Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast with Joe Anderson, CFP® and Marc Horner, CFP®
• 01:00 – Spending Higher Earlier in Retirement to Celebrate? How to Convert? Where to Withdraw? (Beavis & Daria, TX)
• 12:30 – Watch Withdrawal Trap Doors on YMYW TV and Download the Withdrawal Strategy Guide for free
• 13:36 – Can I Retire at 57 Even With a High Draw Down Rate? Should I Convert After Retirement? Should I Consider an Annuity? (Clark Kent, PA)
• 28:23 – Complete the 8th Annual YMYW Podcast Survey for your chance at a $100 Amazon e-gift card! (secret password: ymyw)
• 29:09 – When Can I Retire? The Sooner the Better. (Tony Soprano, NJ)
• 37:43 – Next Week on the YMYW Podcast
• 38:01 – YMYW Podcast Outro

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Transcription

(NOTE: Transcriptions are an approximation and may not be entirely correct)

Intro: This Week on the YMYW Podcast

Andi: Is it possible, common even, to spend a lot early in retirement to celebrate your financial freedom? How do Roth conversions and withdrawals work if you do plan to call it quits around age 57, and spend big early on? Should you convert retirement funds to tax-free Roth after you stop working? Joe Anderson CFP® and our special guest co-host, Marc Horner, CFP®, spitball on these topics for Beavis and Daria in Texas and Clark Kent in Pennsylvania, today on Your Money, Your Wealth® podcast number 543. Plus, the sooner 56-year-old Tony Soprano in New Jersey can retire, the better. What tips do Joe and Marc have for him? By the way, Marc is one of the newest principals here at Pure Financial Advisors. He’s the founder of Fairhaven Wealth Management, which has just become the newest Pure Financial Advisors Chicagoland office in Wheaton, Illinois – so help us welcome him for his YMYW debut. I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP®, and, sitting in for Big Al Clopine CPA for the next two episodes, Marc Horner, CFP®.

Spending Higher Earlier in Retirement to Celebrate? How to Convert? Where to Withdraw? (Beavis & Daria, TX)

Joe: Marc, first time. So there’s a couple rules, no advice given.

Marc: Right.

Joe: And, we’ll just kind of spitball of what direction that our, listeners want, where they should go with some of the answers that we’re gonna give.

Marc: I’m with you. can I throw out one suggested rule?

Joe: Sure.

Marc: Keep the hate mail about where’s Big Al down to an absolute minimum. I mean, I’m trying to step into some big shoes here today, so bear with me.

Joe: Yeah. But well big Al’s halfway into retirement, so we gotta figure something out. So. All right. Let’s, let’s get to this. It’s, how do y’all, it’s Beavis and Daria. I know Beavis, remember Beavis and Butthead?

Andi: I was say you get both of those references, right? You got Beavis from Beavis and Butthead, and you had got Daria, both of which were animated TV shows from the nineties, I guess. So this is totally Gen X.

Joe: Well, did you know that Beavis is actually a financial planner?

Andi/Marc: What?

Joe: The voice of Beavis is a financial advisor. Wow. Or, it could be Butthead. It’s either Beavis or the Butthead. I’m telling you the truth. our, good, buddy Benny Littman, he was on a trip up in LA and he was at a conference and he met, Bevis or if it, I forget which one it was, but he is actually, in the financial planning profession.

Andi: I’m gonna totally check this out after the fact. I’ll add it to the show notes.

Joe: alright. They’re from the great state of Texas. I may be one of your younger listeners. 37. I’ve tried a different, I tried a few different financial planning podcasts, which I listen to on a commute from home and I like yours the best.

Killed it. Thank you, Bevis. Absolutely. I hear a lot of folks ask questions as they are approaching retirement, and you often recommend Roth conversions in the early years of retirement. I understand how this works, but I seem to be missing something. I would expect my spending to be higher in my early retirement years.

My go-go years, Marc his favorite. I hate the go-go years. I hate the same. Hate the go-go, No, Slow go. FOMO.

Marc: It’s like bandwidth and, all these made up words from the management consulting word, let’s really hydrate this retirement plan with a

Andi: Oh wow.

Marc: With a fa with a well thought out white-boarded plan.

Joe: Yeah.

Marc: Where’s the closest open window?

Joe: as my wife and I start traveling around the grow globe in drinking. Any IPAs,

Andi: NE IPAs? I had to look that one up.

Joe: Is that any, is that like any IPAs and he’s trying to be cute with words.

Marc: I think that might be New England IPA?

Andi: Yeah.

Joe: Oh yeah. And a little red Zinfandel. you’re in New England right now, aren’t you, Marc?

Marc: Yes, I am. I’m in a bunker in Maine. If you can’t tell from my background. Yeah, I got spam and bottled water all around me.

Andi: So romantic.

Joe: I anticipate spending around $300,000 a year in early retirement and then taper that back later in life. Is it not common to spend a lot in your early years of retirement to celebrate financial freedom? How could Roth conversions work? If you plan to spend a lot in the early retirements, where do I make my withdrawals from? We hope to retire at 57 once our two youngest kids graduate from college. I assume this is feasible as our current savings rate is 20%, but I’d like to hear spitball on our retirement and how we should be saving to set up our great withdrawal plan.

Here are the specifics. Current income, 370,000 bucks a year. He is got a traditional 401(k) of 600,000 Roth, 401(k) of 164 rollover. IRA 50 Roth, IRA of two 50. He’s got a brokerage account of a million bucks Social Security. Hahaha. Doesn’t really think that’s gonna be there. All right, dude. How old is this guy?

Andi: 37.

Marc: They’re  both 37. Wow. It’s, yeah, Beavis.

Joe: Wow. But yeah, way to go. Beavis.

Andi: Apparently he is a financial planner.

Joe: I told Yeah, let House is worth 600,000 with about 400, thousand dollars left on a low interest mortgage. we will probably utilize some of our brokerage money to upsize the house in a few years.

The Camry and the Jeep are about half paid off with low interest rates. Alright, so let’s see. See, well, how much is this guy saving? Saving 20% of his current income. Income. So, oh, saving 20% of his three, seven. Oh, there you go, Marc. Yes.

Marc: So, adding value,

Joe: look at that right out the gates.

Marc: Yeah. So, so public math, that equates to, I think, $12,000 a year,

Andi: Marc can read.

So 300, three 70 20%, that’s 74,000. He’s got a total of $2 million. how many years do we gotta go here?

Andi: He wants to retire at 57, so 20 years make it happen, Joe.

Marc: Yeah, so he might get a by, I mean by my back of the envelope math. Just that rule of 72. If he’s got 20 years, maybe he gets two doubles and he go, and with that savings rate, maybe it goes to 8 million by 57.

Joe: I like that math. All right. And then let’s say he takes 3% outta that. That’s two 50. Yep. He wants to spend 300. given inflation. So he’s, it’s tight.

Marc: It is,

Joe: depending if, maybe, if he gets a little bit higher rate. But if you wanna spend $300,000 in 20 years, so $300,000, 20 years, God, this calculator, I’m gonna throw away $300,000, 20 years, let’s say at 3% inflation.

Andi: Marc, do you have an HP 12 C just for future reference? A financial calculator?

Marc: I do. It’s, a piece of paper and a pen. That’s, yeah. Wow. That’s, my sophisticated financial advice.

Joe: But, if you look at $200,000, he wants this pen. 300, right? $300,000 in 20 years from now. So I don’t know if that 300 is today’s dollars or future dollars.

If it’s future dollars, that’s 300 in change. Yeah. Yeah. And if you wanna retire at age 57, you know, I don’t know, you probably want a 3% distribution rate.

Marc: Yep. That’s a big number. You’re a ways to go. It is a big number. It is a big number. That’s 10 million. Yeah.

Joe: he’s at two, so we’re gonna get to eight.

So we need a couple more million dollars here. So that savings rate needs to increase. I, you know, we’re assuming a flight, flat savings rate. So he could be pretty close. But still $8 million is nothing to sneeze at.

Marc: It is not. It is. It is not. But yeah, the, no, I totally agree. The spending.

The spending, it makes it a little tight. I love, that first question though about, is it common to spend a lot in your early years of retirement? ’cause I think what gets floated around a lot for people is, you know, you need 70 to 80% of your. Your working year income, in retirement and in my 25 years, I know I don’t look that old, but in my 25 years of doing this, our, my experience has always been clients spend a hundred plus percent of their working income in those first handful of years of retirement as they’re checking off the boxes of things that they never got around to doing.

So that, he’s appreciating that there might be some lumpiness to spending in retirement. I love that thinking.

Joe: But what I think is the misconception, misnomer, or where he is confused, let’s say he’s saying, Hey, I wanna spend a lot of money in my first few years. Let’s say I’m spending $300,000.

Well, if you have a tax plan or tax strategy on the distribution, all of that income is not gonna be taxed at ordinary income rates, Right, Yes. So you are creating your own income on the assets that you have that could keep you in a pretty low tax rate even though you have high income.

Absolutely. I mean, that’s a whole part. I mean that this is the whole reason why you wanna be thinking about tax strategy, Roth conversions, blah, blah, blah, blah, blah, is that you’re gonna have control, a lot more control over the distribution and the tax that you pay on the distribution. And so if he’s creating the income from other sources.

You know? Yeah. Then you might have room to do Roth conversions, even though you’re spending a lot of money in, you know, your first go-go years of retirement.

Marc: A amen. Yeah. Yeah. Spend, spending, does not necessarily equate to income. So high spending does not necessarily equate to high income where he, is thinking that high spending is gonna be high income, which means I’m boxed out of Roth conversions, which is not necessarily true.

Joe: yeah, I love it. Yeah, I think, yeah, he’s man at 37 years old. Did you have a couple million bucks, Marc at 37?

Marc: no I did not. Absolutely not.

Andi: Hey, hang on. Are you saying that Marc’s not 37 now? Come on.

Joe: He’s pretty close.

Marc: No. Yeah, I, no, I remember what I had last week and it wasn’t, and it wasn’t when I was 37 years old then.

Yeah. No. No, it was not. They’re off to a fabulous, they’re off to an absolutely fabulous start, but we are. That’s also reminding me though, I’ve had, in my career, I’ve, unfortunately, I’ve had one client, run outta money. So I know it gets talked about a lot and sometimes you can just brush that aside.

That never happens. I did witness it happen and it didn’t have anything to do with the, it didn’t have anything to do with the pile of money that they, had accumulated. It didn’t have anything to do with the investments. It was entirely about spending, and, I just could not talk them off the ledge.

on, Winding down, spending. So, so it’s just, it’s really, important to be thoughtful about the spending number. I think that’s the, biggest risk, in, retirement.

Joe: I, I don’t think this, they’re gonna spend anywhere near 300,000.

Well, they could if they do crazy travel, but let’s say at $370,000 a year, he’s saving 70,000. That’s 300. He probably has another $70,000 in taxes. Yep. I’m guess he’s, spending maybe $150,000 today. He’s got two little kids. They’re still, I mean, in 20 years they’re gonna graduate from college.

So when the kids are outta college. I don’t know, 300 is probably a stretch goal for ’em anyway. Yeah. For someone to save that mu 20% of your income, you, get pretty disciplined unless you just go off the deep end and then you, marry someone with a name, Rosemary and, that just absolutely has no concept of, what, budget actually means.

I can see that personal experience. He doesn’t listen to Michelle. He doesn’t listen to the shelf, so that’s all right.

Marc: It’s all good. All right, everybody. Everybody needs a 40 person bar in their backyard, right?

Joe: Oh man.

Watch Withdrawal Trap Doors on YMYW TV and Download the Withdrawal Strategy Guide for free

Andi: Turns out the creator of Beavis and Butthead, Mike Judge, voiced both characters, and he doesn’t work in finance, so if you know where those wires may have gotten crosse,d email podcasts at purefinancial.com and let me know, will ya?

Anyway, when you’re ready to start spending your retirement savings, you gotta watch out for the common trap doors that can upend your entire plan – like that backyard bar Marc mentioned! Master the art of retirement withdrawals and learn how to spot and avoid those trap doors you may find along the way. Click or tap the links in the episode description to watch Withdrawal Trap Doors on YMYW TV, and to download the free companion Withdrawal Strategy Guide. It’ll tell you more about sustainable distribution rates, optimizing from which accounts you make your withdrawals and when, the impact of market volatility and inflation on your retirement spend-down plan, and tax-saving strategies to make your money last longer in retirement. Watch Withdrawal Trap Doors with Joe Anderson, CFP®, and Big Al Clopine, CPA, on YMYW TV and grab the Withdrawal Strategy Guide for free, courtesy of Your Money, Your Wealth® and Pure Financial Advisors.

Can I Retire at 57 Even With a High Draw Down Rate? Should I Convert After Retirement? Should I Consider an Annuity? (Clark Kent, PA)

Joe: let’s go to, where are we gonna go this time? Little Pennsylvania. Hello. YMYW team. I’ve been listening to the podcast for about six months. here we go. Alright, this is his last episode, during my daily walks and really enjoy the education, entertainment content I am near in retirement. It could really use your input. This is Clark Kent from Pennsylvania.

Andi: Aren’t they in Iowa or something?

Joe: Yeah, Smallville.

Marc: Yeah. Before he went to the big city, right?

Joe: Oh yeah. Metropolis.

Marc: Yeah, Metropolis, right?

Joe: Come on, know your movies there, Horner.

Marc: I’m sorry. I’m sorry. I’m sorry. I’m a little groggy.

Joe: Have you seen the new Superman that came out, right?

No. Something like that.

Marc: No, I have not. but both of my sons, we’ve got four kids. Both of my boys have said, I gotta go see the new Superman movie.

Joe: Oh, really? They saw it. They have, you know, Marvel was gonna go bankrupt. in the nineties.

Marc: What happened?

Joe: So they, even though that’s, I don’t think Superman’s Marvel.

I think Superman is DC Yeah. So I was definitely on the Instagram or something ’cause I got a lot of worthless knowledge in my brain right now.

Andi: Apparently so, geez.

Joe: Yeah. Never usually on social media, but,

Andi: So have you seen the new Superman yet?

Joe: No, I have not. I have not. You know, the last movie I’ve been to in a movie theater.

Andi: Tell me.

Joe: I think, the movie was called Hitch. Oh gosh. With Will Smith.

Andi: Chevy Chase?

Joe: Oh, I don’t know. It’s been probably 20 years. Wow.

Marc: No stadium. Stadium seating and movie theaters was a godsend for me to get me back into the movie game because before those arrived when I would sit.

Down. You can’t tell from looking at me, but I’m six foot seven. So when I would sit down in a movie theater, there would be audible groans behind me, that this giant just, sat down to block the screen. One time, one time I heard a, husband or a boyfriend lean over to his date and say, you want to, you wanna move?

And she huffed, huffed and puffed and, no, I’ll look around this guy’s melon head. So thank you for stadium seating.

Joe: yes. no. I take that back. I don’t, man, I can’t remember the last movie, but it’s been a while.

Andi: yeah. Hitch was actually 2005, so Yeah. You would’ve been right about 20 years if that was your last movie.

Joe: Yeah. Kevin James, Will Smith. He was like,

Marc: I haven’t seen Hitch.

Joe: Oh, Kevin James is trying to hook up with his princess. And then Hitch is like, he’s, the guy, he’s the one that puts ’em together.

Andi: He’s very, isn’t he supposed to be like a relationship expert or he telling guys how to get girls or something like that?

Joe: And then he, and then, what’s, I forget her name off the top of my head. Very, gorgeous actress was in it as well.

Andi: Eva Mendez?

Joe: Yes. Eva Mendez.

Marc: Andi’s looking at notes.

Andi: Yeah, of course. That’s what I do. Yes. I’m the librarian on this show.

Joe: No. all right, back to Superman. I’m 55 years old.

Divorced father of two children in college, jointly supported. I got a late start to investing because there was no 401(k) equivalent while I was serving in the military after college. Well, thank you for your service, sir.

Marc: Yes, thank you, Superman.

Joe: Nonetheless, I maxed out 401(k) and target date funds over the last 25 years.

My financial summary includes this. We got income of 160,000 home value, five 50 remaining mortgage, three 30, traditional pre-tax, 1.7 million. Roth 300 HSA 10 cash, 30 taxable brokerage account of 15,000 and added $1,000 per month into retirement. Got no pension but Social Security of 31,000 at 62 or 54,000 at 70.

I’m hoping to retire in two years at 57, so I’ll need to bridge that gap until 62, but I can use the rule of 55. Okay, well sure. I anticipate needing a hundred thousand dollars a year pre-tax. Today’s dollars, assuming no a CA premium credits based on my personal and family health history. Life expectancy is 85 years old and this guy is just

Andi: an engineer.

Joe: He’s got a dial spreadsheet, for sure. He’s a spreadsheet mania. My vehicle is low mileage 2014 Toyota Camry. My drink of choice is a good French press, coffee or espresso. Here’s his questions. I don’t think Clark Kent drinks express though.

Marc: No, he does not. No, He’s not drinking a drink with the pinky up in the, with the pinky up in the air.

I don.

Joe: no. Okay. Let’s go. Despite a high, early drawdown rate, is it feasible to retire 57 or should I work another year or two? I love my job, but if I no longer need to work, I’d rather focus on travel and my hobbies. Number two, once I retire, does it make sense to do Roth conversions? And if so, what is the best option to pay the tax?

Number three, dare I ask if I could consider an annuity for more fixed income? Sorry Joe, I would really appreciate your spitball on my situation. Still looking for my lowest lane. Ah, keep looking. She’s out there. Well, let’s see. So he is 55. He wants to retire in a couple years, 57. Wants to travel, find the lowest lane, drink ex espressos across the world.

he’s got a total of $2 million, and he wants to spend a hundred grand. He’s got a bridge the gap. he’s close.

Marc: Think thinking about retirement soon, I’d like, to see him have a bit more liquid assets. The, 30, the 30,000 in cash and everything else is in, what it, I guess he’s, yeah.

Yeah, it’s what, it’s 15 in brokerage and 1,000,007 in the deferred. If, it, I’d love to see him build up a little, bit more cushion. that was, more efficiently accessed if he needed it.

Joe: I agree there. 57. And then let’s say he’s gonna claim Social Security at 62. So if he wants to spend a hundred and he doesn’t have, his fixed income is what?

Just the Social Security at 31, 38 or 70?

Marc: Yep.

Joe: You’re saving a All right. But he is saving a thousand bucks a month. So if he works another, what, three years or two years?

Marc: Yeah, 4,024 grand. That’s another

Joe: 50. So call it 2.1 million. He’s got it 57 and then he wants to spend a hundred thousand.

Andi: And he is talking about using the rule of 55, which is where he would be able to start withdrawing from his 401(k) in the year that he turns 55 if he quits his job. Is that correct? Have I got that straight?

Joe: That is correct, yeah. As long as you separate from service at 55, you could take money from your 401(k) plan and avoid the 10% penalty as long as you separate from service at 55 with the employer and keep it in the 401(k) plan. So is that a good strategy? Should he use that?

Yeah, I think so, but I, don’t know. he’s short, he doesn’t have enough, I hate to say it, Superman. So at age 50, so he’s got $2 million today. He’s saving a thousand bucks a month, $24,000 a year. So $50,000 over the next two years. I’m just assuming, you know, a flat rate. So he is gonna have $2.1 million at 57.

So if he’s spending a hundred thousand dollars at age 57, that’s a 5% distribution rate at 57, which I don’t really care for because he is gotta take a hundred thousand dollars out. Per year plus tax. Plus a cost of living. He has very little tax diversification, right? Most of it is in a retirement account.

He’s got some brokerage, some cash, but most of it is gonna come from a retirement account. So this a hundred thousand is all tax at ordinary income rates. So he’s got five years of distribution, or even, well, let’s call it five or four years. I’ll be generous with him. Four years of, so he needs to pull out $400,000 from his portfolio over the next four years from 57 to 62.

So if I look at, 2.1 off of

Marc: 2.1

Joe: 400, yeah. 400,000. Two, one. So he’s pulling out 20% of his portfolio before it’s aggressive, before he even hits 62.

Marc: It’s aggressive if the

Joe: Market goes down. I don’t know. We’re, in big trouble.

Marc: Yep. You’re in with no cushion, right? if the market goes down, he’s got nowhere else to go.

Joe: Nowhere else to go.

Marc: Nowhere else to go

Joe: at age 62. If I look at a hundred thousand dollars living expense, given a 3% inflation rate at 62, that’s 115,000. He claims his Social Security, he’s gonna have an $84,000 shortfall at 62. If he takes 4% outta the portfolio, he needs 2.1 million. And I don’t like 4% at 62.

I think it should be a little bit less, maybe three and a half.

Marc: I agree. Two aggressive.

Joe: So he needs to work a couple of more years, or he could work part-time. I don’t like the 5% burn rate at that young of age because that’s so much money coming outta the portfolio in the, I mean, if the market’s down.

Yeah. Even one of those years taking that much money out, that could really blow him up. If the market is performs, then, he is fine. but I would not bet my life savings on. Alright, well here, let’s just hope that the market does okay.

Marc: Yeah, I, like the, half the sort of the half step idea of getting, of getting some sort of, part-time job that, that’s helping, ease, close that shortfall.

But, because he, if he pulls the trigger on this to me and we run into it, we run into a market, some market unpleasantness, he’s going, he’s probably going back to work anyway. Yeah.

Andi: Now he says he loves his job, so if he continues working at his full rate and, holds off on taking Social Security, doesn’t take it at 62.

I mean, that could put him in a significantly better position, couldn’t it?

Joe: Oh, for sure.

Marc: Absolutely.

Joe: yeah, if he continues to work, if he loves his job, he makes great income and he’s saving a, you know, 20 some odd percent of his income into the retirement accounts. So if he continues to do that instead of to age 57, you know, if he can hold on to age 60.

I think this situation looks completely different.

Marc: Yeah, I agree. If he wants

Joe: to, if he wants to retire at 57 and let’s say works part-time and makes 50 grand, so now his distribution is not a hundred grand, it’s not 5%. It’s only two and a half percent at 50,000 plus tax. Way better. I like, yeah. Yeah. I like that math too.

So he can withstand some market corrections. He can withstand volatility. But if you’re, ticking 5% at 57. you, get some volatility there, you’re gonna freak out. You’re gonna be like, oh my God, I gotta pull another a hundred thousand out. I’m gonna go all in cash.

Marc: Yeah. Yeah. Probably at the exact wrong time.

Joe: Exactly. And then it’s like, okay, well when do you get back in? Yeah. And then you’re already pulling way too much money out and you’re gonna be stressed. There’s no way he’s gonna find Lois Lane just, he’s gonna be too stressed drinking espressos. Just freaking out. He’ll, Just, he won’t be able to sleep.

Oh my God. Poor guy.

Marc: Pounding the espresso, sweat, pouring down. Sweat, pour down his face. No, be a low swing, a outfit, you know, just

Joe: walking around his living room.

Oh, he’ll be lucky

Marc: to find Mimi from the Drew Carey Show. Gosh, I’m so, I’m sorry, Andi.

Joe: He’s going to Comic-Con.

Oh, all

Marc: you wanna hit his annuity question, Joe?

Joe: Oh no, do not. No,

Marc: Only go with an annuity if it’s fully invested in Bitcoin.

Joe: I could see, I, guarantee he’s done the math, right? Yeah. Because he, the, like you could tell by his questions, you know, the aca Yeah, then you’re like, Hey, is it okay if I take a large distribution? If it goes down to somewhat normal, I don’t know what he is running for a rate of return on his investments, because it does go to a 4% at 62.

so he is like, all right, well, I think I could be okay if I bridge this gap. So anyone’s saying a CA. Bridge. Yep. they’re doing spreadsheets or they been listen, listening to this show for, or unless he’s a financial advisor and he just wants, he wants our opinion because he knows he’s close.

He’s learned a lot in the six months he is been listening. Yes. No, I would not, I would not purchase an annuity or you’re just gonna, well, unless he wants to live off of something a lot less than what he, that, he stated, you know? if, he wants to take the market risk out of play and if he wants a guaranteed income.

Then sure, I would run the numbers. But you’re gonna have a, guaranteed lower income for life and you’re gonna have less flexibility, but you’ll have a floor and you’ll have guarantees. So, I mean, you, if you want guarantees you’re giving up something,

Marc: converting it to ordinary income.

Although, although what he’s no, that, no, that he’d be, buying an annuity inside the, inside, the tax deferred accounts. That’s where he’d be doing it. Or, well, I’d rather have

Joe: them do that than a non-qualified account than all you’re doing is getting more tax or ordinary income versus turn it into ordinary income.

Marc: No, forget the annuity. Even if it’s all Bitcoin.

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When Can I Retire? The Sooner the Better. (Tony Soprano, NJ)

Joe: Let’s move on. Let’s go to, Tony Soprano, in New Jersey. Never saw the whole series of the Sopranos.

Andi: I’ve never seen a single episode. I have to admit, I’m not into the violence like you are, Joe.

Marc: What? It’s not violence, it’s just No, it’s real life. Yeah. It’s a family show. It’s a family show. Come on. There’s different, there’s just, there’s different ways of making a living. Andi, come on. Let’s be a little less judgmental for crying out loud.

Joe: Yeah. I do like the violent, the more violent shows.

Andi: Yeah, you do.

Joe: I do.

Andi: At least you admit it.

Joe: I do. Well, I just saw the Ballerina. That’s the female version of John Wick.

Marc: Ah. Sons of Anarchy. You’re a Sons of Anarchy fan, Joe?

Joe: I am a Sons of Anarchy fan, yeah. Love it. Very much so.

Marc: Absolutely love it.

Joe: yeah, I love all the actors in that. That’s, I mean, that’s a phenomenal show. Really good, produced, great acting, all the above.

Marc: That makes for great family dinners at our house when we’ve got, a hail of gunfire going off in the back, in the background. That’s fantastic.

Joe: Oh, all right. Let’s get back to Tony. Here we go. Hey, guys, love the energy of the show, A good mix of fun and education. Subaru crosscheck

Andi: Or Crosstrek, whatever.

Joe: There’s no way Tony Soprano is driving a Subaru Crosstrek and drinking cold water. No, you gotta pick like Fred Rogers. Not, Tony Soprano.

Marc: This is Professor Plum. yeah. Not Tony Soprano.

Joe: I enjoy hearing your breakdown. Other caller’s finances and give helpful tips, but most of those have a much higher net worth than I do. So I’m interested in how my breakdown will look. Hoping you can spitball my situation. I wanna know when I can retire. The sooner the better. And any other tips about asset allocation, location, et cetera? I’m 56, current salary 121. Here’s what Tony’s got. He’s got 350,000 in a four oh three b, call it 70,000 in a Roth.

Two 50 in a brokerage account, two 40 in an IRA. Total assets are about $900,000. Breaks down 70 30 allocation. He’s 56, makes a hundred grand a year and has almost a million bucks. I love it. That’s like nine x of your income at 56.

Marc: I love it. Yes.

Joe: I think he’s doing phenomenal.

Marc: He’s doing just fine. Being too hard on himself.

Joe: Yeah, I know, right? 70 30 allocation. I will have a pension when I turn 60. A $40,000 no cola. My Social Security at 62 will be 25,000. I have no mortgage than any other debts. My house is worth 500 grand. I estimate my expenses in retirement will be between 65 and $75,000 in today’s dollars.

Thanks to making my New Jersey commute more bearable. Alright, Tony, I think you’re sitting in really good shape here. You’re 56? Yes. You one. A retired 62. Is that the number? The sooner the better. He said sooner the better? Yep. All right. So at 60, he’s got a nice pension of 40,000. he’s got four years and he wants to spend, let’s call.

I’m gonna split the difference of 70,000.

Marc: Yeah.

Joe: And we got four years. We’re gonna go 3%. future value of that, it’s 78,000 minus 38. Thousand. So $40,000, a million dollars, 4% Badda, boom, badda, bing. I think he’s right there. Pretty close.

Marc: He’s right, there. I’m, jealous with all that guaranteed income coming in, that, that, shortfall between the, between the guaranteed income and his spending goal. It’s tiny.

Joe: Yeah. I mean, it’s 4% for a couple years. I mean, I would push out Social Security as long as you can because he’s only taking 4% out. So if he retires at 60, his like. and if I use 70,000 as the number, he said 65 to 75. So 70,000, you know, give that inflation, call it 78. 78 minus 38 is $40,000.

I would push out Social Security as long as you can. If, like, if the market blows up, maybe you take it a little early. That’s the only time I would take my Social Security at 62 just to kind of stop the bleeding of the distributions to let, my investments recover. But. I would try to push out Social Security as long as he can because he’s only taking 4% out at age, you know, 62, I think.

Yeah. Once Social Security hits it, the, there’s very little draw.

Marc: It might be able to turn it off. Yeah. Yeah. And then, think about where that money’s going down the line to heirs. could there, there could be, some interesting, estate planning and gifting and donate.

Yeah. What, whatever, he might wanna do from a legacy perspective. with that guaranteed income waiting, once that gap is bridged, Tony’s looking. He’s looking pretty good.

Joe: Tony doesn’t tell us if he’s married, so he’s single. He’s 56 at $121,000 of income. He’s in the 20, probably the 22% tax bracket.

Lemme see. Asset location. He’s 70 30. I don’t think he needs to take on that much risk. If he’s looking to retire in four years, I would probably tone that down maybe a little bit. I agree. 70% equities in all time home. You know, you, gotta get a glide path sooner than later. You don’t wanna switch your portfolio the day before you retire.

I agree. Because if the market blows up, you lose 10, 20%. You know, then he’s, he, could get a little tight. Yep. so I would rearrange the portfolio. Now, the brokerage account, it’s in mutual funds. I would wanna look at that. I would probably wanna have something, maybe a little bit more tax efficient.

ETFs versus mutual funds. You know, mutual funds, depending on if they’re active or passive. Yeah, sometimes they’ll kick out a little bit more dividends, capital gains interest because the portfolio managers kinda manage those dollars within. I would probably be more equity heavy in the brokerage account and more bond heavy in the, IRAs just to kind of match the tax there.

and then I would look at, depending if he’s married or single, if I’m in the 22% tax bracket, I might wanna convert a little bit. if he’s married, he’s definitely in the 22. If he’s single, he’s probably on the top end of the 22. ’cause he’s got good diversification from a brokerage account and IRA, but I would like a little bit more in, in a Roth.

But, but besides that, I think Tony’s doing great,

Marc: the really aggressive assets in the Roth Joe.

Joe: Yep, for sure. Yep.

Andi: I have a question. Marc mentioned something about potentially turning off your Social Security after you have started claiming it, and I assume you’re talking about after that guaranteed income comes in, that’s not a strategy that we’ve really talked about much.

Joe: No. Turn off the distributions he said.

Marc: Yeah, I might, if I said that I might’ve misspoke. Maybe I had won too many New England IPAs, but no, I was say, I was thinking, about turning off the draw on the brokerage. Once that Social Security income comes in, then maybe you look at dialing down or maybe even turning off the draw out of the portfolio.

Andi: Got it. Okay. Cool. Thank you for the clarification. Yeah.

Joe: Yeah, he could stop the, distributions entirely. Maybe he still takes distribution, from the retirement account to the top of maybe the 22% tax bracket, get more money into Roth that’s going to, you know, probably reduce, well, it will reduce his RMD in the future too.

So, ’cause he’s not gonna need that money and it’s just gonna continue to compound and then you’re just gonna get more growth and you’re gonna have to pay tax on that growth. I’d rather. Pay the taxes now, get that into a tax free environment. So all my growth grows 100% tax free. I just buy my partnership back.

So I think there’s a lot of different planning that Tony would want to take a look at. But you know, each and every year is different. You know, that, that’s what’s funny. You know, they, send us questions. It’s like, all right, well, WW what we say next year might be completely different. And what we say that the following year might be completely different.

And no, Tony, you can’t send me emails every year. this is just a one one shot pony here.

Marc: spitballs are one and done. They’re one and done the one and done one. And done.

Next Week on the YMYW Podcast

Andi: Marc Horner joins us again next week to spitball on Rae and Roy’s lopsided tax triangle and Elwood Blues’ dream to retire in the next 2 to 3 years. Watch Marc’s bio video in the episode description to learn more about him, and click or tap the link to schedule a free financial assessment with one of the experienced professionals here at Pure Financial Advisors.

YMYW Podcast Outro

Andi: No matter whether you’re in Chicago, Denver, Seattle, Nashville, Phoenix, Salt Lake City, Southern California, or just chilling by the bonfire drinking scotch, the Pure team can meet you either in person at one of our offices nationwide or online via Zoom. They’ll partner with you to customize a unique and comprehensive financial plan to help reduce your taxes in retirement, match your investments to your risk tolerance, and ensure you can meet your needs and goals in retirement. Book your free assessment by clicking or tapping the link in the episode description or by calling 888-994-6257.

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

_______

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