Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 00:47 – Are REIT ETFs a Good Way to Get Into Real Estate Investing? (Leon, Chicago – voice)
• 09:15 – Watch Steps to Financial Success: Grow Your Wealth at Any Age on YMYW TV, Download the Growing Your Wealth Guide
• 09:49 – Can AI Seth Stay Retired at Age 52? Should He Do Roth Conversions? (Montana, voice)
• 16:41 – Move With Work, Take a Break, or Retire Now? Be Brutally Honest (Jenn, OH)
• 21:23 – Calculate Your Financial Blueprint and Schedule a Financial Assessment – both free!
• 22:02 – Deferred Comp: Can “George and Weezy” Retire in 2026 or Earlier? (IL)
• 33:18 – Outro: Next Week on the YMYW Podcast

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Transcription

Intro: This Week on the YMYW Podcast

Andi: Are real estate investment trust ETFs, or REIT ETFs, a good way for Leon to get into real estate investing? Can AI Seth stay retired at age 52 and should he do Roth conversions? Jenn in Ohio wants the fellas to be brutally honest about whether she should move with work, take a break, or retire now. And George and Weezy are in their mid-50s, can they move on up to a deluxe retirement lifestyle in 2026, or even earlier? That’s today on Your Money, Your Wealth® podcast number 499. If you’re listening right on your favorite podcast app, check the links in the description to watch us on YouTube, Spotify, or any of the other places that do video podcasts, and click the Ask Joe and Big Al link to get your 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.

Are REIT ETFs a Good Way to Get Into Real Estate Investing? (Leon, Chicago – voice)

Joe: Leon.

Leon: “Hey, Joe, Big Al, Andi. Hope you’re all doing well. This is Leon from Chicago. I have to admit this is my third time calling in with a question or a spitball or commentary, I suppose. But, you know, while I guess I should apologize for taking advantage, I’m also a value based investor and this seems like a pretty high value proposition. So hoping you’ll answer another sort of spitball for me and, lay it out for Joe in a different way this time, since he has to get in the mind of his callers, I thought I would lay it out for him this way. Let’s imagine that Leon, myself, runs into Joe and Big Al in a bar. We’re sipping old fashioneds. Just having a barstool conversation about what they do for, for a living. And I said, hey, if you put your guys in the position of being an early 40s investor, planning to retire in your early 60s, let’s say you have like $1,000,000 portfolio at this point.  And you’re a guy that looks at yourself as maybe a 70/30 stocks to bonds ratio, and you don’t want to be a direct real estate investor. Speaking for myself, you know, I want to, I want to be in the real estate game, but I don’t want to be a direct manager of a property. How would you suggest that this individual would invest in, say, REIT ETFs? Anything that you guys could offer as a spitball to sort of say, is this like something I should maybe integrate 5%, 10% of my portfolio slowly over time? Should it be heavier weighted than that? Just wanted to hear your guys’ thoughts on that. Really appreciate it. Love the podcast. I love all the YouTube stuff you guys put out there. And I don’t know how Al does it. I’ve heard about the walking up and down the stairs in his house. I think my wife would look at me really strangely if I did that. So I’m getting my 20,000 steps a day by just going out in the neighborhood, whether it’s hot, cold, raining, snowing, whatever. And that works for me. Love the show. Thanks for everything you do.”

Joe: All right. Leon.

Al: Yes.

Joe: Hanging out.

Al: By the way, I run up and down the steps.

Joe: Yeah. No shoes, just socks.

Al: Yeah. And secondly-

Joe: And your boxers or something.

Al: Yeah. And I didn’t start that till my 50s. And at that point your wife just doesn’t care. She just throws up her hands.

Joe: I could just see it. I mean, you don’t have like a huge, tall staircase.

Al: Well, it’s 15 steps.

Andi: And you live in San Diego, so it’s not like you have to do it because it’s snowing outside like it might be in Chicago.

Joe: You don’t live in Chicago like Leon.  You live in Southern California, San Diego.

Al: Yeah, but you know, sometimes it’s dark or whatever.

Joe: Got it. Okay, we’re having a couple cocktails here with Leon. He’s thinking about, man, real estate. I want to get a little bit of that.

Al: Yeah, I want to get in the game. I don’t want to be a property manager. I don’t want to find the properties. I don’t want to have to sell them. I don’t want to have to take care of the toilets that are overflowing. Yeah. I get it. I get it.

Joe: Yeah. You’ve been a real estate investor for quite some time.

Al: I have. I have. And, and I did that all for many years, Joe. And eventually I got property managers and then you have to manage the property managers and then I got tired of that. And I sold a lot of the real estate. I still have a little bit.

Joe: So, you would rather go REIT now, at your-

Al: At my current age?

Joe: Yes.

Al: Well, I do have REITs, and I do have a couple single family homes, so I have a little of both.

Joe: Got it.

Al: I like the REITs, the REIT ETFs, Real Estate Investment Trust ETFs, because of, they’re easy to get into, they’re daily liquidity, you can get out if you want to, and they’re, you know-

Joe: Let’s talk about the different ways that you could probably invest in real estate.

Al: Yeah, I like that. So right off the bat, he already mentioned owning real estate. That’s the kind of the first thing you think of. And most people start with a single family home or a condo because they don’t have the funds to be able to buy a commercial property. So that’s, that’s one way to do it. But I get it. You don’t necessarily want to be a property manager. Although if you really do want to get in real estate, I highly recommend that approach because you learn it really well. You learn what works, what doesn’t work. And I think you can, you can actually make a lot of money in real estate.

Joe: You can also lose your ass.

Al: Yes you can. And both of those are true because of leverage. Cause you’re using the bank’s money. And so if the property goes up, it’s all yours. If the property goes down, it’s all yours. So that’s the tricky part of that. But, after that, the easiest way is probably the REITs, real estate investment trust ETFs.  With daily liquidity, that’s a good way to go. You can do REITs that are non-liquid.

Joe: Non-traded.

Al: Non-traded, which in some ways could be a little bit better because there’s not flows in and out. And, you know, so that the, the, that the managers of the fund don’t necessarily have to have a certain amount of money for liquidity for people that want distributions and all that stuff.

Joe: So yeah, you got traded REITs. You got nontraded REITs and there’s pros and cons to each of them, right?

Al: Right.

Joe: You just have to really understand what you’re getting with a non-traded REIT because there’s there could be- sometimes there could be a lack of transparency. And they might look at a, a certain cap rate or cash on cash, or is that return of capital or is that really the return on, you know, the investment? So there are some really good rates on traded or non-traded.

Al: Yeah. Agreed.

Joe: But non-traded, you just have to hold on to that investment for a little bit longer.

Al: Yeah.

Joe: So there’s a liquidity issue there, so you should get a higher expected rate of return because you don’t have that daily liquidity.

Al: Yeah, yeah. Then, then you can do tenant in common.

Al: Oh, yeah.

Joe: Why don’t you do that? Now you’re getting hardcore.

Al: Yeah. Well, and what that is, is that’s just, there’ll be a, a general manager, that, that finds the property and manages it or hires managers, basically runs the operation and then tries to get investment capital and maybe you own 1%, right, of this building or whatever the percentage is, but you don’t necessarily do anything. You don’t have any control over it, but you do have real estate ownership and, and they do generally, the ones I’ve seen, Joe, usually 50% ish, loan equity. So in other words, a $10,000,000 property might be, have $5,000,000 of debt. So you can, you do get additional return as long as properties go up in value. Because of leverage, you also can lose more quickly because the properties go down. So just be aware of that.

Joe: How about a DST?

Al: Yes, the Delaware Statutory Trust. That’s another way to go. In some ways, maybe that’s even a little bit better because now you own a fractional interest of a pool of properties instead of a single property. So I, if I were so inclined, I might think about that. But in the case of tenants in common or a Delaware statutory trust there’s a lot of fees and a lot of cases that the promoters, the managers, the organizers are getting a cut of the profits. And so if the property-

Joe: Yeah, they’re putting the deal together, they’re getting paid.

Al: They’re getting paid. Yes. Yeah. So just, just, I guess, just be aware of that. And I mean, that’s going to be true. And, and even, REITs as well. I mean, there’s going to be, there’s higher fees and stuff like that than maybe a traditional stock, ETF.

Andi: How much would you suggest be in the, the portfolio? What, what amount of real estate should be in the portfolio percentage wise?

Al: Oh, I don’t know. I think 5% or 10% is fine.  Yeah, I, I mean, some people do 100% real estate and they make a lot of money, but you can also lose money, you know, so, I don’t know. If you haven’t invested in real estate, maybe you start at 5%, see how you like it.

Joe: Yeah, also, I mean, depends on his home value too, you know. If he lives in a mega mansion, you might be good.

Al: You got, you have real estate already, exposure. Yeah. Although if you’re planning to never sell, then it doesn’t really count.

Joe: Sure. All right, Leon. There’s your choices. Probably just go with a low-cost ETF.

Al: That’s what I, that’s how I do it.

Joe: We’re spitballing here.

Al: Yeah.

Joe: We’re not giving advice.

Watch Steps to Financial Success: Grow Your Wealth at Any Age on YMYW TV, Download the Guide to Growing Your Wealth

Andi: Do you want to be rich, or do you want to be wealthy? Is there a difference? Regardless of your age or where you are in life with saving for retirement learn steps to success and growing your wealth at any age this week on Your Money, Your Wealth TV. Download the companion Guide Guide to Growing Your Wealth to take a look at the big picture, set up your financial goals and strategy, then explore the investing options to get you to a successful retirement. Click the links in the episode description to watch Steps to Financial Success: Grow Your Wealth at Any Age on YMYW TV and to download the Guide to Growing Your Wealth.

Can AI Seth Stay Retired at Age 52? Should He Do Roth Conversions? (Montana, voice)

Joe:  e have a little AI machine calling us, Andi?

Andi: Yep. At first it seems like it might be a human that’s actually calling in for a spit ball, but if you pay attention, you can kind of tell that it’s an AI voice. So this is our first time. This is the first one we’ve gotten.

Joe: I mean, do you play with AI?

Andi: I have a couple of times, but it’s just obvious. I’ve seen a lot of the videos on YouTube that are, you know, faceless YouTube videos that have an AI voice on them. This definitely sounds like it’s one. Tell me what you think.

Joe: Wasn’t there like an AI song?

Andi: Well, yes, I made an AI song for you guys. That one, you couldn’t really tell so much that it was AI.

Al: Yeah, okay.

Andi: So here we go. “Hey Joe, Andi, this is Seth from Montana. Thanks for the entertaining and though- provoking podcast. I have a spitball analysis for you, please. My wife and I are both 52 and have mostly stopped working as of this Summer, but wanted to make sure we were on the right path or if we needed to pick back up some more assignments. I also have a question for you on Roth conversions. Our assets are as follows. $500,000 in our brokerage account, $2,040,000 in after-tax LP real estate investments, $310,000 in my traditional solo 401(k) account, $740,000 in my wife’s traditional solo 401(k) account, $80,000 in my wife’s Roth solo account, none in mine. $13,000 in an HSA. $45,000 in cash and short term T bills. House is worth about $725,000. No mortgage. Our Social Security estimates with zero dollars future earned income shows $28,000 annually for me at 67. Or about $20,000 if I filed at age 62. Social Security estimates for my wife also with zero future earned income shows $35,000 annually at age 67 or $25,000 for her at age 62. We would like to spend $150,000 annually and would like to die with zero. Anything remaining we will have left for charities. Are we on track to be able to not continue working?  Also, I have a feeling I know what Joe will say, but what are your guys’ thoughts on us doing Roth conversions in our solo accounts? Last year, our marginal tax rate was 24% and our effective rate was 18%.  If so, any thoughts on the best way to structure these? I drive an F150 and my wife drives a Cadillac XT5 SUV.  Drinks of choice are vodka sodas in the Summer or Woodford on cold Winter nights.  A glass of Cabernet is always good too.  Okay, I gotta get going to head back out to scout for more elk. Thanks for the spitball.”

Joe: Where’s he from? Montana.

Andi: Montana. So he’s out scouting for elk and using AI to send in voice requests.

Joe: I don’t know. That sounded like a real person.

Al: Yeah, it did go from kind of fast and high and then it went lower.

Joe: Well, I think he was getting excited talking about his assets.  Yeah, I was like concentrating on the AI aspect. And I didn’t even listen to the question.

Andi: Well, I like the fact that it says, “In my traditional solo 401(k) account. In my wife’s traditional solo 401(k) account.”   The wording sounded a little weird.

Joe: Well, maybe he-

Al: Let me summarize for you. So, he and his wife are both 52.

Joe: 52 wants to retire.

Al: Yeah, they just retired, they most, they mostly stopped working as of this Summer. They’ve got about $3,600,000 total, $200,000 of that is in a after-tax LP real estate investment.

Joe: What is it, what is the real estate cash flow?

Al: It doesn’t say, yeah, and the rest is brokerage, well, brokerage and 401(k), a little bit of Roth. So anyway, they want to spend about $150,000. So the first thing we do right off the bat is we take $150,000, we divide it into their investments of $3,600,000, and we get a 4.2% distribution rate.  Which for a, for two 52-year-olds is I would say a fairly aggressive rate.

Joe: Yeah, there’s a lot of caveats here, Seth. You’ve got $2,000,000 in this after-tax LP real estate investments, but we don’t know what the cash return is.

Al: We don’t. Sometimes they’re great. Lately they haven’t been as good because interest rates have gone up and most of the loans on real estate or commercial estate are variable. So there’s been lower cash flow. I mean, a lot of them have been 5% and 6%, right? Or. Some cases more lately, they’ve been, I’ve, I’ve heard of some make 3% or 4%, some not making any distributions at all. So, yeah, there’s a lot. We don’t know. So I’m just taking, I’m just taking the spending versus the assets to come up with a distribution rate right off the bat. Warning signals go off. That’s a fairly high distribution rate in your early 50s.

Joe: He’s telling me that he’s in the 24% tax bracket. Was he retired last year? So if he was in the 24% tax bracket, I mean, there’s, that’s a few hundred thousand dollars of income that has to be peeled off of either the real estate or-

Al: Yeah, yeah. No, he says he, he said they have mostly stopped working as of this Summer.

Joe: Okay, got it.

Al: Last year was I guess a full year and this year might be a half year working maybe, I don’t know. Hard to say.

Joe: Well, a couple of comments is that you built a really good nest egg at 52, $3,000,000 plus. So congratulations there.  I agree with Alan that a 4% burn rate on the assets and we’re assuming that they’re all liquid when you look at a 4% rule, but $3,000,000, 80% of his net worth is not liquid, so we need to understand what the cashflow is on the real estate investments to determine, you know, what is the additional need of income if any coming from the other liquid assets? Yeah, from there, you know what tax bracket that you’re in to determine what yeah conversion strategy is going to make sense.

Al: Yeah, probably the better way to think about this is you take your $150,000 spending and then you subtract out your real estate income. Right. And then you come up with a shortfall and you divide that into the other liquid assets to figure out what the real distribution rate is.

Joe: Because they got a 10-to-15-year bridge for Social Security. Right.  That’s, you’re burning out 4%, 4.5% plus tax plus the cost of living at 52? I don’t know. I would- That’s, that’s, it’s a little too rich for my blood.

Al: Yeah. yeah. So the question, we wanted to make sure we were on the right track, or if we needed to pick up some more assignments.

Joe: Yeah, pick up more assignments.

Al: I think you need some more assignments, Seth, unfortunately.

Joe: Get some more elk or whatever.

Al: Whatever.  All right. Thanks, Seth. That was cool. All right.

Move With Work, Take a Break, or Retire Now? Be Brutally Honest (Jenn, OH)

Joe: Alright, let’s move on to Ohio. We got Jenn. She writes in. She’s asking for a little bit of a spitball. “Company office closing within 6 months. I’m allowed to move out of state, but given daughter in high school, I may take some years off or retire altogether. Currently 55. Given that I’m checking to see my overall early retirement options, spouse stays at home, no Social Security. I’m planning on taking mine at 70. If it exists.”  Oh, Jenn.  So company office is closing within 6 months, and I’m allowed to move out of the state.

Al: So I guess they have offices outside of her area apparently.

Joe: But it’s closing. Who cares? Allowed?

Andi: Just that office.

Al: No, it’s just that office is how I read that.

Joe: All right, let’s see what Jenn’s got here. She’s got wow- we got Richie Riches here today.

Al: This is this is the rich person show.

Joe: “We got $2,100,000 in a brokerage account, $1,700,000 in a rollover IRA, $1,300,000 including $280,000 in a Roth in current 401(k), $1,100,000 in Roth conversion IRA, $80,000 HSA and $750,000 in a 529 plan for the two kids,16 and 19.”

Al: So, if we’re keeping track, Joe, we got about $6,200,000 of liquid assets.

Joe: Yep, okay, and she’s gonna say, I spend $40,000 a year, can I retire?  “Ballpark expenses, pre-tax, $180,000 to $200,000. In addition, would like to give the kids from ages 22 to 32, $30,000 for them to cover and fund their respective IRAs in case Uncle Sam changes their mind on inheritance on retirement. Be brutal and honest.  May consider part time out of state work once the youngest is out of high school. Cars. A 6-year-old Lexus and a 4 year old Acura-”

Al: Acura?

Joe: Acura. Acura. Oh my god. “-SUV.  No pets. Diet Pepsi and occasional beers are the faves. Love to hear you spit ball and see if I’m in the ballpark or way off base.” Yeah, you’re on first, second, third base here, hon. You’re good.

Al: Just to put a little math to this Joe, spending $200,000 on a $6,200,000 portfolio, 3.2% distribution rate. That’s before Social Security. Maybe she, you know, that’s at the high end of her spending.  I’m okay with that. I mean, anyone that has $6,000,000, I think you can make it work.

Joe: I think you’re alright.

Al: I mean, let’s just say, Jenn, it feels a little bit tight after a year or two, then go down to spending $170,000. You’ll still have a great life.

Joe: Yeah.  At 55, okay, someone at 55 that has accumulated this much money.  And her husband doesn’t work. I wonder, was he always a stay-at-home dad? Or did he make a lot of money and then he retired?

Al: I’m guessing that, or-

Joe: I’m guessing she made all of this money. Maybe there could have been a little bit of an inheritance, but there’s a lot of money here. Especially with the amount of money in retirement accounts.

Al: I know, right. Unless that was inherited, but that seems-

Joe: Rollover IRA and the 401(k) and a Roth conversion. I don’t think so.

Al: It’s it doesn’t seem like it.

Joe: So she jamming a ton of money away. So Jenn’s 55 and she, they got $6,000,000 bucks. Yeah.  I’m guessing she was a hard charger.

Al: Yeah. I have to-

Joe: I’m guessing that she made quite a bit of dollars and she probably wants to take a couple of years off, but I don’t know.

Al: She didn’t really talk about her husband here, so I’m guessing you’re right.

Joe: It says husband doesn’t work.

Al: Where does it say that?

Andi: Spouse stays at home.

Joe: Spouse stays at home.

Andi: No Social Security.

Joe: No Social Security. I guess he’s never had work history.

Al: I guess so.

Joe: He’s got a spousal. He’s got a spousal.

Al: He does. He does.

Joe: He could take half of Jenn’s.

Al: Anyway Jenn, you’re fine.

Joe: I guarantee Jenn’s not going to be sitting around. No, she’s going to go back to work. She’s going to start a business. She’s going to probably do something.

Al: Of course she is. Hard charger at 55. I got to tell you. I mean, you know, I wanted to retire at what, 48?

Joe: You tried to.

Al: And here I am. It’s because you know what, when you’re a hard charger and you got lots of energy, you want to keep going.

Joe: So are you calling yourself a hard charger?

Al: Yes. Absolutely. I am. Is that funny?

Joe: Are you giving yourself a little compliment there?

Al: I pat myself on the back.  Yes.

Joe: You and Jenn are just like two peas in a pod. You’ve got a big wallet just like Jenn.

Al: I feel like I know Jenn.

Joe: Oh, that’s great.

Calculate Your Financial Blueprint, Schedule a Financial Assessment – both free!

Andi: If you’re a hard charger, don’t wait and wonder if you’re on track for retirement. Click the links in the episode description to calculate your Financial Blueprint and to schedule a Free Financial Assessment with the experienced professionals on Joe and Big Al’s team at Pure Financial Advisors. They’ll go beyond a simple spitball to provide you with a comprehensive analysis of your income, expenses, assets, and debts so you have a clear roadmap towards your retirement goals They’ll help you understand your comfort level with investment risk to craft a plan with you that’s aligned with your needs, goals, and risk tolerance. Click the Free Assessment link in the episode description to schedule your financial assessment today.

Deferred Comp: Can “George and Weezy” Retire in 2026 or Earlier? (IL)

Joe: We got George and Louise. They’re calling in from the land of Lincoln. “No pets. Land of Lincoln.”

Andi: Nebraska.

Joe: Or is that Chicago or like, Illinois?  Is it Abraham Lincoln or Lincoln, Nebraska?

Andi: Well, I guess it could be either.

Joe: The land of Lincoln.

Al: It could be either one.

Joe: Aaron and I vote Illinois.

Al: It could be.

Joe: They got “no pets, only a high school junior still at home, $165,000 saved in that 529 plan.” What did you do? Did you put money in a 529 plan? Or did you cash flow?  I remember you were all stressed out.

Al: Yeah, I did put some in, but not enough. Yeah. So I cash flowed it.

Joe: The University of Colorado was just sucking you dry.

Al: That was a killer. Yeah.

Joe: Oh, boy.

Al: Yep.

Andi: Actually, I just checked the email. You’re right. It’s Illinois.

Joe: Oh, yes. Illinois.

Al: Land of Lincoln.

Joe: Okay. Land of Lincoln.

Al: Okay. There you go.

Joe: See?

Al: See? You’re right.

Joe: I like my American history. Thank you.

Al: Really, that’s the first time I’ve heard you say that. “I drive an S05 series and Weezy-“ so that’s George and Weezy from Jefferson’s.

Al: Land of Lincoln.

Joe: Land of Lincoln was what, what does Weezy have? She’s got a BW atlas.  I don’t know what that is.

Al: Me neither.

Joe: All right, they’re both paid for. Weezy doesn’t drink, but my preferred-“ What, does he drink a-

Andi: Hoegaarden. Actually, he says it’s pronounced “Hoo-Garden”.

Joe: A cold Huegarden.

Andi: Hoegaarden.

Joe: “That’s a Belgium white bitter and de-emphasizes hops and is unfiltered. By the way, it’s pronounced hoo-garden.” I should have just-

Al: there we go.

Joe: I went over- Just did a-

Al: A little bit of prep today.

Joe: -did a little bit of prep.

Andi: All right, so here’s a VW Atlas. It’s an SUV.

Joe: Oh, cool.

Andi: And here’s the Hoegaarden.

Joe: Hoegaarden. Okay.

Al: Nice.

Joe: Okay. “Wanted a spitball analysis as to my ability to retire of June 30 of 2026 or earlier. No defined benefit pensions for either of us. Weezy would continue to work to access health care benefits for the family costing $400 a month, her income is fairly limited. I have a non-qualified deferred compensation plan that will pay out over a 10 year installment. Starting January 2027, assume the June 30, 2026 retirement date, current balance is $1,800,000. An expected balance will be about $2,200,000 with my proposed retirement. Trusty HP 12C-“ Alright, Big Al and I, that’s what we use, ‘-says that it’s $220,000 per year. I also expect a 3 year long term incentive trail of $60,000 a year in ‘27, ‘28, ‘29. You doing the math there Big Al?

Al: Yep, looking pretty good.

Joe: Alright. “My IRA is $1,200,000, Weezy’s is $1,100,000, all non-Roth. My 401(k) is a $1,100,000, of which only $50,000 is Roth.” So a lot of deferred monies here.

Al: Yep.

Joe: “Contributions have all been pre-taxed, given the household income is $600,000 to $700,000 the last couple of years, and expect at least $500,000 to retirement. Taxable brokerage count is $880,000, of which $240,000 is in a government money market fund. Personal residence is valued at $1,000,000, with a $300,000 mortgage at 6%. Thinking we are clear- thinking we will clear the deck on the mortgage at retirement. Desired retirement spending x mortgage is $15,000 a month in today’s dollars. Health savings account balance $65 and have cash value life insurance of about $140,000.”  All right, you got a lot of stuff going on here, George. Let’s get to the question. Yeah, can I retire? All right, you’ll probably answer is yes.

Al: I think so.

Joe: “Social Security calculator reflects monthly benefits of $3600 for me, $4800 at age 70 for Weezy. It’s $2000 and then $2500 at 70. We appreciate the levity the team brings to each podcast.”  Okay.

Al: All right. So let’s let me recap here a little bit.

Joe: Yeah. Please.

Al: So we’ve got $4,300,000 in assets.

Joe: Okay. Most of it deferred. $50,000 in a Roth.

Al: And that’s without, that’s without the, non-qualified deferred comp plan, which I’ll get to in a second. Now, they want to spend $180,000. If we just take those two numbers, $180,000 divided by $4,300,000, we get a 4.2% distribution rate, which 57, 56, 57, if there was nothing else going on, it might be just a little bit rich, but close.

Pretty close. Sure. Close. Yep. But now you look at the, the, the deferred comp plan, 10 installments starting in January. So basically what that means is probably about $220,000 per year for 10 years. Okay, so there’s no reason to dip into any of the savings, so that can just grow, right?

Joe: So, all of his assets will grow, Weezy’s going to work, she’s going to pay the health care.

Al: Yeah, she’ll pay the health care.

Joe: And then the deferred comp plan is going to pay for their living expenses over the next 10 years.

Al: That’s right, and plus they got an extra $60,000 a year for 3 years.

Joe: Yeah, a little kicker.

Al: Yeah, a little for vacation money or whatever, whatever fun stuff you want to do. So, I guess what I’m thinking is if you don’t touch the $4,300,000 for 10 years, that’s $9,000,000, could be $8,000,000, $9,000,000. Will that cover your spending? I don’t see how it wouldn’t, that’s even before Social Security. So, yeah.

Joe: There that, that’s the basic easy stuff. I mean, what, what other items- do you think George and Weezy really thought that they couldn’t do it? Or is there-

Al: Well, that’s what they asked.

Andi: Well, they wanna know if they can retire by 2026 or earlier.

Al: Yeah. Yeah.

Joe: You could retire earlier.

Al: Yeah. Yeah.

Joe: Because a deferred comp plan is going to cover your monthly expenses over the next 10 years. And if Weezy continues to work just to pay the health care, you’re, you’re golden. But the issue is, is that most of this is all again in a deferred account.

Al: 100%.

Joe: And then you got 10 years of $200,000 of income that you’re still going to be in a high tax bracket. So then the, the question is, okay, well how do I get diversified from a tax perspective and how, how much pain is it going to be to do it? Because he’s going to have to convert in high rates because he’s going to be in higher rates probably in the future, depending on what that IRA grows to.

Al: Yeah. And so the way I would think about that is when he retires, that’s when you start doing big Roth conversion.

Joe: You should retire tomorrow.

A: Could. Could. No reason not to. Yeah, yeah. Now the deferred comp will be, let’s see if it’s, maybe it’s $180,000 a year, which still covers his expenses. So yeah, he could definitely retire earlier. Yeah, I think, I, I have a, so that’s one thing is, is tax problem in the future. The second thing that I would just have George and Weezy take a look at is, when you make $600,000 or $700,000 per year, and do you really only spend $180,000?

Joe: There’s no way.

Al: Just be careful on what you, what you’re really spending, because I bet you it’s more than that. So, so just take a look at that.

Joe: How old are they?  57, 57, 56. How much do you think, well, let’s say if they make $700,000 a year, State of Illinois, that’s probably,  that’s a high tax rate. So they’re probably paying $200,000 plus FICA, $250,000, $300,000.

Al: Let’s, let’s call it. Yeah. $250,000. Probably $250,000.

Al: Yeah. So let, let’s split the difference. So $650,000, $250,000, so $400,000 net, they’re probably saving-

Joe: $100,000?

Al: -$100,000 ish. So they got $300,000. And you’re really only spending $180,000? Maybe, but I just, just be careful on that because how many times have we seen people come into our office and say, yeah, I only, I only spent $40,000 a year?

Joe: Well, this is how we can tell. So in the non-qualified deferred comp plan, so he’s got $1,800,000 there. So, is that company funded or did he fund that?

Al: He probably-

Joe: In most cases he funded.

Al: He probably funded.

Joe: Yeah. So I don’t know what percentage of his income that he funded there, but to get $1,800,000 at 56, 57, he probably put a pretty good chunk of money there.

Al: Yeah. So, if-

Joe: And then you look at the, what do they have outside of retirement accounts?  It looks like most of it is pre-tax.

Al: Most of it is pre-tax.  They have $880,000.

Joe: Okay, $880,000 outside of retirement accounts. So you know their spending is a little bit high. Let’s say if he didn’t have the deferred comp plan and he only had retirement accounts. And he only had $800,000, I mean only, I’m saying only, and I just feel like a jackass by saying that. But given the, what percentage of non-qualified dollars that he has compared to his qualified dollars, you could see that the spending might be a little bit high. But I don’t know what he put in the deferred comp plan if that is company funded or if that’s him funding, which I think he probably fund a majority of that.

Al: Yeah. I would say so too. So if he put in, let’s just say $75,000 a year or even $100,000, then I think the numbers probably work out right to where the spending is- Is appropriate, right?

Joe: But $700,000 over the last 10 years. Let’s say they made that amount of money. It’s like, all right, well, $7,000,000 came into the household. $7,000,000. How much of that went to tax? Well, he went to part comp. So we got tax savings there.

Al: That’s right.

Joe: 401(k)s all pre-tax tax.

Al: Savings. Yep. So maybe we’re high on the on the taxes.

Joe: Maybe.

Al: Yeah.

Joe: So-

Al: It’s just it’s just worth a look.

Joe: Right because if you’re 57, you’re gonna retire still in your 50s.That’s super young for retirement. What are you going to do when you retire? They’re going to go on African safaris every other week.

Al: Yeah, it’s, anyway, that’s, that’s yeah. So, so it looked, it works, this works well. So you got a tax problem, check your spending, and then we don’t really talk about this much, but what are you going to do? We’ll go back to the hard charger, George, you’re probably a hard charger.

Joe: Just like big Al.

Al: What are you going to do? Right. I mean, that that’s as important as the financial part.

Joe: Oh yeah. In some cases more.

Al: More, right?

Joe: All right. You got $10,000,000 bucks and you’re just miserable.

Al: Yeah. Right.  You feel depressed.

Joe: Oh my God. I’m just like, Oh-

Al: I got no worth. No reason to get up in the morning.

Joe: Yeah. I want another Hommenbaggen.

Andi: Hoegaarden.

Joe: Whatever the hell it’s called.

Al: The Ho Garden?

Andi: Hommenbaggen? I like that.

Joe: Get another 12 pack of Hoegarden Monday morning.

Al: Oh my. So you, you open up your, your, your bank, you know, investment accounts in the morning and you look at you go, oh, that’s great. And then two minutes later, now what?

Joe: Now what? Do I spend some of it? No, I don’t want to spend any of it.

Al: I know it’s, it’s too tight.

Joe: All right. Well, congratulations. Good luck. Thanks for the – thanks for the email.

Outro: Next Week on the YMYW Podcast

Andi: Make sure you’re subscribed on YouTube and in your favorite podcast app so you don’t miss episode 500 next week: The Top Funniest Moments from the Your Money, Your Wealth podcast, volume 2! Check out episode 300 from back in 2020 for volume 1. October 29, we’ll be back to retirement spitballing for N&N in San Francisco, Jennifers in both Washington State and Colorado, Elizabeth in Connecticut, and Brad and Suzanne, both in Michigan.

Your Money, Your Wealth is your podcast! When you share YMYW with your friends and leave your honest reviews, comments, and ratings for Your Money, Your Wealth on YouTube, Apple Podcasts, Spotify, and the like, it helps us reach more listeners and viewers like you

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.

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