Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 00:53 – I Retired at 59. What’s My Best Retirement Withdrawal Strategy Before Social Security at 62? (Christine)
• 13:50 – Should We Do Roth Conversions Before Being Hit With the RMD Avalanche? (Prickly Richard & Margarita Maggie, Tucson, AZ)
• 26:20 – Saving for Early Retirement at 55 vs. Saving for Kids’ Future (Michigan Queen & Mississippi Boy, TN)
• 39:53 – Outro: Next Week on the YMYW Podcast

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Transcription

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

Intro: This Week on the YMYW Podcast

Andi: Joe and Big Al spitball withdrawal strategies, Roth conversion timing, and saving priorities for every stage of life, today on Your Money, Your Wealth® podcast number 555. Christine just retired at 59 and wants the smartest way to draw income before Social Security, without letting taxes take a third of it. Prickly Richard and Margarita Maggie have a plan to “pull ahead” some Roth conversions now to dodge an RMD avalanche later. Will it work? And the Michigan Queen and Mississippi Boy are wondering whether to save harder for retirement or college for three kids currently under the age of 5. Yeah their minivan has seen things. And this is YMYW, so of course expect a few Derails into cocktails and… car maintenance? I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

I Retired at 59. What’s My Best Retirement Withdrawal Strategy Before Social Security at 62? (Christine)

Joe: We got, Christine. She writes in, Al.

Al: Okay.

Joe: Or the dog writes in.

Al: Yeah. Picture of the dog, not her.

Joe: Got it. Cute dog. Hey Joe, Al. and dreetings down under to Andi. Alright, so  this is fairly new. So we got caught up or did you put her, top of the list? Because she said greetings from down under,

Andi: This is from July. I’ve moved in May. So. Yes. I guess it’s not that new.

Joe: You moved in May?

Andi: Yeah.

Joe: Wow. Time flies.

Andi: It does. It’s true.

Joe: I finally retired at 59. I’m trying to figure out the most beneficial withdrawal strategy for the next few years until I begin taking Social Security. I did a search on withdrawal strategies and found an episode back in 2021 when Joe first asked us to tell him about our favorite cocktail. Okay, that was in 2021. We’ve been doing that ever since. I thought it was later longer than that, but maybe no idea on how that ever came up. that was very helpful and, understanding income gain stacking. But I’d love to hear your thoughts about my current situation. first to help Joe get in the zone. Let’s go. Okay. All right. My cocktail of choice for this conversation is a French 75.

Andi: French 75 is a cocktail made from gin, champagne, lemon juice, and sugar.

Joe: Gin, champagne, lemon juice, and sugar.

Al: Okay, that sounds like pretty sweet. Oh yeah. I dunno how many of those you can have.

Joe: And you can picture me driving around France in my Fiat 500 electric. Okay. With my poodle de mix. Poodie, P poodle, pood…

Andi: Poodly doodley mix.

Joe: poodley doodley mix – see picture.

Andi: So got the picture up on screen, and obviously ball in mouth ready to play.

Joe: Just like a good dog. I’m single. We have a retirement savings at 1.8 million, spread around the three buckets, 750,000 in an IRA 550 in a Roth, 500,000 in non-qualified. Very good tax diversification there, Christine.

Al: Yeah, great. And by the way, I’ll just make one quick comment. Love the brevity here. I love it when they give us the total amounts, right? Rather than 18 accounts that you have to read. I got 18,000 in a SEP and I got- just tell us the total retirement, total Roth, total non-retirement. We love it.

Joe: Perfect. 750, 550, 500. I’d like to withdraw $60,000 a year for the next three years until I start taking Social Security.  But I also have 75,000 SBLOC. It’s 7%. What is that? A line of credit? That’s $5,000. That 7% that I want to pay off securities backed line of credit. All right.

Andi: what does securities backed mean?

Joe: It’s on the brokerage account versus a home.

Al: Yeah. Secured by stocks and bonds instead of your home.

Andi: Got it. Thank you.

Joe: Yep. Andi note to self – securities backed. Oh, that’s Andi’s name. S-B-L-O-C.

Al: Oh, she did a little research.

Andi: I wanted to make sure to ask you what that actually was.

Joe: Got it. All right. What’s the most tax-efficient way to do all of this? I’m trying to consider future RMDs in the long term and interest payments on the LOC in the short term. Once they start taking Social Security, I’ll replace about 50% of the draw. So that means more money can stay invested and continue to grow. Should I be thinking about more Roth conversions at any point in the future, do you think I’ll be positioned to take an extra $20-30,000 every couple of years from some bucket list adventure that I’d like to-

Andi: For some bucket list adventure. Yes.

Joe: Yeah, bucket list adventure. She wants to do some bucket list stuff.

Al: Yeah. That’s cool.

Joe: All right. so let’s see. So this is gonna be somewhat easy I believe. So 750, 550, 500,000. She wants to pull some money out before she takes Social Security. She’s got this $75,000 line of credit that is included in her expense number or not included.

Al: I think it’s in addition to.

Joe: And she wants to take out $65,000 a year?

Al: About 60 grand.

Joe: 60 grand on top of the 7,000, or I mean the 7%?

Al: Yeah. She wants to take 60, as I read it, 60,000 a year. Plus she wants to pay off this $75,000 loan.

Joe: Got it. Okay. So what say you Big Al?

Al: I guess first of all, the, the loan itself I would use, non-qualified accounts, other words, brokerage accounts, non-retirement accounts, because it doesn’t cause much taxation. Maybe you sell some stocks, bonds, maybe there’s a little bit of capital gains that can be factored in, but that’ll be the most tax efficient way to go without utilizing the Roth IRA. So I would, that’s what I would do. And the second part is, you know, when you think about a single tax bracket, which is 48,000 is the top of the 12% bracket and standard deductions about $16,000.

So, which means, Joe, you can have about $64,000 of income and still stay in the 12% bracket. I would be trying to stay in the 12% bracket because I think it fits her income scenario. if she sold some stocks and bonds, maybe a little bit that gets over. I don’t know, but it close enough, right?

Joe: So you got 750, 550, and then 500. So there’s 1.8 million total.

Al: Yeah.

Joe: All right. And so 4% of that, of 72,000, she wants 60 to bridge the gap. She also wants to pay out the $75,000 loan.

Al: Even if you take off 75 grand, it’s 1.7 million, three point half percent distribution rate in advance. The Social Security, I mean that, it’s fine. It’s just a matter of picking which accounts to pull the money out of.

Joe: Yeah. I would pull, $65,000 out of the IRA.

Al: Yeah, because that’s what you can, that’s what you can pull out and still stay in the 12% bracket. Yep.

Joe: And then I would look at, alright, I’m in the 12%, what is the basis on the 550? She says, it’s all earned capital gains, but is there any there at a loss? Is there any larger gains? So I would kind of play around with that as well, I would wanna draw the IRA to no more than the 12% bracket. And then from there I would play with a non-qualified account to see how much I can get out of there at a, reasonable, rate. Maybe you don’t take the full 64,000 out of the IRA, maybe you take 50,000 and then you sell 15,000 of gains and still be in the 0% capital gains rate.

Al: Exactly. That would be the smartest and, to, I guess to reiterate, so what we’re talking about, you wanna stay at about $64,000 total income, including your capital gains. Because if you go over that, your capital gains are all of a sudden taxed at 15%. So if you can stay in that $64,000 of income. Now, if you need, you know, let’s just use that example. You got $15,000 of gains, right? And so you’re trying to stay at the 64,000, maybe you can pull out another $50,000 and that’s cool. Maybe you’re 10,000 short, maybe you take 10 from the Roth, right or I don’t know. You kind of play around with

Joe: it. Yeah. She’s 59, so she’s got quite some time until the RMDs. So you could slowly draw out the IRA and still be in the, you know, a 10 or 12% tax bracket.

Al: That’s what I think too. Yeah.

Joe: So I don’t think conversions make a ton of sense because she has $550,000 already in her Roth that could compound tax free that she could use later. She’s already done a great job. She’s, yeah. So I, would say from now until, the only thing she’s missing is the basis on the re on the non-qualified accounts. We don’t know. Yeah. Because then you would look at a, a. A, a capital gain play, because if you sell stocks at a gain, but you keep yourself in that, like we’re saying $64,000, you know, total income level on your tax return, that means you’re still in the 12% bracket.

There is no capital gain. So you could slowly kind of chip away at some of these gains. You could rebuy the same stocks if you want. That’s called tax gain harvesting. So I have a $15,000 gain. I’m in the 12% bracket. I sell Nvidia and I buy Nvidia back. Because it’s a gain, right? You just increased your basis, there’s no tax on it, and you increased your basis.

It’s called tax gain harvesting. It’s a really cool strategy that you could potentially do there just to kind of get you more tax efficient as you’re looking at the different pools. Another problem that I see is that people, if they have too large of gains in the non-qualified account, it’s like almost the same issue people have when it’s in a retirement account.

They don’t wanna sell the asset. It’s like, I’m gonna have to pay all this tax. But if the asset’s down, it’s like, I don’t wanna sell it because it’s down. So they never sell, so they don’t ever sell it. It’s like that’s why you gotta be tax efficient. You wanna look at tax laws, harvesting opportunities.

You want to be managing your risk, rebalancing the overall portfolio to mitigate these long run ups. So, there’s a lot of different things that she’s done a great job with the diversification from a tax perspective, but now it’s time to draw the income, and this is where it gets a little bit more complicated because you want to consistently rebalance all three accounts, To manage your risk. Now that you’re pulling it because you have sequence of return risk you might wanna be looking at, all right, now I’m gonna pull X amount of dollars from the IRA this year and maybe next year I’m gonna pull more from my non-qualified account. you’re gonna be playing with those two accounts depending on how they’re managed, because asset location is gonna be key.

You wanna hold some assets in your IRA that are different from your Roth IRA, that is different from your non-qualified account. You also want to be looking at the tax loss harvesting opportunities as you’re rebalancing and as you’re creating income. So there’s different things that have nothing to do with the asset allocation.

It has everything to do now with creating income, mitigating the taxes, and doing tax strategy on an ongoing basis to make sure that you stay in balance.

Al: Yeah, no question. And, here’s another point I would make. So what you, got gains in your non qual. Good for you. That’s what you’re trying to do.

And guess what? You get a lower capital gains rate. So just because you have to pay some capital gains, I’m saying it’s not the end of the world because that’s a cheaper rate. So good for you for having these gains in the right account.

Joe: Alright.

Andi: Now hang on, did you guys say how she should pay off that securities back line of credit?

Joe: Yeah, she could do it over a couple of years or just bite the bullet and pull $75,000 out of her non-retirement account and pay it off. Yeah, the non qual account.

Andi: Cool. Thank you.

Joe: Yeah, I mean she could do a couple of different things. if I knew a little bit more information You could say, alright, you’re gonna pull X amount of dollars from the IRA. Maybe some of those dollars could be used to pay it off. I don’t know, as long as it’s in the 12% tax bracket. I think I’m good with that. as long as she could cover all of her living expenses and stay in that ra, stay in that rate.

Al: Yeah. And if, you know, when you’re picking the stocks to sell, you wanna pick those that have the lowest gain, but you also want to consider about rebalancing. You may wanna rebalance a little bit because maybe you have certain asset classes that are overweighted. So just, think, there’s a lot of things you can think about here, but the basic instruction I would say is use the non-qualified account non-retirement account to pay off the loan and then use your IRA generally to pay for your expenses, you know, with some exceptions, depending upon how much gain there is.

But that would be the basic rule here at 62, that’s three years from now, you’re taking Social Security. so then at that point, you know, that’ll pay for. Maybe half your expenses, as you say, maybe you pull the other half from the Roth, maybe you do a little conversions, maybe not, I don’t know.

But you’re, you know, you’re, already in a good shape, so you don’t really have to do a lot more on conversions, I would say.

Andi: Christine’s question shows how tricky retirement withdrawals can be. To see how to turn your savings into income – and maybe pay zero tax doing it – you need to watch the newest episode of Your Money, Your Wealth® TV. It’s called “How To Retire Tax-Free With A Smart Income Plan.” Joe and Big Al break down real examples of how couples can make $100,000 a year in retirement and pay zero in taxes by managing where that income comes from. They’ll show you how to balance withdrawals from your IRA, Roth, and brokerage accounts, and how strategies like Roth conversions, the home sale exclusion, and qualified charitable distributions help you keep more of what’s yours. And download our brand-new companion Tax-Free Retirement Guide: it walks you through the tax brackets, capital gains thresholds, and proven moves that can help you build a retirement income plan with little to no tax bill. Click or tap the links in the episode description to watch “How To Retire Tax-Free With A Smart Income Plan” on YMYW TV and to download your free Tax-Free Retirement Guide. All free, all courtesy of Your Money, Your Wealth® and Pure Financial Advisors.

Should We Do Roth Conversions Before Being Hit With the RMD Avalanche? (Prickly Richard & Margarita Maggie, Tucson, AZ)

Joe: Alright, let’s move on. this looks really complicated here.

Al: It does.

Joe: What is this?

Andi: I think it’s just spaced weirdly.

Al: Yeah. What I don’t like as much is you have like 30 lines. I’ve got this much in this account, this much in this account. This makes it really hard to follow.

Andi: If you guys wanna just do the recap at the top that actually has all the numbers included. Yeah.

Joe: I’ll, try to get through this as fast as I can here. All right. So we got, Mrs. Prickly things or Mr. Prickly things from the land of prickly things, AKA Tucson Tuckson, Arizona, Tucson. Yes, sir. do you enjoy listening to your podcast while I work out? Yeah, do another squat. I can do it. Max, that one out. entertaining and educational mostly. What the hell does that mean?

Al: sometimes we’re off, off base.

Joe: What? We’re just giving just information, stuff that,

Al: bad information.

Joe: We’re mostly educational, entertaining.

Al: Sometimes we’re not very funny and we’re information’s not that good.

Joe: Got it. All right. here are the basics. Ages me 68. Darling spouse, 69. DS for short. Got it. So hit RMD earlier. Okay. I can already another already tell where this email’s going. This is gonna be a disaster. Gonna be you’re good luck. Okay. Use prickly Richard and Margarita Maggie. Okay. If you would drinks me any crap beer. Thinking about taking the Cicerone exam. Cerone exam, that is a beer sommelier.

Al: There we go.

Joe: Okay, here we go. Yes.

Al: We’re only like a third of the way through this.

Joe: I know it. It does exist. DS likes the iced tea. Darling spouse. Okay. Alright. Car ME 20 2006. Lexus only 146,000 on it. A tank albeit one that Slurps premium DS 2016 BMW 320i Employment. Me just retired. Long time though. Had the more important job of raising kids of DS. That’s DS Long time. She’s been retired a long time. What we’re getting We’re in code. Yeah. Yes. This guy, it’s a prickly pear, is talking code, little empty nester now house, roughly $1.3 million, $350,000 on a 2.6% 30 year fixed.

Alright. Social Security, me delaying until 70, which is $5,000 a month. Darling’s spouse is currently taking it at, call it 2000 a month, pension me $1,100 a month, no call out. IRAs me a million dollars. Darling spouse, 3.1 million. Darling’s spouse has 3.1 million, but has been retired for quite some time.

Al: And was, she must have  stayed at home. She must have been something else before she stayed at home. that’s pretty incredible,

Joe: more important job of raising the kids. All right, long time. three and a half, 3.1 million. Roth ME 375. Darling spouse one 50 brokerage 450,000. A big concentrated one.

Stock low basis HSA 26,000 will shoebox Medicare Part B and D premiums using Medicare and MEAP insurance. Medicare joined, seven one in 2025. Budget roughly need about 160, $180,000 a year. So in 2025, only six months of salary with salary. IRA draws STA stock sales sitting in about 180,000. So some IRMAA room for a conversion.

2026. I will have no salary, no Social Security coming in, about $36,000, in pension and Social Security. Okay, 2027. I turned 70 on April 15th. Yes, death and taxes. $80,000 Social Security Pension 2028. How many, years is this? Are we going here? Alright, keep going. We’re 2028. Full year of both our Social Security $92,000 Social Security Pension 2029 DS RMDs hit will roughly be 120,000, 2030.

My RD hits roughly would be 36 plus one 20. Okay. All right. All right, cool. Didn’t use the bucket method. Have set up bullet shares in IRA that’s pretty good. All right. Whatever that is. If, market tanks won’t have to sell off low cost shares, engineer with MBA here, is that why? Toxin code? I think so.

I wonder what his handwriting looks like. I mean, this has got engineer written all over, doesn’t it? If market tanks wanted to sell off low cost engineer with MBA here, so made a giant spreadsheet with Social Security r and Ds, et cetera, to see the impact of pulling ahead some IRA money early and possible Roth conversions.

This was assuming a 4% CAGR on the IRA 2% COLA on the Social Security and a 22%, 24% tax rates have rest of 20 25, 20 26 low with no Social Security. 27 to 28 to do IRA withdrawal, pull ahead in some Roth conversions when I run the numbers. Looks like I hit IRMAA if I’m using the tax deferred IRA, but total tax is roughly same if I do some pull ahead, but I’m not considering impact of Roth conversions in their growth in time, value of money, blah, blah.

The S is figuring out ways to pull money out so we’ll be cashing something out. Traditional processes, brokerage, tax deferred, and Roth. See I’ve been listening. If I use deferred IRA to fund draw down would be 4%. Just looking to get a reality check. Makes sense to use the income through the next three years to do a pull ahead or Roth conversion.

Andi: You did a great job of translating all that, Joe. Phenomenal. Great job.

Joe: Yeah. Okay. You like the pull ahead, Roth conversion. I love the pull ahead and the bullet shares.

all right, yeah. Alright. You got three and a half plus one and a half. You got $5 million, roughly

Al: Five. 5 million total. Four in

Joe: deferred. Four $4 million in a deferred account. And they wanna spend $180,000 and they’re gonna have 30,000 A and her Social Security plus another. Yeah. What, 120?

Al: Yeah. Lemme

pay you the math. So they wanna spend 180 fixed income when his Social Security kicks in. Will be 90 shortfalls, 90 into 5 million. That’s 1.8% distribution rate. SO’S number one check. You’re in good shape. That’s not your question, but we always want to take a look at that first. So now he’s talking about how does he take his income or does he do Roth conversions? What do we

Joe: what? I would not worry too much because once both RMDs hit, he’s got 120 plus 36 of RMDs and that’s assuming, I’m not sure what he used as a CAGR. What did he say? 4% on the IRA? Yep. So I don’t know what,

Andi: can you explain a CAGR please?

Joe: What?

Andi: Can you explain a CAGR please?

Al: that’s what he’s putting. capital gain rate, I guess

Joe: CGR. No, 4% we are assuming a 4% CGR. I’m guessing that’s a compound growth rate. Could be compound growth there. Capital gain rate, either,

Al: either way. It’s a 4% growth rate,

Joe: but it wouldn’t be. Thank you.

Al: A capital gain rate, A CAGR is, could be a compound annual growth rate.

Joe: And he forgot the A. So I’m throwing in the CAGR and I’m saying it’s

Al: actually a, I’m saying it could be a capital gains rate and capital growth, capital gain rate, whatever. But it’s the same. It’s growing 4%. That’s what I get outta that. Thank you. Oh,

Joe: I guess you’re. Whatever. Capital gain rate sounds like a tax to me.

It could, be anyway, whatever. Okay. yeah. Okay. So yeah, at 4%, that’s fairly conservative. And he’s got, 40, 61 60 coming out plus his pension plus another 92. $92,000 of Social Security and pension plus another 160 of RMDs. Correct? Yep. Okay. Yeah, that’s $50,000 of income.

Al: Yep.

Joe: $250,000 of income as a married couple is the 22% tax bracket.

Al: Yeah. Clo, yeah. 22 maybe even. Yeah. Close to 24. Oh yeah. You’re,

Joe: no, you’re in the 24, 200 thousands in the 24% tax bracket

Al: It is. And even when you subtract out the exemption,

Joe: so he’s right at the cusp of the 24% tax bracket With all of his fixed income sources and the RMD is coming out.

Yeah. So over the next couple of years, he’s gonna be in a low tax bracket. Next year he’s gonna be in a very low tax bracket. So you just think the, some of the RMD, not all of it, most of it is gonna be taxing the 22% and then agreed. Some of it’s gonna be in the 24, so you wanna look at, all right.

You at least wanna maximize the 22% tax bracket. And then I wouldn’t necessarily worry too much about IRMAA because the extra RMD is gonna be taxed at 24%. The higher IRMAA. Cost or his Medicare cost is probably gonna be less than that other 2% that is gonna be taxed. So I would try to get as much out, in, I don’t know if you might wanna stay in the third or second.

Yeah, you might,

Al: you know,

Joe: IRMAA here, so though

Al: I, was curious myself, Joe, so I did a little math, by the way, IRMAA income related monthly adjustment account, that what that is, that’s, dependent upon your income in two years from now is, dependent upon how much you have to pay on Medicare. So the higher your income, the more you have to pay for Medicare premium.

So right now, the cut, the lowest cutoff is 212,000 of income. So I went up like three levels to 400,000, which would put ’em top of 24 ish, something like that. That’s 188,000 of additional income. What’s the extra IRMAA expense? 3,500. That’s a 1.9% tax. So kinda same. If it were me, I would go ahead and do some Roth conversions to the 24% tax bracket for two, three years.

Get it over with, and then you’ll probably stay in the 22% bracket and not have to worry about IRMAA after that. Yeah. That’s what I’d do

Joe: now. yeah. I’m glad you did some research before. I’m just kind of free balling this thing.

Al: Yeah. Yeah. And you’re free. Yeah. And you’re doing a great job at it.

Joe: no, I

Al: couldn’t.

Andi: That’s even more relaxed than spitballing.

Joe: Yes.

Al: You’d rather spitball. And I like to have a little prep, but it’s all good. Yeah. That’s why we compliment each other.

Joe: Yes. That’s right. That’s right. Oscar and Felix.

Al: I guess I’ll be Felix. You’ll be Oscar. Give you the cool one. I’ll be the need free,

Joe: all I think, did we, check all the boxes there? I think so. I think so. He’s already got the monster spreadsheet. He already knows what to do. I know. He just wants to hear us talking. His like BA slang.

Must read the code. Yeah, read the code. alright. I wonder if, yeah. His handwriting must be.

Al: Crazy. I wonder what DS thinks of when they, I don’t know, have romantic dinners. Sydnee, he talks in code. Can you imagine?

Joe: Oh boy. Okay. She goes, gimme another margarita, please. Yes, please. Margarita Maggie?

Al: Yeah.

Andi: Cheers to you, Richard and Maggie! If you followed along with Prickly Richard’s spreadsheet and didn’t need a margarita halfway through, you’re our kind of people. And if you did need a margarita, you’re still our kind of people. Either way, hit subscribe and ring that little bell on YouTube so you don’t miss the next round of tax talk that’s actually fun. About 63% of you watching right now haven’t subscribed yet, and that’s just bad math – Prickly Richard would never approve. While you’re at it, leave us a quick rating or an honest review on Apple Podcasts or any of the other apps that accept them. And your review isn’t just ego fuel, it does actually help other people escape those boring money podcasts. And if you know someone whose retirement plan is basically “hope the spreadsheet works,” share this episode with them.

Saving for Early Retirement at 55 vs. Saving for Kids’ Future (Michigan Queen & Mississippi Boy, TN)

Joe: Okay, let’s, let’s move on. We got, we got, Hey Joe, big Al been listening to your show for a couple years now after my former boss and mentor referred it to you? To me, to y’all. Okay. And I haven’t stopped learning and laughing since. thank you very much. I usually listen to the show on planes, while driving.

Andi: Man, I hope he flies a lot.

Joe: Wow. Listening to the show on planes. Planes and driving. He was driving. Morning walks. Morning walks. Gym routine. Got it. Really Gets the good pump going. Alright. Yeah, that’s what we wanna hear. That is, yeah, just that’s just back out. Two more. Come on. Do more squats.

Al: Come on. You got, you can do it.

Joe: You got this. thanks for all you do. My wife Michigan Queen. Ah, all right. Age 33 and I love Mississippi boy. Oh, okay. From different states. How about that? They live in Tennessee right now, have three kids, ages five and younger. And a dog a little pedigree mutt that’s what 11 in patiently tolerates our day-to-day Ruckus doesn’t have much choice. It doesn’t, naturally we have a minivan, a 2020 Kia Sedona. Okay. That I hate to admit that I love since it’s so stinking practical, except for when I rotate the tires.

Al: Do you have a minivan?

Joe: I do not have a minivan. Alan?

Joe: No. I’ve never seen you drive one. No, I don’t. And I don’t know if I’ve ever rotated my tires. I take that into the station. I do. they do that. I do. And then 2020. How often do you have to rotate your tires? It’s only five years old.

Al: F-150 is pretty heavy, so maybe you do it

Joe: well, it’s not an F-150. This thing’s a Kia Sedona.

Al: Oh yeah. I was looking at, I was looking at

Andi: The F-150 is coming up.

Kia Sedona. Yeah. it’s a minivan. They gotta be kind of heavy.

Joe: I don’t know. Oh, what’s, what does Google say? What does ChatGPT say about on how it, the tire rotation on it?

Al: Yeah. I’m gonna, I’m gonna say, I’m gonna say once a year. That’s my, no, sir. That’s, my guess. Oh my, yeah. Every time you do an oil change, they rotate your tires, like cars,

Andi: every 7,500 miles.

Joe: Every 7,500 miles.

Al: Yeah. That’s,

Andi: or sooner if you notice uneven wear,

Al: see there more than a year.

Joe: Oh yeah.

Al: Anyway, I’ve got electric cars, so there’s no oil change, so I never think of it.

Joe: Yeah, okay. I drive a crew cab 2020 Ford F-150 that I love there. There we go. Alright. MQ, that’s Mississippi Queen.

Al: Yeah. Okay.

Andi: Michigan Queen. He’s the Mississippi boy.

Joe: Yeah. All right. that’s interesting. Yeah. All right. Michigan Queen. let’s me, get it. Once I showed her, we could cram three car seats in the back.

Al: That’s the prerequisite to get the tricky wants.

Joe: I like it. My drink of choice is usually a bourbon or bourbon based cocktail, especially a good whiskey sour. My wife is a bigger fan of champagne and dry wines, but she says, I make a mean French 75. Whoa. Twice in one show, Andi had to play,

Andi: I swear I did not put those in the same show on purpose. No, they, we just have people that really like the gin, champagne, lemon drink.

Al: How many shows have we done without hearing about a French 75?

Joe: I’ve never ever heard of a French two 70 in my entire, we’re gonna like, everyone’s gonna start saying, I like French 75. Oh, I love the French.

Andi: Old fashioneds are out now. The French 75 is in.

Al: it’s a nice, sweet drink, so it, wow. Yep. Okay. Yeah.

Joe: My financial questions involve our retirements football and balancing that against a saving for my kids’ future opportunity appropriately.

Sorry. I make $170,000 a year and Michigan Queen is a teacher by profession, but currently stays at home with the hells whom I love. I have no debt except for my mortgage. Five years into a 30 year, $240,000 remaining, valued around $460,000, which is likely not my forever home. I have $420,000 in retirement, broken into 70% in traditional rollover.

IRA 18% Roth and 12% a mix of Roth and traditional from my employer’s 401k plan. I didn’t know about RVs in my younger years, so I didn’t do the most ideal investments early on, but I have seen the light and now contribute to Roth retirement accounts now until things change significantly.

Andi: And keep in mind, he’s 33 and 34, so he’s saying he didn’t know about them in his earlier years, like he’s now in his sixties.

Joe: I’m max out to the IRS limits on my 401k and both of our Roth IRAs. We also recently started maxing out our HSA and attend to use that for medical bills later in life. That has $15,000 in it. We will contribute to some of, to some form of retirement when MQ goes back to work, which will give her access to state benefits such as a pension, 401k, deferred comp and other retirement vehicles.

But we currently unsure as to how much that can provide in retirement based on our current goals. Honestly, I’m sure Social Security will do something, but I don’t even know how to value that at this stage. So I’ve excluded that from my expectations to stay conservative. For the kids, we put $8,000 a year total across their 3, 5 29 accounts, anticipating that they’ll go to a state school, and it has $50,000 in it.

I may or may not have started a little before they were born. All right. 50 K. That’s pretty good. Yeah. All right. He started it before they were born. That’s what he said. This guy is a master planner. He is. He’s only 33. My god. He’s like, he probably started the plans before he even met his wife.

Met the, ew. He is like, honey, I got a 5 29 plan. What do you think? I think we’re gonna have a kid eventually, so let’s do it. You wanna get married? Guess what the expectation

Al: is? We’ll have, we’ll have you as the beneficiary and then we’ll change it.

Joe: Oh boy. Now the kids will all be out underaged. Oh no.

The kids will all be out of undergrad school age. What? Undergrad school age. By the time we are 55. So they’ll be graduated from college, I think is what he’s saying. Got it. And we’d like to have the chance to retire. Then if we can, not to say we will, but it’d be great to have a want to work rather than to have to work mindset.

That’s what you have all right now. Yeah. I want I don’t have to work. Yeah. I want You have the want to work mindset. that’s right. Yeah. I have the have to worth mindset. You still have two young kids. I know. our current expenses are $90,000 a year, and I roughly guess we’d like to spend $120,000 in today’s dollars per year in retirement.

Okay. What are your thoughts on how short we may be if we only assumed I continue to max out the 401k in both Roth IRAs? It’d be nice to Roth in how much extra we need to put in retirement to meet our goals before we start focusing more on college savings. You feel we’re woefully short and need to turn it up.

I don’t, know, turn the heat up on retirement. Are we saving too much in college? With that in mind, thanks again for your time and keep up the awesome work. Very, standard, issues that, yeah. Young Miss or, missis, Mississippi Boy. And Michigan Queen. Michigan

Al: Queens. So, to, start with, they got about 420,000.

Okay. So I just ran a little bit of they wanna retire 55. Yeah. Ran a little math. So, let’s call it 21 years. Yep. 7% saving. I did 37,000 a year, which is max 401k and two IRAs. I dunno what the employer match is. So I didn’t include that, but just to see what that looks like. and they get to 3.4 million, $3.4

Joe: million at age 55.

Al: Now, If they wanna spend 120,000 a year at just 3% interest for 21 years, that’s 223,000, 2 23, that would be a 6.6% distribution rate. So that doesn’t quite work. but I gotta say, I mean. First of all, I love that you’re thinking about this math, but so many things will change over the next 20 years, and probably you’ll be saving more different parts.

Probably you’ll, you’ll find

Joe: makes $200,000 roughly at 30 something years old. He’s doing ama I mean, I mean, you would not even taking that account, cost of living,

Al: adjustments

Joe: of

Al: saving. I’m not adding, I’m adding more savings and so straight line, it doesn’t quite work. But I guess what I’m saying, Joe, is that’s, it’s not the, best way to think about this.

So the best way to think about this is as you make more money, save more, try to get up to saving 20% of what you’re making, which is about what you’re doing. Just keep doing it. So you’ll be saving more and you’ll probably be in good shape. Can you retire at 55 with your goal of spending 120,000 at days dollars?

maybe not, but you’ll be close, right?

Joe: I think, yeah. I mean, it, The better rule of thumb of what he should be thinking about is that, you know, save 20% net. that’s what I think that, that’s what I think it, because then he’s already probably close to that with the 5 29 savings.

Al: Yeah. Yeah.

Probably. He’s

Joe: got $50,000 of 5 29. he’s got three kids. and he’s putting in what, $8,500 a year into that? Is that what I remember? What’s he doing?

Al: He’s putting about 8,000 a year.

Joe: Yeah. Yep. Uhhuh 8,000 a year. That’s right. So, no, I like the 5 29 plan savings with three kids. Yep. keep that me too.

And do the 401k. we don’t know what the matches. Keep funding the Roth IRAs and then as your salary goes up, as you get bonuses, just keep that percentage of what you’re currently saving now. Continue to save that amount. And I, I would be very shocked if he would not be able to, to Yeah. Be the

Al: plug at 55.

Yeah. if you’re making one 70 at 34, chances are you’re gonna be making 300 or more Yeah. In 10 years or 44, 45. Yeah. Yeah. Yep. And you just, yeah. You just keep saving more. So the,

Joe: I put money in a 5 29 plan before kids. Before kids.

Al: So I think, I think Mississippi, boy, you’re gonna be fine. Yeah.

Joe: Congratulations. Way to go. You are going to be a, you’re gonna be a star. We’re gonna give you a star in 21 years. Yeah. but yeah, great job. keep doing what you’re doing. Just keep your head down. Keep saving away. Don’t, do anything cute. I think. I mean, I think that’s the problem sometimes where if I’m younger, it’s like I, I want to take on more risk and then I start doing things that are a little bit cute.

And in most cases, it doesn’t pay off. If I keep my head down, if I just keep plowing away, keep saving into just low cost index funds, you know, my 401k plan, keep going in the Roth, IRA. You know, and then just ignore the noise. I think you’ll be just fine. But all of a sudden it’s like you start seeing these balances of like, Hey, wait a minute, now I got a million dollars or a million and a half dollars.

And then you hear the Joneses are doing something different with their money and they made all this return. Or hey, you know, here’s a hot stock and maybe he should, why are you in this boring, you know, s and p 500 fund? Why are you doing in crypto? Come on, what the hell is it? You know, I made millions in crypto, you know, maybe he should be in a little bit of crypto, whatever.

He’s got plenty of time. But I, the, point is, that just have a strategy that sound and then stay to it. and then just make sure that you, keep yourself on track. I think once people kind of veer off, once they get a little bit more cash and wealth, they’re like, oh, maybe we. Oh, let’s buy that apartment building.

That’s right. That’s right.

Oh, we should have more real estate, or should we do this or that, or whatever. Right now you really wanna retire at 55 and hang out with the kids when they’re undergrad post-grad. I wouldn’t, I would just put my head down and grind.

Al: Yeah. And also I would say this, chances are being older than 55, you’ll get there and you may wanna keep working because you still have a lot of energy, but you don’t necessarily have to work full time.

Yeah. Because

Joe: that’s, he wants to be in Yeah, I wanna work. Yeah.

Al: That I need, I wanna, not that I have to. And so, so let’s say you’re $60,000 short in this calculation or whatever it is, so you make 60 grand for a few years until Social Security or whatever. There’s lots of opportunities to, to not have to do the, career grind if you don’t want to at age 55 when you will have saved as much as you have saved.

So I, I would say there’s a lot of opportunities here. I agree with you, Joe. just keep saving more and more as you make more money. 20 percent’s a good goal, of your income. And just keep that up as you get raises, bonuses, keep saving that 20% and you’ll be fine.

Joe: Yeah. I think, yeah. The, only it is just that.

Lifestyle creep will get you too. it does. Of

Al: course. and, ’cause you got the money. But that’s, okay. So what we’re saying is of the net save 20% of that you can spend the other 80, save 20 net. Yeah. Spend 80. you get to spend 80% of your bonus. Yeah. But make sure you save at least 20.

Maybe even 25 if you wanna accelerate this. So just, but yeah, you can spend more. But a lot of people spend it all. that’s what that creep is all about.

Joe: Yes, sir.

Outro: Next Week on the YMYW Podcast

Andi: Next week Your Money, Your Wealth® podcast episode 556 will sound like a continuation of today’s 555 – because it will be. Joe and Big Al will help Joe Momma figure out whether his 0% capital-gains plan is too good to be true, David and Shannon ask if both spouses need to do Roth conversions, Thomas wonders when to finally spend his Roth stash, and Lizzy and Billy from Texas put their early-retirement dreams to the test.

So, be honest: do you have your own retirement plan figured out, or are you just hoping that the spreadsheet works? If it’s the latter, then it’s time to schedule a free financial assessment with Joe and Big Al’s team of experienced professionals at Pure Financial Advisors. We’re coming up on the end of the year – there’s no better time. And no matter where you are in the country, you can meet in person at one of our nationwide offices, or online via Zoom. They’ll help you build a retirement income plan, cut your taxes, and feel confident about your financial future – with a trusted partner guiding you every step of the way. Click or tap the free assessment link in the episode description to book yours. There’s no obligation, and it might just be the smartest step you take toward a stress-free retirement.

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

_______

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