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
June 20, 2023

Joe and Big Al spitball five different retirement plans: Is Jaybird on track to retire with a decent nest egg? Should Ted and his wife use the retirement smile spending pattern and spend more early in retirement? Is it safe for Aaron to retire at age 59 and a half? How much can Karla convert to Roth for the most tax-efficient retirement withdrawal plan? LEO Jay has Roth TSP retirement strategy questions, and Lynn suggests a super-easy Roth conversion calculator – but Big Al’s got an even easier idea. 

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Show Notes

    • (00:44) Are We On Track to Retire With a Decent Nest Egg? (Jaybird, Pennsyltucky – PA)
    • (08:57) Retirement “Smile”: Should We Spend More Early in Retirement? (Ted)
    • (16:57) Is it Safe to Retire at Age 59 and a Half? (Aaron, suburb of Philadelphia)
    • (25:42) Spitball My Tax-Efficient Withdrawal Plan: How Much Roth Conversion? (“Karla”, New York City)
    • (34:21) Should I Max Roth TSP and Retire at 50? When Can I Withdraw from Roth TSP? (Jay, San Diego)
    • (37:00) Super Easy Roth IRA Conversion Calculator (Lynn)
    • (42:51) The Derails

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Joe and Big Al spitball five different retirement plans (with a little bonus comparison), today on Your Money, Your Wealth® podcast 434. Is Jaybird on track to retire with a decent nest egg? Should Ted and his wife use the retirement smile spending pattern and spend more early in retirement? Is it safe for Aaron to retire at age 59 and a half? How much can Karla convert to Roth for the most tax-efficient retirement withdrawal plan? LEO Jay has Roth TSP retirement strategy questions, and Lynn suggests a super-easy Roth conversion calculator – but Big Al’s got an even easier idea. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Are We On Track to Retire With a Decent Nest Egg? (Jaybird, Pennsyltucky – PA)

Joe: Andi’s playing little hurt. Wanna thank her for making all of this happen.

Al: Yeah, I do too, Andi. This this is going over and above for our show and we really appreciate it.

Andi: Hey, I’m just actually trying to make it as easy on myself as possible. If I had to do a compilation episode, I’d be spending way more time on it, so.

Al: Okay. I’m glad we can help you.

Andi: Thank you.

Joe: We got a lot of work to do today. So let’s jump right in.

Joe: “Hey YMYW. This is Jay Bird from good old Penn____-”

Andi: Pennsyltucky.

Joe: Pennsyltucky?

Al: That’s kind of a weird one. Pennsyltucky.

Joe: Pennsyltucky.

Andi: I think that’s just a nickname for Pennsylvania.

Joe: Well, he’s Jay Bird.

Andi: Yep.

Al: Yeah. Yeah.

Je: It’s such a cool nickname, man. Just call me Joe Bird.

Al: Yeah. I don’t think so.

Joe: Oh boy. All right. “I wanna see if you guys had any suggestions for my wife and I since we’re new listeners.” Welcome to the show. “My wife drives a 2020 Volvo, family wife- or family car. And I keep it classy with my 2014 Chevy Cruze. We have been enjoying all the commentary on the other guests and figured, hey, why not us?” So we, what?

Al: They’re both listening.

Joe: Wow. How about if they do at the dinner table?

Al: That’s amazing.

Joe: Light up a couple candles, turn on a little YMYW.

All: Or one of ’em says, honey, we’re getting in the car. We’re going for a drive. Where are we going? It doesn’t matter. We’re listening to YMYW.

Joe: Yeah. Pennsyltucky. “We’re both 34 years old and we have somewhat of an opposite retirement setup, which I believe will only negatively affect us later in our retirement. Let me know what you guys think. Wife makes $110,000 a year and contributes about 20% to pre-tax 401(k) and gets 6% match. She also has an HSA, which she is the only member on and puts around $2000 annually. Now we both contribute about $3000 into our separate Roth IRA accounts, but that’s due to vacation and home ownership of our 4 children. I make around $80,000 or $90,000 a year with a contribution rate of 25% into my Roth 401(k) and have a 6% employer match.” Keeping score here, Al?

Al: Yeah. I already- this is a lot.

Joe: “No HSA because I paid for the family insurance plan, for now.” What, he’s gonna drop her? He’s got that in like parentheses.

Al: That’s right.

Joe: All right. Wifey better-

Al: There’s no explanation point there.

Joe: Yeah, it’s not in all caps. “Having informed you of how we save so far, we typically spend around $80,000 to $100,000 a year with the 4 children in today’s dollars. We also contribute to the PA 529 plans for all children, with hopes of them using these accounts. With all of that information, I’m planning to work until 60, 65 as the wife is planning to retire a tad earlier. That’s TBD. We currently have $100,000 in pre-tax 401(k)s, $100,000 in Roth 401(k), $10,000 in Roth IRAs. My wife had $6000 in an HSA, and we have $5000 in a brokerage account. Drinks of choice would be something like for the misses since breastfeeding was the choice here.” What does that mean?

Al: That means you- you don’t drink when you’re breastfeeding or you try not to-

Joe: But was- Okay. Sounds good. Congratulations.

Al: What were you thinking?

Joe: I don’t know.

Al: You’re thinking something else.

Joe: I would- you know. Well, well, first blush here. You know, I don’t prepare. It’s like ‘since breastfeeding was the choice here’. Okay. All right. “Something along the lines of a twisted tea or White Claw.” All right. Twisted tea and White Claw. “I would prefer a Guinness blonde. Or on a hot day on the yard work, the good old Coors latte.” Okay. Yeah, you and I. “We have one dog, currently 10 years old. It’s a rescue named Penny. She’s a mixed breed, but overall she’s or family security.”

Al: I think that means our.

Joe: Our. Okay. “With all of that being said, what would you spitball look like from the crew? Are we on track to retire at a decent nest egg? Should I have my wife contribute to after-tax dollars since we have the option in her employer plan? Should we do conversions and play with the taxes? I wanna add our spending should drop once we become empty nesters to around $60,000, if that helps any. Thank you for your time, comments and laughs so far. Best podcast by far.”

Al: That’s great.

Joe: “Love the show. C and J.” All right. Jay Bird.

Al: So I did some math cuz there’s a lot here. And –

Joe: You did some preparation.

Al: Mm-hmm.

Joe: Very good.

Al: I will tell our listeners is if you can summarize these numbers for us, instead of us doing percentages and blah, blah, blah. But I did it, I did it.

Joe: You did some math, you did a little work. Big Al charges like $500 an hour.

Al:  Anyway, so wife saves with the employer match about $29,000. They put $6000 into Roths. Between the two of them he saves, Jay Bird saves about $26,000. That’s $61,000 saved.

Joe: That’s a ton.

Al: That’s a ton. That’s a- that’s a lot. And so typically when you’re saving that much, you’re gonna be fine. But- but just to do the math, so you- you got, we’ll call it $210,000 right now between 401(k)s and IRAs and $61,000 of savings per year. I just ran this at 7%. 25 years. You get $5,000,000. You have $5,000,000. 4% distribution rates, $200,000 without regard to any future Social Security and $200,000 spending in today’s dollars at a 3% inflation rate is $95,000. Right. So they wanna spend around $80,000 to $90,000. So check. Now on the other hand, you work 30 years. This is interesting how much different it works. It comes out when you work a few more years cuz of the compounding.

Joe: 5 more years?

Al: Mm-hmm. 5 years. Yep. So now instead of $5,000,000, you got $7,400,000. Okay? And now you get about $300,000 of distribution versus $200,000. So those extra 5 years-

Joe: – gives you another $100,000 of income.

Al: That’s right. And in current dollars, that’s $143,000. So, Jay Bird, you decide how long you work, wanna work. Either way it looks good and I’m not even including Social Security, so looks great.

Joe: So then looking at playing with the taxes and, and things of that nature. When you start compounding and you’re saving that much money and given your current income is I would want to go as much tax-free as I possibly can. Or at least split it between the spouses, one tax-free and one pre-tax. Because as you could see, the compounding effect over 10, 20, 30 years, in this case, you’re going to have $7,000,000. Hypothetically spitballing here, right? Right. There’s no guarantee. This is just complete BS.

Al: You said you’re going to have-

Joe: No, as soon as that came outta my mouth, I just hear compliance just right-

Al: Compliance- flashing red light.

Joe: Yes. Oh my gosh. So, but what- what Al and I find today is that people that were good savers 10, 20, 30 years ago, all of their money’s in a retirement account and they’re stuck with a huge tax bill each and every year. And so if you could catch this way ahead of the game as Jay Bird is doing and his wife of looking at a tax diversification strategy, or at least making sure that they’re not gonna be fully loaded up on pre-tax, I think is the right way to look at this. So you wanna look at it every year. What is your income? What is your tax bracket? Tax brackets are gonna go up in the next few years, so maybe until now, until 2026, you go all pre-tax because you’re probably right there in the 22% tax bracket. Once that changes back to 25%. But then you wanna play with pre-tax and after. So thanks for listening and thanks for the compliment.

Retirement “Smile”: Should We Spend More Early in Retirement? (Ted)

Joe: We got let’s see, Teddy here. “Joe, Big Al, great fan of the YMYW podcast. Sipping on a little Honey Jack.”

Al: You like, you like Honey Jack?

Joe: Honey Jack. No, I don’t. I’ve never tasted Honey Jack. “Thinking of, I’m ready financially to retire.” So he’s got a little Honey Jack. He can see him. He’s just sitting there. Ted. He is like, you know what?

Al: And you know, he sips that Jack and he is going, this is looking pretty good.

Joe: God, this is so good. I would love to have Honey Jack every single day.

Al: I think, I think I can.

Joe: I’m doing some numbers here. I’m gonna have a couple more sips and then I’m gonna write in. He’s “58, wife is 52, kid graduated and working. Combined income is $260,000. They have no pensions. Estimated Social Security is going to be $3000 a month at age 70.” So he’s got another 12 years to bridge that gap. “He’s got annual expenses of $110,000. He’s got a house that’s paid for, zero debt. Investments $3,100,000.” No wonder why he’s drinking a little Honey Jack.

Al: Why, why not? Right? He can afford it.

Joe: Be like woo. Yeah. Love my Honey Jack. “He’s got $200,000 in Roth, $1,000,000 of tax-deferred and $2,000,000 in after-tax, 60/40 allocation. Are we both ready to retire financially? Should we spend more during the early retirement based on retirement smile spending pattern?” What the hell does that mean?

Al: I think it means that’s when you have fun. When your younger years retirement.

Joe: Is that like the go-go- Yo-yo-

Andi: I thought it meant that you spend more at the beginning of retirement and at the end of the retirement, so you have a dip in the amount of spending in the middle of your retirement.

Al: Oh, look at that. That sounds right.

Joe: Smile? I don’t know. I’ve been doing this 20 some odd years I’ve never heard of-

Al: Yeah. But yeah, I think you’re-

Joe: Is that like the yo-yo years?

Al: It’s the go-go years, the slow-go years and then no-go years. No. Yeah. Or you’re not going anywhere.

Joe: Yeah. God. Alright. So smile. So you spend a lot and then it dips down and then you spend more because of healthcare issues and then you die.

Al: Yeah. Yeah. At the end.

Joe: Got it.

Al: Yeah, that actually makes sense.

Joe: So little smile spending patterns. “Other than Roth conversion and medical insurance, anything else we should watch out for? Drive a Tesla Model Y. Thank you.”

Al: Got it.

Joe: 4 times 3 120.

Al: Yeah. Right. So distribution rates-

Joe: It should be about 3%?

Al: Yeah. 3.5%. So 3.5% distribution rate. Social Security is coming down the line. 58. That’s probably pretty close. It’s a little tight.

Joe: It’s tight.

Al: A little tight.

Joe: It’s all sequence of returns.

Al: That’s true.

Joe: What sequence of returns means is that it depends on what the market does when you retire, especially at that age. Because you’re retiring pretty young and your wife is especially young and she’s probably gonna live a lot longer than- than Ted. Just because women live longer than men, right? I’ve never met Ted or his wife, so I’m just spitballing here.

Al: Just say, just say you’ve already, and Ted’s going I’m the one that wrote and you’re already killing me off.

Joe: She’s 52. Let’s say you retired 52.

Al: No, I, I agree.

Joe: Since they have like a 50-year retirement.

Al: I know. Well, I guess this is the way I think about distribution rates, and this is just rule of thumb. This is- this is no guarantee. There’s just a reality check, right? So 4% distribution rate at 65, 3.5%, maybe at 60.

Joe: So what he’s saying is like, you don’t want to take out any more than 4%.

Al: That’s right.

Joe: So once you reach age 65, you don’t want to take on any more than 4%. So 4% or less.

Al: That’s right. And then when you’re, when you’re 60, I would say 3.5%, when you’re younger than that, 3%ish. Yeah. Right. And, and if you take the average of the two of them, it’s like 55 or so. So, so yeah. It’s, it’s a little tight. I mean, it’s not too far off though.

Joe: But, okay. So, think of it like this. He wants to spend $110,000, he’s not gonna have any fixed income for 12 years.

Al: That- that’s my concern cuz retiring early.

Joe: So 110 times 12 is a big number. It’s almost half of his total nest egg that he would have to- so he needs a certain target rate of return on the overall money.

Al: He does.

Joe: Right. Because his distribution, he’s gonna be taking on a million plus before any type of Social Security kicks in. Then there’s going to be another several years before his wife’s Social Security kicks in.

Al: Right. That’s true.

Joe: So the sequence of return risk is extremely important to understand when you retire young, because if the market takes a dip and he’s taking $110,000 out of the overall account. And let’s say the market drops 10%, 20% and then all of a sudden that distribution rate that you’re talking about now is not 3.5% anymore, it’s a lot higher just because he’s pulling more from a lower balance. So you wanna make sure that you understand an income strategy and where are you gonna be pulling the dollars from, and then what is the taxation of that? So he’s diversified from a tax perspective because he is got a lot of money in after-tax.

Al: Yeah, I like that. So in other words, he’s gonna have control over his taxes to a large extent. And 60/40 theoretically, this could work. It’s just that you’re right, Joe. Like let’s say we have the next 3 years of a real down market, then-

Joe: – or flat.

Al: -or flat, and then Teddy, you’re going back to work at least part-time.

Joe: Right. Because you’re taking almost $400,000 outta the over account in 3 years and the market’s flatter down  in that 3 year time period. It’s like, okay, I have no growth. Now that $3000 is something significantly less and I still have 7 years go to pull out another $110,000. The numbers still might work out, but guess what? The emotions take over at that point. Because it’s like, oh my gosh, what did, what did we do? We retired earlier. This or that. Or he might just be so drunk on Honey Jack, he’s like, I’m not even gonna look at my-

Al: It doesn’t matter. I’m not gonna do a smile. Just a half a smile. Anyway, this could work.

Joe: He’s really, really close.

Al: And you’re really close, Ted. And if you wanna do this, just have a backup plan. In other words, can you-, can you work part-time? Can you do a side hustle, make some income some other way, just in case the market doesn’t cooperate in those first few years?

Joe: Yeah. Congratulations, though. I mean, $3,500,000 at 58 years old. 52.

Al: It’s actually fantastic.

Joe: Yeah. You guys have done a wonderful job. And you know what, if you don’t like your job, punch.

Al: Yeah. Right. I’m a big believer in that.

Joe: Yeah. So, yeah. Marble mouth- is, I’m-

Al: I’m ready to go. Got ready to get outta here.

Joe: Get the hell out. All right.

We are on a roll here with these great retirement spitball questions today, so send in yours and let’s keep the momentum going! Click the link in the description of today’s episode in your favorite podcast app to go to the show notes, then click Ask Joe & Al On Air. Tell the fellas all the relevant details like your name, age(s), and location. The names can be whatever you like; the ages and location need to be real so you get a more accurate spitball. Also – when do you (and your spouse, if you have one) want to retire? How much do you think you’ll need to spend annually in retirement? A lot of people leave that out. How much do you make and save now? How much do you already have saved, and in what types of accounts – are they Roths, 401(k), brokerage accounts, etc? And you want to provide any other details that are relevant to your financial situation. Them to help Joe better visualize the whole situation, tell us where or how you listen to YMYW, what you drink, because you know that’s important to Joe, and anything else you want to share – because the show would not be a show without you. Let’s get on with the Retirement Spitball Analyses:

Is it Safe to Retire at Age 59 and a Half? (Aaron, suburb of Philadelphia)

Joe: Got Aaron writes in from Philly. He goes, “Joe and Big Al, love the show. You guys really cracked me up. Been listening for two years. Really appreciate the information.” All right, well two year. “I’m 56, my wife’s 52, hoping to retire at around 59 and a half or sooner and planning life expectancy of 85 for me, and 90 for my wife. Have about $3,600,000 accumulated for me and my wife to take us through the retirement years.” Yeah, that’s a big wallet on Aaron, too.

Al: Sure is.

Joe: $3,600,000. Congrats at 56.

Al: 56.

Joe: All right. “Tax-deferred accounts, he’s got $2,200,000. He’s got $400,000 in a Roth, and after-tax about $1,000,000, no debt. The house is fully paid. I earn about $140,000 per year. My wife is currently not working. I am in the 22% or 24% tax bracket that my wife is no longer working. My current plan is to use my cash position to build a second home that we’ll ultimately retire in in two to 5 years. This plan would leave me with about $3,000,000 for retirement, plus what I would net from my current house sale in 5 years, let’s call it $400,000. I expect approximately $3000 per month in Social Security when I take it at age 65 or 67. I would like to have about $130,000 per year. I save about $20,000 a year. My 401(k) contributions to Roth matched in tax-deferred. Questions. Do you think that 59 and a half is a safe retirement age, or do you think I should hold out a few more years to ensure safety? I’m not actively converting any of my $2,200,000 in tax-deferred IRA funds, given that I feel that I have plenty of time to make those conversions from age of 60ish to RMD age. I’m concerned with the tax implications of large RMDs. Is this the right strategy? Should I convert some now or should I wait until my earned income drops significantly when I retire? Do you think these balances will support $135,000 to $140,000 in retirement spending? Or should I plan to cut back? Do you think these balances can self-insure long-term care? Do you think I should get insurance there? I’d love a spitball in the situation. Anything that I might have missed? Drink of choice, those little lemon, ginger, Kombucha-“

Andi: Kombucha.

Joe: Oh yeah. Kombucha. Haven’t been drinking for a few years. Go to the Kombucha. “I drive a 2013 Toyota Sienna-” Yes, the Van.

Al: Van Life. Okay.

Joe: Killing it. “-and my wife drives a Honda-“

Andi: Ridgeline.

Joe: Hmm. Never heard of that. What does that look like? Is that like a- is that another van?

Andi: Hold on.

Joe: “Thanks for all-”

Andi: It’s a pickup truck.

Joe: Oh.

Al: Oh, okay.

Joe: Oh, Honda Ridgeline. Okay. “Thanks for all the consideration of these facts.”

Al: Yeah. Well, while you were talking, I just did a little math. So if he thinks he’s gonna be $3,400,000 after he buys the second home or builds the second home, and then I just did- I just did 5 years at 7%, adding $20,000 a year. I don’t know if that’s right, but I get to $4,900,000. And so if he wants to spend what, $135,000 into $4,900,000. That’s a 2.7% distribution rate. If- if my assumptions are correct, that looks pretty good. So that’s you’ll be- you’ll be around 60. Your wife’s a little bit younger, but that’s below 3%. I think I’m good with that distribution rate based upon what I think I know about you.

Joe: So he makes $140,000 a year. He saves $20,000 of that a year. So $120,000. So his taxable income, I’m guessing is $90,000. So he’s right at the top of the 12%. I would do conversions now because most of the dollars that you have is in tax-deferred accounts. You got, well, he’s got $1,000,000 in after-tax. I thought it was $450,000. So he’s got $3,200,000, $3,400,000. How much does he have?

Al: Well, he’ll have $3,400,000 plus growth. So it’ll eventually be about $4,900,000.

Joe: So, but he’s building this house, right? So he’s gotta sell his current house.

Al: Right. He says he’s gonna get $400,000 from that. So he is spending about $600,000 for the house, just looking at the math.

Joe: But he doesn’t have a house now?

Al: Oh, he does. He is gonna sell it for $400.

Joe: But what if he already has two, three? He’s got $3,600,000 now. Yeah. Okay. Yeah. So to build the house is gonna be a lot more expensive than his current house. I take it. Because he is gonna lose $600,000, plus he’s gonna sell his house, but then he is gonna net back $400,000?

Al: Well, here’s what I’m thinking. He’s gonna, he’s going to, he’s at $3,600,000. He’s gonna spend $600,000 for the home of $3,000,000, but then he’s gonna sell his home and add another $400,000.

Joe: Got it.

Al: That’s the assumption I took.

Joe: Okay. All right. So I would look at, from a distribution rate, I think, yeah, it, does he have enough assets to retire at 60? I would say yes. You’re pretty close. You would wanna be careful there again. Yeah. But-

Al: There’s a little bit more room safety margin than the other listener that was closer to 3.5%.

Joe: Yep. And he’s retiring at 60 and she will be like 58 versus he was 58 and 52.

Al: Yeah. She’ll, yeah. No, she’ll be 54 or 55.

Joe: Almost identical.

Al: I know. It’s almost the same case. It’s just that they have more assets, I think to work with maybe.

Joe: Yeah. But what I don’t like about Aaron’s situation is that he’s got a lot more money in tax-deferred accounts than the other guy.

Al: Agreed. And so the Roth conversions are more important.

Joe: Way more important now because you wanna get the compounding tax-free and he’s still working. So he’s got cash flow to potentially pay the tax.

Al: Yeah. Including whatever current contributions you’re making. Those should be Roth for sure.

Joe: Yep.

Because you’re in a fair- you’re in a relatively lower tax bracket. So I like Roth, I like Roth conversions now. I like Roth conversions when you’re going to have compound tax-free dollars. Because the majority of the liquid assets that you currently have is in retirement accounts. So if you wanna spend $120,000 and if you have to pull from the retirement accounts, you’re still gonna have to pay tax. You’ll probably- you’ll definitely be in a lower tax bracket, but you still wanna do conversions then too. Because this will continue to compound over time and then, I would be worried. And if tax rates go up, I think 22% is a reasonable tax bracket to pay.

Al: Yeah. I think it’s a great rate. And so he is got $1,000,000 of after-tax, so he’s got money to pay the tax. So this is a- this is a perfect case for Roth conversions,  to go Roth in your 401(k) right now. And yes, it’s looking pretty good on the distribution rate. So I think you can, I mean, if you wanna work a couple more years, every, every year you work, you’re even that much safer. So I’m not gonna tell you not to. But I think you could retire at 59 and a half.

Joe: Right. At 60, look at the numbers and you’re like, okay, yeah, we’re good. If the distribution rate is, you know, 2% or lower, I’d be like, okay, well here what work is absolutely optional. So if someone kind of rubs you the wrong way, you just walk out of the office.

Al: That’s it, baby.

Joe: You get in that minivan and pour yourself a little Kombucha and say so long.

Al: That’s right.

When can you say “so long”? Take our retirement pop quiz and find out. Go to the podcast show notes to test your knowledge and see just how retirement-ready you really are. Also, download the Retirement Readiness Guide for free to learn the secrets to controlling your taxes in retirement, creating income to last a lifetime, making the most of your retirement investing strategy, and much more. These plays will boost your retirement readiness despite the uncertainties of market volatility, inflation, rising healthcare costs, the future of Social Security and Medicare. Click the link in the description of today’s episode in your favorite podcast app, go to the show notes, take the Retirement Pop Quiz, and download the Retirement Readiness Guide for free.

Spitball My Tax-Efficient Withdrawal Plan: How Much Roth Conversion? (“Karla”, New York City)

Joe: Got Karla from New York City. “Hey, Joe, Big Al and Andi, I’ve been listening to your podcast for about a year and I’m finally sending my questions.” See, she’s patient.

Al: Yeah. She wants to ask just the right question. Learn how to phrase them. Learn what to tell us.

Joe: All right. $100 it’s about a Roth. All right. Where am I on here? “I’m usually listening while taking a walk or riding my bike.” Wonder if she wears the bike gear.

Al: Oh, I bet she does. Anyone that rides a bike all the time has the- has the gear.

Joe: “Your show is one of my favorites.” Well, thank you, Karla. “My preferred drink lately is a nice glass of wine, but I also enjoy cocktails and beer every now and again.” All right. It’s a party. “I drive an old Toyota that is still kicking. I’d like to get a hybrid or electric car in the near future. I have a complicated financial situation and would love for one of your great spitballs.” Okay, here we go. “62, single, with one college aged kid. I live in New York City. I just recently retired and I’m getting a retirement incentive of 5 years, half pay, $50,000. I plan to take Social Security at 70. As for my assets, I have a net worth of about $4,100,000, not including my apartment, which is currently valued about $750,000 fully paid.” Look at Karla. That is big, big ass wallet.

Al: Wonderful.

Joe: “My retirement accounts currently have $1,850,000, of which about $500,000 is in a stable value fund. I have $1,300,000 in a brokerage account, $350,000 in inherited stretch IRA, from which I’m taking RMDs. $175,000 in a non-inherited variable annuity mistake and $180,000 in a Roth. My allocation is 75% equities, 20% fixed income, 5% alternative investments. College tuition funds are held separately in 529 accounts and I bonds.” You know when really smart, intelligent people write in, they use equities in fixed income.

Al: Right. They know what they’re talking about.

Joe: Instead of like stocks and bonds.

Al: Yeah. Yeah. Well, and yeah, Karla is not only bright, but she’s listened for a year. So she knows these terms.

Joe: Taking notes.

Al: Yeah. Right.

Joe: Feel honored.

Al: Yeah, me too.

Joe: “I’d like to live on about $120,000 a year. I will keep my employer medical plan for me and my child, which costs about $7000 a year for the next 5 years in which I’ll switch to Medicare. I plan to travel and would like to budget about $20,000 a year on trips.” So $20,000 on top of the $120,000, is that what you-?

Al: I’m guessing that, yeah.

Joe: Okay. “I’d also like to do some Roth conversions.” There it is.

Al: Hey, you predicted it.

Joe: “I’m thinking that I can do those between the ages of 65 and 75 before RMDs. I’d love to hear your suggestion for a tax efficient withdrawal plan and how much to convert to Roth, from which should I create a paycheck, and how much should I keep in cash for emergencies? Any suggestions on what I should do with those annuities? Thank you so much for advance- for answering my questions. Best.”

Al: Wow. There’s a lot there.

Joe: There’s a lot of meat on that bone. Okay, so she’s got $4,000,000.

Al: Yeah, she’s spending $120,000, I’ll start with that.

Joe: She’s 62 and single. She wants to take Social security at 70. So we got an 8 year gap, Al.

Al: Yeah. But $120,000 into $4,100,000 is a 2.9% distribution rate, but 62, Bingo. I’m totally fine with that.

Joe: All right, so here’s your first 8 years. You’re gonna take from your non-qualifying account, because she has how much in the non-qualifying account?

Al: She’s got $1,300,000 brokerage.

Joe: Got $1,300,000. So you’re gonna pay very little tax from age 62 to your age 70. So you would live off of that. And then I would do conversions to the top of at least the 12% or the 22% tax bracket.

Al: Well, she makes $50,000 already. Right?

Joe: Oh, she’s get this incentive. 5 years of half pay.

Al: So I think you convert up to the 22%, at least.

Joe: For sure.

Al: If not the 24%.

Joe: So 22% tax bracket, and then look at the 24%. The 24% is a big bracket.

Al: It is.

Joe: So I would try to keep as little tax on my tax return as possible. You’ve got your incentive pay for 5 years, so you’re gonna be 67 when that goes away. She wants to spend $120,000 plus another $20,000. So $140,000.

Al: Yeah, $140,000. So she needs $90,000. So you pull $90,000 from the $1,300,000 that you have in brokerage accounts, and then you do conversions. So then she also has a stretch IRA annuity ‘from which I’m taking RMDs’, so she’s got $350,000 there. So I’m guessing she’s probably taking what, $30,000 maybe a year from that? So that’s going to be taxable as well as the $50,000. So whatever other income that you need, you take from the brokerage account and then convert to the 22% or maybe into the 24%.

Al: Yeah, I agree with that.

Joe: So then she’s got the old annuity mistake, $175,000. We need to know what the basis is. So a few things that you could do, you could blow out of that because it’s LIFO tax treatment. So whatever the basis is is gonna come out tax-free, but it, that’s the last thing to come out. So all of the earnings will come out first, which is gonna be taxed at ordinary income rates. So you have to look at what your tax bracket is, and then maybe you slowly bleed that out. You kind of think of it almost as a Roth conversion. So you take it out, you’re gonna take the earnings out, it’s gonna be taxed at ordinary income rates, and then you can reinvest that into a brokerage account, and then you would be subject to capital gains tax thereafter.

Al: Yeah. After, yeah.

Joe: You could annuitize it and then you’re going to get a pro rata income stream from that. So you’re gonna get part basis and part earnings. So I don’t know what the basis in the earnings ratio is. That’s something you could do maybe after the $50,000 of your severance pay is over to give you a little bit more fixed income.

Al: Yeah, that’s true.

Joe: Because that’s probably gonna be the most tax efficient way to get it out. And if she’s got plenty of other assets, the assets can continue to grow and you just build a higher floor. Maybe you do that or you just leave it alone and just have it build and then you blow up your kids. Because they’re gonna pay a ton of tax.

Al: Or if you don’t like the annuity, you could- you could roll it into another annuity.

Joe: Yeah. But the taxes still, I mean, if it’s a high cost variable annuity or something like that, you could roll it into something that’s very low cost.

Al: That’s what I’m saying, a 1035 exchange for annuity, you can do that. That’s- that’d be another option. But so the way this works is as, so Joe mentioned, if you annuitize it, if you take a payment stream for life, and let’s say right now-

Joe: – it’s half and half-

Al: – half and half. Half is your cost basis and half is gain. So as you take money out, $5000 comes out, you pay tax on $2500. The other one is return of capital. So that’s pro rata. If you blow it out, then half of it’s taxed because you blew the whole thing out. If you just start haphazardly taking amounts here and there, it’s all taxable until you use up that first half. So that’s how to think about this.

Joe: Yeah. She’s done a great job, Karla.

Al: Fantastic.

Joe: Yeah. Congratulations. How much should I keep in cash for emergencies? Well, you got plenty of liquid assets, right? And if she’s at 75%/30%/5% now, she doesn’t need a ton of the overall portfolio to live off of because she’s got $50,000 of severance pay. Plus her Social Security’s gonna come in. She only wants to spend about $140,000. Then she’s got this inherited IRA, you know, I don’t know, maybe $100,000, $200,000 max.

Al: Yeah, that’s what I think. I’d do at least a year, $120,000. I probably, if it were me, I’d probably do at least $200,000 just for safety. You got plenty here. You don’t need to invest.

Joe: Right. You’ve got $4,000,000. Put $200,000 sitting in cash because maybe you want to go on a nicer vacation. Maybe you want to get that really fancy electric car. And then you just go in and pay cash.

Al: Yeah. But maybe one of the most important points now is don’t wait on Roth conversions. And do not wait on travel. Travel now if you want to.

Joe: Oh yeah, the man that just came back from Fiji.

Al:  Yes. And I wholly, wholly, recommend traveling.

Joe: Where’s the next trip? You leaving next week?

Al: Next month going back to Hawaii.

Should I Max Roth TSP and Retire at 50? When Can I Withdraw from Roth TSP? (Jay, San Diego)

Joe: We got, let’s go to Jay in San Diego. Page 9. “Good morning. I enjoy your show. But I would like to get a question answered and maybe a little advice.” Jay, you went to the wrong place. We don’t give advice here. We spitball. “I’m 44 years old and I have worked as a federal law enforcement officer for 16 years. The earliest I can retire and draw my income from my TSP without penalty as you may be aware, the law changed for LEO’s a while back, is at age 50.” LEO’s. Law enforcement officer.

Al: I figured. Like it.

Joe: All right. I like- that’s a good acronym.

Al: It is. I’m a part of the LEO group.

Joe: Yeah. I’m a badass LEO, get outta my way.

Al: Or do what I say.

Joe: “I will have 23 years of service in. I have about $280,000 in my traditional TSP. I opened up a Roth TSP about a year ago, and it only has $20,000 in it. Here are my questions. If I do retire at 50, I know I can start collecting from my traditional TSP, but can I withdraw my TSP Roth?” The answer is yes. “All of the information that I found states I have to wait until 59 and a half to withdraw penalty- free from the Roth, which seems odd to me. I believe if I can withdraw from the traditional TSP that I should be able to withdraw from the Roth TSP as well, but I can’t find that in writing.” See, he’s a LEO. He needs to stuff in writing. Secondly, do you recommend putting my money into the Roth or the traditional TSP at this point? I personally like the idea I’m maxing out the Roth because it’s my understanding there’s no capital gains tax when I withdraw it from the retirement. Thank you in advance and I hope to hear the answers and conversation on your show. Have a great week and thank you.” All right, thanks Jay. Very polite LEO.

Al: Yes.

Joe: Hate to run into him without answering a TSP question.

Al: – all the questions.

Joe: I hope I don’t have to answer any other types of questions from Jay in a dark room with a light on me. Roth TSP, standard TP, 50 years old.

Al: That’s your final answer?

Joe: That’s my final answer.

Al: Yeah. I actually don’t know the answer, so I’m not gonna opine or not opine.

Joe: Yeah. How about if I’m wrong?

Al: Just say we think.

Joe: He’s gonna come in.

Al: He lives in San Diego too.

Joe: I know.

Al: Jay. This is what we think. We’re not, we’re not gonna put it in writing.

Super Easy Roth IRA Conversion Calculator (Lynn)

Joe: “Hey Andi and the guys, really enjoyed the podcast and have been listening for a while. For Joe’s benefit, I’ll say I’m a longtime listener, but won’t provide any other details.”

Al: Oh, she’s private.

Joe: For Joe’s benefit.

Al: Yeah, cuz you always wanna know the details. But she’s a longtime listener.

Joe: Okay. I’ll just say I’m a longtime, but I’m not gonna provide anything.

Al: You’re not getting any more outta me. It’s all you get.

Joe: I’m a longtime listener, but go pound sand. You wanna know what I drive? Forget it. Know what I drink?

Al: Not happening.

Joe: None of your business. You wanna know what I’m doing right now? Go f yourself.

Al: We just take a turn for the worst.

Joe: Oh. “My net worth is far under your usual collar. There will be no flexing here.

Al: Got it. Okay. Okay. Got it.

Joe: There’s a lot of flexors out there.

Al: We do get- we do get a bunch of flexors. They start off-

Joe: Well, I got $8,000,000,000-

Al: My name is Peter and I got $8,000,000,000 in IRA, and then there’s a long dissertation.

Joe: Oh, you just wanna come on hot, don’t you, Peter? All right. “But I’ve learned so much and with the few sheckles I have, I’m trying to take care of it responsibly. I don’t have a question-“ Okay. Sounds good. So you wanted to come in, you don’t wanna tell us anything.

Al: You don’t have a great question.

Joe: You don’t have a question. But what do you do have, let’s see here. “I did come across a resource that will calculate Roth conversion taxes with a very simple input.

Andi: It’s on the Schwab website.

Joe: Schwab. Okay. I’m just going to Little Roth IRA conversions. “Compliments of my buddy Chuck ES. Sorry about the ginormous link, but don’t know how to make it shorter.” Okay. Andi’s note, I shortened it.

Al: She did.

Joe:  Okay. “I hope this helps some people. My most pertinent info-“ Oh, now she’s giving some- now she feels better-

Al: Wow.

Joe: -about everything. All right. “My most pertinent info is I drive a 2007 Prius for my long commute to work, but for fun, I have a 2010 Mazda Miata.”

Al: Wow. She’s got two cars.

Joe: Mazda Miata. That’s a short little guy with little-

Al: That’s a little one.

Joe: -little convertible?

Al: Yeah, yeah, yeah.

Joe: College roommate had that thing.

Al: Got it. Did you fit in it?

Joe: No, absolutely not.

Al: With the top down?

Joe: Yeah. Yeah. The top had to go down. “Our pets include two fancy shmancy Devin Rex cats, and some hens. My favorite drink is all of them.”

Andi: Oh, Lynn gets along well with Joe already.

Al: We’re starting to learn a lot about Lynn now.

Joe: “Thank you for all the entertaining information. Don’t forget to give Andi that raise. Kind regards, Lynn.

Andi: Oh, thank you, Lynn.

Al: Okay, so she’s got a-

Joe: “My favorite drink is all of them.”

Al: She hasn’t found one she didn’t like.

Joe: Oh, is that one writer who was like, I’ll drink everything short of gasoline.

Al: Well, that one, that was siphoning something and we just assumed it was gasoline.

Joe: No, yeah, that was that other guy.

Al: Yeah, I know. But different one.

Joe: Oh boy. Just so what, okay, we’re gonna give our listeners a little treat from Charles Schwab. Is that what we’re doing?

Andi: So does this make sense to you? I’ve got it up on screen so that you can see all of the information that it asks for and-

Joe: Okay.

Andi: So does this make sense for putting in your details to get how you should do your Roth conversions?

Joe: I doubt it, but let’s see. Combined value of all of your non-IRAs- non-Roth IRAs. Okay.

Al: Okay. Would you like to convert, filing status, estimated taxable income, blah, blah, blah, blah, blah, blah? Yeah. I mean, it’s probably better than nothing. Here’s a simpler way. Go to your tax rate, go to your tax return, look at your taxable income, and then find the taxable income on the tax table. And 24%, 22%, that’s your number, federal rate. Do the same for state.

Al: Or you can try to figure out the calculator.

Joe: Yeah, go with the calculator. Lynn gave it to us. All right, well, thanks again, Andi.

Andi: Yeah. Thank you.

Joe: That’s it for us. We gotta get outta here. Show’s called Your Money or Wealth. We’ll see you next time.

Andi: In the big ol’ Derails today we’ve got breastfeeding, Jack Daniels Tennessee Honey and Fire, what sports Joe will allow his kids to play, Narcos, Arkansas and secret Fiji ceremonies, so stick around.

Help new listeners find YMYW by leaving your honest reviews and ratings for Your Money, Your Wealth in Apple Podcasts, and any other podcast app that accepts them like Amazon, Audible, Castbox, Goodpods, Pandora, PlayerFM, Podcast Addict, Podchaser, Podfriend, Podknife, Podcast Republic, Spotify, and Stitcher.

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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.

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