Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 15 out of 100 top ETF Power Users by RIA channel (2023), was [...]

Alan Clopine

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

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
March 12, 2024

Rob and his wife in North Carolina are 51 and 44 and would like to retire in the next 3-5 years. Are they on track, and what should they consider as far as Roth conversions are concerned once the tax brackets go back up, which they’re slated to do when that provision in the Tax Cuts and Jobs Act sunsets at the end of 2025? Is Mark in West Virginia on track to retire at age 59 and a half, and do Joe and Big Al have any pointers on how he can find the love of his life? Mike and Gina in Rhode Island are optimistic about retiring early at 61 and 58, but is their optimism delusional? Jake in rural Michigan is self-employed. Can he do Roth conversions to retire at age 60 and hang with Big Al in Hawaii? But first, the fellas spitball on a retirement and real estate strategy for Grey and Elena in Massachusetts. 

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Show Notes

  • (01:04) Real Estate Puts Us in High Bracket. Max Retirement & Roth, Save to Brokerage? (Grey & Elena, MA)
  • (12:48) Roth Conversions After 2025? Are We on Track for Our Retirement Goals in 3-5 Years? (Rob, NC)
  • (19:34) On Track for Retirement at 59.5? How to Find the Love of My Life? (Mark, West Virginia)
  • (24:24) Is Our Early Retirement Optimism Delusional? (Mike, RI)
  • (32:19) Self-Employed: Roth Conversions to Retire Early and Hang with Big Al in Hawaii at 60? (Jake, rural Michigan)
  • (45:19) The Derails

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Andi: Rob and his wife in North Carolina are 51 and 44 and would like to retire in the next 3-5 years. Are they on track, and what should they consider as far as Roth conversions are concerned once the tax brackets go back up, which they’re slated to do when that provision in the Tax Cuts and Jobs Act sunsets at the end of 2025? Is Mark in West Virginia on track to retire at 59 and a half, and do Joe and Big Al have any pointers on how he can find the love of his life? Mike and Gina in Rhode Island are optimistic about retiring early at 61 and 58, but is their optimism delusional? Jake in rural Michigan is self-employed. Can he do Roth conversions to retire at age 60 and hang with Big Al in Hawaii? Retirement readiness and Roth conversions, today on Your Money, Your Wealth® podcast 472. But first, the fellas spitball on a retirement and real estate strategy for (50 Shades of) Grey and Elena in Massachusetts. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Real Estate Puts Us in High Bracket. Max Retirement & Roth, Save to Brokerage? (Grey & Elena, MA)

Joe: All right, let’s go. We got Grey. We got Grey’s Anatomy here. Or is it Grey’s, what’d you say, Andi?

Andi: It’s actually from Fifty Shades of Grey is the name of the characters that they’ve chosen here.

Joe: Big fan, I take it.

Andi: I will say that I have read it. I’ll just leave it at that.

Joe: I thought it was a movie.

Andi: It was, but it was based on a trilogy of books.

Joe: Oh, got it.  “Hi, y’all. My name is Grey, Wife is Elena. We’re both 33, turning 34 in the Summer, live in Massachusetts, and have a wonderful 3-year-old boy. I work at a Big Four accounting firm, and she is a registered nurse. I drive a Mazda CX9, she drives a CX5-“ little Mazda family.

Al: Apparently. Yep.

Joe: “Drink of choice for me is McAllen.” That sounds like a sipper right now. “Wife isn’t particular- particular. Good cocktail with a tequila base and she’s golden.  Here’s where I can use a spitball. Market rental income for long-term tenants, I don’t include short-term rentals to be conservative, is currently at about $9000 a month. At 3% rental increases annually, we estimate to have $200,000 when we’re 65.” So he’s saying that tenant’s going to stay in there for life.

Al: Well, that he’s going to keep increasing the rent 3% a year, which in my experience doesn’t usually happen. Usually it’s about 1% because you don’t want to lose the tenant.

Joe: Then they bail.

Al: Yeah.

Joe: So you just got to keep it until they bail, then you hike it up.

Al: Then, yeah. I mean, that’s, that’s true. Because the vacancy and the repairs, it eats it up.

Joe: “If this premise is accurate, it puts us in a very high tax bracket before contemplating other assets. I own my property free and clear and can no longer use depreciation interest, so it would appear as though I could potentially have a lot of rental income without a large of deductions or non-deductible expenses. As a result, I’m tempted to contribute to my employer match, fill both Roth IRAs, and start to pour my remaining investments into my brokerage account.’  Okay. So he’s got a rental, he’s 30 years old and he’s already planning what that rental income is going to look like in 35 years.

Al: Right. It’s a-, it’s a long-term plan.

Joe: So he’s like, I don’t know if I like the rental. I’m just going to switch my investments and go into a brokerage account.

Al: You know, I remember when I was 31 and I was getting, I got married and I did my little spreadsheet to age 62. And I found it. I pulled it out at 62.

Joe: How close were you?

Al: I was actually relatively close, but the components were completely different than what I had on there.

Joe: All right. ‘So here’s the stats. We got income, investing total income, $250,000. He’s got rental income, $100,000 gross. So he’s got a little AirBnB long term and student rentals. We own two duplexes. And currently live in one of the 4 units. We contribute about $35,000 a year to my Roth 401(k) amount in two Roth IRAs, another $5000 to $10,000 into my brokerage account. My wife doesn’t contribute to an employer plan, given some independent considerations with my job. We don’t contribute at all to traditional, but think this is okay given our age, pensions and employer match, which all goes in traditional anyway. Don’t know if I should consider Social Security at all given the ages, likely the max benefit for my wife and I might be $2000 a month, if we plan conservatively. Debt, just mortgages for two duplexes, but looking to buy forever home before turning 35.”

Al: Okay.

Joe: Forever home.

Al: Yeah. A couple years off.

Joe: “The one we live in has $400,000 left with a 3.25% interest rate bought in 2019. Current market value $750,000. Our other property is- has a remaining mortgage of $588,000 with a 3.25% interest rate bought in 2021.  Current market value is $1,000,000.  They’re spending now about $200,000 a year now but think they would need about $120,000 in today’s dollars in retirement, given that half of our spending is attributed to the two mortgages, daycare, savings, etc.” All right, let’s see. So, some other considerations. “We’d like to have one more child by 35. Wife might not want to work if we have a second child. She makes $80,000 of our total income, but my income goes up fairly quickly, about 10% to 15% annually on average.  Thanks for all you do. Been catching up on old episodes.” Alright, so he wants to retire, he’s got some rentals, he’s got some rental income, 401(k)s, Roth IRAs, he wants to spend $120,000 in today’s dollars, he wants to retire at 65, what do you think? Can he do it?

Al: So Joe, looking at this, he’d like to potentially retire earlier. And in their 50s.

Joe: Oh yeah. I got that.

Al: So I, I just ran it at 50. Let’s, let’s see what happens. Right. If it were at 50.

Joe: So he’s got a pension at 50, what? $1600 a month.

Al: Right. So I just, without considering the pension, I took a look at, they have about $350,000 now, 17 years, 6% adding about $45,000 a year. That’s about $2,200,000.  So that’s where they would be at age 50. And rental income, let’s see at age 50 would be $45,000. Anyway. So, or no.

Joe: Well, we’ll be conservative. Call it $50,000. Yeah. Who knows what’s going to happen. Call it $50,000. Repairs and everything else.

Al: So let’s say $2,200,000. Let’s say at 53% tops, right? So, so somewhere around $60,000, maybe $70,000 would be the amount coming from the portfolio. Maybe another $40,000, $50,000 from the rentals, right? So that’s $130,000. Yeah.

Joe:: $130,000, $140,000.

Al: Yeah. Yeah. Yeah. Yeah.  And if he wants $120,000 in today’s dollars, 17 years at 3%, that’s $200,000, right? So it looks like he’s about $60,000 short, $70,000 short, something like that. So retiring at 50 doesn’t quite work, although he could, or they could, work part time and make it work that way.

Joe: Well, he’s got a pretty aggressive goal of retiring at 50. Second, his assumptions, too, is looking at he, he’s grossing on the rentals at $100,000. And so he’s like, hey, I’m going to gross $200,000 total on my rentals when I retire.  I don’t know if that’s going to be true. There’s, there’s a lot of things when it comes to rental income that, well, what is your net now? And maybe you just take your net and you- you move that by 3% or 4%.

Al: Yeah. In my long-term projection, my biggest thing I was off was rental income.

Joe: Sure. Sure.  Because it’s all right. Well, here, I’m going to pay off the debt, and then we’re going to increase rents by 3%. But guess what? There’s repairs. There’s dollars that have to go back in. There’s upgrades. There’s this. There’s that. So, projecting that long-term versus, you know. You know, a globally diversified portfolio saying, hey, this is going to grow at 5%. I think you probably have a little bit less deviation on that versus rentals, but you still want to map it out. I would say over a 10-year, 5-year period, you’re probably could be pretty close, but he’s, he’s forecasting 30 years out.

Al: Yeah, it makes it hard. I would say one thing I would certainly do, pension, I wouldn’t take it at 50, because it’s, it more than doubles by age 62, so I’d at least wait till age 62. I probably, if you retired at 60, I didn’t run those numbers, Joe, but to me this would probably look just fine.

Joe: Yeah, if they have another kid, then the wife doesn’t work, Elena doesn’t work. So that’s $80,000, that is out, so, you’re 33, I get it.  You want to retire at 50, but then when you get to 45, you’re probably like, yeah, maybe it’s 55. Well, except for me, when you get your little boardings, you just can’t wait to turn 50 and retire.

Al: – and retire. Well, here’s what else happens. Like, so you’re 50 years old and you’ve got a kid who’s 15?

Joe: I’ll be 50 years old and I have a kid at under 5.

Al: So do you, do you want to be at home all day with it for that?

Joe: I do. I do.

Al: I know. I know you do.

Joe: I want to read Curious George all day long.

Al: It’s your life.

Joe: It’s so much better than having 80 meetings and working 80 hours a week.

Al: Yeah. So my, my point is when you get there. And I had, as you know, Joe, it’s like I had this thing. I was like 50. That sounds good. Or it’s like-

Joe: You had your Hawaiian shirts.

Al: Oh, I still have.

Joe: Flip flops. Well, I mean, good luck. I think he’s on the right track. Congratulations. You’re saving a lot of money. You have a ton saved. He got some rentals here. So you have a really good nest egg. The net worth looks strong. The cash flow looks great. Keep saving what you’re saving. And then who knows? Right. We’re growing this at a fairly conservative growth rate. A lot of things can happen. You might double down on the rentals and say, hey, instead of a fourplex, I’m going to buy an apartment building. So, I mean, all sorts of things can happen over the next 20-some-odd years.

Al: Yeah. And I would just say with these numbers, probably not age 50. Probably yes at age 60.

Joe: I bet you for a fact this is I mean I want him to call us back when he turns 50 and I guarantee you and I can’t guarantee a lot of things I bet he’s going to be pretty close because I don’t know a lot of 30-year-olds that have almost $400,000 of liquid assets and has real estate portfolio that he does.

Al: Right. I totally agree.

Joe: I mean, we see 60-year-olds that have a lot less money. So he’s disciplined. He’s got goals. He writes things down. He’s mapping things out. I bet you that he, he will be able to do it, but given the numbers and the assumptions that we’re running today, it’s going to be close.

Al: It’s going to be close. I would say my main takeaway would be this, that you’re, what you’re doing is fantastic. Keep it up. And then you’ll know. When the right time to retire is based upon 15 years, 20 years, 30 years, whatever it may be based upon what’s going on in your situation at that time.

Joe: All right. Thanks for the email.

Andi: One of the most important financial decisions you make could mean thousands more dollars of income in retirement. How and when you claim your Social Security could completely change your retirement lifestyle – but it’s complicated! The Social Security Administration’s Basic Guide to Social Security Programs contains 2,728 rules! This week on a brand new episode of Your Money, Your Wealth TV, Joe Anderson, CFP® and Big Al Clopine, CPA answer the most commonly asked Social Security questions, and they help you avoid the mistakes that could reduce your Social Security benefits. Watch Social Security Basics You Need to Know: Common Social Security Questions Answered, on Your Money, Your Wealth TV, in the podcast show notes. Just click the link in the description of today’s episode to get there, and download our free Social Security Handbook there in the podcast show notes too.

Roth Conversions After 2025? Are We on Track for Our Retirement Goals in 3-5 Years? (Rob, NC)

Joe: It goes, “Hello, Joe, Big Al, Andi. My name’s Rob. My wife and I moved to North Carolina from Florida. We love it here. Four seasons, mountains, beaches, and rolling hills. Goodbye, 9 months of humidity and bad tourist behavior.”

Al: Can you relate to that?

Joe: I went to school at the University of Florida.

Al: I know you did.

Joe: I’m a Florida Gator.

Al: Were you part of the riff-raff?

Joe: I wasn’t.

Al: You were responsible.

Joe: Come on, Al. Come on. “The important stuff. No kids, pets, no debt, no mortgage.  I walk to work or ride my bike. When I have to, I drive a 2003 Toyota Corolla with 190,000 miles on it. My wife drives a 2010 Honda Fit that just surpassed 100,000 miles.” Trusty Rusty’s there.

Al: Yeah, love it.

Joe: Yeah, okay. “When I’m not climbing mountains, my drink of choice is a cold Czech or German pilsner on the golf course in Pinehurst.”

Al: Pinehurst.

Joe: Pinehurst. He’s talking to me now.

Al: He got our attention.

Andi: Do you know Pinehurst, Joe?

Joe: I do know.

Al: Yeah, we all know. We all know. Anyone that’s a golf fan knows Pinehurst.

Joe: Man, there’s- Yes. That’s I gotta get there. “Low hops, multi and breedy. The wife likes a glass of red wine and an occasional margarita.”

Al: Okay.

Joe: Yep. All right. Thank you for that. That just got me revved up. You can get a Pinehurst, North Carolina, getting the hell out of Florida, bad tourist, bugs, humidity.

Al: You can sort of picture it, can’t ya?

Joe: Four seasons. “Our stats. I’m 51. Wife 44, $2,500,000 broken down.” Thank you. See, now this guy’s right on.

Al: Yeah. Now we can, now we can picture it.

Joe: $2,500,000 and then $500,000. And then I’m adding all this stuff up. I’m like, holy, this guy’s got $10,000,000 bucks. No, he’s got $2,500,000, and it’s broken down into this, $500,000 into a Roth, $900,000 in the traditional IRA, $1,100,000 in a brokerage account. I’ll collect Social Security at 70 of about $45,000 annually, still working on the wife’s Social Security strategy, but she’s on target for $30,000 annual benefit at age 70.  Although we are still working on our options since I’m 7 years older, we both have longevity in the family and planning to continue the family tradition.” All right. Good for you.  All right. “So we would appreciate your spitball on the plan to possibly leave work in the next 3 to 5 years.” So he’s punching it. At 55.

Al: He is. Yep.

Joe: “She would work one to two years more for health insurance and allow room for Roth conversions at low rates.  I want to still be able to climb the tough stuff while I’m still able.” Well, he’s a hiker.

Al: Mountain climber.

Joe: Yeah.  I don’t climb mountains. I play golf with them, drink some pills.  Big Al. You can do the hiking.

Al: I’ll do the hiking, but I’m also gonna Pinehurst with you. And Rob.

Joe: “I know I can’t do this forever and I’m very motivated to climb full-time for one to two years before my body tells me to stop. We then will do one to two big, slow travel trips with lots of local family stuff the other 10 months of the year. Our annual spend now $65,000, not including health insurance or taxes.  I’ve been doing Roth conversions up to my MAGI of $250,000 in the past two years to avoid the extra 3.8% capital gains tax. Now that we have slowed down to part-time with benefits from our previous high-stress, high-pain, Roth-ineligible jobs, we have maxed out Roth 401(k)s every year since dropping part-time and plan on doing this for the next 3 to 5 years while still maxing out Roth conversions into the lower brackets. Here’s my question.  Number one, anything else I might want to consider as far as Roth conversions after 2025 when the Tax Cuts and Job Act expires? I plan on tapping into pre-tax just enough to qualify for a health care subsidy when eligible at 55 and 59 and a half, and using taxable brokerage to fund the difference. Would like to spend closer to $90,000 to travel, inclined post working.”

Al: Got it.

Joe: All right. “Second, am I on track to meet this 3 to 5-year goal? I don’t want advice, but I want to spitball.” All right, Robbie.

Al: We can spitball this.

Joe: Cool. All right, he’s done a hell of a job. He’s 50 years old. He’s got a couple million bucks. Wants to retire in 5 years, spending $65,000 a year. Wants to spend $90,000.

Al: $90,000. Yep.  I think he’s okay, Joe. Here’s, here’s my thinking. Start at $2,500,000, I went 4 years, split the difference between 3 and 5, 6%, he ends up with $3,200,000. I just took the $90,000, I could have indexed that for inflation, but I just took the $90,000, divided that into $3,200,000, I get a 2.8% distribution rate. And your 50s, I’m okay with that. I think that works just fine.

Joe: Let’s see. He’s got $900,000 in the traditional IRA. So he’s going to be doing some conversions over the next couple of years. Right. To get him to the top of the 15% tax bracket. And then he’s looking at ideas, the Tax Cuts and Jobs Act, what should he be doing? Well, I think he’s still convert all the way through and live off the non-qual. And then everything, hopefully, can get into your Roth account. I don’t know why he would want to take- he’s saying he wants to take distributions from his retirement account to qualify for healthcare subsidies?

Al: No, I think he wants to live off his brokerage, so it doesn’t really show up as income.

Joe: “I plan on tapping into pre-tax just enough to qualify for a health care subsidy.”

Al: I know, yeah, you’re right, because once you make over, like, $20,000, it starts to diminish rather rapidly.

Joe: Well, yeah, but if he converts all the way through, then, well, I suppose he’s eligible, so he doesn’t want to do the conversion because it’s going to blow up his subsidies.

Al: Yeah, I think that’s what he’s saying. And the thing is, you can be, it’s, it’s for a family of, let’s see, do they have kids? No kids. Yeah, husband and wife, it’s around $22,000, give or take, something like that, for the poverty level. And you can go up to 4 times that and still qualify for some of the subsidies. So just be aware of that. The subsidies are pretty good. I would say, if you can qualify, that’s a good thing.

Joe: All right, awesome. Well, good luck. Congrats.  Thanks for the question.

On Track for Retirement at 59.5? How to Find the Love of My Life? (Mark, West Virginia)

Joe: “Hi guys and gal, I was looking for a quick spitball on my retirement scenario. I’m a single 43-year-old. I drive a fun 2022 Honda HRV Sport. And enjoy a neat bourbon in the middle of the night when I’m not working.”  I really enjoy it in the morning.  Before I go to the office.  “When I’m not working.”  I love it. “I also have an 8-year-old chocolate lab. Currently between pre-tax, 403(b), HSA and Roth, I have roughly $300,000 saved up. I’ve been maxing these accounts out for the past 5 years and I make about $100,000 a year. My daughter starts college next Fall and I plan on dialing back my savings to about $10,000 per year so I can cash flow her tuition for the next 4 years. After that, I plan to ramp back up my savings to around $30,000 a year until I turn 59 and a half, at which point I would like to retire. Currently, expenses are $50,000. I hope to have the house paid off by then to estimate my $1000 per month mortgage. Can you spitball these numbers to see if I can retire if this plan works. I also was wondering if you could spitball a couple ideas for ways for me to find the love of my life that would align with my financial goals.”

Al: Oh, we’ve turned into matchmaking.

Joe: Yeah.

Andi: Joe always wants people to ask him personal questions. So there you go.

Joe: Here we go. I’m going to hook him up.

Andi: Ask Joe.

Joe: Yeah. “If I had to rate myself, I would say I’m a solid 7 out of 10.”

Al: That’s pretty good.

Joe: Oh. Mark, you’ve cut yourself short here. 7 out of 10.

Al: Well, you know, as you know, everyone is above average.

Joe: “Feel free to forward my email to any potential candidate that may write inquiring about me. Keep up the good work. Love the pod. Haven’t missed an episode in a couple of years. Cheers. Mark from West Virginia.”

Al: Okay. So, all right.

Joe: Well, it’s 7 out of 10.

Al: Yeah. Maybe higher. So, all our ladies from West Virginia.  Go ahead and email us if you want to meet him.

Joe: Come on. He drives a little-  Look, I don’t know if he’s a 7. I might give him a little bit less than when he’s hip, but drive a fun car.

Andi: Wow, that’s harsh, Joe.

Joe: I am a- it’s a Honda HR-

Al: It’s a sport version though.

Joe: It’s fun.  All right.  He likes a neat bourbon and little Miller light Sidecar.

Al: Yeah.

Andi: And he’s got a chocolate lab. Women love dogs.

Al: True.

Joe: It’s, it’s a catch. He’s got $300,000-

Al: $300,000 saved up.

Joe: He’s got a daughter going to college, he’ll be-

Al: -free, yeah-

Joe: -empty nester-

Al: – needs a little company.

Joe: Yeah. Right? Have some cocktails, play with the chocolate lab, driving his little fun HRVC Honda, whatever,  tootle around.  I love it. Okay.

Al: Okay. So I ran a couple of numbers, Joe. So for the next 4 years, he’s not really going to save much because he’s funding college. So it’s $300,000 at 6% over 4 years should be worth about $420,000, given those assumptions. And then if we fast forward $420,000, 12 years, 6%, add about $35,000 per year. He ends up with about $1,400,000.  His spending is $50,000. With inflation, that would be about $80,000. $80,000 into $1,400,000 is a 5.7% distribution rate. So it’s-

Joe: But you’re not including Social Security though, right?

Al: No, I’m not including Social Security.

Joe: It’s $43,000. He wants to retire at 59 and a half. So he’s gonna have another roughly 10 years to bridge the gap. Yeah, it’s gonna be tight.

Al: It’s gonna be tight. I don’t know. He didn’t really say what Social Security is, so we can’t really definitively answer, but on the surface of what we have, I would say it’s- it’s a little bit tighter than I would be comfortable with.

Joe: But the good news is, ladies, he’s gonna be a millionaire.

Al: He’s gonna have, he’s gonna be, have more than $1,000,000.

Joe: He will have more than $1,000,000. So, Mark from West Virginia.

Al: Now, on the other hand, in 14, let’s see, what is this, 16 years from now?  15 years, whatever. Maybe his mortgage is paid off.

Joe: It will be.

Al: Right? So, so now when you take the mortgage out, it’s about a 5% distribution rate.

Joe: I think he’s super close. There’s so many different variables here-

Al: Given Social Security, you’re probably right. It’s just, it’s a, it’s a little tight.

Joe: Ooh, easy there.

Is Our Early Retirement Optimism Delusional? (Mike, RI)

Joe: “Yo! YMYW. I hope this is the right place to ask my spitball question. I’m Mike from Rhode Island and my wife is Gina.” Hello Mike and Gina from Rhode Island.  “I love the show and I bringing them-“

Andi:  Binge-ing them.

Joe: Jeez. Bringing. My eyes kind of get bad after I read a few emails. Thank you, Andi. “I’m binge-ing them at a ridiculous rate. I’ve learned a ton and find that enjoy drinking a bit more since listening to your show.

Al: Oh.

Andi: You drive them to drink, Joe.

Joe: Yeah. Oh, tell me about it. It’s my life. I drive myself to drink.

Al: We talk alcohol. Kind of gets you in the mood, right?

Joe: Yeah, but you know, this whole show is all premised that we’re, you know, just kind of shooting the breeze.

Al: Yeah, that’s right.

Joe: Spitball and having a cocktail. Talking about, you know, dreams and goals and aspirations.

Al: We’re at the bar.

Joe: See if we can make, you know, see if you can do it. But it’s a quiet bar so we can hear each other.

Joe: Very quiet.  It’s a little lounge bar that Big Al likes to go to.

Andi: I’m gonna put some music under this, like piano music.

Al: You know, I don’t want a lot of loud sounds.

Joe: Yes.

Al: Keep it mellow.

Joe: Alright, so he’s learned a lot. It’s an acceptable amount, so it’s all good. “Blue Moon, Guinness, vodka mixed with seltzer waters.” Wow, he’s like hardcore. I’ll drink the seltzer, I don’t juice it out with a little vodka. Yeah.  “Though if I’m in good company, I’ll drink almost anything. I drive a 2012 Chevy Silverado. My wife drives a 2022 Honda CRV.” What’s the most popular car of our listeners? Is it the Honda CRV or is it the Ford F150?

Andi: We get a lot of F150s, but we also do get a lot of Hondas.

Al: I’m going to say the Ford F150. That’s the most.

Andi: But I tell you what, we have gotten quite a few Porsche Taycans. Taycan? Whatever. However you pronounce that.

Joe: Taycans? Tacan? Tacan? Ta-con?

Andi: Not sure.  But Porsche.

Joe: Are you a Porsche driver?

Andi: No. I’m a Honda driver.

Al: Yeah, apparently not.

Joe: “I’m 53. My wife is 50. We’re spitballing for a full retirement 8 years from now when I’m 61. She’s 58.” Okay. Alright. So, what do they got? “They got over $1,000,000. $420,000 in Roths, $500,000 in deferred retirement accounts, current savings $30,000 a year in Roth accounts, $7000 in tax-deferred. This is automatic. My wife’s 403(b) and can’t be undone. Otherwise, I’d do a Roth. Three years from now, when our home is paid off, we’ll stash the savings in cash for our remaining 5 working years, which will add up to about $150,000 to alleviate the sequence of return risk.” So he’s saying $150,000 would be the total accumulation over the 5 years that he’ll keep in cash. So if he needs to take a distribution from cash when the market is down, it’s going to eliminate the sequence of return risk.

Al: Yeah, no, that’s a good idea. Also, it’s nice to have that cash in case you want to do some Roth conversions and pay for the conversion tax.

Joe: All right. “Income. He’s got $90,000 for him. He’s got a pension plus part-time. $130,000 for the wife. Yearly expenses now, after tax is $150,000. Retirement, he wants to tone that down a little bit, Big Al, to $130,000.  So, they’re going to have $75,000 of income. They want to spend $135,000, and they have, call it, $1,100,000.”  We’ll draw down tax-deferred assets for as long as possible and let the Roth grow.  We’ll have about a 9 to 12-year gap to bridge between retirement and drawing Social Security.  Once at Social Security, our income will match our desired expenditures. Social Security is $45,000 combined at 70 for Gina. This could be significantly higher if the windfall and government pension offset are repealed.”

Andi: Is that in the plans?

Joe: No.

Al: No, I don’t think so.

Joe: I don’t think so either. Social Security’s blown up. The last thing they want to do is-

Al: Oh, we got extra money. Yeah. Here, let’s get rid of this one.

Joe: It could be, though. I mean, I think a lot of people hate the elimination or the WEP, the windfall elimination provision. There, thank you.  All right. “I hope I’m optimistic about my early retirement isn’t delusional. Wouldn’t be the first time. Thanks.”  Okay, we got Mike from Rhode Island wants to get out of dodge. He’s working part-time. He’s got a nice pension. Yeah, he’s got some part-time income. Wife is going to have a pension of $35,000. So yeah, $75,000 of income. They’re gonna use the money of $1,000,000, 4% of that is going to be $40,000. That’s going to cover the $130,000 and then they got Social Security. I think they’re sitting really good.

Al: Yeah, this, this works. And to put more numbers to this, they’ve got about $1,000,000. They’re adding about $37,000 over the next 8 years, 6% would be about $2,000,000.  Their- their spending of $135,000 or $130,000 would be $165,000 at that point at a 3% inflation. You subtract out $85,000 of pension, not even including Social Security, that net is $80,000 shortfall into $2,000,000, 4%.  Perfect.  I think it looks great.

Joe: Yeah. And then he’s going to have a little cash savings for sequence. He’s been listening to the show.

Al: Yeah. I didn’t even count the $150,000.

Joe: Yeah. Sequence of return risk. That’s when markets go down, right when you retire. It can blow you up.

Al: And you’re 100% of the market and you’re pulling money out of the portfolio while it’s down. That’s, that’s tough to recover when that happens.

Joe: It is. Very tough to recover. That’s why retirement, again, we, we, we say this often, but these are spitballs. This is just getting you in this, hopefully you have enough savings.

Al: In the vicinity.

Joe: In the vicinity. But you have to start creating a retirement income plan. How are you going to create the income from the portfolio? To make sure that you’re getting the income tax effectively or efficiently every single year and making sure that you, you look at all the risks ahead of you, right? There’s inflation risk, there’s sequence of return risk, there’s longevity risk, there’s tax risk, there’s geopolitical risk. I mean, there’s all sorts of different things that you want to make sure that you’re protecting yourself from. So when we do these spitballs, I think it’s great to give people kind of maybe a little bit of peace of mind to say, hey, we’re doing the right things. We’re going to have enough cash or capital saved up by the time we retire, but please make sure that you’re taking the time to map this out appropriately.

Al: Well, the other part of this is this is just based upon continuing what you’re saying is going to happen. Life changes. Maybe you got to provide for parents or who knows what happens, right?

Joe: All right. Well, good luck, Mike. Thanks for the email.

Andi: Over 1,500 people have tried out our new free retirement calculator – so what’s stopping you? Go to EASIretirement.com – that’s E-A-S-I retirement dot com. You create a login, enter your income, savings, and expenses, and if you take the quick path, you’ll know in about 2 minutes whether you’re on the road to retirement wellness. The EASIretirement.com calculator is constantly improving: not only can you change your own numbers to see how it impacts your future retirement, you can also switch between optimistic, average, or pessimistic assumptions for inflation and returns, and you can also test different budgeting scenarios and withdrawal strategies. And you know, even if the EASIretirement.com calculator says your chance of success is high, you can get help creating even more sophisticated financial strategies to meet your retirement needs by scheduling a one-on-one review with an experienced human financial professional from right within the calculator. Start calculating your retirement wellness now for free at EASIretirement.com – that’s E-A-S-I retirement dot com

Self-Employed: Roth Conversions to Retire Early and Hang with Big Al in Hawaii at 60? (Jake, rural Michigan)

We got, “Hi, Andi, Joe and Big Al. Came across your podcast last year and been binging old episodes at the gym and my commute to work. Loving the episodes at the gym.” Yeah. And his commute to work. “Listen to 3 or 4 retirement personal investing podcasts religiously. I know. I have no life. Your podcast is the only one that makes me chuckle on a regular basis.”

Al: Well, so we got something going.

Joe: Yeah, we got something going for us, Big Al. “Really enjoy it. When Joy rips on some of the really big wallet listeners bragging about their 26 retirement accounts and which balances nicely with Big Al’s easygoing, nice guy personality. Thank goodness-”

Andi: Did you just call yourself Joy?

Joe: Did I?

Al: Yeah, you did.

Andi: You did.

Al: That’s okay. You meant Joe.

Joe: Joe. Joy. I am a Joy.

Andi: You are.

Joe: I am a Joy.

Al: Is that what Rose would say?

Joe: No. “- wallet listeners bragging about their 26 retirement accounts, which balance nicely to Big Al’s easygoing, nice personality. Thank goodness-”

Al: Very sweet, Jake.

Joe: “- Andi is around to help Joe with pronouncing those precarious, copious words.”

Andi: Nicely done!

Joe: Oh, man.

Andi: Wow, he was trying to trip you up.

Al: Killed it.

Joe: Jake. Jake. Jake.  All right. “He drives a 2021 metallic autumn green Subaru Outback.”

Andi: That’s another popular one, the Outback.

Joe: Is this guy from Seattle?  Portland?

Al: Michigan.

Joe: Oh, rural Michigan.

Al: Same idea. Metallic autumn green.

Al: Is that what you would pick? Metallic autumn green?

Joe; I don’t think so. So he’s ripping on me. It’s a station wagon, of course it is. “But it doesn’t have tinted windows or black rims, so it’s pretty cool for a grocery-getter. As far as my libations of choice, I’d never say no to piña coladas.”

Al: That’s kind of a sweet drink.

Joe: Oh, he lives in rural Michigan and drives a station wagon and just slams piña coladas.

Andi: (sings) “If you like piña colada…”

Al: We’re starting to get a picture.

Joe: I do. I got this guy nailed.

Andi: Dude.

Joe: He’s at the gym listening to me right now. He’s, he’s gonna pump a little bit more heavier weight when we get through.

Al: He is.

Joe: All right, so, I mean, “If I’m eating a burger, I usually go for a lager, like a Schortz  Local Light, or a Miller High Life, which is also known as Champagne of Beers. It says so right there on the bottle.” You know, I know all about the champagne and beer.  “If I’m eating some really hearty red meat, like a rib eye or lamb chops, I will wash it down with a little cab or a little pinot. I have a couple of questions and I’m hoping you can spitball them for me. I give- to give you a little bit of background on me, I’m a 50-year-old divorced bachelor with no children. I’m a clinical social worker and worked in the non-profit world for most of my career. I quit and started a solo practice about 4 years ago. I had around $250,000 saved under traditional 401(k) at the time of my divorce 5 years ago. I decided to get as aggressive as possible in my savings for retirement in hopes not to have to work until I’m 85. I’m shooting to retire around 59 or 60. I’ve maintained a savings rate around 50% or 60% the past 5 years, which translate to around $60,000.”

Al: Yeah, that’s a lot. Very good.

Joe: Just a couple bucks to buy his pina coladas.  “For the last- or for the first two years, I maxed out a SEP IRA, a Roth IRA, invested the rest into a brokerage account. I opened up a solo 401(k), non-Roth, and an HSA 3 years ago, and I’ve been maxing them out additionally to my Roth IRA. My solo 401(k) allows me to save as much- save much more than the SEP IRA each year, which you guys have done a great job of covering in previous podcasts. After I max out my Roth IRA, solo 401(k), HSA every year, it pretty much uses up that $60,000 I have to invest. So I haven’t been putting anything additional to my brokerage account for the last 3 years. My current account balances are, He’s got $450,000 in his pre-tax accounts. $40,000 in a Roth account, $150,000 in a brokerage account, and $20,000 in an HSA.” So call that five, six-fifty, $650,000?

Al: I call it $650,000.

Joe: Okay, so he is got some low-index funds. First question he’s got. “If you’re in my shoes-“well, I would stop drinking piña coladas, and I would sell that station wagon, if I was in your shoes, and that’s, that’s number one.

Al: First thing. You like the champagne and beers though.

Joe: I will drink a Miller High life with you, buddy. “- would you maintain this investing plan for the next 10 years? Maxing out the Roth IRA, HSA, and solo 401(k), or should I divert some of the money I would be putting in the solo 401(k) into my brokerage account to give me better tax diversification?” What do you think, Al?

Al: Yeah, I would, if I have extra, I’m putting it in, I’m doing the Roth provision of the solo K rather than brokerage because it’s tax-free.

Joe: Yep.  So he’s got a solo 401(k). So you can do a Roth solo 401(k). So instead of going pre-tax, I would go a Roth 401(k) all day long.

Al: I would too.

Joe: And then your employer contribution would be pre-tax.

Al: Correct.

Joe: So you get best of both worlds. You’re gonna get a tax deduction and then you’re also gonna get a lot more money into the Roth. And then I would continue to do the Roth IRAs.

Al: Otherwise, I like what he’s saying. But yeah no, I – and plus you’re gonna retire at 60. So the Roth funds are available. Yeah, and the IRA funds are available, too.

Joe: Yep. Okay. “Second question, which ties into the question- into the first question. I asked my tax account and a fee-based financial advisor about doing Roth conversions. And they both told me that they didn’t feel it made sense for me to do a conversion, as I should be in a lower tax bracket in retirement compared to currently while I’m working. I’m in the 24% tax bracket now.  In retirement, I’m projecting my living expenses will be $60,000 per year, 3% inflation rate times 10, which would be about $72,000 when I’m 60. Would it be a good strategy to live off my brokerage account for the first 3 to 4 years of retirement in order to start doing Roth conversions from my pre-tax plans into my brokerage account, until my brokerage account is depleted? Or would it be better just to use my pre-tax accounts first in retirement, so that by reducing those accounts, my RMDs will be less. Do not have any legacy goals and plan to blow all my retirement savings on tropical drinks.” Yeah, of course.  “And hanging out with Big Al in Hawaii. And on fishing trips. So doing Roth conversions would be done only if it reduces my tax burden in retirement. I’m living way below my means right now to be able to retire earlier, and l want to make sure I’m putting my limited investment dollars in the right places for the next decade to help my tax situation long term. Your spitball would be greatly appreciated. Keep up the great work. Thank you, Jake.”  Okay.  All right, so he got divorced.

Al: Yeah, which is tough. So you almost kind of start over.

Joe: He’s like, man, I got $250,000.

Al: I got a supercharger.

Joe: I got a supercharger. Yeah. And so he’s like saving half of his income. Right. It’s crazy. $60,000 a year he’s saving.

Al: Right. Yes, he’s probably making $110,000, $120,000.

Joe: But he thinks he’s in the 24% tax bracket. Well, as a single taxpayer, the 24% tax bracket starts at-

Al: -starts at $100,000. But then there’s, you know, the standard deduction. He’s probably just barely into it.

Joe: Yeah, okay.  So, does it make sense for him to do conversions? Well, let’s see. His balances are now $450,000 in a pre-tax account. He wants to retire in 10 years. And so if he continues to save into that pre-tax account, the way he’s doing it, so that’s 5, that’s going to be a million plus, it’s going to have $1,500,000, $2,000,000 in the retirement account.

Al: Yeah, probably $1,500,000. He’ll have about $2,000,000 total.  Something like that. Is that what calculation you ran or you just-

Al: Well, I, I ran starting with $650,000. Adding $60,000 a year, 6%, 10 years is $2,000,000. So that’s including the Roths.

Joe: Yeah. The small Roths.

Al: And the brokerage. Right.

Al: So probably a little less than $1,500,000. But anyway, just doing some quick math here, that $60,000 of expenses, it’s not going to be $72,000. That’s simple interest. You got to do compound interest. It’s actually going to be about $80,000. But if you take $80,000 into $2,000,000, 4%, right, you’re 60 years old-

Joe: Social Security in 10 years?

Al: Yeah. I think that probably works just fine. As far as Roth, though?

Joe: Do the Roth now. He’s right at the cusp of the 24%. If he goes pre-tax on the employer side of his SEP IRA, because he’s self-employed.  Find some more expenses, get that taxable income, and then do the Roth provision of the, so he could put $30,000, he could put almost $40,000 into the Roth and another $20,000 pre-tax. So the pre-tax is going to help his taxes out, then he’s going to have a ton of money sitting in Roth. That’s the equivalent of doing a conversion, and yeah, I agree with the CPA and the fee-based advisor, him being in a lower tax bracket, if all of his money is going to Roth. But if he’s got to take the money out of the retirement account, $2,000,000, four, eight, single, if he stays single, it’s going to be close. He’ll probably be, probably close to the same tax bracket. He might be a little bit lower.

Al: Yeah, I, I would agree. I mean, tax rates are supposed to change, so he could be-

Joe: The 24% is going to be 25% or 28%.

Al: It could, with all the-  But I think, I don’t think there’s a clear story to do Roth conversions right now, but I, I would do the Solo K employee portion in Roth to build that up, and then you retire. Then I’d be converting some then, depending upon where you end up with all this stuff.

Joe: Yep. And if you, your Solo 401(k) doesn’t have a Roth provision, then just, all you have to do is change your custodian.

Al:  Yeah. Or just a lot of-

Joe: Some custodians don’t have the Roth component in the solo 401(k).

Al: I know. And some can, if some can add it, if he didn’t check the box in the first place.

Joe: Right. Great question, Jake. Good luck. Keep grinding. Have those piña coladas.

Al: I’ll have a Mai Tai with you.

Joe: All right. Yeah. That’s it for us. Another wonderful show in the books, Big Al.

Al: It’s been amazing.

Joe: Andi. Great job as always. Thank you very much.

Andi: Thank you.

Joe: Yeah. And Jake, if I was in your shoes, that’s what I’d do.

Al: Yeah, you, you told him.

Joe: … those piña coladas.

Al: Sell that car, change your drink.  And then do the Solo K on the Roth provision.

Joe: Yep. It was fun. Fun show today. All right. We gotta get the hell outta here. Show’s called Your Money, Your Wealth®. We’ll see you next time.

The Derails



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