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Joe Anderson
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Alan Clopine
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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
ABOUT Andi

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
December 5, 2023

Should Brian in Binghamton, New York pay off his mortgage for a guaranteed 6% return? How bad did Steve in Pittsburgh screw up his retirement, and can he afford to buy a new house away from his neighbors? Can Susan and her husband in Cape Canaveral, Florida retire in a year and a half, and should they pay off their mortgage? And how can Edith and Archie in Kansas maximize Roth conversions and factor paying off the mortgage into their retirement spending strategy? Plus, Steve and Marcia in Indiana and Florida wonder about their retirement spending, and whether they should collect Social Security now or wait until age 70. Should Sunny D in Arizona keep potential withdrawals in cash or sell investments as needed to satisfy required minimum distributions (RMDs)? We kick things off with Shelly’s voicemail about investing the proceeds from the sale of a business. 

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Show Notes

  • (00:58) How to Invest $1M From the Sale of a Business? (Shelly – voice)
  • (06:55) RMDs: Keep Potential Withdrawals in Cash or Sell Investments as Needed? (Sunny D, AZ)
  • (10:00) Pay Off Mortgage for Guaranteed 6% Return? (Brian, Binghamton, NY)
  • (15:52) How Bad Did I Screw Up My Retirement? Can I Afford to Buy a New House? (Steve, Pittsburgh)
  • (21:40) Can We Retire in 1.5 Years? Should We Pay Off the Mortgage (Susan, Cape Canaveral, FL)
  • (32:14) How to Maximize Roth Conversions While Spending From Our Portfolio and Paying Off the Mortgage (Archie & Edith, KS)
  • (39:39) Retirement Spending and Collecting Social Security Now or Wait to Age 70? (Steve & Marcia, Indiana & Florida)
  • (47:56) The Derails

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Transcription

Andi: Should Brian in Binghamton, New York pay off his mortgage for a guaranteed 6% return? How bad did Steve in Pittsburgh screw up his retirement, and can he afford to buy a new house away from his a-hole neighbors? Can Susan and her husband in Cape Canaveral Florida retire in a year and a half and should they pay off their mortgage? And how can Edith and Archie in Kansas maximize Roth Conversions and factor paying off the mortgage into their retirement spending strategy? That’s all today on Your Money, Your Wealth® podcast 458. Plus, Steve and Marcia in Indiana and Florida wonder about their retirement spending and whether they should collect Social Security now or wait until age 70, and should Sunny D in Arizona keep potential withdrawals in cash or sell investments as needed to satisfy required minimum distributions? But first, we’ll kick things off with a voicemail about investing the proceeds from the sale of a business. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

How to Invest $1M From the Sale of a Business? (Shelly – voice)

Joe: If you leave a voicemail, you get top billing.

Andi: That’s the policy. Voicemails get priority.

Al: Top of the list.

Joe: Because we got emails that are from like 2021 we’re trying to get through.

Al: We’re about 40 pages behind. So yeah, voicemail.

Joe: All right, Shelly left a voicemail. So what does Shelly have to say here?

Shelly: “Hi, Joe, Big Al and Andi. I’m reaching out with a question. After 30 years, my husband has been able to sell his business. Currently, we have about $1 million dollars in our bank account and we are looking for investment. He’s 55 and I’m 51. I have a pension of $4,000 a month with a COLA and we have about $1. 2 million in other investments. We are really looking to let this money build on itself for my husband’s “pension”. And just wanted to know if you had some suggestions, we’ve never had this kind of money to invest before.“

Joe: All right Shelly.

Al: Yeah. Got a little windfall from selling the business.

Joe: Yeah. Congratulations.

Al: Yeah. That’s fantastic.

Joe: We have a lot of different ways we could take this Big Al.

Al: We can. Where do you want to start? I mean, I guess the first thing is it helps to know a little bit more information. But we’re just going to answer it kind of generically, based upon what little we know.

Joe: Okay. So they got $1.2 million in other investments. They just sold the business. They have $1 million dollars, $2.2 million. They’re 50 years old. After 30 years. Okay. So maybe he’s done. He’s 55 and he’s like, I’m punching. I sold my business. I want to retire. I want to create my own pension.

Al: I would answer it completely differently if he wants to retire now versus 10 years from now. So let’s start with he’s done. He sold his business. I’m out. So what would we do?

Joe: Alright, so $2.2 million. She’s got a $4,000 pension, but is she collecting her pension?

Al: Well, good question.

Joe: She’s 51.

Al: That seems early to collect a pension.

Joe: Her husband killed it, made a million bucks. They got another million, she’s got a $4,000 pension. So they got 2; 3 times 2 is 12, they can live off of $120,000 from the investment, plus another $4,000 there, that’s 50. So, can they maintain, I mean, what do they want to live off of? That’s probably the next obvious question.

Al: Well, wait a minute, $3 million, what? 2.2 times 3%.

Joe: You’re saying 3%?

Al: 3%!

Joe: Okay.

Joe: 3%, so that’s $60,000.

Joe: $60,000.

Al: $60,000, maybe a little more. But we’ll call it $60,000 plus her pension of, call it $50,000. I don’t know when she’s collecting it.

Joe: So $110,000.

Al: Let’s just pretend that she’s collecting it now. We’ll answer it that way. Okay. So if you want him to generate 3%, how would you invest it? Probably 60% stocks, 40% bonds.

Joe: Yeah. I would go low-cost index funds. It’s something simple. You could do the little three mutual fund jobber.

Al: Sure.

Joe: You have full stock, you know.

Al: Total U. S. stock market, total bond, U. S. bond market, total international stock market, Vanguard or whoever.

Joe: That’s if they want to do it themselves. It’s a couple million dollars. They’re still young. They could grow this thing. Uh, they could create income from it. There’s probably tax strategies. I mean, we, we just have very little to go off of, but with the information that I have, that’s what I would say. Okay. Go globally diversified, low cost, probably 40%, save 60% equities. And then if you need to draw some, then figure out an income strategy. But if you’re not comfortable doing that, probably seek some advice.

Al: And/or if you’re not comfortable with the risk, even if you’re comfortable doing it on your own, maybe you go less stocks, but maybe you do 2.5% distribution instead of three, which is a little bit safer anyway. And when we throw out these distribution percentages. This is just the starting point.

Joe: Such garbage

Al: I was going to say more than garbage, but it’s just, it’s not like gospel. Please don’t say, okay, these guys said I can do 3%. No, we’re not saying that at all. We’re saying this is approximately what you could do.

Joe: You look at a globe. And you say, where is London? Okay. You see it, right? It’s this far away. I mean, it’s on that continent. So how do you get there? I don’t know.

Al: It’s East,

Joe: But the problem is that we’re just trying to give people maybe peace of mind. Are they close? Can they do this? You know, they have a windfall of cash, you know. Her husband’s been grinding for 30 years, finally had the opportunity to sell it. So congratulations there. Now, what do we do? Do you have enough money to retire? Maybe. We don’t know what you’re spending because the amount of money that you need is all derived from what the portfolio is for. What’s the demand on the overall portfolio? But we make it sound like, Oh, okay. But the real work starts with all right now you have this $2 million dollars or $3 million or $1 million or $500,000. That’s a ton of money. Now if that $2 million goes to $1.5 million, I’m sure they’re not going to be very happy.

Al: Right. Yeah. Yeah, exactly.

Joe: If it goes to $2.5 million versus $1.5 million, they make their $2.2 million into $2.7 million, or $2.2 million into $1.5 million, they’re going to be twice as pissed that it went to $1.5 million versus the happiness that they got to get it to $2.7 million.

Al: Yeah. I do agree with that. The loss is always more painful than the gain is jubilant. Right now, on the other hand, if they’re not going to retire right now, we don’t know how much they’re spending. They probably still need to work. I’m guessing at that age and whether it’s full-time, part-time, we don’t have enough information. If they’re not going to touch the money for 10 years, you could be a little bit more aggressive if you want to, right? Let it grow. Because you can handle the volatility. It depends upon a lot of factors, but yeah, that’s a quick generic answer. I would say.

Joe: Thanks Shelly.

RMDs: Keep Potential Withdrawals in Cash or Sell Investments as Needed? (Sunny D, AZ)

Joe: We got Sunny D. I remember Sunny D.

Al: Me too.

Joe: “Hello Andi, Joe, Big Al. If one is required to take RMDs, then should one keep three or so years of potential withdrawals in cash within tax deferred accounts or sell investments every year to raise cash needed?” Interesting. So he’s thinking, all right, with the RMD, it looks like Sunny D doesn’t need the cash though, if he doesn’t need the cash, don’t worry about it because you can take an RMD out in kind.

Al: You can, meaning you can take it out of stock shares or mutual fund shares or whatever.

Joe: So if the stock is down, you just take the shares out and then it grows back in a non qualified account. So it’s even better to take the RMD when the stock is down. If you don’t put it in cash and sell it or spend it.

Al: Keep it invested.

Joe: If you need the money to live off of, yeah, then you would probably want to have a strategy for income that is included in the RMD.

Al: Yeah, I think we, we like to say it this way, when you figure out your overall portfolio allocation, depending upon what your goals are, what your rate of return is. One thing you want to check is that you probably have at least 5 to 10 years of safe investments, whether that’s cash or bonds or whatever it is for you. So yeah, if you’re talking about needing cash for RMDs for three years, yes, it can be bonds. It could be cash. It should be safe money. We would say 5 years, maybe even 10 years, but you’re right, Joe, if you don’t need it and you want to keep investing, you’re okay with the risk and the volatility. Yeah, just distribute shares, you’re fine.

Joe: The only thing is, if it’s in a 401(k).

Al: Yeah, because you have to do cash there.

Joe: But an IRA. Another reason why Sunny D, if he’s got a 401(k), maybe just move it into an IRA. So he doesn’t necessarily have to worry about it. But like with, with money coming out of a 401(k), they cash it out, then you get cash distributed to you.

Al: That’s always, you can’t, you can never get anything but cash out of a 401(k).

Joe: Unless it’s company stock and then you do it.

Al: You do it anyway. That’s another topic, another day.

Andi: It’s nearly the end of 2023. Before you make any big decisions about retirement, or even your financial plans for 2024, schedule a free assessment with one of the experienced financial professionals Joe and Big Al’s team at Pure Financial Advisors. They’ll take a deep dive into your entire financial picture, rather than just spitballing on the fly. From Roth conversions and tax planning to Social Security optimization and investment management, they’ll uncover all the strategies that fit your situation. And they won’t try to sell you any products or charge you any commissions, because Pure is a fee-only financial planning firm. Pure is also a fiduciary which means they have to act in their clients’ best interests. Meet in person at one of Pure’s offices in Southern California, Seattle, Denver, or Chicago, or via Zoom right from your couch. Schedule your free assessment now. To get started, click the link in the description of today’s episode in your favorite podcast app, go to the show notes, then click the Get an Assessment button.

Pay Off Mortgage for Guaranteed 6% Return? (Brian, Binghamton, NY)

Joe: We got Brian from Birmingham.

Andi: Binghamton.

Joe: Oh, I’m sorry.

Al: You’re really close.

Joe: Yeah, I need glasses. “Hi Andi, Al, Joe. Love the show. Let’s get the important things out first. I drive a 2014 Toyota 4Runner and I will drink pretty much anything socially. Wine, beer, mixed drinks.”

Al: Anything goes. How about that?

Joe: Pretty much anything goes. “Two bat#### crazy boxers for pets.

Andi: I’ll bleep that. No worries.

Al: Thank you. You can’t say that.

Joe: Sure you can, that’s the name of the pet. Bat####. “Now for my question. I’m 53 and my wife is 48. I plan on working until probably 65. We have a 10 year arm on our home, which just hit the 10 year mark. And took on the current mortgage rate. So we went from 2.75 to 6.05.”

Al: Yeah. That’s why you don’t do the arms.

Joe: That’s going to hurt. “When we originally took out the mortgage, we were in a situation to have it paid off in 10 years.”

Al: Oh, now I see. That was their thinking. Lowest interest rate, get this thing paid off.

Joe: “And not be subject to a potential rate increase. However, due to situations beyond our control, my wife had to become a stay at home mom, and we became a single income household, and our plan to pay off the mortgage in 10 years was dashed. So here we are, we have a little less than $100,000 left on the mortgage. I’m thinking of selling $50,000 worth of stock from our $235,000 brokerage account and taking a $50,000 loan from my 401(k); value at $780,000 to pay out the mortgage in full. I understand the potential opportunity costs associated but to me, with the 401(k) loan, I’m looking at a guaranteed 11% rate of return because I will not be paying the 6% mortgage interest. I’ll be paying myself back 5% interest on the 401(k) loan. The $50,000 from the sale of stocks will be guaranteed 6% from not having to pay interest on the mortgage. I will have to eat the tax implications, the capital gains from the stock sales, but I could sell some losing stocks to lessen the tax burden. My other option would be to pay the increased mortgage amount for a year or two and see what happens to mortgage rates. And at that point, look for a potential refi at a lower rate. I would really appreciate your thoughts on the subject. Once again, I love the show. Keep up the great work. Ryan.”
$100,000 loan, went from 2.75% to 6%.

Al: Yeah. So that’s pretty unappealing. Right. The loan interest rate more than doubles. You got $100,000 left. And so your interest rate, probably your amount of interest you pay probably went up about $3,300 per year. Something like that.

Joe: What would you do, Big Al?

Al: What would I do? I would try to come up with a plan to get it paid off as soon as I could as long as I still had my savings plans intact, you know like my 401(k) and other things like that because I don’t really like the 6%. I don’t know that I would do either of these ideas. I like to have money outside of retirement just for other things besides paying off a mortgage. And I certainly wouldn’t do a 401(k) loan. I think that the math is backwards. I think you have to subtract one from the other, not add them together. In other words, yeah, you’re, you’re not paying 6%. I get that. But you’re paying yourself 5%, right? So they, I think they negate each other. And basically you’re losing out on the investment income in the 401(k).

Joe: And you’re paying with after tax dollars.

Al: Yeah. And to pay that back, it’s going to cost you $60/$70, 000 because that’s after tax dollars.

Joe: You take $50,000 out. You got to pay it back with after tax dollars. So you pay taxes on it and then…

Al: You make $70,000, you pay taxes of $20,000. It’s tricky at best. I mean, the fact that there’s an extra $3,000 of interest expense per year. I don’t like it, but I don’t think it’s necessarily a game changer

Joe: If it was a, a lot larger loan,

Al: $1 million loan. That’s like too much. Right, ?

Joe: Yeah. It’s like another $20,000. Yeah. A few thousand dollars. I get it. It’s a pain in the ass. 6% versus 3%. So you doubled it up on interest. I don’t know, hold off, Brian, just let this thing ride out a little bit. Longer.

Al: Rates are probably gonna come, well, I shouldn’t even say that. We have no idea.

Joe: I know. Well, inflation,

Al: Let me just say that rates may come down.

Joe: Yes. Is the hike over? The market thinks so.

Al: Yeah, but the last few days the market does think so. But we’ll see.

Joe: Yeah. Brian, hold on. Do not take the 401(k)loan. This is, again, not advice. This is just a couple of kids talking smack.

Al: Yeah, well put it this way. I wouldn’t do it.

Joe: No, I wouldn’t, well I had in the past, I’ve taken a 401(k) loan. And I was like, this is the worst thing ever. ’cause I gotta pay this stupid thing back with after tax dollars. I got pre-tax dollars in, it was like, man, this is stupid.

Al: It’s twice as expensive to pay it off because you gotta pay the taxes to pay it off.

Joe: You gotta pay the tax and put it in after tax, before tax. Like this is stupid. So. Yeah. I didn’t care for that, but he does have, if he’s really worried about it. Yeah. You get a guaranteed 6 % rate of return. Then sell the whole $263,000 pay capital gains and pay it off and be done with it. And then take the money that you were paying for the mortgage and put those dollars back into the brokerage account and get the best cost average yet.

Al: Yeah. Yeah. I like that.

Joe: If you’re really upset about 6%, then just do that.

Al: 100 %. I like that better than the 401(k) loan

Joe: All right, Brian. Thanks for the question.

How Bad Did I Screw Up My Retirement? Can I Afford to Buy a New House? (Steve, Pittsburgh)

Joe: We got Steve from Pittsburgh. “Hey guys. I like the show.” He likes it, but he doesn’t love it. He tolerates it.

Al: CJ likes Mich Ultra, but Steve likes the show.

Joe: Yeah, it’s okay. Then I got nothing else to do.

Al: I’ve been listening for two weeks.

Joe: Yeah. I’ve been listening for the past two weeks and you guys kind of suck.

Al: I think I’m done, but again, that’s one question. Party question.

Joe: You’ve been listening for two weeks consistently. So he listened to two shows.

Al: Yeah. Because that’s how many we’ve done in two weeks.

Joe: All right. “I’ll probably get ridiculed.”

Al: Steve. It’s already happened, It’s too late.

Joe: It’s already happened, it’s too late. It’s over. “But here’s my dilemma. I’m a self employed person. I’ve been paid under the so-called table for many years. Claim the income that’s been 1099 and pay the appropriate taxes. I paid myself around $85,000, but I didn’t claim all the under the table income for social security. My first question is, did I screw up my retirement too badly? Since I didn’t claim everything, obviously it will affect my Social Security benefit. And I don’t have annuities or pensions to rely on. I’m 50 and she’s 52, and she hasn’t worked a lot and probably won’t receive a lot of Social Security benefits as well. We do have $400,000 in Roth IRAs, $50,000 in traditional IRAs, $90,000 in a SIMPLE plan, $190,000 in individual stocks, $300,000 in a brokerage account, and some mutual funds of $120,000.

Al: Wow.

Joe: Wow. Steve.

Al: So $1.2 million. That’s what I got.

Joe: Yeah because he’s getting all this cash under the table.

Al: Yeah. He’s not reporting it.

Joe: Yeah. It just pops into this.

Al: Easier to save.

Joe: “My last question; My neighbors are a-holes.”

Al: What does that mean?

Joe: A##holes. Can’t stand them. They have no respect for other people’s property.” Steve is just fired up.

Al: He is

Joe: He’s like, you know what? I don’t really care for your show, but I need your advice. I’d like your spitball. And by the way, my neighbors are a bunch of a-holes. Could you come and slap them up a little bit.

Al: And I know you’re going to make fun of me. So here we go anyway.

Joe: I already know I’m going to get ridiculed, so what the hell. My neighbors are a-holes. I steal money from the government.

Al: My name’s not Steve and I don’t live in Pittsburgh.

Joe: Okay, so his neighbors are a-holes. Can’t stand them.

Al: Do you like your neighbors?

Joe: Love them. Love my neighbors too.

Al: Yeah, I do too.

Joe: “I’m able to get around $100,000 for selling my home. Coupled with my $250,000/$300,000 from investments, I’d love to buy a new home for a total of around $400,000, leaving us around $700,000. I plan on working until I’m 65 and would like to draw a modest $60,000 a year from the investments and whatever Social Security benefits we’ll get. How likely would it be for this to happen?” Okay. “I drive a little 2017 F-150. She drives a 2019 F-150.” Steve’s got big ass trucks in his driveway. His neighbors are a bunch of a-holes. He does a lot of work. And he just cares, well he likes to show. I think I know Steve.

Al: Yeah, I think I’m getting a picture, too.

Joe: All right. “Drink water or lemonade. Nothing exciting, but whatever.”

Al: Oh, my whole image just changed. Did you have another image? Coors light in the backyard.

Joe: No, I don’t know. Handlebar, mustache.

Al: That’s probably right.

Joe: All right, Steve. Let’s do some math for Steve.

Al: Okay, well let me do Social Security. Yeah, of course. I mean, if you’re not claiming all your benefits, you’re gonna have less Social Security.

Joe: All your income.

Al: All your income, sorry. Uh, and… By the way, you’re supposed to, this is a misconception, not misnomer. Remember we got corrected on that one once. This is a misconception, uh, by a lot of people is if you receive income, it’s taxable whether or not you get a 1099. And in fact, I will tell you this. If you receive income without reporting it, it can be considered criminal and a certain amount of people go to jail for that. So I’m not recommending any of this that was done in the past, but the fact that you’ve done it, yes, it’s going to affect your Social Security benefits because there’s less earnings on your earnings record.

Joe: Yeah, my old man was pretty good at not reporting that

Al: Hiding it.

Joe: Yeah. Just have cash everywhere.

Al: Did he buy everything in cash?

Joe: Oh, everything in cash. When he died with his van and like there’s cash in the floorboards, there’s cash.

Al: Wow. Yeah. Hopefully you didn’t sell the van before you found that out.

Joe: We found it.

Al: Okay. Good.

Joe: Okay. So the neighbors are a-holes. He wants to get the hell out. He’s got a property in his sights.

Al: I think he can.

Joe: So he’s got $700,000. He’s 50 years old, right?

Al: Yeah. 50. So it’s going to grow 15 years. Even if it doesn’t add to it, it’s probably going to be $1.5 million to $2 million, right?

Joe: Sure.

Al: Yeah, $2 million at 65, you could probably take $80,000 out, plus whatever social security that you have. Who knows what that is because you kind of underreported, but let’s just say it’s another $20,000, so probably $100,000.

Joe: 15 years, $750,000 and doesn’t add another dime. It’s going to grow to $1.9 million. So he takes 4% from that. That’s $77,000.

Al: Yeah. Call it $80,000. Another $20,000/$25,000 social security and $60,000 will cost more then. But yeah, I think you’re okay, Steve, or whatever your name is.

Joe: Steve. I want a full report back. I want to see when you bought this house, where it’s at, and see if your new neighbors are a bunch of a-holes too. Because if your new neighbors are a-holes, it might not be the neighbors.

Al: It might be something else.

Joe: And when you write back in, I want you to say, I love this show,

Al: I love the show. And I love my neighbors. Those old ones.

Joe: They were a-holes.

Can We Retire in 1.5 Years? Should We Pay Off the Mortgage (Susan, Cape Canaveral, FL)

Joe: Got Susan from Cape Canaveral, Florida that wrote a novel here. I’m going to try to get through this as fast as we can. Okay. We got, “Hi Joe and Al. Really enjoy your podcast. I listen to them every morning while I’m doing my hair and makeup and getting ready for another day at the office.” Interesting. I could see her sitting there in the lights, putting a little makeup on, getting all ready to go.

Al: Yeah. I can picture it too.

Joe: She’s dreaming of retirement. She’s like, I hate my job.

Al: Yeah, but my hair’s going to look great. Makeup’s going to be good. I’m smart and educated.

Joe: All right. You look great, Susan. Way to go. Take control of your day.

Al: Look at you.

Joe: Yeah, I’m just talking to her.

Al: Motivational speaker.

Joe: She’s sitting there getting ready.

Al: I think every Susan I’ve ever known is beautiful. I can just picture it.

Joe: Wow. Big Al, Coming in hot. All right. So, let’s see here. “My favorite beverage is a beautiful tall glass of Cabernet or a really cold gray goose dirty martini with blue cheese stuffed olives.” Oh, I love blue cheese.

Al: Ohhh, I would like that too.

Joe: “My husband likes cold Coors or old fashion. I drive a 2018 Lincoln.” What is an MKC?

Al: I don’t know. Is that like…Andi is gonna look it up. Probably a big one, I’m guessing. A big giant one.

Joe: Yeah. “And my husband drives a 2017 Ram 1500 truck.

Al: We know that’s big.

Joe: “Blackout edition!” Oh, he’s a badass. He’s gotta black that out.

Al: Yeah. Oh, okay. Yeah. Pretty good sized SUV. Oh, yeah. Not as big as I thought.

Joe: Yeah, I like that. A little Lincoln lawyer. “Both paid for. These are our first nice cars after spending over 10 years driving beaters while putting 3 daughters through college without any student loans. It’s just a pleasure to finally have a nice ride with all the bells and whistles. And my husband loves his Hemi.” Of course he does. It’s all blacked out. Who doesn’t like a little blackout Hemi? “The car sacrifice was worth it as our daughters are now a vascular surgeon.” Oh, not to brag.

Al: Wow. That’s the first one.

Joe: “An engineer and a corporate executive.”

Al: Wow.

Joe: Look at the brains.

Al: Well, so Susan, good for you. So far I’m liking where this is going so far.

Joe: Okay. All right. “We couldn’t be more proud. I’m begging for a spitball analysis of a retirement situation. I want you to know if my husband and I can retire in 1.5 years? I’m a spreadsheet junkie and I’ve kept track of all of our expenses down to the penny for 15 years. I know without a doubt. What our retirement income needs is to live comfortably. The number is $118,000 after taxes or about $132,000 before taxes. I’m 57, husband 63. We currently have the following – $1 million dollars in IRAs, 401(k)s, only $60,000 of the $1 million is in a Roth. Pension income is $26,000, 100% survivor benefit. My pension, $16,000, with no survivor benefit, no COLA on either pension. We have already started collecting these pensions from former jobs. We have paid for rental property that provides $18,600 annually and is worth about $280,000. Husband’s monthly Social Security.”

Al: Yeah, so we got a bunch of numbers there.

Joe: Yeah.

Al: We’ll just skip those.

Joe: Yeah, a couple thousand bucks. “We have no debt other than $1,500 monthly mortgage payment with a balance of $192,000. We aren’t super eager to pay it off as the interest rate is only 2.85%. Using the simple 4% rules, my calculations show that my husband can retire at age 65. I can retire at age 59 ½ without running out of money as long as he promises to die by age 100, and I commit to dying before age 94.” That’s a tough commitment.

Al: It is.

Joe: That is with him starting Social Security at age 70, me at 67. We would use our 401(k) funds to bridge until we reach those social security ages. What do you think? Can we do it? One more question. Since virtually all of our money is in retirement accounts, if we did not want to pay off our house”

Andi: did wanna

Joe: If we did wanna pay off the house, what would be the best way to do it? I was thinking we could take all the Roth money, $60,000 and then pull the remaining $130,000 and pay tax on that. That would give us $190,000 to pay it off. Or should we just keep the mortgage since we can easily afford the $1,500 payment on the $118,000/$132,000 budget? I’m a union referee or retiree.

Al: They do have referees there.

Joe: They do have referees in the union, you know, because there’s a lot of arguments.

Al: There’s a lot of turmoil or drama.

Joe: Sometimes. Sometimes, it’s tough. So she’s a retiree. Health insurance until I reach Medicare age. One teeny tiny last thing.

Al: This could change everything.

Joe: All right. “Roughly $500,000 of our million dollars is in a Northwestern-managed IRA. And they are charging us a 1.25% management fee. The IRA is performing as well as our other IRAs in the 401(k)s, but I’m growing more and more uncomfortable paying that fee. Should I move our money to Fidelity, Schwab, Principal, et cetera? Thank you. Susan, Cape Canaveral.”

Al: That was high energy. A lot of info.

Joe: Yeah. All right Sus.

Al: Okay. Let’s see. We have a few questions, right? I think the first question is, can they retire in, is this the one that said 1.5 years?

Joe: Yep.

Al: 1.5 years. So, let’s see, if you take the pensions and the real estate income, I get about $60,000 of income. They need, what do they need, $118,000?

Joe: They said $132,000 after taxes.

Al: After, oh, I was going before. Yeah. I’ll just, I’ll just say $120. So they need about $60,000. So then, I look at the, I just looked at social security at full retirement age. Between the two of them, it’s about $70,000. Between their other fixed income and social security. It’s $130,000. They’re basically already covering their expenses, which is fantastic. I mean, it means that you can do this and then you’re in the great position to think, well, I don’t necessarily want to pull money out of the 401(k) while I let my social security grow or. Do you actually pull a little bit out? And oftentimes I would say, Joe, more often than not, you’re better off just pulling money out of the 401(k), letting the social security grow, the benefit more, as long as you have a more than an average life expectancy or better. Yeah. I think retiring in 1.5 years is probably very doable.

Joe: Yeah. Call it $120, $130. They got $60,000 in fixed income. They need another $60, $70. They got $1 million. Let’s say they pull 6%, 7 % out of the account for 10 years. No biggie. Because their social security is going to kick in in 10 years or so.

Al: Yeah, he’s 63, so it’s only 7 years, but still, if he waits till 70. Yeah, I would, I would.

Joe: Year and a half?

Al: Yeah, I would probably do that. I wouldn’t pay off the mortgage though.

Joe: No way, no.

Al: That’s way too low of an amount.

Joe: Alright, think of it like this too.

Al: Plus you need the money to be able to bridge this gap for social security.

Joe: You need liquidity. So you do that. You have no liquidity. So you save yourself a few thousand dollars.

Al: I think I’d go back to work just to pay the bills.

Joe: You’re debt-free. I don’t have any liquidity. So you take the money out of the retirement account. So you blow out of the Roth. You need to put more money into the Roth, not blow it up.

Al: Yeah, that’s not the best idea

Joe: If you take money, let’s say they cash out of the 401(k) plan $130,000 But their other income what are they going to pay in tax? 30/40%, 30%?

Al: Yeah or less

Joe: so it’s like you’re paying 2%.

Al: This is Florida, right?

Joe: No state tax. Yeah. I think Susan, work another 1.5 years, keep plugging away, and then when you retire young, I mean, if you still want, I mean, get a job and make $10,000 a year and take that $10,000 and pay the mortgage.

Al: At 2.85% plus, you kinda need the $1 million just to bridge the gap between now and social security. Plus after social security, like for any extras that you want. So yeah, I wouldn’t, and then the last question, Joe is, should she move it from Northwestern? And the answer is maybe,

Joe: I don’t know,

Al: it’s not that big a deal.

Joe: Are you getting advice? It doesn’t seem like – she’s got the spreadsheet. She’s running this stuff on her own. And if she’s just looking for investment advice, paying 1.25%, I don’t know. That might be a little high

Al: Might be a little high because Fidelity, Schuab, you could do it for less. On the other hand, I think where you’re going is if you’re getting a lot of advice for that, it may be worth it, but we don’t know.

Joe: If you’re just looking for performance on investments, yeah. Are you getting other types of advice? Are you getting strategy, tax advice, you know, retirement planning, all of that, then it’s probably worth it. But she seems pretty savvy.

Al: Sure does.

Joe: All right. Well. I’d like to get some other feedback on what happens to these people. Remember the CEO that goes, man, I’ve been a CEO for a couple of years and I absolutely hate my job. And then I said, keep grinding.

Al: Yeah, you did.

Joe: You were like, retire. Get out of there.

Al: You’re done. Life’s too short. You’re probably starting to feel that way. Now that you’re getting older.

Joe: Yeah, I kind of want to talk to him. I just kind of want to have a heart-to-heart.

Al: Now it’s like, I understand what you’re thinking.

Joe: Hey, we’re two years into this.

Andi: When you shift from saving for retirement to spending in retirement, your financial strategies need to change. Download the Withdrawal Strategy Guide from the podcast show notes and learn how to identify the most efficient plan for when and where your retirement income will come from, and which tax-smart tools allow you to keep more of what you’ve earned and give less of it to the IRS. Just click the link in the description of today’s episode in your favorite podcast app to go to the show notes and download the Withdrawal Strategy Guide for free. Then share the show and the free financial resources with your friends, family, and colleagues. And if you’ve got money questions, click the Ask Joe & Big Al banner right there in the podcast show notes and send them on in.

How to Maximize Roth Conversions While Spending From Our Portfolio and Paying Off the Mortgage (Archie & Edith, KS)

Joe: “Hey Andi, Big Al, Joe. This is a working-class tale about Archie and Edith.” Oh, Archie Bunker, huh?

Al: Yeah, All In The Family. Now you’re getting into my generation.

Joe: Yeah, my parents were big fans of that show.

Al: I’m sure they were.

Joe: “Looking for a spitball on how to best maximize Roth conversions while pulling money out of the investment to meet discretionary funding needs. I really enjoy listening to your show while walking or hiking with my Aussie. It’s a great blend of humor, camaraderie, and practical information. Archie retired at 62 and spends his time driving a Ford F350 diesel pickup while enjoying his hobbies.” What’s his hobbies? Driving the pickup?

Al: Something to do with the pickup, I guarantee it.

Joe: Oh, duck hunting? Squirrel hunting.

Al: Yeah. I bet you it’s hunting. I bet you. “I retired at 60, and I’m drawing a civil service annuity. I went back to work part-time when Archie retired to meet our funding shortfall. So Archie could postpone drawing Social Security until full retirement age. Archie and I currently have $225,000 in a brokerage account, $270,000 in a Roth. $625,000 in our traditional TSP.” So we got 6, 7, 8, 9, 10, 11, 1. 1 million.

Al: That’s what I got too.

Joe: “Archie is reaching his full retirement age this fall and has already applied for Social Security. My annuity covers our mandatory living expenses with $2,000 to $3,000 left over for discretionary expenses that we’ll spend on socializing with family and friends. Although I might argue that socializing is mandatory for my mental health, it’s not really discretionary.” Oh Edith, I’m with you.

Al: 100%.

Joe: “I’m really getting tired of commuting in my Honda CRV and plan to quit my part-time job in January. My dilemma is that Archie will be using all of his social security for his hobbies.

Al: Oh, come on, Archie spread the love.

Joe: “And I would love to have some discretionary money to enjoy myself. And do some upgrades to our home.” Archie’s out there just blowing.

Al: He is.

Joe: His hobbies are so important.

Al: He’s buying his hunting stuff, his camping stuff.

Joe: Fishing. Oh, all right. She’s got to fill us in. My mind’s going crazy on what the hell is Archie doing with all that cash for his hobbies? Oh, man, Edith, she’s got needs too.

Al: She does. It’s more than just talking to her friends.

Joe: Yeah, because it’s mental health.

Al: That’s right.

Joe: She needs to spend some cash.

Al: Just $20,000.

Joe: She’s driving the CRV probably 45 minutes back and forth on this part-time job because he retired and he’s waiting to draw Social Security. She’s the anchor

Al: She gets this annuity, pays for all expenses. He gets his. It’s like, well, that’s fine.

Andi: I’m totally imagining Edith and Archie from the TV show in this.

Joe: I’m out of here. I’m doing my hobbies. “I’m trying to figure out how to fund it. Well, maximizing my Roth conversions annually and staying in that 22% tax bracket. Once our 2.75% interest rate mortgage is all paid off, in four years, that will free up $20,000 annually. No, it won’t. Archie’s going to take that bit.

Al: Just don’t tell him.

Joe: “Options that I’m considering is going ahead and paying out the mortgage early using funds from my brokerage account.” We’ve got another theme here.

Al: Yeah, we do. Don’t we?

Andi: You just now figured it out.

Joe: Yeah. All right. “Going ahead and paying off that mortgage using funds from our brokerage account, reducing the $65,000. Annual Roth conversions to $45,000 and taking a cash withdrawal from the TSP of withdrawing the $20,000 from the brokerage account.” Did you follow all that?

Al: I guess we got some various choices.

Joe: “I’m very hesitant to use any IRA or TSP funds because we are self-funding our long-term care needs. I never could convince myself that long-term care insurance was a good value and the rate in the same category as whole life insurance or a variable annuity. Am I too conservative? Or does it really matter which option I choose? Looking forward to your spitball and we’ll be thinking of you all, while enjoying a craft beer or a little dry cabernet and watching the sunset.”

Al: Got it. Okay, I’ve got my answer. Number two.

Joe: You like number 2, options are, just to remind the listeners.

Al: Yeah. Yes. So the options are either you take the funds, the $20,000 per year out of your brokerage account. That’s number one. Number two is, instead of doing a $65,000 Roth conversion, you do a $45,000 Roth conversion and take the extra $20,000 out for yourself, right? And still stay in the 22% bracket or withdraw them of the funds annually from the brokerage. Isn’t that the same as the first one? Oh, paying off the mortgage. Sorry, I did that wrong. Okay. Thank you. Paying off the mortgage with the brokerage. I wouldn’t do that. The reason why I like the second one is because you’re still doing Roth conversions, which is important when you’re in the 22 % bracket. I like that. And, but you have a need for the $20,000 for four years. Yeah. Just take it and you’ll stay in the 22% bracket. Keep that brokerage account intact for the future. That’s what I would do.

Joe: Did we get the same question here?

Al: What question are you looking at?

Joe: She wants to pay, she’s going to pay off the mortgage.

Al: No, that’s one of her ideas. She’s considering three choices.

Joe: I’m trying to figure out how to fund all this. Roth conversions annually and staying within the 22% tax bracket. A 2.75 interest rate mortgage is paid off in four years.

Al: So she can pay off the mortgage and not have that $20,000 per year.

Joe: It will free up $20,000 annually, right? So she’s paying $20,000 for the mortgage. It’s going to be freed up in four years.

Al: Or she does $20,000 less Roth conversion and keeps that money, the $20,000, or she just takes it out of her brokerage account.

Joe: But the $20,000 doesn’t come until four years.

Al: But she wants it now. That’s the whole point of this.

Joe: No, options are, I’m considering going ahead to pay out the mortgage using funds from our brokerage account.

Al: Yeah. So therefore she won’t have to pay the $20,000 annually for the interest. So she’ll have it in her pocket. So, that’s option one. Option two is…

Joe: Reducing the $65,000 annual Roth conversions to $45,000 and taking a cash withdrawal from the TSP.

Al: So, she’s already doing a $65,000 Roth conversion, but now she’s going to do $45,000 and pocket the $20,000.

Joe: What is… Okay.

Al: Or withdraw $20,000 right from the brokerage account. So you got three choices. You with me?

Joe: Yeah.

Al: What would you think?

Joe: Option two.

Al: Oh, you agree with me after all that?

Joe: I was confused. I didn’t know what the hell she was talking about. I was thinking about Archie and his hobbies. To be honest with you. My brain just went totally into Kansas.

Al: What do you think he hunts? Like elk?

Joe: I don’t know. If he hunts. Hunt fish? Nice cold beer

Al: He catches trout and hunts elk?

Joe: He probably has no idea that Edith is doing all this work and math. I mean, she’s dialed. She’s got all these scenarios. She’s got spreadsheets galore and he’s just taking the cash and working on his hobbies. Or maybe he’s out in the shed. Maybe he’s a builder. Maybe he’s doing something with wood.

Al: Maybe.

Joe: All right.

Retirement Spending and Collecting Social Security Now or Wait to Age 70? (Steve & Marcia, Indiana & Florida)

Joe: Got Steve and Marcia.

Al: or Marcia

Andi: Marcia.

Joe: Marcia. “Hello. Love your show. It’s the favorite of the three financial podcasts that we listened to. We’re in the top three.

Al: That’s Amazing.

Joe: Oh, I wonder what the other two are?

Al: They’re probably not very good.

Joe: “Our YM YW important stance, we drive a 1991 Chevy Silverado pickup truck.” Wazza, wazza, wazza. That’s what I would say if I had that. My name was Marcia. I would say wazza.

Al: might be Steve

Joe: “and a 2013 BMW X5 but we may buy another vehicle based on your spitball. We had a dearly loved rescue dog. A mixed lab with one brown eye and one blue eye. We lost him six months ago due to old age.” Oh, that’s sad.

Al: That is sad.

Joe: “Drink of choice, me, the wife, anything basically.” Oh, I love this lady. “I love wine and beer and mixed drinks too.

Al: She loves it all, oh, that’s great. Bring it on.

Joe: Anything but gasoline.

Al: Where’d you get that?

Joe: Husband enjoys a cold domestic beer or a vodka drink from time to time. Here’s our question in our pertinent background. Question, our financial advisor, he’s a fee-only fiduciary CFP®.” Ooh, the competition’s on, Big Al.

Al: Oh, boy. Okay.

Joe: “Recommends that the wife does not collect Social Security until age 70, and we are questioning this as we want to spend the money now in our go go years.” Oh, go go years, no no years, slow, slow mo.

Andi: I think we know what some of the other podcasts might be.

Joe: Fro fro. Oh, go go years.

Al: That’s it. Well.

Joe: That’s the Retirement Answer Man.

Andi: You got it.

Joe: Then we are concerned about – No offense to the Retirement Answer Man. Very nice. Very nice fella. I just can’t.

Al: You can’t say that.

Joe: I can’t put myself to say the slow, low, go, go, fro, fro years or whatever.

Al: No slow, go, no go.

Joe: Oh, no go years. Is that when you’re dead? Or that’s when you can’t do anything.

Al: No, you’re still alive. When you’re dead, you don’t get anything.

Joe: Okay. So, but no go is like, Hey, you want to go to the movies?

Andi: He gets into the no go here.

Joe: Hey, you want to grab a cocktail? No go. You want me to take a nap? Yes, that sounds good.

Al: You want me to read your story? Yes.

Joe: Oh man. All right. So where are we? “And here’s a pertinent background. My husband is 73. Wife is 67. Both normal life expectancies. Okay. So the CFP said push out, but he’s already 73. Oh, the wife? No, no, for her. Oh, for her.

Al: She wants the money ’cause this is the Go-Go.

Joe: Yeah, it’s go-go. Uh, they got normal life expectancies, $1.5 million in traditional 401(k). No debt. Brokerage savings of $300,000 paid out of the house worth $300,000, current annual income from husband’s social security, pensions, and brokerage dividend is $45,000 pre-tax. Our current expenses are $120,000 after tax or $160,000 before taxes.” Alright, how are your expenses… $120,000 after taxes and $160,000 before taxes. They’re in a negative tax zone?

Al: No, no, that’s right. Before taxes it’s $160,000, then you pay your taxes, it’s after.

Andi: but aren’t your expenses always paid after taxes?

Al: He just got confused.

Joe: I’m in my no go years right now. We’ve been going, on this podcast, for hours.

Al: We’ve been thinking about vodka and old-fashioned.

Joe: Oh, man. Okay. Yeah. I get it. All right. We want to be able to spend more money now because we know we will hit our no go years. We saw our parents save a lot of money and then in the last 10 years of their life, they were too old to travel and, or spend any money. Hey, you want to spend some money? No go. So our question is, should we collect Social Security for the wife now or wait until age 70?” Is the wife talking to herself in third person, by the way?

Andi: She is.

Al: Yes

Joe: Okay. Thank you. Now everything’s coming clear.

Al: Because she did say drinks of choice. Me, the wife.

Joe: Oh she likes to call herself the wife. In the no-go years. All right. So the wife. Does she take it at age 70?

Al: Should she wait three years or should she take it now?

Joe: “or should she take it now, the wife’s social security value is $44,000 per year or $54,000 at age 70. We are concerned about taking too much money out of our traditional 401(k)s in the next three years, especially since the 401(k) down is 5% since we both retired in August of 2021.

Huh? One more thing. We are not worried about leaving money behind for the kids. If that makes a spitball difference.” I like that. If that makes a spitball difference. “Thanks for the expertise and many thanks to Andi for making this sound so good. And keep the guys in line. Sincerely, Steven Marcia, from Indiana and Florida.”

Al: Both. Okay. So they’re little Snowbirds.

Joe: Snowbirders.

Al: Sun, sunbirds.

Joe: Okay. I’m gonna say this.

Al: Yeah, what do you say?

Joe: Take it.

Al: You know what?

Joe: Take it.

Al: I’m gonna say take it too.

Joe: Take it. Take it. Have some vodka. Stop talking to yourself in third person.

Al: Here’s the only reason I wouldn’t take it, is if Marcia’s benefit is quite a bit higher than Steve’s, I might wait because you know, this survivor will get the higher the benefits, but if it’s equal or less, take it now. The reason why the financial planners tell you this is because if you live a long life, you’ll be happy down the line, but it’s like, there is some validity to this is when you want the money and have fun

Joe: and I get where she’s coming from and say, all right, my portfolio’s down, we’ve been retired for a few years and we want to spend $120,000, maybe a little bit more. $160,000, $120,000 before, after tax, whatever. So they want a net $120,000. And so they have $45,000 of income. So they’re taking distributions at a fairly large rate right now. The market’s a little volatile. It’s like, all right, well here, if I take my $45,000 of Social Security, that distribution from the portfolio is not nearly going to be as much. And now we can see that thing climb back up. People get nervous when they see that liquid assets go down.

Al: They do. And the market has not been great for the past couple of years.

Joe: Sure. I would say, you know what? If it gives you peace of mind, take the money, take less from the portfolio.

Al: It looks like you’re okay either way. So it’s a little bit of a personal choice, but yeah, that’s why I might wait until 70 is if your benefits are a lot higher than your husband’s. Otherwise, yeah, why not go for it?

Joe: All right. Happy holidays, everyone. ‘Tis the season.

Al: It is. Are you going to decorate the house?

Joe: Oh yeah. Totally.

Al: We are too. We’re doing it early this year.

Joe: Griswolds.

Al: Oh, big time. Gonna get up on the roof with your staple gun?

Joe: All right. We’ll see you next week. Show is called, Your Money, Your Wealth®.

Andi: Joe imagining listeners in jazz bars, being banned from drinking vodka, Marsha vs Marcia, and a new YMYW rule in the Derails, so stick around to the end of the episode. Help new listeners find YMYW by telling your friends about the show, and by leaving your honest reviews and ratings for Your Money, Your Wealth in Apple Podcasts, and all the other podcast apps that accept them.

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

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

The Derails

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IMPORTANT DISCLOSURES:

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

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

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• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.

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