going to, you know, come back 15 years from now when your $5,000,000 portfolio is $2,500,000 and come inn blazing.

Al: Wait a minute, Joe. He said it was okay.

Joe: Yeah. Where’s that Anderson punk? He said I was all right. That sarcastic a-hole.  All right.

Al: On the other hand, $5,000,000 bucks is a lot of money. So you can definitely retire tomorrow. You just have to probably make a couple of changes.

Can We Retire Now? (Daisy Duck, Emerald City)

Joe: We got Daisy Duck from Emerald City. How is Daisy Duck from Emerald City?

Andi: I think she’s mixing things there. You’ve got Daisy Duck and you’ve got Wizard of Oz.

Joe: Yeah, right.

Al: Yeah. Yeah.

Andi: Yeah.

Joe: Well, all right. “I just wanted to say how much I love the show. You guys and Andi make financial education fun and entertaining. Thank you. I’m 55 and my BF, Donald, is 60. We have dual income, no kids, but I have the most adorable young nephew and niece to whom I plan to leave whatever assets I have upon death.  He drives an 18-year-old VW Phantom and I ride public transit when Donald can’t give me a ride. I like any kind of white wine, and Donald prefers Coke Zero. I love your spitball analysis on whether my BF Donald and I are on track to retire NOW.” In all caps.

Al: That’s, very specific.

Joe: “I’m currently working full time and my boyfriend doesn’t-”

Al: Does.

Joe: Oh, I’m sorry. “My boyfriend does intermittent contract jobs. Intermittent. “-intermittent contract jobs.  But we’ll love to know if we’re on track to retire now,  maybe one or both of us take a part time job making about $20,000 a year until Medicare kicks in, if needed to fund the high cost medical care. Here are the details in taxable accounts, mostly in a brokerage account with various stock,, index fund ETFs, but a small portion in CDs, I Bonds, REITs, etc. We have a total of $1,400,000. In pre-tax IRA 401(k)s, we have $1,500,000 mixed with stock funds and bond funds, in a Roth IRA, we have $271,000.  Each of our Social Security benefits when we run at 67 will be as follows. Donald will get $22,000 a year and I’ll get $40,000 a year. I’ve estimated our expenses if we retire now will be $106,000 including taxes and expensive health care until Medicare kicks in. We own a condo outright worth about $1,200,000, no mortgage. We love your spitball analysis on whether we’re able to retire from our current jobs now outright. Thanks for all you do. Your podcast is up there in my top 3 financial podcasts, though, to be honest, I’ve been listening to those other financial podcasts for the past year or so, and I still think you guys rock.  Sincerely, Daisy Duck.”  All right, so let’s see.

Al: So they’ve got, Joe, they’ve got $3,200,000,  and they’re wanting to pull out $106,000. They’re 55 and 60. So that’s a 3.3% distribution rate.

Joe: Without including Social Security?

Al: Correct.  What do you think?

Joe: Yeah, 3.3% at 55 is a little rich, but she’s 55.

Al: And he’s 60.

Joe: Yeah, I’m okay with that. I think it’s just how, what, I don’t know. It could work out fine or it could totally blow up on them.

Al: Well, you always have to be prepared. The market may not cooperate, but I’m, I agree with you, Joe. I’m okay with that. I think you can probably retire now, but here’s the thing. If the market tanks, then you, if, you see your accounts going down faster than you want to, because you’re pulling money out at the same time, you may want to consider at least going back for part time work just to stop the bleeding or you reduce your expenses for that period of time. I think if you can say, you know, if you can do either of those or both, I think it gives you perhaps a lot more confidence that you can do this.

Joe: Yeah, it’s all about the distribution on how are you going to sell it? How do you manage risk? How do you manage the tax? I mean, I think by saying, hey, you’re taking 3.3% out of the overall portfolio is one thing versus the execution is something completely different because the market’s going to move, right?  And so you’re 50 some odd years old.  You have another 40-some-odd years of retirement potentially. And so every distribution that you make in the early onset of retirement is key. And by having a disciplined strategy in regards to how you manage the risk, how you manage the tax, and how are you going to create the income is something completely different. Right. So what is that portfolio going to look like? Because it needs to a have certain target rate of return to last 20, 30, 40 years. But also needs to have a cushion in there for you to start taking distributions and creating the income from the portfolio. And then it’s looking at well, where do you draw? Do you do conversions? I think there was another question that she was talking about the Affordable Care Act and should she keep the income down? Well, I don’t know. You have to run the math to look at the retirement accounts over time. You have $3,500,000 for one thing. So the Affordable Care Act was probably not necessarily meant for people that have as much liquid assets, but it’s still a tax strategy. Because it’s money on the table. So if you keep your income low enough you get some tax credits if or you do conversions. So yeah Al, I think Donald and  Daisy are-

Al: Are alright.

Joe: – are all fine in Emerald City. Yeah, I think if I’m thinking about Roth conversions, I like the concept, because you’ll be in probably a pretty low bracket. You’ve got money outside of retirement that you can live off, keep those brackets low, right? ACA credit, it’s pretty generous. It’s hard to give it up, but what you might want to consider if you do retire, let’s just say, end of the year, so you got 2025, you got one more year, perhaps, of lower tax rates. Maybe you skip thinking about the ACA credit and just do a large conversion.  Get it over with, maybe top of the 22% bracket, maybe top of the 24% bracket. You gotta run some numbers to figure out what makes sense. But then after that, me personally, that ACA credit is, it’s a lot, so it’s hard to give that up.

Joe: Okay. All right. Good luck.

Subscribe to the YMYW YouTube Channel

Andi: I’m now posting daily videos to our YouTube channel of Joe and Big Al answering your podcast questions, and we love the feedback we’re getting in the comments. We’ve got some doozies coming up in just a few minutes from Keith. This is your opportunity to join the conversation! The link to our YouTube channel is in the description of today’s episode in your favorite podcast app, so go subscribe, turn on notifications so you don’t miss anything, and leave us comments and let us know what you think. Speaking of feedback…

7th Annual YMYW Podcast Survey Results

Joe: Andi, we got some results from our podcast survey that we do annually.

Andi: Yeah, the 7th Annual YMYW Podcast Survey and a whole bunch of you actually participated in that. So thank you for that, for helping us to make this the best personal finance podcast for you.  So do you, Joe, what would you like to do? Do you want to go through some of the results to see, what, what people had to say?

Joe: Yeah, I think so and of congratulations, of course to the winner.

Andi: Yes.

Joe: What does the winner get like $5?

Andi: $100 Amazon e-gift card. So yeah, don’t miss that email. Don’t throw it away. It’s actually legit. It’s real.

Joe: So I find this interesting. So we ask, I don’t know, half a dozen or a dozen questions. So I won’t go through all the answers because there’s thousands of them.

Al: Thank you.

Joe: But you know, you know, if we go through the questions, it’s like, all right, well how close are you to retirement? So if you think of who listens to financial planning podcasts, you know, Al, what would you think our, listenership would be consistent of?

Al: I would say because we sort of focus on retirement planning, I would say mostly retired or within 10 years of retirement. That’d be my guess.

Joe: Yeah, me too. I would think it’d be a little bit older. Someone that is like transitioning into retirement, probably in their late 50s, early 60s, but basically it’s across the board.

Al: Really?

Joe: You know, we have, our highest are already retired. So about 40%, are already retired. But, you know, you’ve got more than 10 years is around 20%, 5 to 10 years is another 15%, less than 5 years is 25%. So, you know, we do have a lot of younger listeners that have joined the YMYW crew. So, you know, hopefully we can get some questions versus Roth conversios.

Andi: I love the comment somebody left. They said they’re never retiring because they love what they’re doing too much, even though they don’t need the income. That’s a problem I think all of us would love to have.

Al: Yeah. Sounds good.

Joe: Question two was, when was the last time you or your household paid for the advice of a financial planner? What do you think? I would say a lot of these listeners are do-it-yourself, that’s why they’re listening to a financial podcast.

Al: Yeah, I would say very few. What do you get?

Joe: 33% said never. I’m never gonna hire one of you. Alright, that’s all good. 70% some odd said yes they have, but one was 5plus years ago. Let’s see, 15% of you said one to 5 and 22% over the last 12 months.

Al: Oh, okay.

Joe: Interesting.

Al: There you go.

Joe: Number 3, what financial topics are all the most important to you today? Number one, by far, 84% of you said reducing taxes.  So that’s why Big Al, you’re still hanging on.

Al: That’s why-

Andi: You still have a job.

Joe: Question 4, how did you discover the Your Money, Your Wealth® podcast? 41% responded it was suggested by the podcast app. How does that happen? What’s a podcast app? Like the Apple podcast?

Andi: Like Apple podcast or Spotify or something like that. So there’s two ways. Number one, if a bunch of people are subscribing to it, then that tells the app that they should show this to other people. And then the other thing is, you know, we put in all the keywords so that people know if they look for retirement planning or taxes or investing or something like that, they come up with Your Money, Your Wealth®.

Al: Cool.

Joe: 32% didn’t remember.

Andi: They’ve been listening for so long. They don’t even know. It’s just part of their lives.

Joe: They’ve just been listening for so many years.

Al: It’s right. Yeah. Too long ago to know.

Joe: All right. How long have you been a listener of Your Money, Your Wealth®?

Andi: This one surprised me too.

Joe: One to 5 years was 60%. Yeah. Yeah, I remember what one of those was like, I hated the show at first, but now I love it.

Andi: That was one of the reviews we’ve gotten. Yes.

Joe: That’s every relationship I’ve ever been in.

Al: There’s a pattern, Joe.

Joe: There is. It’s just like I come off hot and then they, over time-

Al: They get used to it. Yeah.

Joe: They get used to it.

Al: Yeah.

Joe: All right. So that’s kind of cool. We have what, 20% 5 to 8 years.  Okay. So very cool. Long time listeners, first time callers. How often do you listen? 70% says every Tuesday I’m listening.

Al:  Wow. Wow. Okay. As soon as it comes up. Consistent. Like it consistent.  All right.

Joe: How do you usually listen? So we’re just trying to see the patterns here. Apple Podcast was 53%, another podcast, so Spotify, was 30%, 10% was YouTube. Okay. Okay. Alright. Very cool. All right. So, oops, did I miss one? That’s right.

Andi: Well, the next one is what activity are you usually doing while you listen to the YMYW podcast? And the vast majority, I would say, are walking or driving.

Joe: Well, that’s why we’re asking what the hell they’re doing, or driving.

Andi: Yeah, exactly.

Al: What kind of car? That’s why we need to know.

Joe: What do you want to change about the podcast? Or like, well, you talk about drinking too much.

Andi: There was a few of those, yeah.

Joe: I’m thinking about having a cocktail when I’m answering this question.

Al: We do, but it’s because we enjoy a drink or two now and again.

Joe: Which of our fee financial resources are valuable to you?

Andi: Free.

Joe: They like downloading the Guide. 70% said downloading our guides and white papers. Another 30% they like the webinars. So for those of you haven’t downloaded a white paper, you can download them at your convenience.  All right. What social media platform do you use? Over majority, What is that? 66% said YouTube and then a close second of 50% was Facebook.  We want to know that just to see where we want to keep putting this stuff on or-

Andi: Exactly. Yeah, we want to go where the listeners are.

Joe: Okay, we can- there’s a lot of questions there. What are your least favorite things? I already kind of talked about that. You got any favorite of what are your favorite things on the YMYW podcast that you want to share?

Andi: I like the one that says the group chemistry of us 3. And then in the next one, the next sentence is Joe’s a special guy. I like that one.

Al: Are you special Joe?

Joe: Yes, I’m very special. So thank you all for putting up with me.  But no, this is great. These are really cool comments. We really appreciate everyone taking the time to fill this stuff out. I know most people hate surveys, me included. But it really helps the podcast. It helps us kind of focus on what we should be doing, keep doing the things that we’re doing well and stop doing the things that we’re not doing well. Get the information, education out to you in a timely matter and then you know come up with new stuff and keeping this show fresh, fun, informative, you know, is really the goal of the show. So appreciate everyone taking the time there.

Andi: And, you know, there were, there have been a few comments of people saying that they want to see stuff on video. So we’ve already fulfilled that. So thank you for that. And thank you for making the suggestions and thank you guys for being willing.

Al: Yeah. Yeah. And here we are on camera.

Joe: Look at this. This jacket makes me kind of look a little-

Andi: Yeah, both of you are just like moving like crazy all the time. It’s great

Al: I wore the wrong shirt today, but anyway, we kind of match, Joe. Yeah. We’re just all over the place.

Joe: Matchy, matchy. All right.

Comment: Keith Doesn’t Like Ed Slott or Roth Conversions

Joe: We got a new fan, Andi.

Andi: Totally. Yeah. Keith loves our show. Loves it.

Al: I guess he commented a few times, huh?

Joe: So we had Ed Slott, and I guess he doesn’t care for us, or Ed, or all of the above?

Andi:  I don’t think he cares for Roth conversions, and especially took issue with some of the things that Ed said. Yeah.

Joe: All right. So he’s commenting on some of the content we put out there. Okay. So I’ll read some of this stuff. Okay. Cool. All right. So, he goes, “Hey, the reason the government loves Roth is they get their tax up front and can invest that instead of you investing in it. Hello?  Who’s short sighted?  I guess I am.  In case there is any question with the math, you are 60 today. You convert $100,000 today in the 24% tax bracket and send the IRS $24,000. If you defer for 15 years, even if you hit the bottom of the 28% tax bracket, your effective rate will be less than 20%. That is all that matters.  What percentage do you pay to convert versus what percentage tax do you defer?  Anything else is noise by financial advisors to make it seem more complicated than it actually is.”  Okay?

Al: Okay.

Joe: You gotta look at effective rate versus marginal rate.

Al: Yeah, completely messed up those two terms. You gotta look at marginal versus marginal. Effective rate is completely irrelevant when you’re talking Roth conversions.

Joe: Do tell.

Al: So does he keep going?

Joe: Oh, yeah. I’ll keep going.

Al: Okay. All right.

Joe: I like it, Big Al’s getting a little spicy here. Completely irrelevant Keith.  All right. “These videos make me laugh.”

See we’re that’s what we’re here for Keith, just make people laugh. This is called entertainment.  All right. “I give credit for the good job with the catchphrases. I’ll throw one out there, more sizzle than substance.  Or how about all hat, no cattle, let’s analyze them. Tax time bomb. Very catchy, but not accurate for most.” Totally agree. “Most people have like $40,000 in a retirement account.”

Al: I 100% agree. Usually people that are listening to our podcast or watching our show have money. And so this makes complete sense for them.

Joe: But I totally agree. It does. What- I mean the average balance of a retirement account is a couple hundred thousand dollars. If you have a couple hundred thousand dollars, it probably doesn’t make sense to convert. But in some cases it does. Because then if I could convert with a couple hundred thousand dollars and let’s say I have Social Security and my IRMAA and everything else. I could live tax-free for the rest of my life and not pay another dime in tax, depending on what happens with the standard deduction, there’s a lot of different analysis that needs to go in. I think what the point is, that you just have to be aware of what you’re currently doing. Does it make sense to be diversified from a tax perspective or does it not?  Choice is yours.  Okay. What’s another little catchphrase he likes? Yeah.  “Do your due diligence.” Is that a catchphrase?

Andi: No, he, that’s him saying, do your due diligence regarding the tax time bomb.

Joe: Yeah. Please. Everyone should be doing their due diligence. Okay.  Okay, let’s see. “The RMD on a $1,000,000 RMD, he repeats himself quite a bit. The RMD on a $1,000,000 RMD is minimal from forever taxed to never taxed.  Totally bull.  It’s really from paid tax today at your top marginal rate to defer and pay slowly, taking advantage of inflation adjustments.” Whatever. “The halftime analogy.  It’s not even understandable.”,

Al: Wow. He, we did talk about- Ed did talk about a football game.

Joe: He, yeah. Halftime. “IRA is an IOU to the IRS.  How did you come up with that one?  I don’t know. Let’s see, if you are 60 today with an IRA to and defer when RMDs kicked in at age 75, your RMD on $1,000,000 will be less than the standard deduction index for inflation. If you only have RMDs and Social Security, you will pay zero tax. Anyone with less than $1,000,000 in an IRA should run away from this advice, which is meant to sell books and not help you.  FYI, I’ve replied with these true comments before, and they never replied. Truth is tough to swallow.”  I don’t even know how to reply, Keith. So we are replying now.

Andi: That’s my job, and I will post this for Keith after this is done.

Joe: What? The point is most people spend a little bit more, they want to maintain their lifestyle. So if I’m only going to spend my RMD and have a standard deduction and live off Social Security, you’re right. I’m probably not going to pay very little in tax. But the point is that people have different assets from different sources, different income from different sources. So you have to take a look at if you want to talk about effective rates. What’s your effective rate today versus your effective rate of the future? What’s your marginal rate today versus your marginal rate in the future? If you can control your taxes long term by being diversified from a tax perspective, you will lower your effective rate in retirement by doing so. But if you don’t, if you want to live off of $30,000 a year, you’re right. Guess what? You’re not going to pay any tax.  You’re not! Because there’s no income!

Al: Keith, I will say one thing, just because you, I think you like to run the numbers. As your example of a $1,000,000 IRA, let’s call it a $40,000 required minimum distribution, plus your Social Security, which could be another $30,000, $40,000, Right? If you’re married, then you got two Social Securities. But let’s just go with that. You’re single. You got $70,000 of income. Now, all of a sudden, a bunch of your Social Security is taxable that would not have been taxable if you didn’t have that RMD. And if you do two tax projections with and without the RMD, you’re going to see that the effective rate of adding the taxability to your Social Security, in some cases works out to 27% rate. Because here’s what happens, is you pay the rate for the tax itself and you also, I mean, for the RMD itself and you also pay the rate that now more your Social Security all of a sudden magically becomes taxable. It’s you just have to run the numbers and think about what you’re saying, but I do agree if you have a very small IRA and not that much Social Security, you’re not going to pay any tax anyway. So why would you convert? So we’re, trying to do examples where it does make sense to convert.

Joe: I agree with Keith 100% on most of this. If you don’t have a lot of money in retirement accounts, if you don’t have a lot of fixed income, if you’re going to spend a very little dollars in retirement, or depending on if you spend $50,000, $60,000, or let’s say you have your RMD and Social Security.  Okay. That’s fine. But. If someone wants to maintain a lifestyle of $100,000, $150,000, $200,000, whatever the dollars are, and all of that money has to come out from a retirement account that’s all still taxed at ordinary income rates. But so it depends on the examples. I think we agree 100% on a lot of things. And I think we, we disagree on other things because we might be thinking of different scenarios that we see every day versus maybe you’re just thinking of scenarios. Or maybe he’s an advisor. I don’t know. I’m not here to sell books. We gave the books away.

Andi: And we’ll send you one, Keith, if you want. Just let us know.

Joe: Keith, I want to give you a book.

Al: He’s like, he didn’t want it.

Joe: I love Keith.

Al: He doesn’t want it.

Joe: He doesn’t want it. Let’s give Keith a book.

Andi: Keith, give us your address. We’ll send you a book. For free.

Joe: I love the comments. I love the feedback. I mean, we can have discussions with- Al and I disagree on almost nothing. So that’s right. No kidding. We disagree quite a bit. He’s a CPA. He runs the numbers. I’m like, you know what? I’m just going to convert. I don’t ever want to think about taxes ever again.  I like the compounding tax-free growth. Yeah, I might pay it a little bit more in tax. Maybe it wasn’t as effective or efficient as possible. But guess what? When I look at my retirement account, and it’s $1,000,000, and it’s tax-free, it’s all mine!  It’s all mine!  Alright, that’s it. Thanks, Keith. We gotta get outta here. Show’s called Your Money, Your Wealth®.

Outro

Andi: My Joan Jett and Alanis Morissette concert experience in Palm Desert in the Derails, so stick around to the end of the episode.

We do still have a few more of those Ed Slott books available, and we’ll give you one too. It’s called The Retirement Savings Time Bomb Ticks Louder, How to Avoid Unnecessary Tax Landmines, Defuse the Latest Threats to Your Retirement Savings, and Ignite Your Financial Freedom. Just schedule a free financial assessment with one of the experienced professionals on Joe and Big Al’s team here at Pure Financial Advisors. After a comprehensive review of your entire financial picture, we’ll send you a copy of Ed Slott’s new book. Click the free assessment link in the description of today’s episode in your favorite podcast app to get started. When you have your assessment, don’t forget to request your free book! 10 randomly selected listeners are receiving copies that are signed by Ed Slott! US residents only.

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

The Derails

_______

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