Show Notes

• (00:53) Financial Guidance for Teenagers (CJ, Philadelphia – voice)
• (07:43) How to Start a Finance 101 High School Course? (Teresa)
• (14:18) Military Spitball: When Will I Be Able to Retire? (Hap & Bee, CA)
• (22:56) Anderson Family Financial Summit
• (26:03) Spitball If I Can Retire Early at Age 55 (Grace, Seattle)
• (33:51) Killing it at 34, When to Consider Contributing to Traditional IRA? (David & Victoria, Grand Rapids, MI)
• (44:43) The Derails

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Transcription

How and what should we teach teenagers about money, to make the next generation financially literate? That’s what CJ in Philadelphia and Teresa want to know, today on Your Money, Your Wealth® podcast 465. Plus, Hap and Bee have a military pension and VA disability – Joe and Big Al spitball on when they’ll be able to retire, and what they need to do to get there. And they spitball on whether Grace in Seattle is on track to retire early at age 55. David and Victoria in Grand Rapids, Michigan are killing the game – in their early 30s with $400,000 income and over a million saved. When should they start funding the traditional retirement accounts instead of the Roth accounts? Ooh, and find out how the first annual Anderson household Financial Summit went! I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Financial Guidance for Teenagers (CJ, Philadelphia – voice)

Joe: All right, we’re answering money questions here today. If you’ve got a question, you know where to go, YourMoneyYourWealth.com. Click on Ask Joe and Al on the air like CJ did in Philadelphia.

CJ: “Hi, YMYW team. My name is CJ and I’ve been listening for almost a year now. Really appreciate your insights and the weekly banter. I’m 39 years old and live in the greater Philadelphia area. I drive a 2024 Honda Civic and enjoy a Guinness or old fashioned after a round of golf. My wife is 37, drives a 2017 Mazda CX5, and celebrates with an IPA after beating me on the course.”

Joe: Wow.

CJ: “We’re comfortable in our financial journey and, fingers crossed, tracking towards an early retirement. Our question is on financial education. Both of us had little of it growing up and would like to change that for our nieces and nephews as they reach their teens. Do you have any guidance on how to speak with teenagers on finance? What topics should we cover without overwhelming them? We’re working on a checklist of how to’s for each of them covering topics such as home repair, car repair, and think it makes sense to also include financial guidance. We have UTMA accounts growing for each of them that they’ll receive at 21. Obviously, it’s their choice what to do with the money, but we’ll love to share with them the wonders of compound interest versus a splashy one-time purchase. Appreciate the weekly insights.”

Joe: All right.  Interesting question, CJ. I like it.

Al: I do, too. And so you have kids. What are you going to tell them when they become teenagers?

Joe: I don’t believe we’ve got that far.

Al: Got it.

Joe: I helped my sister out, though. And what I showed her, I think, let’s say if they’re putting together some sort of curriculum.  I try to teach, you know, I’ve been teaching courses to adults for many years and it’s a long term form retirement course, 6 hours long. It’s right- if these people are like on the verge of retirement.  And so you would think  they’re taking notes and they’re,  yeah, you lose them after 15 minutes.

Al: Yeah. You would think they’d know a little bit more, right?

Joe: True. And I think that’s very common. Right? I think, you know, finance is really boring or it’s intimidating or, you know, it’s not their expertise.  So teaching it at a young age, I think is very smart, but what are the topics that you should teach? I think it’s balancing a checkbook. I think it’s understanding credit, and I think it’s understanding compound interest. I think those are the 3 major things that I would probably emphasize.

Al: Yeah. I agree with you. But I would add one more, and that is compound interest and how you get that, maximize it as stocks versus bonds versus putting money in the bank, because, you know, most kids don’t have any understanding of that. But I think if you show some examples of, if you save X number of dollars at 7% or whatever percentage you want to do, right? How this could grow over time, you save X number of dollars per month or per year, whatever it may be. And then how that could grow in 30, 40 years from now, it’s pretty staggering. And I think it’s really eye opening. Because I think when you’re a teenager, it’s like, there’s no way I’m going to have $1,000,000. I don’t- who would get that? And then they’ve noticed their parents have it, and a lot of parents aren’t very good at explaining all this. They’ll just say, well, you, use your 401(k). And it’s like, well, they don’t know what a 401(k) is, and they don’t know how to invest in any of that stuff.

Joe: Yeah, I think that’s right. I don’t know what the timing should be. Do you talk about compounding and investing first before you understand how to, you know, balance your checkbook and where your money should go, or you could talk about paying yourself first. You know, what age do you go? Because there’s different milestones and we’ve done different classes and we’ve done different videos and TV shows on, you know, financial planning in your 30s versus your 40s versus your 50s and 60s, because there’s different things that you want to focus in on. I never really thought about financial planning for, you know, your teens, which I think we should probably start thinking about, you know, putting together a white paper would be pretty easy to do. And just you hear the 5 things, understanding credit. Because people will get credit cards, especially like in college, they hunch you down and you get a free t-shirt if you fill out a credit card application.

Al: Right. And that sounds pretty good. And then, oh, I can buy this.

Joe: I mean, I have a credit card that I just got nicked on my credit with it and I’ve had it for 25 years, and I didn’t even know I had it, but they charged me $35 or $50 a year. And it’s like a $500 limit. If I hadn’t paid the $30 in 10 years.

Al: Because you didn’t know.

Joe: Because I didn’t know. And I moved. And it’s like, hey, this is coming up on your credit report and my mortgage broker is like, why do you have a credit card with a $500 limit? I go, well, I think I got that in college or something. So, you know, understanding fees, understanding credit, it’s like, hey, yeah, you could start spending all of this, but you have to pay it back and you have to pay it back at a pretty high clip.

Al: Yeah, you do. This happened to me in recent times. I mean, within the last 5 years. So I have a Nordstrom’s account. I don’t really buy that much stuff from Nordstrom’s, but when I do, I’ll, you know, you put it on the credit card because you get benefits, points or whatever points and you know, for suit tailoring your suit or whatever it may be. And so I got the bill, I paid it, but I must’ve paid it like two days late. I didn’t realize it. And then I got charged a $1.50 interest, and then, you know, I get the Nordstrom’s statements, I don’t even open them because I know it’s going to be zero. I already paid it off.

Joe: You get late charges, late fees.

Al: And then next thing you know, 6 months later, I got a nick on my credit.

Joe: Oh, because the $1.50. Default. 60 days late.

Al: I will say for the good people at Nordstrom’s, I did talk to them and they did reverse it because it’s, it was ridiculous, right? But if you’re not paying attention, that stuff happens.

Joe: And I think credit is so key, you know, especially trying to buy a home,  buying your first car. If you don’t have a decent credit or credit score, it’s gonna be a lot more expensive. So, starting there, and then I think it’s going into, like you said, if you save $25 a month at age 18. And you save $25 a month for the next 25 years, what would that grow into? Just showing them that, or each year you add another $25 a month-

Al: – on top of that.  Yeah. No, it can be a big deal. And I also think basics on what you’re going to be spending money on as an adult, because I think most kids don’t have any idea like what a house costs or what insurance costs or transportation, gasoline, clothes, all this stuff, just to get a sense of that.

Joe: Yeah, all right. Hopefully that helps. Thanks CJ.

How to Start a Finance 101 High School Course? (Teresa)

Joe: “Hello Joe, Al, Andi.  I’ve been listening to your podcast since the end of May.  And I have listened to over 250 of them.”

Andi: Wow.

Al: Wow, that’s, what, like two a day?

Andi: That’s a lot, Teresa.

Joe: It’s too much.

Al: Yeah, it’s a little much.

Joe: God, I would be so annoyed with myself and you.

Al: Well, we couldn’t listen to ourselves. We can’t do it for half an hour.

Joe: “I love what you do and enjoy educating myself on financial matters. Thank you for answering my questions on show 437- Alias, Teresa.” So we just gave away the alias? Is that what we’re doing here?

Andi: Her alias is Teresa.

Joe: Oh, her alias is Teresa.

Andi: That’s the name she’s using on the show.

Joe: Got it. All right.

Andi: So we’re sticking with her alias.

Joe: Got it. All right.  “-on our financial situation.” But she didn’t even have to put in the alias part.

Andi: No, she didn’t. She totally did not.

Joe: Or maybe she wanted to say that we-

Al: We answered it.  And my name’s not really Teresa. Just so you know.

Joe: All right. “But now I want to ask another question to assist me in my retirement work. I grew up with a good foundation on basic financial education and listened to Suzy Orman in my 30s. I’m getting ready to retire in two years and want to teach the young generation on basis of fundamental of money in my retirement.” Okay. She wants to teach the young generation on basis fundamentals.

Al: I think that should be basics.

Joe: Basic fundamentals of money in my retirement or just retirement?

Andi: In her retirement. That’s what she wants to do. She wants to teach the young folks.

Joe: She’s going to blog about her own retirement and then try to give-

Al: Well, try to give tips to here’s how you get there, I’m guessing.

Joe: So, Teresa must have did pretty well.

Andi: Sounds like, yeah.

Joe: Well, she listened to 250 of our episodes.

Andi: Andi Suzy Orman in her 30s.

Al: And she learned from Suzy, and now she’s fine tuning it with us.

Joe: Got it. “My thought was to start with high schoolers and develop a class, Finance 101, to cover principles of savings, investing, compound debt, etc. I’m an engineer by trade and have no financial background. Should I take financial classes or need a certification to achieve my goal to increase financial education?  You and your team have been providing this education for a long time, so any advice will be appreciated. Thank you for all you do. I love all the education and bantering.” Alright.  Teresa, get your CERTIFIED FINANCIAL PLANNER™ designation.

Al: That always helps, right?

Joe: Just do that. Because I guarantee she can bust those classes out. She would love every minute of it.

Al: She would. She loves this stuff.

Joe: And if you’re this passionate about it, if you listen to this garbage for 250 episodes from May-

Al: – then you must be into it.

Joe: You must be into it. You could go online, get the, I would get the CFP® because I think you would enjoy the classes, the courses, you could, you would learn a lot about the basics, the fundamentals, then you would get into a little bit more in depth. A lot of the stuff might be a little too deep, but I think engineer, smart.

Al: Just to know it, and if you know it, and you can speak in language that kids can understand.

Joe: Right, and I don’t think it, I mean, she wouldn’t even have to pass the comprehensive exam.

Al: Just taking the courses.

Joe: Just taking the courses.

Al: Yeah, yeah.

Joe: I think she would learn a lot to put together a pretty simple curriculum.

Al: I would add one thing, and that, if she wants to teach in high schools. She’ll have to check with the school district’s program on credentials or whatever she needs for that. But just to learn all this stuff and round out, because when you’re into this and you’ve listened to 250 podcasts, you know a lot, but there’s gaps in your knowledge. And this is where courses can help that.

Joe:  Yeah, there you go. We’ve had clients that are engineers that got their CFP® because they just enjoyed the study. You know, they were retired and it’s like, okay, well, what’s my next challenge or I want to keep my brain busy. And so, you know, we see that, quite often, you know, that people want to, that they’re enjoying it so much where, you know, they’re getting probably the best designation in the field. It’s probably going to take you a year, or two-

Al: – depending on how fast you want to go.

Joe: Well, I don’t know, she listened to 250 episodes in two days. It’ll probably take her a week.

Al: True, good point.

Joe: But there’s fast track courses you can take. I know that we put a couple of our advisors on. And they passed, or they got through all the courses and passed the exam in, I don’t know, 6, 8 months. So, but yeah, I would look into that. That would be my tidbit for Teresa.

Al: Yeah, and I also think that this is a much needed thing. I don’t think the high schools around the country are doing a good job at this at all. And so I think for people that are passionate, that want to take the information they’ve learned and kind of boil it down to what a high schooler should do or think about, I think it’s fantastic.

Joe: Do you think there’s red tape though?  Is that, they don’t necessarily, do they want- I don’t know, it just boggles my mind why there’s such a lack of this information or education within the high school system.

Al: It’s a great question. I don’t know. I will tell you my brother-in-law teaches at a high school in the Grand Canyon National Park. So it’s a small school. And so they probably have lesser requirements because he doesn’t have a teaching credential. But he has developed a course on this exact thing. What high schoolers should know about finance as they graduate.

Joe: Cool.

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Military Spitball: When Will I Be Able to Retire? (Hap & Bee, CA)

Joe: We got “Big Al, Joe. Thoroughly enjoy your show. And I trust you can make this boring question sound interesting when you read it on the air. I’m 53 years old. My wife is 56. I drive a 2017 Ford F350.” A little big boy there. “And my wife drives a little 2022 Kia Telluride. My drink of choice is a margarita on the rocks. My wife prefers a Bloody Mary with extra Tabasco. Or an apple crown mixed with ginger ale.” A little crown and ginger.  “My question is, about when will I be able to retire? We have $400,000 in a Roth IRA, equally split between mine and my wife’s.  I have another $100,000 in my 401(k), also all Roth. I convert the company match to Roth every month.  We have about $50,000 in non-brokerage or non-retirement brokerage account. All investments are either growth or value stocks. With about 25% of those in small cap funds. I hold zero bonds and bond funds. For income, after 27 years in the Air Force, I have a military pension of about $100,000 a year with a VA disability of $25,000, tax-free. My earned income for my current employer is $240,000 a year. My wife does not earn income, but has worked enough to qualify for Social Security.  For savings, I invest $1000 a month in a non-retirement account. We do the backdoor Roth to the maximum allowable for both me and my wife. I contribute 9% of my employer income to the Roth 401(k) and 6% match, which I immediately convert to Roth. I have no debt other than $425,000 in the mortgage. We pay extra every month and hope to have the house paid off in the next 10 to 15 years.  We would like to have about $200,000 of income in retirement. We currently live in California but intend to move to a state with lower taxes that does not tax military retirement pensions such as Utah or Ohio. I would like to delay taking Social Security as soon as possible. Please ask Andi to make up some creative names for us.”

Andi: So I’ve named this couple Hap and Bee.

Joe: Hap and Bee.

Andi: This fellow’s been in the  Air Force for 27 years. Henry “Hap” Arnold is considered the first founder of the Air Force in 1945 or 46, and Hap’s wife was named Bee.

Joe: Oh, there you go.

Al: Well, perfect.

Joe: This guy spends a ton of cash.  I mean, I was like, what? He’s got $100,000 pension plus another $25,000, plus I make $240,000 a year.  This guy’s making a ton of cash, but it’s all spent.

Al: Yeah, well, I think that’s-

Joe: And I save 2%.

Al: That’s why he wants to spend $200,000 a year. Cause that’s probably about what he’s doing almost.

Joe: He’s probably spending more than that. Okay. He’s got a long way to go here.

Al: He does. He’s got a little over $500,000.

Joe: He needs $2,500,000. He needs $2,500,000.

Al: Yeah, so I don’t know how much Social Security and all these things, but yeah, I would say he needs $2,000,000 to $2,500,000, which is probably going to take certainly over 10 years to get there, based upon what he’s saving.

Joe: He’s only 53, I thought it was 63.

Al: Yeah, no, 53. So maybe 65ish based upon these numbers, but here’s a variable that could really change this. If you’re moving out of state and buying a cheaper home, right, maybe you add to your savings that way, right? Maybe in a cheaper state, you don’t spend as much. So I, you know, I don’t know, but yeah, just based upon these numbers, it’s not really that close yet.

Joe: So, let’s say, let me do this, let’s say, 10, 7, and he’s got how much of liquid assets? $500,000?

Al: Yeah, $500,000, $550,000.

Joe: $550,000. All right.  Okay.  So if he saves $35,000 a year, that’s about 10% of his income, he’s at $1,500,000. So let’s say he saved $50,000 a year, 10 years.

Al: Oh, for 10 years. Okay.

Joe: Then $550,000 is the present value, future value there, it’s $1,700,000. $60,000 a year-

Al: Yeah, he’s saving about $48,000 because he’s also saving $1000 a month into non-retirement.

Joe: And then the match.

Al: And then the match, that’s about, his contribution in the match is probably about $36,000, so you could say about $50,000 is what he’s saving.

Joe: That’s what he needs to do to get to $2,000,000. So if he can save a little bit more.  Over the next 10 years. And if he gets 7% on his money, hypothetically, of course, right, he’s going to be close to $2,000,000, which is given some simple calculations here.

Al: Right. But then there’s inflation on expenses and we’re not really factoring that in. So it’s, yeah, when I ran it myself, I came up with 11 years. So I think we’re about the same spot, but I didn’t really consider inflation on expenses.

Joe: Yeah, for sure. And so it’s 15 years that he needs to save that.

Al: Probably.

Joe: Here’s what I would do. So he’s 53 years old and he’s making $240,000 a year and he’s got this $100,000, $125,000 pension. He’s gotta just suck it up for a couple of years.  And just try to mitigate the expenses as much as he can and just bank as much as you possibly can over the next two years. Let’s say if he could save $100,000 over the next two years. The sooner he can get it in there, the better, right? Because of the compounding effect. And so, and then from there, alright, now you’ve got the money working for you. And then you can tone down the spending and spend a little bit more. But I get it, you’re 53, you’re still, you know, I don’t know, you’ve been in the Air Force for that long.  But he-

Al: On the other hand-

Joe: – spend $200,000 a year. I mean, fine with $150,000, I think he’s on track, but if he wants to spend $200,000 plus, he’s got some work to do.

Al: Yeah, I was just going to say the same thing. If he could get by spending $150,000, which is still a good amount, then he could probably retire in a couple, 3 years.

Joe: With the amount of income that he has,  that is by far his biggest asset. He’s in the top 5% of all wage earners  in the US, probably higher than that.

Al: Probably higher, yep.

Joe: So, you know, if someone were to ask him what’s the biggest asset you have, he might say, well, my home or, you know, my liquid assets. No, it’s his $250,000, $350,000, or $370,000. $370,000 over the next 10 years is almost $4,000,000.  And that’s the 10 years you’re not going to get back. So you’re 53 to 63 year, you’re going to earn $4,000,000 plus dollars, depending on if you get raises. Plus the cost of living adjustments and everything else. So you think of it like that and say, well, what, how can I utilize this the best? And so you think of your older self a little bit more than saying, hey, I’m only going to save 9% of my income.  Does he have like 15 kids? So I don’t know.

Al: Doesn’t, doesn’t say. But yeah, if he’s already receiving his military pension and his VA disability, which he probably is, then yeah, he’s making a ton of money. Isn’t he?

Joe: Right. And so you try to save your pension and live off the $240,000.

Al: The whole thing.

Joe: The whole thing, the $125,000, that’s what you got to save, Hap. A little come to Jesus. Because there’s a ton of opportunity here. It’s like, all right, well, if you could save this, you’re going to put yourself in the best possible position and, you can’t look back, right? And say, man, if I would have saved a couple of bucks more. I think a lot of times people would be like, man, because apparently they love to spend. They like to go on trips and vacations and do all sorts of cool stuff.

Al: Yep. Well, I think that’s right. I think it’s- take a look at what you could get by on spending and then you could retire much sooner. And the fact that you have a lot of income right now, take advantage of big time savings. Spend less, try to spend less so you can be comfortable with less, right? And then build up your savings so that you can do this successfully.

Anderson Family Financial Summit

Joe: Yeah, I did a little, took a little note from the Clopine family here, and had a financial summit.

Al: Oh, yeah, you said you were going to, how’d that go?

Joe: Yeah.

Al: The Anderson Financial Summit?

Joe: The Anderson Financial Summit. So I got the app, the Rocket, Rocket Money. So this is what Hap needs to do, a little Rocket Money.

Al: Yeah, there you go.

Joe: Then you put all your stuff in, and then it tells you where all your money’s going.

Al: Got it.

Joe: You know about this Rocket Money?

Andi: No.

Joe: Oh, this is good stuff.

Andi: You don’t have any problem with just giving all of your financial information to some app?

Joe: I have no problem at all.

Andi: Okay.

Al: Because he named him Alan Clopine.

Joe: And, well, it’s just like your credit cards and things like that. So it kind of tells you where all your money’s going. And then it finds all this other stuff. And we’re not sponsored by Rocket Money.

Andi: We’re not sponsored by anybody.

Joe: No. No, we’re sponsored by Big Al. The big wallet. You can find all this stuff. It’s like, all right, well, here you’re, you’re spending $12 a month on this. And I’m like, what the hell is this? And then you’re spending, you know, all these subscriptions that you kind of-

Andi: So does it cancel them for you as well?

Joe: You can do that and say, please cancel this, but you need to know the passwords and stuff like that. And half the stuff you’d probably, I did years ago.

Andi: You didn’t know you had the account. You certainly don’t know the password.

Joe: Exactly.

Andi: Yeah.

Joe: I’m cracking the whip. All right. We got Hulu, Netflix.

Andi: We got a new puppy to pay for. We’re getting rid of Netflix.

Joe: All right. This $12, but I saved like a few hundred bucks. It’s crazy.

Al: Yeah. Just paying attention, right?

Joe: Just, you just got to pay attention. So I’m like, all right, I’m cracking the whip. I’m going to retire soon.

Al: How’d that go over? I don’t want to retire in 15 years. I want to retire. I want to get a little, got to put, you know, a little.

Al: Did the summit participants agree with you?

Joe: Uh, no. There was some tears. There were some cocktails.

Al: Got it.

Joe: And then, yeah, that was the first summit. I don’t know if it’s the last, but-

Al: To be clear, you’re not cutting the booze budget, are you?

Joe: Absolutely not. Absolutely not.  I think it was a good exercise.

Al: Yeah. I think this is going to be 10 years, 10 years, 10 years of annual Anderson summits.

Andi: And then he’ll be able to retire.

Joe: I felt like that one guy, remember when him and his wife were fighting in our office and she’s, he’s like, Oh, well we got the, and he, he was an attorney making like $1,000,000 a year. And she’s like, well, you got that Pandora plus for $12.

Al: I remember. You made that mistake 20 years ago with that stock.

Joe: Oh, yeah. And he blew his stuff up with options or something or whatever.

Al: Yeah. Right. I guess going back to this is that, all right, he makes a lot of money. That’s the biggest resource he has. Just try to utilize it as much as you can over the next couple of years. I think he’d thank us for it later or not. Just have fun. And then just know your retirement is you’re just going to live a little bit less and move to Ohio and you’re good.

Spitball If I Can Retire Early at Age 55 (Grace, Seattle)

Joe: We got Grace from Seattle. “Can I retire at 55? Hi, I’m a new listener to your podcast and I’m revisiting the information to my last submission from this morning as it seems all your listeners provide much more detail. I’m 54, and would like to retire in one year at the age of 55.  I live with my boyfriend, and we jointly own our condo outright. We have no mortgage, value about $1,000,000. For purpose of this, I’m not including my boyfriend’s assets in any calculation. I have no debt, and my assets are as follows.  I have about $1,019,000-” I  like how she  adds that $19,000.

Al: Yeah. It’s a bad, right. It’s well, it’s rather than the nearest thousand.  We’ll call that $1,000,000. We’ll call it $1,000,000.

Joe: We’ll call it $1,000,000. You wanna call it $1,100,000? What the hell? We’ll give you a little bit of a boost. “-including inherited IRA, 401(k), Roth, and standard IRA. I have about $858,000 in non-retirement investments in total, including brokerage investments. She’s got $765,000. She’s got some REITs. She’s got bonds, I bonds, and $60,000 in a CD savings account.  So I have roughly $2,000,000 in total assets, not including the value of our condo.  My salary is about $120,000 and will save about $50,000 in the next year of working with the maximum $30,000 for the 401(k), mostly towards Roth. So assuming retirement at 55, I’m estimating that my expenses in my early years of retirement before Medicare eligibility will be $80,000 annually with a conservative estimate of $20,000 of that $80,000 towards healthcare until I’m eligible.  Based on my estimated Social Security taken from the SSA website, I will receive $3155 a month if I take Social Security at 67 or $2122 a month if I take it at 62. So would love your spitball assessment on whether I can retire at 55 or do I need to be a slave to corporate America for a little bit longer. Thanks so much. And by the way, love, Love, capital L O V E, your show, and I’m so glad I stumbled upon your podcast.  It’s now my morning run podcast.” Oh, very cool.

Andi: Nice. Thank you.

Al: Yeah, that is cool.

Joe: Grace is out there just-

Al: – running and listening.

Joe: – just getting in shape.

Al: She’ll stop and she’ll have to do the back button. What’d they say? Let’s see. Oh, that was good.

Joe: Interesting stuff. Well, thanks for listening. I’m glad you stumbled upon it. And, wow, Grace, you’ve done a hell of a job, 55 years old, $2,000,000, you want to spend $80,000. $80,000 into $2,000,000 is a pretty simple math equation, even though I’ll probably need to use my calculator for that.

Al: That’s 4%.

Joe: Yeah. If she spends $80,000, she’s living with the boyfriend, you know, maybe the boyfriend takes her out to dinner a couple of times.

Al: Yeah, where she doesn’t have to pay for all that or whatever.

Joe: $60,000 a year, living expenses, $20,000. So, I mean. Yeah, I think she’s good. I would, I’m giving her the green light.

Al: I would tend to agree, although I think it’s a little close. I don’t think I want to use a 4% distribution rate at 55. But she may not be spending $80,000 because she’s got a conservative estimate, I guess, for healthcare. Maybe it’s less, I don’t know.  It’s she’s really close. Me personally, I might work another, well, she’s going to work at least another year. I might work another year or two after that just to be extra sure. But yeah, I think she’s super close.

Joe: Yeah. I don’t know.  Consult for $20,000 a year, right? Do something like that. You know, work part time, figure something out. I mean, she’s got really cool opportunity here too, because she’s got a lot of non-qualifying assets. So like from the, now that we know that the number is that, alright, well here, you have a couple of million bucks, you’re going to work a year or two, you’re still going to save $50,000, so she’s going to save another $100,000 over the next two years, let’s say. So, with that being said, and it’s all going to go into Roth. When she retires, she’s going to have a ton of tax opportunity here to kind of maneuver her situation pretty cool. Because she could live off of those non-qualifying assets and then convert basically everything into Roth at that point.  I mean, she would have to do a little bit of math, but maybe you go, going back to the other question that we had, I don’t know when it was, last week or last question?

Al: Last year?

Joe: Last year. Of like, hey, should I have pre-tax dollars?  Should I have these, you know, pre-tax dollars in my overall account? Well, she’s single so she can go up to $40,000, $50,000 and stay in that 12% tax bracket.  So, that’s a pretty low tax bracket and she has a lot of money that is in Roths, so she’s got $700,000 that is in, in pre-tax, so you could convert some of that, you could live off some of that. So the distribution plan for her is a lot more important, I think, to make the money last than what the dollars actually are. Because of, I mean, the show would be hours and hours long if we would kind of go through each strategy with each of these different, you know, questions that we get. But I think, specifically,  how we’re looking at these spitballs is that, all right, do you have enough cash or capital to overall retire? In a lot of cases, it’s like okay. Well, it’s you’re not close at all or hey, you know, you’re pretty close or yeah I think you have enough assets. But I think the true value add of what Grace in Seattle probably needs to do because of the amount of assets that she accumulated in that she’s diversified. She has money in Roth. She has money in pre-tax. And she has money in tax-deferred. Is that what is the distribution strategy? She could blow herself up or she could make this money last a lot longer by taking a lot higher distribution rate if she can controls the taxes and have, you know, the right investment strategy.

Al: I 100% agree. And when she does retire next year, two years, 3 years, whatever, if she can live off her non-qualified assets, non-retirement assets, and be in a super low bracket, she could actually accommodate about $60,000 of income with the standard deduction. And that’s what I would do. I would just convert up to that $60,000 based upon what other income you have from your non-qual and try to get as much converted as possible. So then when you actually start needing it more than it’s going to be very tax efficient. Right. So yeah, I think that’s right.

Andi: You’ve spent your entire life saving for the future. After all that discipline and effort, don’t pay to let the courts decide what happens to your money when you’re gone! Learn how to avoid common will and trust mistakes that can lead to an expensive and overly complicated estate plan. Watch 10 Will and Trust Mistakes to Avoid, the latest episode of Your Money, Your Wealth TV, with Joe Anderson, CFP®, and special guest Allison Alley, CFP®, sitting in for Big Al. Plus, download the Estate Plan Organizer and Survivor’s Guide for free from the podcast show notes to make things as easy as possible for your loved ones – fill it out, give them a copy, and don’t forget to update it for them regularly. Click the link in the description of today’s episode in your favorite podcast app to get to the show notes, watch the show, download the guide, and share with your loved ones.

Killing it at 34, When to Consider Contributing to Traditional IRA? (David & Victoria, Grand Rapids, MI)

Joe: Killing it at 34, killing it, slaying the game there, Big Al.

Al: Love it.

Joe: “When do I even consider contributing to a traditional? Huge fan, huge.” Huge fan of what?

Al: Our show?

Andi: The podcast. Or actually, they’re calling themselves David and Victoria Beckham, so maybe they’re huge fans of them.

Al: Well, he’s, he put it right after he’s a traditional IRA. Maybe he’s a huge fan of a traditional IRA.

Joe: Yeah, would I even consider a traditional IRA? Huge fan!

Al: Well, then maybe you should, if you’re a fan of it.

Joe: Yeah. I love them too.  “Admittedly, you two occasionally make my head spin with all the rules and the numbers you cover quickly. I’m sure as my situation nears retirement, I’ll be better off as I’ve been listening for the last year and have continued to do so.” Well, thank you for hanging on. You know, the more you listen, it’s the more, you know, it just grows on you.

Al: Does it make more sense?

Joe: Yeah. You just gotta hang on. Hang on. “My wife and I live in Grand Rapids, Michigan, Beer City, USA. She’s 33 years old, works in a physical therapist, works as a physical therapist, and I work two jobs. I’m 34.  I’m a part time dentist-”  How do you become a part time dentist out there?

Andi: Well, obviously you have to become a whole dentist, but then you only do it part time because the rest of the time he sells commercial pumps. Interesting.

Joe: “-and own a small business with no employees purchased from my family last year selling commercial pumps. The mix has been a blessing because 4 or 5 days of dentistry was a grind on my neck and back. And working for myself in a business provides far more freedom and flexibility.” That’s cool.

Al: Yeah. Makes sense.

Joe: So he can go in and clean some teeth, fix some teeth, put some crowns in.

Andi: And then he’s like, I’m done with that. Now I’m going to go sell pumps.

Joe: “My wife drives a 2021 Ford Explorer with a heated steering wheel, which was her only criteria when we shopped the used the market last year. “

Andi: Whatever it is, it’s gotta have a heated steering wheel.

Joe: Well, you live in Grand Rapids, Michigan.

Al: Yeah, you would want that.

Joe: There are such things as mittens and gloves.

Al: True. I think I’d want a heated seat, too. That would be my second thing.

Joe: And then, of course, our boy drives the most famous car that this podcast, our listeners drive, the Ford F150. The famous F150.

Al: That’s very common, isn’t it?

Joe: It’s very popular in Michigan too, I guess. “Bought this last year. I bought a fun car for the Summer made in Germany, 2001 Audi TT Roadster convertible.”  Oh, I had a buddy in high school that drove a TT Roadster.

Andi: Nice.

Al: Had one of those. Yep. Convertible?

Joe: Oh yeah.

Al: Okay.

Joe: “It’s been, it’s been a fun Summer car for my mini Labradoodle to stick her head outta the window while we cruise. Our drinking days have calmed recently.” He lives in Grand Rapids, Michigan. How’s that even possible?  Oh, “We have a 5-month old baby boy now.” Congratulations.

Andi: Just 5-month-old, not 5-month year old.

Joe: 5-month-old baby boy now. “However, when the baby goes to sleep for the night, I enjoy a locally sourced Kirkland Anejo tequila over ice, and the wife enjoys a white wine from the Michigan Traverse City Peninsula.” Oh my God, we’re still going here.

Al: You just got started.

Joe: I know. “We currently have a combined income of $400,000, and our expenses have died down to about $150,000 each year with the addition of the baby. We traveled quite a bit before the baby and plan to live it up with trips in the future, when feasible again. I served in the military as a dentist out of school, so we do not have student loans. And the only debt we have is on our house. Some numbers for you.  We have a total of $650,000 saved. We have $125,000 in cash and high interest savings, $370,000 in retirement accounts, $40,000 in pre-tax, $330,000 in Roth.” Good for you.

Andi: Nice.

Joe: “We have $140,000 in a brokerage account. Our retirement accounts and brokerage accounts are invested solely in the 500 Index Mutual Fund at the moment due to our young age. From what I can tell, we’re on track for a well-funded retirement and having mainly Roth dollars sounds pretty cool.” I would agree. Sounds pretty cool. “My question is related to those future retirement contributions.  When, if at all, do I start to fund the traditional side of my retirement accounts? Thus far, my traditional assets have 10% of the qualified retirement accounts. I’m contributing the max to the Roth accounts each year with our retirement accounts, my wife’s 403(b) and my 401(k), and completing the backdoor Roth strategy for my wife and I each year. So far, the only traditional assets we have come from my employer match.  Given my young age, I prioritize Roth dollars to avoid large income and RMD requirements into retirement, but I know there will come a point in my career with the more immediate growth potential of traditional assets might make sense. Is there a total number of traditional dollars I would be shooting for when I retire? Or a ratio to Roth to traditional?  Maybe a goal that would put me squarely in a low tax bracket during retirement. I obviously have a lot of life ahead of me. But let’s say I’m going to retire at 60 years old. And keep my income steady at $400,000 and expenses may increase over time due to this is some well-deserved lifestyle creep. Thanks for the spitball.” Got a little something. Got something.

Al: Was that a hiccup?  So, Joe, I guess the question is, I know you’re big on Roth. Are you 100% Roth or is there a point where you want to get some money into traditional in your mind?

Joe: Well, sure, because distributions from a retirement account could be tax-free, even though it’s pre-tax, depending, right, because if you can look at the standard deduction, you pull those dollars out, and you could be in a really low tax bracket, so to utilize the 0% tax bracket I think it makes sense.  You would just, I mean, there’s a lot of math involved to do that.

Al: Yeah. It’s kind of hard to compute because there’s too many variables, but I think the concept is this. By the time someone retires, I’d want them to have enough income, taxable income to at least fill up the lowest bracket because that’s cheap money. And right now for married couple, that’s like $94,000, but that’s taxable income. Add back the standard deduction rate, which is almost $30,000. So, you know, $124,000, you know, somewhere in there, call it $120,000 of income would be what you would, I mean, this is just current, now in 30 years from now, it’d be completely different, but just, but that’s the concept. The concept is you don’t necessarily want to have nothing in a traditional because you would have been in a high tax bracket, getting all that money to Roth, where you could have had some of the money coming out and have that be in the lowest tax bracket. Would you agree?

Joe: That’s the technical, dorky CPA answer. I say Roth all the way. I mean he’s 34 years old, I mean if, let’s say it’s $30,000 is the standard deduction, and he retires at age 60. And so he lives, well,  this is 30 years from now, so life expectancy in 30 years is gonna, I don’t know, it’ll either be longer or shorter, but let’s just say it’s, he’s got another 30 years of life. Right?  So that’s $900,000 that he would want in a retirement account that would be pre-taxed because he could pull potentially some of that money out and not pay any tax on it. Other than that, I would want everything into a Roth IRA. But he’s 34 years old, he owns his own business, and he’s a dentist, and his wife is killing it. They got $1,000,000 plus dollars. He’s going to invest in other asset classes. He’s probably going to invest in a brokerage account. He’s probably going to buy real estate. He’s probably going to open up another business and then he’s going to become like a podiatrist and so there’s going to be all sorts of different income sources here. So I would continue to go Roth, but he’s-  I would want him to build more of a brokerage account, so a little bit more liquidity. So if there’s other opportunities that fall into his lap, right, because they make a lot of money, they can’t fund everything into retirement accounts. Everything goes into a retirement account. Everything else goes into a brokerage account. And as that brokerage account continues to build to $1,000,000, $5,000,000, $10,000,000, there’s going to be interest and dividends that come out of there that’s going to utilize those lower brackets anyway, potentially.

Al: Yeah, and there’s also Social Security, which will be income. And if you don’t have much other income, then very little that’s taxed. But yeah, you’re right, Joe, it depends upon your other income. I think for me, like I said, I would not necessarily go 100%. I would probably go 100% right now because he’s young and probably income will only increase in the future. And at some point I would probably want to have a little more diversity because I’m going to pull those dollars out probably in low tax brackets. That’s what I would do.

Joe: Thanks for the question. You are killing it. Congrats. That’s it for us today. I appreciate you hanging out. We’ll see you again next week. The show’s called Your Money, Your Wealth®.

Andi: One big happy family in the studio, all the questions sound the same, and dentistry vs. pump sales in the Derails at the end of the episode, so stick around.

Help new listeners find YMYW by telling your friends about the show, and by leaving your honest reviews and ratings for Your Money, Your Wealth in Apple Podcasts, and any other podcast app that accepts them.

Your Money, Your Wealth® is presented by Pure Financial Advisors. Click the “Get An Assessment” button in the podcast show notes at YourMoneyYourWealth.com or call 888-994-6257 to schedule your free financial assessment, in person at one of our many offices around the country or online, a time and date convenient for you, no matter where you are. Chances are, one of the experienced financial professionals at Pure will be able to identify strategies to help you create a more successful retirement.

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.

The Derails

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