Joe Anderson
ABOUT Joseph

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

Alan Clopine

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

Andi Last

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

Published On
March 26, 2024

Jimmy in Wisconsin will have a pension and Social Security. How should he cover his seven year retirement shortfall? Skipper in Texas has some unusual pension options, which one makes the most sense for his retirement needs? Should Mike and Carol in Virginia wait to do Roth conversions if they’ll be in a lower tax bracket in retirement? Where should Duncan in Texas invest in the 10 years before he retires early? Would it be stupid for Jay Z in Minnesota to miss out on free Roth opportunities? Can Ben in San Francisco’s “friend”  use the rule of 55 on a rollover retirement plan? And finally, YMYW is fun, but of limited value, according to a recent review. 

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Show Notes

  • (00:51) Pension & Social Security: How Should We Cover Our 7 Year Retirement Shortfall? (Jimmy, WI)
  • (08:17) 2:1 Matched Company Money vs. My Contribution: What to Do With My Pension? (Skipper, TX)
  • (16:47) Should We Wait on Conversions If We’ll Be in a Lower Bracket in Retirement? (Mike & Carol, Falls Church, VA)
  • (24:22) Where Should I Invest My Early Retirement Savings for the Next 10 Years? (Duncan, TX)
  • (30:18) Is It Stupid to Miss Free Roth Opportunities? (Jay Z, MN)
  • (38:33) Rule of 55 on a Rollover Retirement Plan? (Ben, San Francisco)
  • (44:34) Comment: Fun but limited value (Wemby2024)
  • (50:41) The Derails

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Andi: Today on Your Money, Your Wealth® podcast 474, Jimmy in Wisconsin will have a pension, Social Security, and a seven year retirement shortfall. How should he cover it? Skipper in Texas has some unusual pension options, which makes the most sense for his retirement needs? Should Mike and Carol in Virginia wait to do Roth conversions if they’ll be in a lower tax bracket in retirement? Where should Duncan in Texas invest in the 10 years before he retires early? Would it be stupid for Jay Z in Minnesota to miss out on free Roth opportunities? Can Ben in San Francisco’s “friend” use the rule of 55 on a rollover retirement plan? And finally, YMYW is fun, but of limited value, according to a recent review. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Pension & Social Security: How Should We Cover Our 7 Year Retirement Shortfall? (Jimmy, WI)

Joe: We got Jimmy from Wisconsin. Remember Jimmy from Wisconsin?

Al: Yes. Isn’t that your cousin?

Joe: Yeah. This is not my cousin.

Al: That’s another one, huh? Okay.

Joe: Yeah. This is nowhere near my cousin.

Al: Okay.

Joe: “I got a spitball for Joe and Al. First, I would like to thank you for his advice from several years ago. He suggested to someone go on Roth all the time.” Remember that?

Al: That sounds like you, sounds like what you would say.

Joe: That’s what I live by. “I remember Joe saying, you won’t miss the taxes today, and you’ll be so much happier in the future. From that time, I’ve contributed everything to my Roth 401(k), done several planned conversions from traditional 401(k) to the Roth 401(k) and maxed out backdoor Roths. Even though I’ve been in very high tax brackets, 32% and 35%, I did not miss the taxes on those Roth contributions or conversions, and I’m thrilled that a Roth account is our largest account.”

Al: Wow. Cool.

Joe: “$3,200,000 total. He’s got $1,200,000 of that in Roth IRAs.” So when you see that balance, Al, you forget about all the taxes that you paid years ago.

Al: Yeah. Because it’s, it’s a good balance.

Joe: Right. You’re taking a lot of money-

Al: You probably would have spent it anyway.

Joe: Right. So, what I think people don’t- you can get into all the calculations and of course you should do that. But, if you want to take the uncertainty of taxes off the table, go Roth. Because you’ll never ever pay taxes on those dollars again.
Your spouse won’t pay taxes. Your kids won’t pay taxes. The grandkids, whatever. So, I’m looking at building a diversified portfolio- most people will take the tax deduction today and then it grows tax-deferred and when you pull the money out it’s going to be taxed at ordinary income rates. Where do you think tax rates are going to go? Are they going to go down? Are they going to stay the same? Are they going to go up? Well, I don’t know. If I’m a betting man, which I’m not, I believe that tax rates are going to go up.

Al: And most people believe that too.

Joe: And so if I believe that, doesn’t it make sense to pay a little bit of tax today and have all of that money grow tax-free. So on a contribution, it’s like, should I go pre-tax or after-tax? I’ll go after-tax. I’m in a decent, a fairly high tax bracket. And I go Roth 100% of my contributions.

Al: Yeah. So you practice what you preach. Like it.

Joe: I do. Cause I’d like to take a look at that balance and say, you know what? I’m never paying tax on that.

Al: It’s- it’s done. This is all mine.

Joe: It is all mine. When you look at a retirement account, IRA, 401(k), that’s pre-tax. It’s like, all right, well, this is not all mine. I got a partner, and that’s the IRS.

Al: In your case, IRS and California Franchise Tax Board.

Joe: That’s right. I’m moving though.

Al: Are you? To Texas?

Joe: I don’t know.

Al: Florida?

Joe: We’ll see. Not Florida. I lived there. All right. “So he’d like to spend $165,000 a year. On $3,200,000, 4% of that is $128,000, means he’s going to be short about $37,000 until I collect Social Security. So he’s going to wait until 69, the wife is 67. So they’re going to have around $75,000 in Social Security. That’s going to cover the 37% shortfall plus future inflation when we begin collecting our benefits in 7 years.” Why do you think he picked 69 and 67 versus just pushing it out to 70?

Al: I don’t know, but I’d push to 70 in this case.

Joe: I would too. So here’s his question. “So on that 37% shortfall, he’s got a pension, Al. There’s no COLA. And he’s looking at two options. He’s got a 10-year period certain equals, let’s call it $50,000, 10-year period certain, $49,428. So that’s going to cover his shortfall, $37,000, right, for the next 7 years. Or if he pushes his Social Security out to age 70, it’s going to cover that shortfall and some.

Al: That’s right.

Joe: “The second is that he’s got 100% joint with survivors. So the difference between the two, 10 year period certain, is that he will receive this $49,428 for 10 years. So if he dies two years in, he’s the- the heirs will still get $49,428. After 10 years, year 11, it’s zero.

Al: Yep. But the first 10 years are guaranteed, regardless. Even if husband and wife die, it goes to the beneficiaries. So joint in Survivor, will be, alright, so you’re married, you have a spouse, so it’s going to continue to pay on both lives. So if one spouse dies, this money is going to continue to pay until the second spouse dies. So, if they both die, tragically, the next year, well then it’s done. If they live until 120, it’s going to pay out until 120.

Al: Correct.

Joe: So, he’s going to receive $18,400 for life. This means he would have to take more than his 4% out of the portfolio for 7 years. So the math he has to do is, what makes more sense? So I take $50,000 for the next 10 years and then call it good?
Or do I want $20,000 for the rest of my life? So there’s a real simple way to calculate this, or you can get a little bit more advanced. Why don’t you do the simple one?

Al: Actually, I’m doing net present value. I already did it.

Joe: Oh, you are? Well, here’s the simple one.

Al: Okay, you do the simple.

Joe: So, you got $50,000, 10 years, it’s $500,000. You got $20,000. He’s 60 years old.

Al: Yeah, call it 30 years. Right?

Joe: 60, 70, 80, all right, so 90. So that’s $600,000. You take the net present value, depending on the discount rate, I think the 10 year is going to kill it.

Al: Of course it does. Yeah, so net present value, what that means is you take your payment, you do it over 10 years, you pick your discount rate. I just did 6%, okay? So net present value of the 10 year sum certain, is $364,000. And the other one, over 30 years, is $253,000. So not only is it better to take the 10 year, but it’s going to feel better because you’re not going into your portfolio. I would take that, in this case, every single time.

Joe: Yeah, the math, there’s no way. I don’t know how old you have to-

Al: Well, when I went from 25 to 30 years, it almost did nothing. So we could add another 30 years, it still wouldn’t pan out.

Joe: Yeah, the 10 year, no brainer. I think his numbers are wrong, to be honest with you.

Al: It could be, because usually these are a lot closer.

Joe: They’re almost identical when you do a net present value. What Alan’s doing is taking a look at the cash flows of that payment, and just taking it back to say, how big of a nest egg do I need today, given a certain rate of return, that would equal out. So one is going to be 10 years, one is going to be for life. The $18,000, if you take the net present value of those future cash flows, is $200,000 versus $350,000?

Al: Yeah. Exactly. So another way to say this is, what is the value in today’s dollars, right? And the 10 years better.

Joe: By a long shot.

Al: And the reason is because if you get a payment in 10 years or 20 years or 30 years, it’s worth way less than today. Because if you had it today, you could have 10 years of interest in growth or 20 years or 30 years of growth. So that’s where this net present value comes into play.

Joe: So Jimmy, I got your answer. Congratulations on a wonderful, well job done. Go Roth, all Roth.

Al: And push Social Security to 70.

2:1 Matched Company Money vs. My Contribution: What to Do With My Pension? (Skipper, TX)

Joe: Here’s one from Texas. Goes “Andi and the boys. I have a question. And apology for you today. My first, or first, is the apology. I’ve been listening to the podcast for less than a year and have worked my way through all of the YMYW catalog before asking my first question.”

Al: Yeah, well, that’s not a- you don’t have to listen to the last 3 years to ask a question. On the off chance we might have answered it.

Joe: Got it. “I unknowingly-“

Al: – commandeered-

Joe: “- commandeered-“ I was going to say that. I just had something in my throat. “- someone else’s alias when asking my question. Mia Culpa.” That means aww shoot.

Andi: Something like that, yeah.

Joe: “To avoid any confusion, if not taken already, you can call me Skipper. I’m a husky old guy in comfortable clothes. I’ll reserve Ginger for my lovely wife and Thurston for my father-in-law. My question, he’s got a pension from his former employer that came with a generous 2 to 1 match. The account balance will continue to grow at a guaranteed 7% rate until they start taking withdrawals. When I start taking withdrawals, I can take a monthly payment based on the full balance or I could pull some money out and then take a monthly payment on the remaining balance. I’m eligible to start receiving the payments right now, but I don’t need the money, so I’m letting it grow. However, if I die before I start taking withdrawals or before the monthly payments dip into the company money, my heirs will only get my contributions and none of the company matching funds. For my heirs and for myself, I would like to- I would love to get as much of the company money as possible while maximizing the return. As I see it-“ he’s got some options. All right. So if I understand this, he’s got an old pension. He put in some dollars. The company matched two to one. And so once he starts taking the payments of this pension, if he dies prior to whatever, he can, the heirs are not going to receive any money. And we just talked about pension payments in an earlier question. So it could be a 10 year period certain. It could be joint with life. It could be survivor. I mean, there’s all sorts of things, 5 year period certain and so on. So it sounds like this pension is that, hey, we’ll pay you a certain payment for your life. But after you pass, if there’s contributions left over of your money, we’ll give that to the heirs. However, if it’s our money, we’re ceasing the payment.

Al: Right. Contributions only, not the rest. So it’s not, it’s not really like a 401(k), which is your own money.

Joe: Well, it’s a pension.

Al: Right.

Joe: Yeah. Well, it’s a match for a pension. It’s like probably, well, they’re- they’re matching two to one. So they’re just basing this on a pool of money and life expectancy of that pool for them to give a two to one match.

Al: Yeah. I understand. I haven’t seen too many pensions like this.

Joe: Never.

Al: Have you? Yeah. So that’s what I’m saying. For our listeners, this is not kind of like a typical thing.

Joe: Yeah. It’s not very common. So he’s got some options here. So he’s trying to think through this. And figuring it out. So he’s like, if I go for the long-term growth and then only start taking withdrawals after retiring. So he’s going to max this thing out. He’s going to get it as big as he can. And then he’s “going to take the payments when he retires. Or he can start taking the payments now based on the full balance, full payment, accept the tax implications and reinvest all the proceeds. Pull out some of my contributions now, start taking payments based on the 2/3 balance, accept the large tax implications, reinvest all the proceeds. No. “If I start taking payments on the full balance, it takes 44 months to burn through my contributions and start dipping into the company’s matching funds.” I wonder, so if the company matching funds, do those deplete?

Al: Yeah, I’m guessing the way he writes it, the contributions come out first. Maybe?

Joe: And then the company match comes out second?

Al: Yeah, but if that were true, there’d be no taxation because it’s your own money. So it seems strange to me.

Joe: Right. Okay.

Al: Or maybe it’s a blended, right? Maybe it’s pro rata. Maybe it’s, I don’t know.

Joe: But if it’s pre-tax, he got a tax deduction, so then if he’s getting his contributions back out, it’d still be taxable.

Al: Well, yeah, actually you’re right. I was thinking about that wrong. Yeah, it’d still be taxable.

Joe: Yeah. You’re CPA, right? Can I see your license?

Al: It’s expired. No. Just kidding.

Joe: Oh, okay. “If I take full payments, it’s 3 and a half years. No, two. My father and both grandfather died at 62 and 63. I’m 58 and a half, so timing is a very real issue for me.” You think he’s constantly thinking about that?

Al: Well, he wants to take care of his family. I applaud him for that, but he knows-

Joe: 58. So is it like he’s counting down the days? I mean, my dad died at 61. I’m like, Oh my God, I wonder what I’m going to be like when I’m 58. Yeah. I’m going to be, Oh man.

Al: You’re going to be getting all kinds of life insurance.

Joe: Got 3 years left. It sucks. So they all live pretty hard lives. Yeah. My old man lived a pretty hard life. Yeah. I have not. What do you think a definition of hard life is? Is that like working on the railroad? Working in the coal mine?

Al: It could be. Or it could be a lot of drinking, smoking.

Joe: Well, that’s not hard.

Al: Depends what you’re drinking.

Joe: That makes life fun. Not hard. All right, but he is not, but this still weighs heavily. “I’m comfortable discussing death, but realize others are not. Include if you see fit.” Oh, it’s fitting just like a glove.

Al: Well, I mean, when you’re talking about retirement, that has to be a component, right?

Joe: “Relevant information. Ginger and I have comfortable taxable income, approximately $110,000. Live on approximately $70,000 per year. No debt. He’s got $1,500,000 roughly in retirement accounts. Drink of choice, whiskey and coke. Love the show. I tell everyone about it. Keep up the good work.” All right. Thanks Skipper from Texas. So he’s got $1,500,000. He’s thinking, what should I do here with this payment? Should I start taking it now? Should I push it off? Do I take 2/3?

Al: I personally would- would start taking some now. I don’t know if I do it all, but I’d at least do a pretty good check to get the process started is, is based upon what we understand about your pension plan, which isn’t very much. But if that’s truly the way it goes, you got to get all your contributions out to get your employer match. Then I’d, I’d start doing it now, especially with your family history. Now, hopefully Skipper, you’ll live to 90 and it’s a moot point. But, you know, you’re concerned about your family and I think that’s the right thing to do.

Joe: Start taking, yeah, I think so too. I would do that. Start taking payments now based on the full balance.

Al: I would worry less about taxes and plus your income is great, $110,000. But you’re in a low enough tax bracket. I mean, the 24% bracket goes for a married couple, almost $400,000. So and you’re in Texas, right? So it’s going to be 24% or lower, probably lower, probably 22%.

Joe: Yep. Yeah, I agree.

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Should We Wait on Conversions If We’ll Be in a Lower Bracket in Retirement? (Mike & Carol, Falls Church, VA)

Joe: Mike and Carol from Falls Church, Virginia. “Hi. Joe. Big Al. Andi. Please refer us to Mike and Carol.”

Andi: Brady Bunch.

Joe: Oh, yeah.

Al: Okay.

Joe: Is this the theme this week, Andi?

Andi: Not intentionally.

Joe: Are you sure?

Andi: I’m positive. I mean the previous person that said that he had used somebody else’s name, that was because he was using Jack and Diane previously. So this time he’s Skipper and Ginger.

Joe: “I’ve been listening your podcast for about 3 years. Love the show. I drive a 2017 Toyota Tacoma, wife drives 2016 Honda Civic, I’m mostly a beer drinker, like almost anything from Germany or Czech Republic. Wife enjoys a dry cedar from time to time-“ or cider. What’d I say, cedar?

Andi: Yeah.

Joe: I think I was a dry cider. Is that like cider?

Andi: We had this conversation before, I have to explain to you that the difference between sweet and dry, like you would use in terms of white wine, they use it the same way with cider. So it’s whether it’s sweet or whether it’s like tart.

Joe: So it’s not a non-alcoholic cider.

Andi: No. And it also doesn’t mean it’s powdered.

Al: You could- you could interpret it that way.

Joe: Right.

Al: Right. It’s a, it’s dry. There’s nothing in it.

Joe: You ever heard of like a dry county?

Al: Yes, I have. And that means no alcohol. So I get the connection.

Joe: Yeah. Dry cider. All right. “Two kids, son, 23, college grad working and financially independent. Daughter is 21, will finish college this Spring. Her tuition and expenses are covered. I’m 54 yo. Wife is 52. We plan to retire in about 9 years when my wife is eligible for her federal government pension.” All right. Let’s see. “Our gross income is about $350,000. Of this, we save about 40% each year. We max out our TSP and 401(k) plans and save the rest in taxable brokerage accounts invested in diversified ETFs. Our annual strategy is to equal match qualified and non-qualified account contributions. Thus our goal is to save $122,000 at minimum.”

Al: I think you’re- well, I won’t answer yet. Let’s go on.

Joe: $122,000. All right.

Al: That’s impressive.

Joe: That’s-

Al: And Joe, just for your reference, they’ve got just under $4,000,000 now.

Joe: Okay. Might as well save another $122,000. You’ve only got $4,000,000.

Al: You’ve got to get to $5,000,000 or $6,000,000 at least, right?

Joe: Okay. “Everything above the savings excess in the taxable brokerage account. We are in the 24% federal tax bracket. We currently spend about $120,000 a year. We want to spend $150,000 a year. Wife’s federal government pension will be $65,000. Social Security will be $40,000.”

Al: Each.

Joe: Okay. So, the fixed income is going to cover your living expenses. So, I think you should save $250,000 a year.

Al: Or you might start enjoying life a little bit more. As much as possible.

Joe: Yeah. Live the Big Al life.

Al: I do like my life.

Joe: “Currently, our plan is to do Roth conversions in our 60s, after we retire and diversify our tax buckets in the interim. We will build up our cash reserves to pay the taxes. Our logic is that presumably we’ll be in a lower tax bracket that we are in now. Of course, we realize that is subject to change. Does our logic make sense or should we consider doing conversions now, for instance, up to the top of the 24% tax bracket, after the tax brackets revert to the pre TC and J Act, Tax Cuts and Jobs Act. Since we plan to spend more in retirement than we do now.” So he spends $149,000 today and he wants to spend a whopping $150,000 in retirement.

Al: Well no, he spends $120,000. So he’s going up $30,000. That’s- you know how people when they get used to being frugal, it’s hard to change that.

Joe: Yeah. $122,000 savings a year, that’s-

Al: That’s impressive.

Joe: All right. “I hope I included all the relevant information you need to spit ball all my questions above. Keep up the great year- great work. P. S. I am a mid-senior operations and compliance professional in the securities industry. I would love an opportunity to interview for a position at your firm, if and when a position becomes available, and if you would consider remote work, or if you open a branch office location in the D.C. area.”

Al: Oh, well, there you go.

Joe: You know, we are actually looking for a compliance professional.

Andi: I did actually forward this email to our compliance department.

Al: True. Could be remote, I suppose.

Joe: I don’t know if we’re going to pay him- he’s saving more than what we’re going to pay him.

Al: Well, correct. If you look at his income, I don’t think we can match that. I know she’s making some too.

Joe: This is not a mid-senior. This would be probably mid-low.

Al: So here’s the first comment-

Joe: – Junior.

Al: The numbers make sense. You didn’t ask that, but you have plenty of resources to retire at the level you want to retire. You can actually spend probably a fair amount more.

Joe: He’s got $2,000,000 in a retirement account that he’s never going to touch. And he’s 60 years old. You need to convert to the 24% tax bracket.

Al: 100%. I would go all Roth right now in your- in your current 401(k)s and convert to the- at the minimum of the top of the 24%, right? But the thing is, so, so top of the 24% is about $390,000, but you also get a $25,000 standard deduction. So you can- you can really convert to $420,000, $415,000, something like that, right? To that level of income, make sure you’ve, you, you factor in any dividends you might have from non-qual. Although I guess I’m not, yeah, $1,500,000 in brokerage.

Joe: A ton of brokerage. Because he’s splitting it equally. I love that, that he’s doing that. Now he’s 52 years old and, or 52 or 54. “I’m 54, wife is 52.”

Al: Yep. And he worked 9 more years.

Joe: And he’s saving $122,000 a year. So he’s going to save another $1,500,000 into his $4,000,000 pot. Over the next 10 year that $4,000,000 is going to be $8,000,000 plus another $1,000,000, he’s going to have around $10,000,000.

Al: I would agree with that, right?

Joe: Hypothetically.

Al: Yeah based- Yeah, I mean based upon rates return and all that.

Joe: Right. And so that retirement account is going to continue to build and grow and grow. Then he’s going to have a nice pension of $65,000 plus another $80,000 in Social Security. He only spends $150,000. Only I say given this is it’s pretty low. I would move my contributions to 100% Roth. And then start converting to the top of the 24%.

Al: Yeah, and the 24% bracket, unless they continue it, only goes through 2025. So you got two years, and then we’ll see what happens after that. If you look at your almost $4,000,000, Mike, only $150,000 is in Roth. So you start beefing that up. 24% is a good bracket. So go for it.

Joe: Yeah. No, we’re not looking to open a branch in D.C. I would imagine we could. Oh. We got branches now in what, Sacramento? We have a branch in Denver, Chicago, San Diego, Los Angeles, Orange County. What am I missing?

Al: Did you get Seattle?

Joe: Seattle?

Andi: Are we doing something in Oregon or something?

Joe: Portland? Portland, Oregon?

Andi: Maybe?

Joe: Maybe?

Andi: I don’t know. I can’t keep them all straight either.

Where Should I Invest My Early Retirement Savings for the Next 10 Years? (Duncan, TX)

Joe: We got Duncan from Texas. He writes in, he goes, “Hey, I’m 41 years old. I’m a married man with a 9-year-old son. I love learning about financial planning and have enjoyed listening to your show over the past year or so. Your shows are very informative and offer valuable details regarding the types of financial decisions I find myself facing. I enjoy nice old fashioned when it’s not dry January.”

Andi: Which is when he emailed us.

Joe: Oh, okay, we’re catching up.

Al: Okay, we are. Finally.

Andi: You’re in this year.

Joe: Alright. “So he’s blessed to have a great job bringing in $500,000 a year and my wife is an event planner making $25,000 a year gross.” I like how he, he doesn’t say his $500,000 is gross. He goes, yeah, my wife, $25,000 gross.

Al: Which also means she’s got expenses so it doesn’t quite work out in the pocket.

Joe: Got it. “Our family currently spends $175,000 a year and put the rest in the savings. We have $1,400,000 saved in retirement accounts and a $400,000 frozen pension, $1,600,000 in after- tax savings. Our goal is for me to find an early retirement.” He’s eyeing 51. Wow.

Joe: Yeah. So am I. Duncan.

Al: Good. Good for you. Duncan.

Joe: “As my son is entering college-“ Well, when I-

Andi: Not yours.

Joe: -I’m 51, my son will be entering kindergarten.

Al: Kindergarten. You might have to wait another 12, 13, 14-

Joe: Oh my life. I just love it. “- I expect that we will be earning $25,000 to $50,000 a year from my wife’s event planning work. And would plan to make up the difference with the earnings from our after-tax savings until we hit 59 and a half during my bridge period. I would also prioritize minimizing my AGI and try to do some rollover any pre-tax dollars into a Roth IRA, which leads to my question.” All right, you got all those facts?

Al: Got it.

Joe: Duncan wants to retire 51 ish, saved a ton of money. Makes a lot of money, doesn’t spend.

Al: Yeah, doesn’t spend very much relative to his earnings. Right. Wants to work 10 more years.

Joe: He’s 41?

Al: Yep, 41.

Joe: Wants to retire in 10 years. He’s saving how much?

Al: Well, let’s see. He’s got about $3,400,000 now.

Joe: He makes $500,000. He spends $170,000, puts everything into savings. He probably spends, he saves probably $100,000 a year.

Al: At least, yeah.

Joe: Alright. “My question is, where to direct my 401(k) savings over the next 10 years, or the $1,400,000 in retirement savings? About half is currently in Roth accounts, either IRA or 401(k). My 401(k) offers options for pre-tax Roth or after-tax contributions. I can roll over the after-tax contributions into the mega Roth conversion. I’ve always prioritized Roth savings whenever I can. But now that I’m earning more, I’m questioning if I should be making all future 401(k) contributions pre-tax, especially since I plan to keep making Roth IRA contributions and Mega Roth conversions in my 401(k) plan. Currently my 2/3 of my retirement is Roth accounts with the remainder in pre-tax accounts. I should be able to save $30,000 in Roth contributions with another $45,000 going to my pre-tax bucket. My employer matches 7% per year.” So he wants to know what should he do? Yeah. He’s going to save a ton of money. Should they go Roth pre-tax, after-tax, do the mega conversions.

Al: So he, it sounds like he’s already doing a Roth contribution. He’s already, he’s planning on maxing out the retirement.

Joe: He’s doing a backdoor.

Al: Yeah. Right. And he’s, and he’s doing the mega Roth, which right now you can put up to $69,000 when you’re under 50 in a 401(k). That includes your contributions, the company contributions, and then after, or yeah, after-tax money that you can then convert to Roth IRA at no charge.
So, I think the real question is for his contributions to be Roth or after-tax. He’s already doing after-tax.

Joe: Yes. Yes. So, what should he do? Should he- I know what you’re going to say. He makes $500,000. You want him to get the tax deduction.

Al: I would. And I know what you’re going to say. All Roth.

Joe: All Roth. He’s 40 years old.

Al: Yeah. The reason I say is, go ahead and take the tax deduction, is the tax bracket, you’ve already got 50/50. You’re going to be adding more Roth than regular. By the time you retire 51, you’ve got like almost 25 years to convert. So that, that’s what I think.

Joe: Yeah. No, I get that logic, but I don’t know what’s going to happen with Roth IRAs. I don’t know what’s going to happen with tax brackets. This guy’s going to retire. He’s already saying, but again, we’re looking at this in a bubble.

Al: True.

Joe; And so, he’s 40 years old, and he’s already saved how much? Millions.

Al: He’s got $3,400,000.

Joe: $3,400,000 at 40 years old.

Al: Yeah. It’s better than you and me. By quite a factor.

Joe: Come on. And then he’s gonna retire at 50, he’s saving $100,000 a year, again, 10 years, $3,000,000, $6,000,000, he’s gonna have $10,000,000 at 50! Do you think he’s gonna just go off into the sunset, his kids are gonna go to college, and he’s just gonna chill?

Al: I don’t think so.

Joe: There’s no way. He’s going to continue to grind, to do something else. He’s going to start a business. He’s going to make more money. He’s a rare breed. He’s a hustler. I would go all Roth. Because I bet you in 10 years from now, he’s going to be making more money. He’s going to have a lot more money coming out of his investments. And he’s, he’s going to take the uncertainty of taxes off the table.

Al: Yeah. And I get your logic too. I still would go. I’d get the deduction because of the bracket.

Joe: He lives in Texas. There’s no state tax.

Al: True.

Joe: You’re not going to-

Al: I mean, it’s true either way. If he stays there. Anyway, difference of opinion, either one is fine. You’re going to be in great shape.

Is It Stupid to Miss Free Roth Opportunities? (Jay Z, MN)

Joe: We got Jay Z from Minnesota, Big Al. “Big Al personal finance fanatic here, but recently started listening to you guys.”

Andi: Now he’s a real fanatic.

Joe: “Definitely the funniest finance podcast out there.” Well, thank you very much, Jay Z. “And among all the podcasts I listen to weekly, YMYW’s so far my favorite.”

Al: It may not last, but so far so good.

Joe: Because you’re going to listen to 3 episodes and it’s going to be the same s**t over

Al: Same thing and over and over.

Joe; It’s like, Oh my God. It’s like rinse and repeat.

Al: Just bleep it.

Andi: I’m gonna.

Joe: Oops. “I have a quick question about which accounts are-“ this is like, Andi, you did this again to me.

Andi: I didn’t. I honestly didn’t. These are just in order that they were sent to us. And I swear to you, they’re just, yeah. The one that you’re going to read later that talks about how the content is so similar, it’s because this is what you guys are best at.

Joe: Okay. “I have a quick question about which account to save in. 31 years old, single, 90 years- or $90,000 of annual income. Live super frugally. Monthly expenses usually around below $3000.”

Andi: Wow.

Joe: Wow. “I just can’t find ways to spend money. I do love traveling though, and I visit 20 plus countries, but also on a very low budget.”

Al: So he’s staying at youth hostels and getting discount fares.

Joe: Yep.

Al: Good for you, Jay Z.

Joe: Yep. “Currently with some family help, I have $28,000 in a pre-tax 401(a), $51,000 in a Roth 403(b), $61,000 in a Roth IRA, he’s got an HSA and some money market accounts for emergency, and $70,000 in a brokerage account.” Man, 50% of this is in money market, Al.

Al: For keeping track, it’s about $250,000.

Joe: And he’s 30 years old.

Andi: What’s a 401(a)?

Joe: 401(a) is very similar to any type of retirement plan, but he must work for a hospital, non-profit, maybe a school, maybe something like that, where there’s mandatory contributions usually. Maybe the employer’s putting money in, or you have to dedicate a certain, they just have certain restrictions on, on the plan.

Andi: Thank you.

Joe: “Last year, I maxed out my Roth-“ Oh, see 403(b), there you have it. So, it’s probably a hospital. “- Roth IRA, HSA, along with my 5.5% contribution to my employer 401(a) with 10% matching. Which is 42% savings rate. By adding the employer match it’s 52.”

Andi: Wow.

Joe: 52. Okay. “A friend of mine thinks I’m saving too much in retirement accounts and says I should divert money into a brokerage. Their argument is that a 30% savings rate for retirement accounts is more than enough, and apparently my frugal lifestyle won’t possibly change. So I don’t need that much in retirement accounts that I won’t use until 30 years.” Who’s telling them this?

Andi: His friend.

Joe: Got it.

Al: Yeah, the friend. Friend of his.

Joe: 30%. Who saves 30% in a retirement account? I mean-

Andi: He does.

Joe: I wonder what Jay Z’s buddy saves. He’s like, oh, man, you’re saving 42%? Yeah. Well, no.

Al: You’re showing me up. I’m saving 4%.

Joe: Well, no, this guy must be saving, like, 41%.

Al: Yeah, I mean, we tell people to try to work up to 20%. That would be a great goal.

Joe: He’s got that beat. “Their suggestion is that I can still pretend to have a savings rate of 40% or 50%, but for anything above 30%, I should put it in index funds in my brokerage account for better liquidity, which means I will max out my Roth IRAs, HSAs, and maybe only $12,000 in the 403(b) plan, and put the remaining $11,500 into index funds in my brokerage account. What do you think? I understand their point, but I also feel like missing the free Roth opportunities is stupid. In the meantime, I also feel like having the liquidity in the brokerage is good because I indeed have an-“

Andi: – imminent-

Joe: – imminent?

Andi: – imminent. As in pending. Very soon.

Al: Purchase. Pending purchase.

Joe: Yes, got a pending purchase. “- in about 3 to 5 years for a house down payment. I appreciate your spitball as always. I drive a 2020 Mazda 3 Zoom Zoom and love margaritas, but no salt. Remember no salt.”

Al: Okay. Got it.

Joe: Alright.

Andi: Just in case you’re pouring next time Jay Z is in town.

Joe: Yeah, all right.

Al: The cool thing is, looks like everything he’s doing, retirement, is going into Roth.

Joe: Right. I would keep doing what you’re doing, Jay Z. He’s already got brokerage accounts, he’s got cash, he’s got about $100,000 outside of retirement accounts right now.

Al: He does. Yep.

Joe: Your Roth IRAs that you’re putting money into, you always have access, let’s say an emergency of the contributions if you need to take that.

Al: Is that, but is that also true in a 401(a) and 403(b)?

Joe: No.

Al: So that’s the tricky part.

Joe: He’s not, he’s not putting a Roth IRA or just a 401(a)?

Al: Well, he’s got a, he’s got a Roth IRA. Yep.

Joe; So do Roth IRA. Yep. 403(b), I think it’s mandatory with the 5.5% 401(a). Yep. Because it gets a 10% match.

Al: Agreed.

Joe: I would, no, I would keep doing what you’re doing.

Al: Here’s my only exception. I agree with you, Joe. But depending upon what kind of house you want to buy, make sure you’ve got enough for a down payment, whatever you might want, have extra cushion emergency fund, maybe have a little extra money for travel. Once you factor that and just keep doing what you’re doing.

Joe: Because here’s the difference. Roth IRAs grow 100% tax-free. You’ll never ever pay a dollar in taxes ever on the growth of those, unless you have a disqualified distribution.

Al: And here’s another thing to think about, which, which the Roth, once you, let’s say you retire before age 55, which at your pace, I’m guessing might be the case, right? And so if you’ve got the- the Roth 403(b), 401(a), whatever, you can roll that to a Roth IRA, correct? So, and if you do that, then you could take distributions from that, and it’s always the contributions come out first, which are tax-free, so it doesn’t matter that you’re not 59 and a half.

Joe: Yeah, he could do a 72(t) tax election, he could do all sorts of things, because he doesn’t spend any money.

Al: Right.

Joe: Tax diversification works like this, Jay Z, is that you want money in each of the different pools, pre-tax, Roth, in a brokerage account, because then you can control your taxes long term in retirement. I think Jay Z’s like, you know what, I’m putting everything in Roth because I’m gonna pay zero tax when I start taking money out. And he’s gonna have millions.

Al: Right, and his Social Security will be 100% tax-free. Because he’ll have no other income.

Joe: He saves 50% of his income. I don’t know. If I had 50% of my income saved today, I would go 100% Roth, and then in whatever, 30 years or 20 years when I retire-

Al: Unless, unless you want to buy a McMansion in Rancho Santa Fe.

Joe: McMansion. I don’t even know what that is.

Andi: Learn how tax diversification and the infamous Roth can help you control your taxes in retirement. Go to the podcast show notes now and download the Complete Roth Papers Package to understand how Roth accounts work, so you can take full advantage of their tax-saving benefits. This bundle of Roth guides is packed with valuable information about Roth contributions and conversions, the Backdoor Roth strategy for when you make too much money to contribute directly to a Roth, and the rules for taking money out of your Roth IRA. Plus, you’ll learn the differences and pros and cons of saving in a traditional IRA vs. a Roth IRA vs. a Roth 401(k) and much more. Click the link in the description of today’s episode in your favorite podcast app, go to the show notes, and download the Complete Roth Papers Package.

Rule of 55 on a Rollover Retirement Plan? (Ben, San Francisco)

Joe: We got Ben from San Francisco writes in. He goes, “Hello there, thanks for the fantastic show. For information- your information is extremely valuable.” Well, thank you, Ben. “I drive a 2017 Honda Civic. I don’t drink, but I’m addicted to steak and salmon from the Troggy Grill.”

Andi: I think it’s Traeger.

Joe: Traeger. “I have a question about rule of 55 for 401(k) plans. My friend is forced to leave her job this year. Her employer has given her an exit package in laying her off. She’s currently 54. She doesn’t turn 55 until 2025. Her husband is going to keep working. He has a very large retirement balance. They have enough cash reserves to replace her lost income until 2025. She doesn’t want to go back to work, but she wants to start to take distributions out of her 401(k) plan starting in 2025 to replace her lost income. She will, of course, be subject to the 10% penalty if she starts taking the distributions out of the 401(k) in 2025.
Her strategy would be to try to get access to her 401(k) dollars without paying a penalty. My question is this. Let’s say she takes part-time job with a new employer in 2025 that offers a 401(k). Let’s say that she rolls her current 401(k) balance to her new employer’s plan in 2025. If she keeps those dollars in the new 401(k) for a few months and then retires from that new employer, can she then start to take the dollars out of the new employer plan without a penalty since she’s 55? Once you answer that question, I have a follow up question.” Okay. What’s the answer to that question?

Al: Yeah, we’ll start there.

Joe: All right, Ben. So he’s looking after his girl. She’s getting laid off. She’s 54. Little layoff. Here’s a little severance package. Thanks for your time. But the rule of 55 is this, which most people I don’t think understand.

Al: I think very few people understand.

Joe: If you separate from service from your employer at age 55, there is no 10% penalty.

Al: Yeah. In other words, you’re 55, you separate from service from your current employer only, not your other 401(k)s, current employer only, then you can take monies out of that. And of course, you’ll pay taxes on it because you got a tax deduction, but you won’t pay the 10% penalty.

Joe: If you roll it into an IRA, IRAs are 59 and a half. No matter what. 401(k)s are 55. So it’s like, okay, well, man, she’s going to turn 55 soon. He’s like, well, how does she get money? She wants to replace her income. She’s going to go get a job.

Al: Yeah, part time job with a 401(k).

Joe: That’s the only, only-

Al: How about, how about set up your own little business? And set up a solo 401(k)?

Joe: I don’t think that works.

Al: We’ve done it.

Joe: At Rule 55? and the solo 401(k)?

Al: Yeah.

Joe: Isn’t there like- ? Well, anyway, her only, her only requirement is that it needs to have a 401(k) plan, right? Because she’s going to roll her 401(k) into that 401(k), then she’s going to turn 55. Then she’s going to separate from service.

Al: Yeah, she’ll retire from that new part time job.

Joe: That she’s worked for 4 months, rolled her 401(k) in, and she’s going to say, See you later, I’m out. And then now that gives her the ability to take money out of the 401(k) plan and avoid the 10% penalty. Do you agree with that?

Al: I do. Do you?

Joe: Do you think that’s worth the hassle? I mean, what is she going to do? Go maybe work at a liquor store that has a 401(k) plan for like 3 days?

Al: It depends what the dollars are and how much, which we don’t know.

Joe: You got to go, you got to interview, you got to, and then you get the job and then you’re, you know, I don’t know. I don’t know if I would do all of that. Just, could you imagine just using your employer for their 401(k)?

Al: I’m sure people do it. Anyway, let’s answer the question. Yes, it works. Would, should you? I guess that’s the question you’re asking. You’re saying- you’re saying you wouldn’t.

Joe: Well, her husband has a big ass retirement account, he said. Right. Stick, just borrow, take money from that account.

Al: Yeah, I mean there’s different ways to carve this out.

Joe: You could take a 70 50 tax election.

Al: Could. You’d have to roll that 401(k) to an IRA and take the 72(t). You could do that. You could, you, you could do this. You could get another job and then retire at 55, 55 or later, right? Doesn’t have to be 55. And then you can pull money out without penalty. So you have basically 4 and a half years between 55 and 59 and a half, where you pull money out without the 10% penalty. If you do this.

Joe: Sure. “I have a follow up question. She currently has an IRA account with pre-tax dollars. Can she also roll that IRA into the account of the new employer next year, and then get access to those dollars penalty-free as well? 72(t) distribution is not a good fit for her as it wouldn’t generate enough cash flow to meet her needs.”

Al: Got it.

Joe: What, what, Ben’s running the 72(t) tax election calculation?

Al: Well, it sounds like Ben’s an advisor.

Joe: It sounds like, yes. And his friend is his client. She’s asking the question. He’s like, yeah, let me do a little research.

Al: Yeah, let me- let me talk to the YMYW.

Joe: Let me hit up the boys in San Diego.

Al: So the answer to that question is yes, you can roll the IRA into the new 401(k) which is actually a great strategy because if there’s any post-tax dollars in there that can be- that can be converted to a Roth IRA without any tax.

Joe: Very good Ben. Hopefully that helps. If you have more questions for your clients, you know where to go.

Comment: Fun but limited value (Wemby2024)

Joe: Now we got another one star. Is that one star?

Al: I thought that was 3 star.

Andi: It’s 3 star, but he loves it when they’re one star, so he’s downgrading it for us.

Joe: Yes. If it’s not 5, it’s one. If it’s not first, you’re last.

Al: Usually it’s one or the other, right? So this is a 3. We don’t get too many 3s. Who, who would do a review with a 3?

Al: It’s like, you’re average. You know, it’s all right. I don’t, I’m not, I’m not loving it, but it’s all right.

Joe: Yeah. “Entertaining show with some useful input into retirement strategy.” All right.

Al: That sounds like a 5.

Joe: Sounds at least a 5. “Understandably, the spit balls are limited in detail and scope that they can provide. So suggestions can come across as repetitive after a few episodes.” Yeah, trust me. That’s why I’ve never listened to this. You’ve listened to one, you listen to them all.

Al: Here’s- we do answer the questions that are presented. And they are, they do tend to be somewhat similar.

Joe: “The feedback provided also is overly conservative at times.”

Al: Oh, I’m okay with that comment. I would rather be talking conservative than not, when it comes to finances. Because I don’t want to like, make you think you’re fine when you’re not quite so good.

Joe: “Failing to consider all guaranteed income or diminished spending as you age when setting appropriate target withdrawal rates.”

Al: Well, guaranteed income.

Joe: So what, is that an annuity of some sort or?

Al: Yeah, I mean, I think we do pensions, we do Social Security. If there aren’t, most people that write in don’t have annuities, so it doesn’t come up very often. But as far as spending less, yeah, that can be, but the reason we don’t think about that-

Joe: I totally agree with this guy or gal.

Al: Yeah, well, I would say this. I would say there are many cases where spending goes up as you age because you’ve got to go to assist a living or a nursing home or something like that. So again, being conservative, we just try to factor that in.

Joe: One of two things happens here because this person, Wembley. Wemblyy?

Andi: Wemby.

Joe: Wemby.

Al: Wemby.

Joe: I agree. Because here’s what happens. I fumble around and try to read these questions, and it takes me a while to get through the questions. And then all of a sudden Andi goes, well, you’ve got one minute. So then we’re, all right, let’s quickly do this. Okay. Yeah. 4% looks good. Okay. All right. Next question. That’s terrible. Because we gotta get into a lot more detail, and he’s right, because some people, it’s like a 7%, 8% burn rate might be just fine, because you’re gonna spend less, or you don’t- right? But then there’s sequence of return risk. You know, we don’t really know what’s your fixed income. We don’t know what the markets are gonna do. We don’t know life expectancy.

Al: True.

Joe: You know, some people are like, well, why do you always say 70 for Social Security? I want to take it right now, because I want to party, and I live in The Villages in Florida. It’s like, all right, well take it at 62. We don’t care.

Al: Yeah. Yeah. It’s basically when we, when people ask, am I okay, we’re, we’re kind of-

Joe: This is very conservative and it’s way back of the envelope.

Al: It’s, it’s just based upon a quick back of the envelope. This is, this is not gospel. This is just, yeah, you look like you probably pretty good. Or you, or you look like you, you look like you’re fantastic or I don’t know, it’s a little close or no, I don’t think you’re ready.

Joe: We’re going to switch this thing up, we’re going to spend a little bit more time, we’ll talk a little bit more details, we’ll get into some more complex strategies.

Al: I like that. We’ll just share, we’ll just show off our knowledge, you know.

Al: We need different questions, like we need someone to say, you know, I got $1,000,000 of company stock in my 401(k), and the cost basis is-

Joe: What do you think of private credit? Okay. Well, now I can go on a rant on that.

Al: Yeah. How about alternative investors?

Joe: Yeah, I got a private equity fund.

Al: Part of a portfolio.

Joe: Should we put that in? Have you ever heard of liquid alternatives?

Andi: So you’d say our show is a 3 out of 5 stars right now too, right?

Joe: I would say it’s probably a high one and a half.

Andi: Oh, wow.

Joe: If I were to rate our show, I’d give it a good one.

Al: That’s why you can’t listen to it.

Joe; It’s well, it’s no-

Al: Well, I would disagree with you. I would say most of our listeners give us 5 stars. And most are very complimentary.

Joe: All right. Yeah, no, I agree. You’re Mr. Positive.

Al: My glass is always half full. My glass is like 90% full. All the time.

Joe: Your glass is always full. Even if it’s-

Al: Even there’s 10% in, it’s full.

Joe: All right. Thank you all for everything. We got to get the hell out of here. Show’s called Your Money, Your Wealth®, and we’ll see you next time.

Andi: Ginger vs. Mary Ann, Patrick Swayze, Dry January, frugally, the cost of living in Minnesota and visiting the Traeger Grill in the Derails, so stick around.

This show wouldn’t be a show without you, and when you your friends about YMYW, or leave your honest reviews and ratings for Your Money, Your Wealth in Apple Podcasts and all the other apps that accept them, you help us grow the show, and we appreciate you. So thank you.

Your Money, Your Wealth is presented by Pure Financial Advisors. A retirement spitball from Joe and Big Al is a good starting point, but a deep dive into your finances will really help you optimize your money, your wealth, and your retirement. Schedule a free assessment with the experienced financial professionals on Joe and Big Al’s team at Pure. You can meet in person at any of Pure’s offices around the country, or online via Zoom from anywhere in the world. Get a retirement plan that’s fully customized for your risk tolerance, and your financial needs and goals. To get started, click the Free Financial Assessment banner in the podcast show notes at YourMoneyYourWealth.com or call 888-994-6257.

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The Derails



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

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC, a Registered Investment Advisor.

• Pure Financial Advisors LLC does not offer tax or legal advice. Consult with your tax advisor or attorney regarding specific situations.

• Opinions expressed are not intended as investment advice or to predict future performance.

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• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

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