Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 01:09 – Should I Sell My Business or Wait? Is It Crazy to Spend More on My Vacation Home Than My Primary Residence? (Fine and Dandy, IL)
• 20:48 – Saving to Roth IRA vs Traditional IRA in the Final Year Before Retirement (BB and Shell)
• 23:50 – When to Take Your First RMD for the Maximum Tax Benefit (Joel, CA)
• 27:33 – Aging Alone in Retirement: How to Protect Assets Before Cognitive Decline (David, 68, Logan, NM)
• 35:37 – Why Some CPAs Cap Roth Conversions at $500K AGI (Shweta, CA)
• 37:05 – When Does It Make Sense for Retirees to Have an Emergency Fund – and How Much? (Brian, Albany, NY)
• 42:03 – Outro – Next Week on the YMYW Podcast

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Transcription

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

Intro: This Week on the YMYW Podcast

Andi: When you’re standing at a major financial crossroads, the timing of your decisions can mean the difference between success and failure. Joe and Big Al spitball on the “when” of five retirement decisions, today on Your Money, Your Wealth podcast number 569. We’ll kick things off with a whale of an email: “Fine and Dandy” is 42 years old with a multimillion dollar private equity offer on the table. Should he sell his business now or hold out for a second bite of the apple later? He also wonders if it’s crazy to spend more on his vacation home than his primary residence. David calls “himself an “elderly orphan,” flying solo at 66 and in need of a plan to protect his million-dollar portfolio as he ages. BB and Shell are trying to time their final year of retirement contributions to save as much as possible before moving to a lower-tax state. Should they go Roth IRA or traditional? Joel wonders when to take required minimum distributions from retirement accounts for the maximum tax benefit, and Brian in New York needs a spitball on when it makes sense to have an emergency fund as a retiree, and for how much. I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Should I Sell My Business or Wait? Is It Crazy to Spend More on My Vacation Home Than My Primary Residence? (Fine and Dandy, IL)

Joe: And then, so this is. We got one spitball that’s 15 pages long. Yep. All right. Gotta get my reading glasses here. Okay. We got Fine and Dandy. What movie does that remind you of?

Andi: That’s from a movie?

Joe: fine and Dandy. I don’t know. It’s a song.

Andi: It’s a saying.

Joe: If somebody asks you how you doing?

Andi: You’re fine and dandy.

Joe: Yeah. me, Little Whorehouse in Texas.

Al: Oh really?

Andi: That’s what it reminds you of.

Al: That’s what you think.

Joe: They have a song. It’s like at the end of the movie, you never, have you ever seen the movie? No. Speaking of Dolly Parton. Dolly Parton, Burt Reynolds.

Al: Yeah. I like that movie.

Joe: Yeah. It’s a good movie.

Al: Yeah.

Joe: Fine and Dandy from Illinois. Good afternoon, Big Al, Joe, and Andi. First time writing, so eh, first time writing in. So I hope I’m doing this right and I’m not using any big words to trip you up

Andi: too late.

Joe: just write normal. I love your take on a spitball. I’ve been listening to your show for a little over a year.

You and I binge episodes while in the sauna after working on, at the gym. Awesome.

Is that fine or dandy

That’s

just hanging out in the sauna.

Al: The peon either. Good boy.

Joe: I always catch the new weekly episodes and work on my way backwards whenever it’s not Tuesday afternoon. I’m in 2022. In your show.

Wow. At the moment. Wow. 2022.

Al: A few years ago.

Joe: Yeah. I can read a lot better in 2026 than I did in 2022.

Al: Oh yeah.

Joe: That’s some practice.

Al: You did get some, you got some practice.

Joe: all right, man. 2022. At the moment and you are given a spitball to people panicking about the dip, the fun stuff.

All right. I drive a 2016 Tesla Model S and it still looks, feels and drives like new. my wife drives a 2024 Bobo XC 90 recharge, and we use it to haul around our two young children, 23 months and nine months. Wow. What is that called? Irish twins.

If they’re like,

Al: yeah, I know what you’re talking about.

Joe: I’m between a certain, yeah. Maybe it’s 12 nine or, I don’t know. You don’t know what Irish twins are either, Andi? look at, the education.

Al: It’s,

Joe: we are, just feeding everyone today here. But it’s nine months. You gotta be less than nine months.

Andi: 12 months.

Joe: Okay.

Andi: Irish twins refer to siblings born the same mother within 12 months or less of each other.

Joe: 12 months?

Al: Yeah. Okay. They just, missed,

Joe: they just missed the Irish twins. Okay. both are paid off the cars, not the kids. Ah, for a bourbon on the rocks. And I’m not too picky about the brand, but I do like eagle rare in Bard stone.

Keep me mid shelf or better.

Al: All right.

Joe: Eagle rare. Never heard of Eagle Rare or Bard Stone,

Al: neither.

Joe: my wife prefers a red wine. Typically a cab or a syrah.

Al: Ah,

Joe: I like the wine too, but nothing makes the end of the day feel more complete than a bourbon. Once the kiddos have gone to bed and the house is quiet, I’m 42, wife’s 41, and we’d like your take on a few things.

I’m hoping to be financially free. Not sure if I’d retire, but I’d like not to care about earning another penny by the time I’m 50. Me too. I’ve got pretty. I’ve got a pretty fat wallet, as you might describe it, and I’ve been investing in the market since I was in my teens over the past 13 years. I’ve been my own boss anyways.

Buy never sell. Here’s the numbers.

Andi: Always buy, never sell,

Joe: always buying, never selling, making t-shirts with that 22 or $2.2 million in a brokerage account, you do. Got a fat ass wallet

Al: right off the bat

Joe: right there. 41. Just slaps you in the face with this thing.

Al: Yeah.

Joe: He just takes his wallet out, throws it right on the desk.

That thing made a giant thud,

Al: by the way. Instead of you reading all these, he’s got about four, million dollars in a taxable account.

Joe: Okay.

Al: He’s got, he’s got, tax brokerage, he’s got about 1.3 million in tax deferred and maybe a hundred thousand in Roth.

Joe: Okay, so he also has 5 29 plans, with about $7,500 in it for their 23 month year old.

I’ll probably open another 5 29 plan for our son in the next month or so and set them up, for a debt-free future. We own a rental property worth $550,000 that I bought last April for cash, and it’s generating about $2,000 a month deposit of cashflow. We also own a condo worth about $500,000. That has an.

$180,000 mortgage on It also generates about a thousand dollars in profits after all expenses. I bought it in the 2000, I bought it in 2008 as my first property and have rented it out since my wife and I got married and bought our home in 2016. Our primary residence. It’s worth 1.5 million with $700,000 left on the mortgage with an interest rate of 2.125.

Last December, we purchased some land to build a dream vacation property for $1.2 million, and I owe $140,000 on the land. We’re hoping to build a two, two and a half million dollars vacation home on that property over the next couple of years. When it’s all said and done, I’d like to carry a mortgage of about a million dollars on that property, so I’d like to cash flow the build to cut down any future overhead costs.

All right. Where does this guy live? Illinois. All right. Where’s the vacation home, do you think? Do you think it’s on a lake in Illinois?

Al: That’d be my guess.

Joe: Yep. Okay. I also own a business currently worth around 14 mil. I am 50% partner in the building we operate is where $2 million that we brought in 2018.

Again, 50% is mine. A private equity company came knocking and I’m debating what to do to sell or not to sell.

Al: Okay?

Joe: If I sell, I’m financially free. Free. Am I financially free at such a young age. I currently make anywhere from 800 to $1.3 million a year. In recent years, my wife pulls in about 150, $175,000 as a business owner herself, she owns a garden center garden.

What is a garden center?

Andi: That’s a place where you go buy your plants and your soil and your tools for gardening.

Joe: That’s kind of cool. Is that like a,

Al: like Armstrong’s or one of those?

Joe: Oh, yeah,

Andi: Walter Andersen. Something like that. Yep.

Joe: Yep. Okay. We spend around 17 to $20,000 a month currently between living expenses, our nanny and discretionary spending.

So a lot goes towards saving, investing in a recent land and rental purchases. Our average spending might be more if you consider travel cost, but travel is currently free due to having over $10 million of Amex points in counting. We typically take one to two nice trips a year using the points all the way, with my friends and family.

Okay. If I were to sell the company, I’d remain employed and my salary would drop to about $300,000 a year. I’d get 80% of the sale cost upfront. 20% would roll back in with the goal of selling again in five to seven years, four or five times multiple, but that’s an unknown. Of course, I currently max out my 401(k).

My wife simply, or my wife’s simple. And drip $15,000 a month into the brokerage account. There’s no pensions in our future, and Social Security is 30 years away. So who knows? Here’s my question. From a financial perspective, should I sell? I could keep making my million dollars a year with the business continues to do well, or do we de-risk and take some chips off the table?

I could keep focused on the business and try to get that value up over the next couple of years. Am I on track to retire at 50 if my goal is to no longer to earn an income and be able to spend lavishly? Am I there? I’d like to be able to have a big ass budget from 50 plus and be able to spend $400,000 or more without stressing.

Is it crazy to spend more money on a beca on my vacation property than my primary can I afford a $3 million vacation home? When you consider the land plus the building, plus the build and the desire to be free by 50, I know it’s a lot to ponder and there’s more to the should I sell question than just the financial spitball, but what would you do from a purely financial perspective?

I know it’s a good problem to have, but even good problems. Need a spitball. Thank you. Buying and dandy.

Al: Okay, well

Joe: all right.

Al: Lot here.

Joe: Lot of meat on the bone. Okay, so he is got four, four and a half million dollars currently.

Al: Yep.

Joe: And liquid.

Al: And he is making a million to 1.3 per year.

Joe: Okay. He’s gonna sell the business.

14 million.

Al: Yeah, he, his, he gets half. So between the business and I guess if they sell the property, he’d get about 8 million out of that.

Joe: Is that, but that’s not his portion. That

Al: No, that is his portion. It’s 14 million and,

Andi: 2 million for the land or for the building.

Al: So six 16 million total. He is gotta split that with his partner.

Okay. So, and he said, that he would get 80% upfront. I just took 8 million times 80%. That’s 6.4 million. I don’t, what’s

Joe: the basis on the business?

Al: I don’t know. Probably low. I just said let’s 2 million tax just to come up with a figure. I end up with about 4.4 million. You add it to his 4.3, you end up almost 9 million, and 9 million.

if you, if you wanna spend, he’s currently spending about 20,000 a month. that would be, less than a 3% distribution rate. So I think I’m okay with that.

Joe: he wants to live lavishly and spend 400.

Al: I know. So

Joe: it’s not gonna cut it.

Al: So, so, so then I might actually wanna not sell. So how much would, if he wants to spend 400,000 a year, at a 3% distribution rate. You want to go kind of a low distribution rate when it comes to, retiring so early. So you would need about 13 million to, for that, to get 400,000 at a 3% distribution rate.

Joe: Well, hold on. Let’s let’s take a step back here.

Al: Well, let me finish. Alright. Before I do, before we do,

Joe: because he’s still working, he’s got $300,000 of income that is still gonna come in.

He, I know retired 50, so he’s got a bridge of 10. Of like, what, eight years?

Al: Well, so here’s

Joe: what we’ve got. 4, 8, 9, and then he is got another eight years. That nine could be 18 plus his savings could be 20 million by the time he turns 50.

Al: Oh, I agree. In fact, that’s what I’m gonna tell you.

Joe: Oh, okay. Sure.

Al: You’re thinking the same.

Joe: Alright,

Al: so he is got about nine, almost 9 million right now. I just did 6%, eight years with no additional, assuming the 300,000 he makes, just pays for his bills. Sure. He ends up with 14 million. Then he can spend his 400,000. Now of course there’s inflation, so the 400,000 will be something higher.

But, so that has to be calculated. But yeah, I think this, I think this looks good, but you know that. In terms of retiring at 50. but the real question is, should he sell right now, Joe or not? And I think for me, if it’s strictly financial, I wouldn’t sell. ’cause you’re gonna make that in just a few years anyway, and then you could sell it.

on the other hand, I dunno anything about the business, how steady is it? I mean, if this is a business that is going to be around for a long time and you’re quite confident, I might wanna keep it. If there’s a risk that, this, there, maybe there’s, is technology involved and that’s gonna be replaced by something else, maybe you sell it, you take the cash right now, I, to me it, it depends upon the nature of the business probably.

Joe: there’s a lot to, to chew on here and I think he, he mentioned that he’s like, yeah, just from a financial perspective, do the numbers make sense, but from a financial perspective as well. Is that alright? You’re gonna get a second bite of the apple in five years.

Al: That’s Right.

Joe: So, Al and I have a very personal experience with this.

Because we sold part of our business to a private equity firm.

and we’re coming up on that five year right. Where now it’s looking at, does. what does the business look like today versus what it looked like five years ago?

Al: Yeah.

Joe: And did it grow? Did it stay the same and was it stagnant?

You know? So I think it’s what type of business that you’re in and can you continue to build and grow it?

Al: Yes. To me, that’s the key.

Joe: You know, if hindsight’s 2020, did it make sense for us? To sell a portion of our company five years ago versus waiting five years. Of course, it’s always gonna make more sense to wait if you have a good business,

Al: if it’s a growing company, if it’s

Joe: a growing company because you’re making a million dollars a year, but that million dollars is ordinary income.

The 14 million that you’re gonna receive is gonna be tax at capital gains. So you look at, all right, well what is the tax differential of this? Do you wanna continue to build and grind? And work as hard as you are. you know, to continue to build the bottom line of the, business. But now he’s got two young kids, a 23 month and What He’s got the Irish twins. Yeah. Close nine months. Yeah, there’s nine months. Yeah.

Al: Yeah.

Joe: The Italian twins,

Al: got

Joe: it. The Norwegian twins. Yeah.

Okay. So yeah, I think there’s a lot of. But, taking chips off the table still makes a lot of sense as well, right? It can, so can the business grow faster than, you know, a diversified portfolio in the market?

Is it, or how much, what, is that Delta? Yeah. How much more risk are you taking?

Al: Yeah. So let’s go down that path. One second. So I’m, I actually like taking chips off the table when available, but I wouldn’t do 80%

Joe: right. What, and then you’re 40 too.

Al: Yeah.

Joe: I mean, do I wanna sell 80% of the company at 40?

I would much rather sell 30% of the

Al: business. Yeah. have a majority ownership. You’re still in control. You still have, bring in a minority partner, take some chips off the table just for comfort, and then let it ride depending upon your confidence in the business.

Joe: I guarantee this he here or, did he say his wife is the garden business, right?

Yeah. So he’s a grinder. because he wants out at 50.

Right?

Joe: I know exactly what he’s thinking.

Al: Yes, he does.

Joe: You know what I mean? It’s like you’re working 80 hours a week and you’re, stressed about the business. You’re the boss. You got the partner, and then, you know, it’s like, you know, it’d be nice not to worry about making another dollar if I have enough cash.

I guarantee he’s still gonna work some or do something, but I don’t know how happy he would be. By running his business, his pride and joy Is still at 40 by selling 80% of it and still working in the business. I, yeah. You get another bite of the apple, but it’s gonna be significantly less. The private equity firm is probably, they’re really smart people.

Al: Yep.

Joe: So they know that they have a really good business here that they’re looking to purchase, and then that it has growth potential or PE money wouldn’t even come sniffing at you.

Al: Yes, agreed.

Joe: They see it. They’re like, this is a really good opportunity for us to get a. Whatever acts on their dollar,

Al: right?

Joe: Because they’re, they have a mandate of what that private equity fund needs to do and needs to perform, and they’re gonna get their return prior to anyone else. Sure. And so they’re looking at this and they’re looking at the proforma of it and they’re like, you know what? This is a really good business.

We want to get in on this. So, yeah, there’s a lot of emotion that you have to weigh out just financially. I mean, you’re doing so well right now. At 40, you got $4 million. If you wait five years, you’re probably gonna have. Double that.

Al: Yeah. If, yeah.

Joe: Then sell when you get closer to 50.

Al: you’re, you make a great point.

If the PE firm is excited about it, then they think that’s got a huge future.

Joe: Yeah. They’re gonna get there four or five

Al: times. Yeah. So I, you know, in this particular case, yeah. Like Joe said, I don’t mind taking some chips off the table, but I wouldn’t do 80%. I’d do something much lower, keep in control, and then.

You grind a little bit longer. You got young children, like if you were 40 with two young kids, would you wanna be at home when you’re used to grinding?

Joe: I’d love my children and I would wanna just be there

Al: 24 7.

Joe: no. That’d be tough.

Al: Yeah. Be a little tough.

Joe: Yeah. Yeah, but, you know, private equity brings a lot of interesting dynamics to the business too, because they’re looking at it maybe from a different perspective than an owner.

They look at it as a, alright, well how does this thing grow and how does it mature? And what are some different avenues that we can really get into? How can we, you know, move some levers for you in, in, put more dollars into areas that maybe you wouldn’t have done. So,

Al: Yeah. They,

Joe: they, it’s definitely a, it’s a cool and interesting ride, but it’s, different.

Al: Yeah. It’s different. they generally come in with resources, knowledge.

Joe: That knowledge.

Al: may not have

Joe: Knowledge, resources you can tap into, you know, if you have contact, if

Al: you know you need a new, COO or something like that. O yeah.

Joe: So, yeah. Yeah, do your due diligence. Take your, I don’t know if there’s a rush.

but yeah, taking chips off the table, I think might make some sense, but we have no clue what type of business this is. No. And how long he’s been doing it. but I, imagine he’s pretty good at it. he’s probably been making a lot of money, for quite some time, given his net worth and the different properties that he has and so on.

But now going back to the vacation home, is it stupid or crazy to have a, a. More expensive vacation home than your primary dude. You’re a baller. No, I think it’s,

Al: especially if you can cashflow it.

Joe: Yeah. You’re cashflowing it. No, it’s all good. And let’s see, but you know, $3 million, if he’s cash flowing in, then he wants to go back and only have a million dollar note.

So you gotta take a couple million dollars out of the nest egg. It’s gonna be super tight. I mean, I don’t know if I’d wanna be that tight when he’s used to having that much cash flow coming into the household. And then all of a sudden that million three is now 300,000, all ordinary income tax. Your net paychecks are gonna look different. It’s gonna feel different. It’s you have to run the numbers. You, I mean, I would run 15 different scenarios, until I’m blue in the face, until you’re super confident that you know, hey, I’m good with the finances. And then you have to work on just your emotional wellbeing of, what the next 10 years is gonna look like to, I dunno if, yeah. We kind of beat that one up.

Al: I think so. I think that’s not bad.

Joe: All right.

Andi: You might be saving, investing, and avoiding the obvious mistakes, but you may still have no idea if you’re actually growing your wealth enough to have real freedom in retirement. Download our free Guide to Growing Your Wealth. It’ll show you how to zoom out and look at the big picture, including how close you really are to retirement, how long your money needs to last, and how to estimate whether your current savings can realistically support the lifestyle you want. You’ll learn a simple rule of thumb to estimate retirement income, how to think about your after-tax rate of return instead of the fantasy numbers people like to throw around, and why taxes and inflation quietly eat away at even good investment performance if you ignore them. The guide also walks you through setting a real savings goal based on your age and income, shows you why investing earlier matters more than investing perfectly, and explains diversification in plain English, including the two different ways to do it and why both matter for long-term success. Click or tap the link in today’s episode description and download the Guide to Growing Your Wealth for free.

Saving to Roth IRA vs Traditional IRA in the Final Year Before Retirement (BB and Shell)

Joe: Let’s go to B and B and Shell. Dear Financial Gurus, I’m having a difficult time figuring out whether my spouse and I will be better off if I contribute to a Roth versus a traditional. Any monies contribute to the Roth will be taxed at approximately 36%. This includes federal, state, and local taxes. I am 65 and plan to retire in a year.

We’re hoping to move to Oregon. To a much lower tax date or no tax date in the next couple years. Additionally, our federal taxes are likely to go down as well. Once I retire. Please let me know your thoughts. Kind regards B and B in shell. Well, it’s pretty easy.

Al: Yeah. What do you say?

Joe: I would say pre-tax.

Al: I would agree.

Joe: You’re in a pretty high tax bracket, 36% tax bracket. You’re gonna retire next year.

Al: Yep.

Joe: You’re moving to a, state that has no tax dates or, low tax dates.

Al: Right.

so they’re,

Joe: you’re gonna be in a lot lower tax bracket. I would just wait until next year and then do larger conversions.

Al: Yeah. It’s, it does seem like kind of a no brainer.

Get the tax deduction right now while you, while it makes sense for you because you’re saving a lot in a 36% bracket plus state. And now you retire, you’ll probably, I don’t know what your income is, but let’s just say you’re gonna be in a 22% bracket without state or a lower state. Yeah, that seems pretty obvious.

Take the tax deduction today. You’re gonna retire soon. Then start converting and you can convert. Just be careful on how much to convert. Take a look at how much you need to convert, how many years you have to convert, figure out what tax bracket makes sense, and then come up with a multi-year plan.

Joe: Yeah.

but I think too, sometimes people really don’t understand the arbitrage here. what you have to look at is what tax bracket that you’re in right now. So 36%, what tax bracket are you gonna be next year when you retire? Because now you have more control over your taxes than any other time because you’re creating the income that you need from the portfolio that you built up.

So is that portfolio all retirement assets? Is it, do you have some brokerage assets? Do you have Roth assets currently or is it all sitting in the retirement account? I would imagine that once being shell get into retirement next year, they’re probably going to be spending less than $400,000 a year.

Al: Right,

Joe: and it everything was coming outta your retirement account. You’re spending $500,000 a year, then maybe you do the Roth because you know, you’re roughly gonna be in the same, you know, federal tax bracket. But, in most cases, take the deduction, wait till next year, and then you can kind of figure out your conversion.

Al: Yeah, no, it, it makes sense. It’s, that arbitrage that you’re talking about, and it’s, not really that complicated. What tax bracket are you in today? What tax bracket are you going to be in retirement? If it’s higher in this case, maybe a lot higher, while you’re working. Then get the tax deduction and then convert when you’re in a lower bracket, and then you’ll end up with more dollars in your pocket.

So, yeah, that’s, a pretty easy one.

When to Take Your First RMD for the Maximum Tax Benefit (Joel, CA)

Joe: All right, we got Joel from California. No, this is not me. I have to,

Al: that was, that was my first thought.

Joe: Yeah, I know.

Al: Yeah.

Joe: I have to start taking my RMDs in 2026. Should I take it in January or take it in December? Any tax benefit taking it later in the year, quarterly estimate tax payments or is it a wash?

Tax wise? I can’t seem to get a simple answer on this question. All right. we could probably debate.

Al: We could, yeah, you could argue either.

Joe: You could argue either.

Al: I’m gonna argue December. And the, reason is because when it’s in December, then it’s only part of your fourth quarter. And if you have to make estimated payments, you can make those estimated payments on Q4, which for estimated payment purposes, is January 15th of the following year.

If you do the conversion in January,

Joe: not conversion,

Al: I’m sorry. If you do the RMD.

Joe: I’m gonna, I’m, I’ll go January.

Al: Okay, you go. You go January.

Joe: Yeah. ’cause I want to take it in January. Because I want to get the money out of that retirement account as soon as I possibly can. The longer you keep the money in, let’s say you have 20% return in the overall market.

Al: Yeah.

Joe: And your RMD is a thousand dollars. It doesn’t matter. So the 20% growth is growing in the retirement account. I would much rather have that 20% growth growing outside of the retirement account because then I’m subject to a capital gains tax versus the ordinary income. Other advisors would argue to say, no, you wanna continue to defer that income, you know, within the retirement account.

That could be true depending on the size of your retirement account. But if he’s asking us about estimated tax payments, I would imagine his retirement account is maybe larger than a hundred thousand bucks.

so I would take it out in January, but then you have the estimated tax payments that you have to deal with, which.

In most cases, it’s not that big of a deal.

Al: Well, yeah, but you lose that money.

Joe: Okay.

Al: Use of that money.

Joe: All right,

Al: so I’d take it in December. But you can argue either one. I think that, that this, tax wise, it’s the same tax whether you do it in January or December, it doesn’t matter, but it’s just a matter of when you have to make those payments.

So if estimated taxes and payments and use of those tax dollars, is more important to you, then go ahead and make it in December. If you wanna get the money out earlier in a growing mark market, that can be a good idea. You get it out before it grows, maybe invest it. Outside of the, retirement account and it grows and you don’t have to pay ordinary income tax.

So yeah, you could argue either way, but I, me personally, I would do December.

Joe: I would do

Andi: January if you were gonna do a QCD with your RMD. Does it make sense when you do it?

Joe: No.

Andi: Okay.

Al: Not really.

Joe: There’s no tax.

Andi: Yeah. I’m just saying, would it make a difference if you are getting it out of your account earlier than later?

Joe: In that case, you would want the deferral to continue to grow in the retirement account, if you will, because then you can then if, you’re gonna consistently do QCDs and you’re not gonna pay tax on those dollars anyway, and then when you die, it’s gonna go to a charity. I’m not really worried about the tax.

Then it’s, okay, well, well how can I leverage the account as much as I can to get it to the charity? It could be. Probably waiting on that is, is better.

Al: Yeah, I agree with that. Qualified charitable distribution. So that’s when you’re 70 and older, you can actually put money directly from your IRA, to a, charity and up to a hundred thousand dollars a person.

Yeah, I agree with you, Joe. You do that one in December because you let your account grow. Charity’s gonna get the money one way or another, unless the charity needs it earlier.

Joe: Yeah,

Al: Then that’d be another reason.

Joe: Okay, cool. moving on.

Aging Alone in Retirement: How to Protect Assets Before Cognitive Decline (David, 68, Logan, NM)

Joe: Let’s go to David from Logan, New Mexico. Hello Andi. Big Al Joe.

I’m 68. I’m a 68-year-old man living in Logan, New Mexico. Never heard of Logan, New Mexico. Is that beautiful? Find out town, country.

Al: Yeah. Not sure.

Joe: He drives a 2004 Hyundai accent and drink a Busch beer.

Al: Oh,

Joe: is it Busch heavy or Busch light? No.

Andi: Logan has a population of 970 people. No wonder we’ve never heard of it.

Oh

Joe: 970.

Andi: 970 on the 2020 census.

Joe: Got it. Wow.

Al: Okay.

Joe: He aspires to upgrade to Coors Light one day. You know, I got cousins that live in, a town in Minnesota called South Haven.

Al: Okay.

Joe: It’s about 560 people.

Al: 5 5 60.

Joe: Yeah. Maybe a little bit more. Maybe a little bit less.

When I was a kid it was 208. When we drive there.

So I think it’s a booming metropolis.

Al: It’s more than doubled.

Joe: Yeah.

Al: Wow.

Joe: Yeah. They like Busch light

there

too.

Al: Yeah. Busch light.

Joe: They love it.

Al: That’s a small town beer maybe. Yeah.

Joe: I don’t mind. Busch light.

Al: Yeah.

Joe: Don’t have it.

Al: Not sure I ever had it.

Joe: Yeah. he wants to upgrade your Coors Light one day. you remember the Pepsi challenge?

Al: yeah.

Joe: I don’t know if I could pass the Pepsi challenge on Busch light of Coors Light. I mean, they’re pretty similar.

Andi: Well, if somebody could give you Busch light and you would think that it is your favorite drink of all time, that’s amazing.

Joe: I’d like

Al: you wouldn’t tell then you couldn’t tell.

Joe: I don’t know.

it’s been a long time since I’ve had a Busch light. but I remember when I had a Busch light, it was like, yeah, this is pretty good.

Al: I, did you so you can take, tell the difference between Pepsi and Coke.

Joe: Can I?

Al: Yeah.

Joe: Not today. I don’t, I haven’t had a soda in,

in a

long time.

Al: Well, I, haven’t had one in 20 years myself, but, I back way back when, to me it was, the Pepsi was sweeter,

Joe: you know, who won the challenge?

Al: no

Joe: Pepsi.

Al: Yeah, I, yeah, there their was sweeter,

Joe: but you know, who had the biggest wallet share? I mean, people would, take the Pepsi challenge? Yeah, they’d pick Pepsi.

Al: Yeah.

Joe: And they would still walk onto the grocery store with a cake, with a Coke.

Al: Got it. Got it.

Joe: you,

Al: you follow that pretty closely?

Joe: Loyalty? No, I just, I was some stupid thing that someone was talking about it.

Al: Got it. Okay.

Joe: But yeah, I follow it. I keep on

Al: and you remembered

Joe: Yes. Waiting for it to come back. Waiting for it to come back. all I have no pets, but I’m hoping a stray cat with a notched ear will appear soon.

That’s interesting.

Al: I’d never hoped for that.

Joe: I mean, yeah,

Andi: that’s gotta be a reference to something.

Joe: Yes. Yep. I don’t know what that reference is. I’m hoping you can tell me how an elderly orphan with a modest portfolio just over a million bucks, could position my assets for the possibility of cognitive decline, or if I’m forced into assisted living.

I will not have friends or family who can manage my finances for the moment. Social Security covers all my expenses, but I anticipate having to tap my retirement accounts in the future. My only income is 21,800 and I have $264,000 in a Roth, $614,000 in a traditional IRA $122,000 in a brokerage account.

$32,000 in IBANs. Thanks for your assistant. David. A humble peon.

Al: Peon. Okay.

Joe: All right.

Al: Yeah.

Joe: So David’s chilling in New Mexico drinking his toys, which is,

Andi: by the way, Logan, New Mexico is three hours away from Albuquerque. So he’s literally like in the middle of nowhere.

Al: Okay. Well, good to know.

Joe: And he’s an orphan with a modest portfolio, so he is got a million bucks.

That’s a ton of cash.

Al: That’s not modest. That’s big.

Joe: That’s nice.

Al: Yeah.

Joe: That’s healthy.

Al: Yeah. that is healthy.

Joe: So it’s like, okay, well he might need to go to, he’s planning for

Al: his future demise,

Joe: I guess. His future demise. His future cognitive decline.

Al: Yep.

Joe: so I don’t know if he’s asking who can help him manage his dollars or how he should be managing the dollars today.

Al: Well, I’m

Joe: assuming that in,

Al: I’m

Joe: wondering that 10, 15, 20 years or whatever the timeframe is that he needs to go to a a.

Al: Yeah, I think. I have a couple. Let’s, answer it both ways. All right. I think the first one, is try to simplify as much as you can. if you have multiple accounts, combine them. So you just have a few accounts.

Keep it simpler.

Joe: Keep it at one custodian. Yep. So if you’re Roth, your 401(k) and your brokerage account,

Al: yep.

Joe: Put it all at the same custodian, Charles Schwab, TD Ameritrade, or fidelity or. I dunno, Vanguard or wherever?

Al: Yeah. with your bills. I, would say automate as much as you can. You know, most banks, allow you to set up ongoing payments, or even vendors like your utility company or whatever it may be, will, they’ll withdraw from your checking accounts.

You don’t even have to think about it. So that’s one thing I would do. I think, if we think about investments, I would. I would probably keep them simple too. Maybe just have two or three or four, ETFs. you know, maybe, even just three. Maybe a US stock fund, a international stock fund, and a bond fund and call that.

Good.

Joe: Yeah. You could, also hire. couple things. Let’s say you could, of course you could hire an advisor to help you with it, and if something were to happen to you or you could, have a, like a corporate trustee or fiduciary trustee to say, Hey, if I have to go into this, I need my bills paid. Yeah. I, you know, I need to pay for the assisted living If I’m not able to do so myself. There’s, several different options, to make sure that a, the finances. Taking care of. Yeah. And then that you’re taking care of with the finances that you need to make sure that you’re still, you know, not on the streets.

Al: Yeah. There are bill paying services that cater to elderly, so that’s one way to go.

I actually looked it up. They’re called daily money managers, Joe, that’s who handles bills of elderly people.

Joe: You’re looking

for yourself soon?

Al: yeah. I already signed up.

Joe: Got it.

Al: This show is making me decline quickly.

Joe: all Well, David, you’ve done an awesome job of saving. yeah. And, I think, yeah, keep things pretty simple at this, point, hire a, an advisor, to potentially help you with all of this, or you can go the other route to kind of hire a, a fiduciary or corporate trustee if you want to continue to manage your own assets, until there’s a time that, that you don’t want to or you can’t.

So plenty of options. Yep. Alright.

Andi: Retiring at 62: great idea or a huge mistake? For some, retiring early at age 62 is considered the “sweet spot”, but will calling it quits this early set you free or will it actually set you back? This week on a brand-new episode of Your Money, Your Wealth TV, Joe Anderson, CFP® and Big Al Clopine, CPA share the formula for creating lifetime income, bridging the healthcare gap before Medicare, and keeping more of your savings from the IRS — along with tips to ensure your early retirement is a rewarding one. Find out how to stress-test your strategy against inflation and market swings so you can retire with financial confidence and a clear sense of purpose. Click or tap the links in today’s episode description to watch YMYW TV, and to download the Retirement Readiness Guide. It walks you through income planning, Social Security, taxes, healthcare, investments, and legacy planning, so you can see where you stand and what to fix before it’s too late. As soon as you’re done watching or listening to the podcast, click or tap the links in the episode description to watch YMYW TV and to download the Retirement Readiness Guide. Start making smarter decisions with your money today. Courtesy of Your Money, Your Wealth® and Pure Financial Advisors.

Why Some CPAs Cap Roth Conversions at $500K AGI (Shweta, CA)

Joe: I have no idea how to pronounce Shweta.

Andi: I believe you just did. I think it’s Shweta.

Joe: Shweta.

Al: That’s a pretty good Shweta.

Joe: Okay. on episode, oh God, someone’s gonna call us out on something.

All right. On episode five ninety nine, I call her mentioned that A CPA advised keeping AGI under $500,000 when doing Roth conversion.

The listener wondered why. Beyond the MFJ tax bracket cutoff of around 5 0 1 0 5 oh to stay in the 32% tax bracket, the CPA may also have been pointed to the salt cap changes. Fillers under the $500,000 of income can now deduct up to $40,000.

Andi: Filers, not fillers. Tax filers.

Joe: Oh, filers. Oh, filers under five, whatever.

Yeah, they’re filling the bracket. That’s, yeah. I thought Schwa was talking like taxing,

Al: fill, fill up a bracket. Yeah. Well, that’s a true statement, so we didn’t think of that. So that’s actually a very good comment. So. 2025 to 2029, you can actually deduct up to $40,000 of your state and local income taxes.

Property taxes and the like. But it starts phasing out when you’re married at, 500,000. Actually. 505,000 in, 2026. Yep.

Joe: alright. Thanks for the comment.

When Does It Make Sense for Retirees to Have an Emergency Fund – and How Much? (Brian, Albany, NY)

Joe: All right. We got Brian from Albany, New York. Hey Joe, Al, and Andi, I’m a loyal listener. And appreciate your spitballs and love the humorous banter question.

What is a proper amount to have an emergency fund as a retiree? Various internet sources suggest anywhere from one to 24 months. Here’s the particulars. I waited until 70 to claim Social Security and have been debt free, including the house for years and don’t live extravagantly. Our combined Social Security is adequate to cover all of our expenses.

What we pull from retirement savings is for discretionary purposes such as vacations, maybe home read model. Next year, I’ll need to start taking those RMDs, which will be more than I’m currently drawing from the IRA. I have additional funds in a brokerage account in a Roth. I understand that having an emergency fund can protect you from drawing down investments in a year where the market’s down, but I’m gonna have to take RMDs regardless of the market condition.

Look forward to your comments, Brian. very good question, Brian. So cash reserves. So cash reserves are very important, and they’re more and less important in different stages of life, depending on what your fixed income is when you’re working. Cash reserves are very important in case you lose your job correct in case you get disabled in case whatever happens and you have a mortgage to pay for.

You have kids to, you know, to put meals on the, you know, on the table. So that’s why you hear, you know, cash reserves is a very important component because you don’t want to go in debt and that thing snowballs, in case that cashflow or income doesn’t, continue to come into the household. But Alan, at retirement.

It’s a little bit different story because he’s got plenty of liquid assets, that he doesn’t necessarily need. He has fixed income that is covering all of his expenses at this point, besides some vacations and some ancillary things, so. How much cash reserve do you think good old Brian should have?

Al: Yeah, it’s a great question. Personal choice. I mean, I would probably do like three months. I don’t think you need a lot. However, the second part of what you said is for a market downturn, I, view that. Is differently than an emergency fund.

Joe: Right?

Al: I would like you to have maybe three years at least in bonds or safe money, so the market goes down for, a continuous period of time.

You’ve got safe money that really hasn’t gone down. That’s different to me than an emergency fund. Emergency fund is just exactly for that. Something happened you didn’t expect,

Joe: right? Yep. So, but, so yeah, he didn’t tell us his asset allocation, and this is probably one of the only emails that we get where we probably needed the asset allocation.

True. A lot of times they give, well, I’m in this fund and that fund. It’s like, I don’t care, but Brian here. Yeah. That wouldn’t make a little bit more sense, like, how much money do you have in stock and stocks and bonds, and then what type of bonds do you actually own? You know, are they longer in duration where they’re.

You know, maybe a little bit more risky, but they’re giving you a higher coupon. Or are they shorter term? Are they treasuries? Are they corporates? You know, and then that can help determine, all right, do you have enough fixed income or short term safer type monies in that stock market decline that you know, your bonds usually perform or they stay flat, that you can then sell, you know, to provide your income.

Given the RMD, right? You don’t have to sell anything. So let’s say you, it’s in a down market and you have to take your required distribution market’s down 30%, and you’re like, oh, I have to take my RMD from my retirement account as long as it’s an IRA. If it’s in a 401(k), then you have to sell this security.

So you have mutual funds in your 401(k). You have to take the RMD outta the 401(k), you sell the security. And then you get the check and it’s gonna come to you in cash, and then you can reinvest it. But that might take a couple of days, couple of weeks, or month, depending on, you know, the efficiency of that 401(k) provider.

If it’s in an IRA, so I’m just gonna use, I don’t know, pick a custodian. Fidelity, I have an IRA at Fidelity. I have to take my required distribution and it’s a hundred thousand dollars. I don’t have to sell any of my securities in that. IRAI can just transfer a hundred thousand dollars worth of X, Y, Z stock now into my brokerage account.

That’s the best way to do it because then when the market recovers, all of that recovers gonna go in the brokerage account versus the retirement account. And then that recovery when you do sell, it will be taxed at a capital gains rate. Versus your ordinary income rate, so don’t think that you have to sell.

But now if you do have money in a 401(k) plan, that’s a really good option for you to roll it into an IRA to give you some flexibility or optionality when it comes to your RMDs.

Al: I agree with all of that.

Joe: Wow. Okay.

Al: That’s just, I got, I got nothing to add

Joe: full of good nuggets today. Earning our keep.

Outro – Next Week on the YMYW Podcast

Andi: Daniel and Jemma both need help with their parents’ finances. Cookie and Gerry and Fred and Wilma and George and his wife are 40-somethings looking for retirement spitballs, and Jonathan is 26 and hoping to retire early. Joe and Big All spitball for all of them and more, next week on YMYW.

Your Money, Your Wealth is your podcast! If you enjoy the show, tell your friends and help us reach more listeners like you. And don’t forget to leave those honest reviews, comments, and ratings for Your Money, Your Wealth in Apple Podcasts, on our YouTube channel, and in all the other apps that let you do that like Amazon, Audible, Castbox, Goodpods, Pandora, PlayerFM, Podcast Addict, and Podchaser. We’re on all of them!

Schedule a free financial assessment with one of the experienced professionals on Joe and Big Al’s team at Pure Financial Advisors. Like a spitball, it doesn’t cost you anything, but the major difference is that this is a comprehensive, one-on-one analysis of your unique situation, and your plans and goals for the future. 100% just for you, not for the entire YMYW audience. They’ll review where you are now, where you want to be in retirement, and they’ll help you develop a plan to get you there. Click or tap the Financial Assessment link in the episode description or call 888-994-6257 and  schedule yours now. You can meet in person at one of our offices in San Diego, Woodland Hills, Irvine, Brea, or Davis California, Mercer Island or Redmond in the Seattle, Washington area, Greenwood Village in the Denver, Colorado area, Lehi in the Salt Lake City, Utah area, Franklin in the Nashville, Tennessee area, or Wheaton or Northbrook in the Chicago, Illinois area. Or you can meet with the Pure team online via Zoom no matter where you are. Click or tap that Free Financial Assessment link in the episode description to get started.

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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