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Published On
November 23, 2021

What do Joe and Big Al think of the “Buy, Borrow, Die” strategy of the uber-wealthy, and how could it work on a smaller scale? Plus, stacking capital gains vs. Roth conversions, contributing to a non-deductible IRA vs. a brokerage account given ordinary income tax vs. capital gains tax, and minimizing the tax when a trust is the beneficiary on a thrift savings plan (TSP). Also, how to estimate Social Security benefits with a future salary of $0, and why delay Social Security to age 70 if you don’t need the money? Finally, is it bad etiquette to “ghost” an advisor? Should you hire a financial advisor near you?

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Show Notes

  • (00:54) Spitballing the “Buy, Borrow, Die” Strategy (Em from sunny Florida)
  • (06:12) Stacking Capital Gains and Roth Conversions in the Same Year: What Happens? (Jerry)
  • (10:35) Contribute to Non-Deductible IRA or Post-Tax Brokerage? (Allen, New Braunfels, TX)
  • (16:54) Trust as TSP Beneficiary: How to Minimize the Tax? (Jim)
  • (22:56) Tip: Social Security Estimator for Future Salary of $0 (Kyu)
  • (26:36) Social Security Break-Even: Why Wait to Age 70 to Collect? (Sunny D, Florida )
  • (33:46) Can I Ghost Mom’s Financial Advisor? How to Move Money Between Custodians? (Mike from Tucson, AZ)
  • (38:26) Should I Hire a Financial Advisor Near Me? (Marlion, NoVA)

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Transcription

Today on Your Money, Your Wealth® podcast 353, what do Joe and Big Al think of the “Buy, Borrow, Die” strategy of the uber-wealthy, and how could it work on a smaller scale? What happens to the income stacking for capital gains if Roth conversions are done in the same year? Does contributing to a non-deductible IRA make more sense than post-tax contributions to a brokerage account, given ordinary income tax vs. capital gains tax? Also, how to minimize the tax when a trust is the beneficiary of your TSP, estimating Social Security for a future salary of zero, and why delay Social Security to age 70 if you don’t need the money? Finally, is it bad etiquette to “ghost” a financial advisor, and should you hire an advisor near you? Click Ask Joe & Al On Air at YourMoneyYourWealth.com to send in your money questions and comments. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Spitballing the “Buy, Borrow, Die” Strategy (Em from sunny Florida)

Joe: “Hi again Pure Financial crew, its Em from sunny Florida. I recently read an article discussing the Buy, Borrow, Die strategy of uber wealthy and would love to hear your spitball discussion. Essentially one amasses a lot of capital, takes a comparatively small securities based line of credit against the capital with very low interest rate, rather than sell the capital stocks and pay their taxes. At death, the assets get a step up in basis when inheriting by errors. Wondering about how this strategy works on a smaller scale? I was thinking maybe $10 million in a brokerage account in borrowing $250,000 year goal as low interest near 1%, assuming the return on investment will be at least, for you number guys, when the numbers make sense. Can you borrow as much as 3%? Is 5 million enough to borrow 100k a year. Downsides? Thanks.” Instead of selling and paying capital gains tax, why don’t I just take a note?

Al: Right get a margin loan, write and use that. And that can work right because a loan is not income and you haven’t sold the stock, right? So the downside margin interest can go up. It’s pretty low right now. It can go up. Second downside is if you end up borrowing too much and we have another stock market collapse like we did in the Great Recession, you could be forced to sell stocks to pay that margin loan.

Joe: You could lose everything very quickly. It’s leverage. It’s a double edged sword, right? You’re pledging your investments, so your investments are not in cash. You want to keep those investments and you don’t want to sell those investments because you didn’t want to pay the tax. So you’re going to keep that investment and you’re going to take a loan or take a margin loan from that in your pledged against that overall investment. There’s a certain threshold that is going to say, hey…

Al: certain ratio, they want the value of the stock versus what you borrowed.
And if it gets too low, they’re going to force you to sell the stocks while they’re down.

Joe: It’s called a margin call. There’s a movie called Margin Call when everyone goes bust. So the uber wealthy, you know, to some degree, here’s the pro. You’re not paying tax, let’s say, at 15, 25 or, you know, 15, 20%, plus the net investment income tax. For things like that, you could save money there.

Al: And if you’re doing 2 or 3% per year and then…

Joe: out of the total balance of your…

Al: Right and maybe you cap it at 15 or 20% just to be ultra safe and as long as you can afford those interest payments. Yeah, I mean, it could work. Yeah, but any kind of borrowing, any kind of borrowing, there’s risk. So just be aware of that.

Joe: Right, It’s like taking money from your home and buying another home. And then you buy another home.

Al: That works as long as homes depreciate.

Joe: Right. Your portfolio has got to continue to grow. Maybe if you want to take out more. But if you got 10 million, you’re taking 2.5% out per year. You know, that’s 2.5%, when do you start this thing and when do you stop?

Al: Well, I think you have to have a game plan, maybe you stop it, like I said, 15 or 20%.

Joe: you know that’s for a handful of years.

Al: Right, it’s not really good forever.

Joe: No, it’s not a good withdrawal strategy at all for long term.

Al: You could do a charitable remainder trust. That’s where you set up a trust. It’s tax exempt. You put the stock in, the trust sells the stock.

Joe: But then this strategy, when you die, everything goes to the heirs.

Al: That’s true but let me finish. So then when you get distributions for life, you get a much higher cash flow, but it goes to charity when you pass away.
So what you have to do is do an income replacement, if you will, and estate replacement by buying life insurance. That’s what some people do.

Joe: Yeah, but the strategy is called buy, borrow and die. So you buy securities, you let it grow, then you borrow against them and then when you die the kids or the heirs, or whoever gets the money, doesn’t have to be taxed because of the step up in cost basis.

Al: So from a theoretical standpoint, it works.

Joe: Yeah, but from a practical standpoint, I think it’s a terrible idea.

Al: I probably would not do it myself.

Joe: Because let’s say you got $10 million now, now you’re taking a $250,000 note per year. And then all of a sudden now it’s a $1million note and then a $2 million note, $3 million note, then $4 million note. Now you have this big note on your brokerage account and then you need more income and now you start taking distributions and then the market crashes and then everything goes sideways. I don’t know. It’s pretty risky.

Al: You got a $5 million note and your $10 million goes down to $5 million. You’re going to have to sell that margin call to pay it off and then you’ve got zero left. That’s not so good plus you have all taxes on what you sold means you had a lot of gain.

Stacking Capital Gains and Roth Conversions in the Same Year: What Happens? (Jerry)

Joe: “This is a question for your weekly podcast. Hi, Andi, Joe, and Big Al. I’ve been listening to your information and entertaining podcasts for the past year. I’m not sure that I’ve heard this exact question, so I thought I would give it a shot at getting this question and it’s answer on the air.” OK, well, here you go, Jerry. It’s your lucky day. Let’s assume a married couple is retired and their only income is from their brokerage account, consisting of $35,000 in qualified dividends, $25,000 in interest in non qualified dividends. Additionally, they have $50,000 in long term capital gains from their brokerage account that can be managed annually. The math is pretty straightforward to determine the amount of taxes owed in how much of the long term capital gains are taxed at zero versus 15. That math is pretty clear. Jerry’s is a CPA on the side or something.

Al: He may be an advisor and this is his client.

Joe: Exactly. He’s got qualified, non qualified dividends. I mean, no one knows the difference between a qualified dividend and non qualified dividend, especially how an nonqualified dividend is taxed

Al: Plus when it starts with, let’s assume, a married couple, meaning I’ve got a client.

Joe: Jerry, yeah,I have a client. If this is their tax return, the math is pretty simple. I mean, everyone knows this. But here’s the question. Oh boy, what happens to the income stacking for capital gains if Roth conversions are also done in the same year? Can I assume that the Roth conversions are added to the 60K per qualified dividends, interest in non-qualified dividends prior to the long term capital gains, and therefore, if I do a Roth conversion of $100,000 that I’ll not be able to take advantage of the long term capital gains being taxed at 0%, giving the numbers above.Thanks in advance for your help and thanks for Your Money, Your Wealth® podcasts. OK, Jerry. Yes, we’ve written…

Andi: or Jerry’s client.

Al: or Jerry’s client, yeah, if he did so long term capital gains sits on top of ordinary income. So a Roth conversion creates ordinary income. So the long term capital gain would sit on top of that. And if you do $100,000, assuming no other income, if you do a $100,000 conversion minus the standard deduction of, let’s say, $25,000. Now you’re at $75,000 so you’re right at the difference of $5000 in the 12% tax bracket. So $5,000 would be tax free. But you have non qualified dividends and interest in others that is pushing you above that. So your long term capital gains then now would be subject to tax.

Al: They would. And so if I look at Jerry’s numbers incomes about 110,000 standard deduction being about 25,000, so taxable income 85. So then Jerry, either you or your client, is now in the 22% bracket. So any Roth conversion is taxed at 22. But since Roth conversions come first, ordinary income comes first. It fills up the lower brackets. And so therefore you’re not only going to have to pay ordinary income taxes on your Roth conversion. Now, all of a sudden, you’re going to have to pay 15% taxes on the capital gain. So just be aware of that.
It’s actually a different tax rate. You have to be careful when you have long term capital gains that are taxed at zero. If you have enough Roth conversions to push it up, now is that Roth conversion going to be taxed at 12%. But now that capital gains will be taxed at 15

Joe: versus 0.

Al: right versus zero? So now you’re actually in the 27% bracket without realizing it.

Joe: So yeah, again, long term capital gains sits on top. So anytime you’re doing tax projections or calculating things for your client, Jerry, figure out your ordinary income first and then you put the capital gains on top.

Al: Here’s your safest bet. Rather than asking us, is get TurboTax. Do one with and without and see what happens and you’ll see what I’m talking about.

Joe: OK, thanks a lot for the question.

Contribute to Non-Deductible IRA or Post-Tax Brokerage? (Allen, New Braunfels, TX)

Joe: We got Alan. Greetings YMYW team longtime listener first-time question? Very cute there, Alan. I find your podcast both informative and funny. I live in sunny New Braunfels, Texas,

Andi: so I believe it’s New Braunfels.

Joe: Braunfels.

Al: Braunfels. Yeah, that sounds right. I wasn’t even going to guess on that one.

Joe: New Braunfels, Texas, semi-retired chemical engineer, 58 years young in driving 2013 Mazda 3 with a white cat named Yeti

Al: Yeti. Wow, that’s cool.

Joe: “I have a live in girlfriend named Kim who drinks Crown Royal.” Oh my god, that is. That’s sexy. “While I’m a craft beer junkie. Although I typically start the night with the domestic light beer like Coors Light to get things going. Don’t worry, it’s not a Roth conversion question, and I will try to be brief and concise. OK? In the past while working and I typically made too much salary to contribute to a Roth IRA or get the deduction for a regular IRA contribution. Therefore, I made annual contributions to a nondeductible IRA and I’ve been keeping track of the bases so I don’t pay taxes on the nondeductible contributions when I decide to start taking withdrawals. My question is in general, does contributing to a nondeductible IRA makes sense versus post-tax contributions to a brokerage account? Given that the non-basis portion of the IRA will be taxed as income when I take the distribution versus only paying long term capital gains on the money invested in a brokerage account. Seems like my income tax rate will be lower than capital gains rate when I start withdrawing the money from the IRA. But who knows where the tax rates will be in 15 years? I understand that our friends in D.C. are looking to increase capital gains rate to equal the income tax rates, which would make this a moot question. Keep up the great work. P.S. I hope you are paying Andi well for producing and organizing the podcast and putting up with you guys.”

Andi: Thank you very much for that. I appreciate that. Thanks for thinking me.

Al: Did you add that sentence Andi?

Andi: I did not. If you check your email, you will find that that was actually in the email from the listener.

Joe: Yeah, the show won’t be a show without her.

Al: No, of course not.

Joel: We’d just hang it up, retire.

Andi: Are you just saying that because we’re on camera now?

Joe: No.

Andi: OK, cool.

Joe: Being very honest, love you.

Andi: thank you. I love you, too, Joe.

Joe: So question is nondeductible IRA contribution. So a few things, I think before when you had taxed like a lot of tax drag on non-qualifying account, so there would be turnover and things like that. So like when I got in the business, I think 1999 you would sell loaded mutual funds and they were all high turnover, actively managed funds,

Al: Active funds, which means inside the fund of the fund managers buying and selling all the time to try to get a better stock,

Joe: better rate of return and then because they’re buying and selling, you would have tax distributions from the actively managed fund. So

Al: even if you didn’t take money out,

Joe: even if you didn’t take money out, right, because they’re buying and selling them, then that tax consequence goes to the owner of the fund.

I would probably say, you know what? Going tax deferred in an IRA, picking nondeductible IRA contribution and then getting ordinary income If you think you’re going to be in a lower tax bracket in retirement, you take the bases of tax free and then you get the tax deferment. So there’s no tax drag at all on the growth rate. So if you’re taking a couple of bucks out of the account each year, it hurts the compounding effect of tax deferred, right?

That’s why tax deferral works so well. I would say today it’s completely different if you have a good tax management system. And what I mean by that is that if you have tax managed funds like ETFs or index funds that have very little turnover, very little fees, you’re not going to have a lot of tax drag there.

Al: Yeah, that are passive, not active, I would agree with you and I and I think especially at age 58, I think I don’t really want to have that basis inside of an IRA because all the future growth is ordinary income versus what it could have been as capital gain.

Joe: Absolutely, capital gains is going to be a lot cheaper than ordinary income because if you’re in the 10 or 15 % tax bracket or 10 or 12 % tax bracket, there is no capital gains. So if you keep yourself in a low bracket, you could sell some of that and not pay any tax at all, which is ideal

Al: and as throughout my whole career, except for maybe a year or two. Capital gains are always cheaper tax wise than ordinary income.

Joe: But Alan, here’s what I want you to do. I want you to take a look at the basis and how much basis that you have if you convert some of that IRA. Because if I convert dollars that have basis, I don’t pay tax on that. So you could get a lot of this money into a Roth IRA at a lot cheaper tax cost because you’re not going to pay any tax on the basis of what you have in an IRA. So a conversion strategy is probably the best way to go right now. And then that extra cash that you have, you pay some of the tax and then moving forward I would not put money into a now deductible IRA, I would put it in a brokerage account.

Al: Yeah, but be aware of the aggregation rules, the pro-rata rules.

How much money do you need in retirement, and how does your retirement account balance stack up right now? What’s your contribution rate? How much of your portfolio should be in cash? Are your assets properly allocated? Learn how to answer these questions find out how to manage your assets at any age with our new Portfolio Tracker guide, available for free download from the podcast show notes at YourMoneyYourWealth.com. Or, click Get an Assessment, also there in the podcast show notes, to schedule a comprehensive, one-on-one assessment of your financial plan with one of the experienced professionals on Joe and Big Al’s team at Pure Financial Advisors. There is no cost and no obligation, and it’s a video call, so you can get your free financial assessment from the comfort of your own home, no matter where that might be. Click the link in the description of today’s episode in your favorite podcast app to go to the show notes, download the Portfolio Tracker guide and schedule your free financial assessment.

Trust as TSP Beneficiary: How to Minimize the Tax? (Jim)

Joe: OK, let’s go to Jim. “Hello, YMYW crew. My parents, 77, have an irrevocable trust which is the beneficiary of my dad’s TSP account. This is a pre-tax TSP, as the Roth was not available to him when he was working. The trust has been set up for the eight grandchildren, ranging from age 1 to 16. The trust is set up to pay at predetermined ages. My understanding that this is a discretionary trust. Additionally, my understanding is that this money will be taxed at the highest marginal trust tax rate after roughly $13,000 in income. Is this true? Besides converting the TSP to a Roth? What else can be done to minimize the taxes?” Thank you, Jim. OK. Is his dad alive or is he? It’s like my parents, 77, so I don’t think he’s deceased.

Al: No Dad is still around and Dad could not change the.

Joe: But I’m wondering if he can change the beneficiary?

Al: Sure. But the reason he did the trust was because he didn’t want the young kids to spend the money, which is fine. Now it has to be the right kind of trust which you can go into if you want.

Joe: I mean, I would change. OK, so here’s the issue now with trusts and being the beneficiary of an IRA. Yeah. So Jim’s dad set up the account and it’s in the TSP, and he’s like, OK, I’ve got eight grandchildren. I want the grandchildren to have the money in my TSP account where I’m not going to spend it. And so it’ll be a nice little inheritance for them. But I’m sure in the trust, he said. OK, well, you know, Johnny, he doesn’t get anything until age 25. Susie, you don’t get anything until age 21 because you’re a lot more responsible and so on and so forth. Because that’s why you would set up a trust in the first place is just control of the overall cash at your passing?

Al: Yeah. Typically, we don’t recommend a trust would be a beneficiary, but this would be a case where it could make sense.

Joe: But I think it blows it up because now you have an issue with the secure act because the money has to come out within 10 years.

Al: True.

Joe: Then there’s two different types of trust that you set up.

Al: But it comes out to the trust, not to the individual,

Joe: but then it holds in trust.

Al: It does, right.

Joe: So if you hold in trust, you get trust tax rate.

Al: Yeah, that’s the problem.

Joe: The problem is, is that the thing is going to get forced down in 10 years.
And so maybe he won’t – He’s got grandchildren ages one through eight, right, and maybe he wants to hold this thing in trust for in perpetuity, the money’s going to come out of the retirement account and going to be taxed at trust tax rates because he’s holding it in trust, versus distributing it out to the kids. Makes sense,

Al: yes. I understand.

Joe: So it doesn’t make any sense to have this type of trust in a retirement account because anything after $13,000, it’s taxed at 37%. And the grandkids tax rate is zero.

Al: Yeah. So perhaps a better choice would be an account where the parent UTMA, I guess, is the name, right? Unified something, something

Joe: uniform transfer to minors act or a uniform gift to Minors Act? I don’t know. Atman AGBA.

Al: Yeah, so that’s where the parent and the child are on the account and the child doesn’t really have access till age 18.

Joe: Here’s what Jim means to tell his dad is find another asset that he could give the grandchildren. I don’t know how big the TSP is, right, and I don’t know what the inheritance is going to be. But trying to do this with a retirement account is not a good way to go. If he’s got a home that he that you’re going to sell, right? And then let’s see his TSP is worth, I don’t know, call it $500,000. I’m just making it up $500,000 divided by 8 equals $62,000 per grandchild. OK, so maybe he has another asset

Al: like his house

Joe: or a brokerage account or whatever? And then maybe his house is worth $500,000 in the trust and say, OK, we’ll split that up at the sale of the house. The kids get this cash is now held in this trust. You can invest the money as you like, right?
It’s a lot easier to do it that way.

Al: Yeah, I agree with you. And the reason is because the stretch IRA is no longer is gone

Joe: because everything is going to be distributed out.

Al: Although the stretch IRA doesn’t apply if you’re under 18. So maybe it would work. Maybe thinking about that?

Joe: Yeah, I don’t know. I’m going to have to look at the provisions in the trust that he set it up as an IRA trust. You know what I mean?

Al: Yeah. Well, that’s a whole other point.

Joe: because that’s what you got to look through. See through the trusts, there’s a lot of things that you got to do with the trust and it can work. But if you look now today because of how the law changed. A trust, irrevocable trust, holding things in trust from a retirement account that there’s probably there could be some issues. There’s pros to it, but you can’t control the money and it’s, you know, safe from creditors. And was it that one advisors, that attorneys big deal?

Al: Yes it was.

Joe: They would just scare the hell out of you. It’s like your kids are going to do this and your money’s going to be gone because they’re going to get sued and you’re like, Oh God, I got to get this trust. How much is it? $30,000?

Al: He was pretty convincing.

Joe: Sounds cheap versus a $50 million lawsuit,

Al: Lawsuits, right.

Tip: Social Security Estimator for Future Salary of $0 (Kyu)

Joe: Cocoa.

Andi: No it’s Coo! (Kyu)

Joe: Kyu, OK. Sounds cool. “Hi, Joe and Al. I love your show and recommend it to anyone that will listen to it with me. Oh coo, What are you doing to these poor folks? I recall some questions recently on your podcast asking how to project future Social Security earnings. I assume this is an estimated future expense for retirement calculations. I stumbled on this calculator on ssa.gov that may help. Here’s a screenshot assuming future and annual salary.”

Al: Yeah, so on the screenshot, it’s saying that full retirement age, which is about 67, it’s $3,300.
Taking it early at 62 is $2,300. If you wait till 70, it’s about $4,100.

Joe: OK. You can change the future annual salary to zero. This would be a conservative way to calculate what you would earn if you wanted to retire prior to retirement age. This may be conservative but gives a good idea of what you can plan for. Keep up the good work. I drive a 2009 Prius, drink Rainier in bottles. Oh, that’s like Washington beer.

Al: Yeah, I suppose. Yeah. Mount Rainier for sure.

Joe: Pat, my wife has a cat. Full transparency: this is how I’m projecting my Social Security and hope it’s accurate. Hopefully you can confirm or deny, thanks, thanks, Kyu, pronounced Coo as in Cuckoo clock. Kyu. That’s kind of a cool name. Sorry for calling you Coco, Kyu. I thought it said C O C O on it.

Al:. So this is a calculator on SSA.gov and yeah Kyu you’re right. I mean, you can put in, apparently, they allow you at your current age to put in zero for your salary and then the numbers go down. So now for retirement age, it’s $2,700, 2,800 compared to $3,300. So yeah, this is pretty good. This only works, though, if you’re going to retire and not get any pay right now. You can’t really; It’s not that sophisticated enough to say I’m going to retire in five years, I’m going to put zero in at that point. There are calculators that you can buy that do that. But anyway, so this I concur. I think this probably works as long as your salary is going to be zero starting today

Joe: What’s the total delta on this, $3,300 versus $2,800 right?

Al: Yeah. For retirement age and age at 70, $4,100 to $3,500.

Joe: OK, so it’s significant. That’s per month.

Al: yeah, and so your point is well taken. And we’ve talked about this because people have their Social Security statement they think is going to be what they’re going to get and they retire at age 50 and then they’re surprised at age 70, this is way lower than I thought.
Well, that’s because it’s assuming you continue at your same salary all the way to the point where you retire.

Joe: Correct. So on to your full retirement age

Al: full. But even after that, if you have higher income years there versus the first year.

Joe: So here’s another point to you. Let’s say if you are collecting your Social Security at full retirement age and you’re still working, your Social Security will continue to go up as well. So they’re going to recalculate so it’ll never go down. Let’s say if you continue to work but have lower income. that’s all good.

Social Security Break-Even: Why Wait to Age 70 to Collect? (Sunny D, Florida )

Joe: OK, let’s go “dear DJ,” Dynamic Joe or Dynamite Joe? I don’t know which one I like better. Well, D.J. is the short, the abbreviation. I don’t know if I like dynamic or dynamite.

Andi: Well, he said dynamite. So I think you’re stuck with that.

Joe: Okay. “BA and AA – Big Al and Awesome Andi. A big thank you for spitballing my $10 million question in episode 347.”

Al: that just seemed like it was just…

Joe: Just yesterday, “I thoroughly enjoyed your analysis. Maybe because it reinforced my own assessment. Just kidding. The analysis was thoughtful and covered all variables. If you would indulge me, I would like to answer Big Al’s question: How did you respond during the recession in 2008?” OK, so he’s saying he didn’t liquidate any positions.

Monthly savings were invested in cash and not stocks bad move and added a few positions that were attractive. Good move. You also had a valid point about spouse’s risk level. In my case, she is not interested and leaves all the investing to me. And knows if $9 million becomes $4.5 million, we still have enough. OK. “My question? OK, so financial advisors recommend delaying Social Security payments until age 70 if you can afford it. However, based on my analysis, I find assuming a 0% return, the break, even between taking Social Security at full retirement or 70 years, is approximately eighty four years. However, if one invests these payments at 4% per year and the break even turns to 92. Getting a rate of return greater than 4% pushes the breakeven even further out. Intuitively, it makes sense the sooner you take Social Security, compounding increasing the value exponentially, thus extending the breakeven period.” You know what he’s doing here, Big Al.So why do financial planners recommend delaying Social Security if the funds are not needed for the day to day living? I would agree with their delay to 70 years recommendation. If one lived to be 98 or more. But why take that chance? OK, FYI I did not consider survivor benefits in my calculation. Hopefully one spouse follows the other to the pearly gates within a few years of the departed. This guy lives in fantasy land. It’s sunny D.

Andi: Apparently, that’s what Florida is fantasyland.

Joe: Your thoughts, not advice, would be greatly appreciated FYI I recommended Your Money, Your Wealth® podcast to my WhatsUP group,

Al/Andi: WhatsApp.

Joe: WhatsApp. “Love the information, dialogue analysis and your in-depth knowledge. Keep up the good work.” Well, thank you. “Avid listener and admirer, Sunny D. I’m very much a male when you were spitballing my $10 million question, there seemed to be a doubt.” Hmm. Hmm. Sunny D Yeah.

Al: Well, we know now.

Joe: Well I guess, you’re a male. Thank you Sunny D. Ok Sunny D’s got $10 million. So what is he doing? He’s looking at Social Security as an investment. And he’s like, OK, well, I’m going to take this and I’m going to invest. I’m going to get a 4% rate of return and then the break even of how much I actually get out of this thing is going to be a lot greater if I get the money today versus pushing it off the edge 70. Financial advisors look at it differently. Well, at least, Al and I do, we look at it as an income stream, a guaranteed income stream. Most people don’t have $10 million, right, so they need every last penny. In a lot of times, people spend a little bit more than they should or they know what they should be spending. So they have a larger fixed guaranteed income for the rest of their lives is probably a better move than taking it and taking on risk and investing it.

Al: And the key is for most people, because most people spend everything they make and that’s just across the board. I mean, that’s what we’ve seen, and I don’t think that’s changing for most people. Now, Sunny, your analysis, I haven’t checked it out that carefully, but it sounds right.

Joe: Yeah, for sure.

Al: Yeah, I mean,

Joe: we’ve done the break even.

Al: But I think you can sort of game the system and end up in a better spot. Although you do mention that survivor benefits wasn’t considered and that could change it if your spouse feels differently about all of this. But yeah, as long as you truly don’t need the money and are not going to spend it, which sounds like you’re in that position to

Joe: take it and invest it for sure. Yeah, because you’re absolutely right, you’ll probably make more money. Or at the end of the day, you’re probably the total lump sum of everything that you get would probably be worth more if you delay.

Al: But that’s why most advisors recommend taking it later because most people spend the income they have.

Joe: It’s just that it’s a higher income floor is really all it is. But if they don’t need it and they want to invest it, then yeah, by all means. I think your analysis is right on. A couple of other things I want you to do Sunny, since your wife doesn’t really care about this. If your 10 million goes to five,

Al: Have you ever asked her that question?

Joe: I want you to show her your statements, okay? And then say, Hey, this is what we got.

Al: Yeah, if it goes in half, I’m sure you’re okay with that, right?

Joe: I want you to take a picture, she’s going to be smiling, she’s going to be, Oh, Sunny D, I love you so much. You are such a good investor. You are my hero. And that when your account goes to $5 million or $4 million or $3 million, then show her the statement and take that picture and send it to us, she’s going to be freaked out. She’s like, What the hell did you do?

Al: I can remember many meetings we’ve had with spouses where the husband took some risk and lost a lot of money, and it was 10 years ago, and the spouse still brings it up. Still, still. And it’s it’s a big deal.

Joe: It’s a huge, huge deall, of course, but they’re not interested in this. They’re not interested. When it goes up, it goes down they’re definitely interested.

Al: They’re very,

Joe: very interested.

With over 2700 rules around claiming Social Security, reading our Social Security Handbook before you claim would be a good idea. It’ll walk you through who is eligible, how benefits are calculated, the difference between collecting benefits early vs. late, working while taking Social Security, the rules around spousal, ex-spousal, and survivor benefits, and how your Social Security is taxed. Click the link in the description of this episode in your podcast app to visit the show notes and download The Social Security Handbook, yours free from Pure Financial Advisors and Your Money, Your Wealth®. You can repay us simply by spreading the love around: share the YMYW podcast and the resources with your friends and colleagues via email, or on LinkedIn, Facebook, or Twitter.

Can I Ghost Mom’s Financial Advisor? How to Move Money Between Custodians? (Mike from Tucson, AZ)

Joe: OK, let’s go with “Hello, Joe, Al and Andi. This is Mike from Tucson, Arizona. My question is on financial professional adequate, and my mom has,” Did I say that right, adequate?

Andi: etiquette,

Joe: etiquette, what did I say?

Andi: You said adequate?

Al: Well, that was close.

Andi: it’s not that big a deal. You’ve done much worse.

Joe: Adequate etiquette,

Andi/Joe/Al: etiquette.

Andi: by the way, Mike is actually the guy who called us last time. Do you remember in a recent episode we had a call from Mike from Tucson, Arizona, so I believe this is a follow up for Mike.

Al: You know, you’re going to say, what’s proper etiquette not being interrupted?

Joe: Yeah. “My mom has been with an advisor for about five years and has paying an AUM fee of 1.5% on a traditional IRA and a Roth IRA that he “manages.”

Andi: quote.

Joe: Yeah, I know. “She has not made any changes to her portfolio in years and will not begin drawing from this account until retirement. I have agreed to help my mom manage her finances in retirement, and for simplicity we have started to consolidate all of our concept Vanguard, with the exception of the two mentioned above that are managed by the advisor. My question is it professional courtesy to let the advisor know that I plan to move the money or do I just move It? is the finance version of ghosting common in this space, or am I just being rude?” Ghosting,

Al: well that’s a good term.

Joe: Like she’s going to just ghost you, the advisor that “manages” my mom’s money. OK, that’s number one. Number two. And another procedural question is that her Roth IRA funds, which are various Russell Equity mutual funds, will not transfer to the new brokerage firm. Do you typically recommend your clients to move into cash so that it can be transferred?
Or would it be better to buy a total stock market index so as to not be out of the market for a few weeks? It may take for the transfer. Thank you for your outstanding podcast and I look forward to your response. All right, Mike from Tucson. It’s going to take over the management of mom’s money.

Al: Yeah, so do you just leave or just ghost them or do you let the advisor know.

Joe: Here’s the proper etiquette. I would call the guy, you know and just say, Hey, listen, I’m taking over my mom’s account. We’re consolidating. Can you do me a favor and liquidate a couple of these mutual funds? I wouldn’t have the guy buy them. Just say, Hey, change the allocation for me, so I can transfer it out. I wouldn’t necessarily do that because I’ll just say, Hey, we’re transferring these out. Can you just please put these Russell? Can you put the Russell accounts in the cash? Keep everything else. You can transfer the stuff in time. And then once it gets to Vanguard, then you can sell them in buying and do whatever.

Al: But he’s saying Vanguard doesn’t accept the Russell,

Joe: I know that’s what I would say. Sell them. Let’s role play – So Al is the advisor, I’m Mike, Yeah, we’ll, role-play, OK, play out. This is Mike.

Al: You haven’t called me in a long time. What’s up?

Joe: Yeah, my mom, you know, you manage her account and you haven’t really done anything.

Al: I’ve done a lot. I look at this account. I think about it every night.

Joe: Like so the problem with calling Mike is that he might sell you, Oh, what are you talking about? Look at the performance on this thing. Oh, and we’re rebalancing and we’re doing all this other stuff right, and he’s going to try to secure the account. If you don’t want to deal the stuff, you don’t want to deal with, Mike, just ghost him.

Al: Yeah. So I would say it’s common. it’s common to go to the advisor. You don’t have to talk to him if you want to. If you feel like there’s a long term relationship and there’s a friendship or at least a strong acquaintance, and you then sure by all means go ahead. But I agree with you, Joe, a lot of times when you do that, they strong arm you and try to talk you out of it.

Joe; Yeah. But you know, I think for the most part, if you fired me, Mike, I’d be like, Hey, Mike, no problem at all. Well, you know, I’m going to place some trades right now. We’ll get that in cash, but you need help. We can’t miss out. I get it. You want to save some money in fees.
You’re a big fan of Your Money, Your Wealth®. You probably know whatever you’re doing,

Al: But not all advisor are as kind as you

Joe:. I know. Well, I like the question, though, because he’s thoughtful. He’s like, I don’t want to coach this guy. So just place the call, Mike. It won’t be that bad.

Al: Yeah, I agree.

Joe: And if you need help, I’ll call them.

Andi: That’ll be an interesting phone call. I’m getting the host of Your Money, Your Wealth® to call you to fire you.

Should I Hire a Financial Advisor Near Me? (Marlion, NoVA)

Joe: I got, “Hi. I’ve listened to your podcast Your Money, Your Wealth® for a couple of years now. It’s both informative and entertaining. Thanks for hosting the show.” Well, you’re welcome.

Andi: This is Marlion by the way,

Joe: Marlion. Did they say “love Marlion”, or?

Andi: No on this one he just put in – he or she, I’m not actually sure if Marlion is male or female – had just put their name in the name field.

Joe: It’s not Marlon.

Andi: Nope it says Marlion. Maybe Marlin misspelled their name. Maybe it actually is Marlon and they accidentally added an i.

Al: Marlion and mar lion mar lion. All right. Roar, right?

Joe: OK, “I’m 56 YO and desire to retire at the end of 2025, when I will be 60, then my wife will be 56. I think I’m in a good position. While nothing that 85% of our 2.9 million and retirement accounts are tax deferred accounts, but needed detailed guidance on the decision, as well as tax reducing withdrawal strategies in traditional to Roth conversions. My question? Would it be wise to partner with a firm so far away from my current home in NoVA?”

Andi: I believe that’s northern Virginia.

Al: I do, too. North Virginia,

Joe: North Virginia, “NoVA i.e. Pure FA. Or should I use the firm closer to home? A consideration? I may not be in the NoVA area after retirement, but we’ll probably be staying on the East Coast thanks in advance for your response.” I think with technology today, you know, we’ve been doing client meetings on Zoom for the last two years. It’s up to whoever’s preference, you know? I think some people really like the face to face. Some people don’t really care as long as they get really good advice.

Al: I think now with COVID, we’re a lot more comfortable with Zoom meetings, and so are many other people. Marilin. It’s your choice, right? I mean, I think a firm like ours or anyone can now service remotely. It’s not that big a deal, but some people like to have their advisor close.

Joe: Sure.

Al: So that’s up to you.

Joe: I think the first choice in selecting advisors competency, I mean, are they going to be able to give you the advice that you want? You know, you did a good job of accumulating some wealth. Can you work with an advisor that can really give you the right advice that you need to make sure that you do all the right things, save money in tax, create the income that you need, coordinate everything with everything else. I mean, that’s the first step. And then second, you like the person, right? And then third is probably all right. You want to shake their hand or right? Or is it OK just to wave goodbye?

_______

Crown Royal drinking habits, Florida and Joe’s golf game vs back surgery, and Joe thinks Andi is HER in the Derails at the very end of the episode, so stick around. 

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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.