Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 00:56 – 457(b) vs. Brokerage: Are High Fees Worth the Tax Break? (James, TX)
• 06:43 – Roth Conversions in Retirement: Hitting the Road and the 12% Bracket (“Lois & Clark”, FL)
• 19:54 – Early Retirement Pivot: Quit at 55 and Convert to Roth? (“Ray Charles”, Chicago, IL)
• 33:28 – Should We Borrow From 401(k) For Home Repairs? (Gun & Rose, LA)
• 38:54 – 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 tackle one of the trickiest timing questions in retirement planning, today on Your Money, Your Wealth podcast number 553: when should you convert to Roth, while you’re still earning, or after retirement? First, James from Texas wonders if it’s worth maxing out his high-fee 457 plan, or if he’s better off investing in a low-cost brokerage account. Full-time travelers “Lois and Clark” want to know how much they should keep converting to Roth now that they’re on Medicare. Ray Charles in Chicago is burned out on corporate life and plans to quit at 55. Is that the perfect time for him to start Roth conversions? And finally, Gun and Rose from Louisiana ask if borrowing again from their 401(k) is a smart move. Our email inbox is so full it’s making the servers groan with all your questions, but the fellas are doing their best to “cruise” through them! I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP®, and Big Al Clopine, CPA.

457(b) vs. Brokerage: Are High Fees Worth the Tax Break? (James, TX)

Joe: Alright, let’s go to Texas. We got James. He writes in, he is like, Hey, y’all love the show. I work for a local government and have access to a 457(b) account. I’m currently contributing 6% of my pay. I make about $135,000 a year, but I’m considering maxing out this account. Now my holdup is that the funds I have to choose from have pretty high expense ratios.

Is it worth getting the tax benefit to max this account, or should I invest des spare money in a taxable brokerage with low cost and potentially zero expense ratios? My wife and I live in Texas with two beautiful girls. We don’t drink much. When we go on a cruise, I would say nothing is off limits. Wow. Wow. Look at James.

Al: You’ve been on a cruise lately?

Joe: I have never been on a cruise.

Al: Never. Never. No. Oh, okay.

Andi: He just lives with nothing off limits.

Joe: I would love to go on a cruise with James. Yeah. Where Nothing’s off limits. Nothing’s off limits. Hey, y’all. let’s go to the bar.

Al: let’s do it. Wow. Yeah. You know, my no drinking rule

Joe: Yeah.

Doesn’t apply.

not on a cruise ship. Oh my God. Just, people are just getting plastered. Stuck on a boat. yep, nope. I’m not a big fan of the cruise ships.

Al: Yeah. Maybe I would be, but I don’t, that’s not, we took, our, we took our kids on a cruise ship when they were probably eight and 10.

Joe: Okay.

Al: And it was okay. We didn’t do a cruise till they were adults and we just did it ourselves.

Joe: Andi, are you cruiser?

Andi: I’ve never cruised. I don’t think I would enjoy it. I don’t think I would have a good time. I, would, but I would probably have all problem with being on the water for that long.

Joe: Oh, okay. What about you, Aaron? You’re big cruiser. Oh, five times. Five. Yeah. I buy cruises. You’re like, nothing’s off limits when I’m on that cruise ship. Oh, you.

Andi: Oh, probably not just with alcohol.

Al: anyway I actually love cruising.

Joe: Is that like Vegas? So like you get free drinks and Or do you have to buy?

Al: you have to buy the package.

Depends on what you pay for package. NNow for you it’d be a good deal for me. For me. I’d lose money on it.

Joe: So you get a wrist band and so then it’s unlimited cocktails?

Al: Yeah.

Joe: Oh wow.

Al: You gotta pay for it.

Joe: How much is the, how much is the package?

Al: I don’t know. It never pencils out for me, but I think it would be a deal for you.

Joe: You actually penciled it out?

Al: yeah, I’m an accountant.

Joe: Oh, interesting.

Al: Okay, so there you go. I would tell, I give you one tip, and that is when you go on a smaller cruise ship, like Windstar has like 200, 300 people. That’s a fun way to do it when you go on a four or 5,000 person, that was what we did, just like full city we’re not doing that again. Yeah. it took like an hour to get off the boat. I mean, it’s one of those things.

Joe: Got it. Yeah.

stay tuned. I don’t think, anytime soon. All right. So James, so what does, what should he do? He is thinking about, you know, maxing out his 4 0 3 or 457 plan. Yeah. He’s, afraid of those expense ratios.

Al: Yeah. Let’s see. He’s contributing 6% of his pay, so that’s, maybe around, but he’s eight or 9,000, but he wants to exit out.

Joe: Yeah.

Al: Wants to max it out, which would be a lot higher. first of all, that would, if he maxes it out, it would put him into the, 15 or 12% bracket. So if there’s a Roth option, that would be a, his question is should he max it out or not?

Joe: Max it out. And put it into a brokerage account because of the high fees.

Al: Yeah, so I, my answer is I would max it out if there was a Roth option. That’s what I was gonna get to.

Joe: Oh, okay. But you wouldn’t max it out if there wasn’t a Roth? you wouldn’t put it in the retirement account, you would take those extra dollars and put it into a brokerage account?

Al: I think so. I mean, maybe I’d put enough in to get it down to the 12% bracket. So maybe that’s 10 K or something like that. Right 0.8 to 1%. I think he’s tripping over dollars to pick up pennies. Yeah. I, would re Yeah, but I’d like, I’d rather get it in a Roth if I could. Sure. But if I can’t, then I would take it outside. I would, I’d invest it low cost funds in a brokerage account.

Joe: I would go a hundred percent into the 457 account. Max it out Roth or not.

Al: Roth or not.

Joe: I think James that Okay. He’s, I would look into this a little bit more because how much money does he have is gonna play a account.

Al: I know we, we don’t have any of those details, so it’s hard.

Joe: If he works for the government, I would imagine there’s options that he would have lower cost funds, but still. You’re, taking then after tax dollars, putting into a brokerage account that could have tax lag. Sure. Of, I don’t know, 0.5% depending on what those funds are too. So, okay. it’s easy outta sight, outta mind.

You check the box, save as much money as you possibly can you get the tax deduction today? How much money does he have? What tax bracket is he gonna be? Is there a tax arbitrage that you can play that’s gonna outpace these dollars? you know, as well as I know if someone has a 401(k), 4 0 3 B, 457 or whatever, versus people that don’t. at retirement, who has more money?

Al: Yeah. The ones with the 457 because it is on site outta mind.

Joe: They save and they don’t look at it. They don’t touch it. You put stuff in brokerage accounts. And guess what? It gets spent Big Al’s gonna ask you to go on his cruise where there’s no, where there’s no limits, there’s no drinking, there’s still off limits and he is not gonna buy you the drink package.

Al: you, so you bring up a good point and I agree with that, but. If you’re asking me, that’s what I would do. Alright, because I got the discipline.

Joe: No, you do. You do have the discipline. You got a big ass wallet. It doesn’t matter.

Roth Conversions in Retirement: Hitting the Road and the 12% Bracket (“Lois & Clark”, FL)

Joe: If you got a money question, go to yourmoneyyourwealth.com. Click on that button Ask Joe and Al like Lois and Clark. Kent did. Okay. love, love the show. I recommended it to all your My many friends. Many friends and family over the years. Great team and Big Al Joe, Andi. We are Lois and Clark Kent. Lois 65 Clark 78 will travel full-time in a magnificent rockstar bus. All right, but reside in Florida for tax and voting purposes. Sold everything 10 years ago to hit the road. No real estate, no mortgage, no hassles. Haven’t looked back. I’m not sure if I could do that.

Al: I don’t believe I could either.

Joe: But more power to ’em. Yeah. Just hit the road and screws, you know?

Al: That way they can go to where the crime is and about the cities.

Andi: Oh, perfect.

Joe: Okay, now there you go. All right. Yes, we know motor home is a depreciating asset or even a liability to some, but we choose long ago to enjoy life and see the world. It’s really not much that much different from spending money on golf. I beg to differ, but I bet you would differ on that one. just more zeros. and we get to see family and friends whenever we want to on our terms. Besides traveling the lower 48 each year, we find time to go to foreign nations every year for about a month or two. Drink of choice. LaCroix, no drinking and driving here. As of this year, we’re both retired. We are healthy, happy, and still love to travel.

Our assets are the following. Total savings is 3.8 million. All right, Clark, he’s got 230,000 in an IRA 40,000 in a Roth. Lois has 200,000 in an IRA, 200,000 in a Roth, and then another two and a half million dollars in an IRA, and then they got a joint brokerage account of 630,000. Total fixed income is $72,000. That is Clark’s $36,000 Social Security and $11,000 RMD plus a little interest of 25,000. The fixed income Lois is 36,000.

Al: Yeah, that’s is how we look at it. Not interest, not RMDs. It’s just money that you’re getting from another source besides your own assets.

Joe: So. But 72, that’s fine. Yep. Most will take Social Security in five years at age 70, the amount will be $44,000 per year. There is no pension. Our only savings.

Andi: Only our savings.

Joe: Oh, only the savings. Okay. We have been converting about $20,000 to Roth each year. Over the past six years, we stayed under income limits for a CA. That’s the Affordable Care Act, and that is no longer necessary.

Now that Medicare has kicked in, we are also hoping to purchase a small retirement house. Anywhere but Florida

Al: anywhere but.

Joe: Okay. Even though that’s where they supposedly live, that’s, their residence. Our goal is to spend not more than $500,000 and we’ll pay cash. If two financial gurus such as yourselves could spitball our retirement situation, we’d be much appreciative.

All right, so they got two questions for us. Okay. For the next three to five years, we spend $96,000 or to the top of the 12% income tax bracket. Assuming we will own a small home and still travel half the year, we will keep our investments. 80% stocks, 20% fixed income. Human lowest is large. Traditional IRA, we can endorse some pain to get the gains we’ve enjoyed over the last 10 years should we get more conservative.

Now with our investments, we average 12% annually. ROI 12% pretty good. That is really good. It feels hard to walk away from all that growth. So they wanna spend $96,000 a year. They’re claiming they got $72,000 of fixed income. They got $3.8 million. If I take out the interest in the RMD.

Al: Yeah. And I already did the calculation. So spending 96, fixed income, 36 shortfall 60 and a 3.8, that’s a 1.6% distribution rate.

Joe: And so you got a five year bridge for 44 additional dollars coming in for Social Security.

Al: Yep.

Joe: But I don’t understand. We plan to spend 96,000 or the top of the 12%. I mean, they dictate their spending on the tax brackets.

Al: and Joe, if that’s the case, they’re forgetting the standard deduction. Which about 30 grand. Yeah.

Joe: I don’t know. Never seen that before. Hey honey,

Al: we, it’s, we get raised 96, 6 7. You got

Joe: 96,000. That’s it. No. now there’s, we can’t go $1 over that 12% tax bracket. Let’s see. All right. 80%, 20. I, I’m, okay. How much should Lois be converting to Roth from now until her mandatory age of 73? That’d be almost eight years of conversions. And should the tax payment come for the brokerage account? The reason we are thinking about conversions is we would like to have our two grown adult children inherit whatever we have left.

Any other spitball insights are welcome. Thanks. We’re putting your 2 cents on our situation. Hope to see you down the road sometimes Los and Clark Kim, full-time travelers. Cool. That’s awesome. You know, there’s, there’s a guy, he’s an advisor here in town. Good guy, Jamie, I forget his last name, but he did that.

He just said, sold his house and Oh, really? Bought a sprinter van.

Al: Sure. He was home and traveled and worked out of wherever he was working out his,

Joe: sprinter van.

Al: Okay.

Andi: So he is advising from the road,

Joe: I guess so. Cool. Yeah.

Andi: Do you have to be licensed in whatever state you’re parked in? How does that work?

Joe: Yeah. That’s a good… Yeah, I think, yeah, he’s a, he’s not selling product or anything, so Yeah.

Al: It, would be permanent residence, whoever they happen to pick. Let’s see. Alright. Should they do Roth conversions?

Joe: Alright, there’s gotta, there’s more to the story here. Alright, so Clark, why do you still have the money in a SEP? I would move that into an IRA. Roth IRA. Just keep it in one custodian. You’re on the road. Los has got a SEP two of 200,000, so they must have been self-employed at some point, right? she’s got a traditional IRA that was probably rolled over from a 401(k). Of 2.5 million. So she’s got 2.7 in a retirement account in a $200,000 in a Roth, they’ve only been converting to the top of the 12. They have $630,000 in a brokerage account. So if they need $60,000 over the next five years to live off of, to get to that a hundred thousand dollars mark, should they stay in 80 20? I think I’m okay with that because 20%. It was like a million dollars on 3.8, and they only need to be pulling $60,000 for the next five years. So I’m okay with 80 20. They wanna leverage their estate for the kids.

Al: Yeah.

Joe: and they have enough fixed income to provide their lifestyle if they only wanna spend 96,000, but they wanna buy this house is the kicker here.  So that’s another $500,000 that they want to pay cash. It’s gonna come out of the 630 grand, so they only have $130,000 of liquid assets. Would you take a mortgage on the property?

Al: In this particular case, I might consider it. And, the reason is because there’s a lot of money in deferred, not as much in the taxable accounts, and, There’s gonna be a lot of required minimum distributions in the future, which is relatively easy to pay down the mortgage.

But that’s one way of thinking about it. Another way to think about it though, is interest rates are on the higher side right now compared to a few years ago, so it’s, I guess it’s a little bit of a toss up.

Joe: So let me use his math.

Al: Okay.

Joe: Because he’s getting a 12% ROI. Alright. So let’s just assume, hypothetically speaking, if he got 12% on the retirement account. So he’s spending over the next five years, let’s say he buys the house for, or, they, both Clark and Lois buy the house for 500,000. They’re still $130,000 in the brokerage account that they could live off of potentially. ’cause you don’t want to be pulling dollars from other areas. You want to keep that income off your tax return and do conversions.

But, her IRA, if they didn’t do anything at 12% would be close to $7 million. true. And so you’re looking at what, $300,000 RMD? I don’t think you run a calculation like that, but if that’s how he was thinking about planning, would you wanna do conversions? I think the answer’s absolutely.

Al: Yeah.

Joe: But. The issue is you’re gonna spend all his liquidity and he’s, he doesn’t have any other dollars to pay the tax and you don’t wanna pay the tax outta the retirement account.

Al: Yeah. So I, I think maybe what I might think about Joe May, maybe something like this is, you definitely have a lot of money in deferred and you wanna get some of that money out. Roth conversion is a logical way to go, but. Because you want a house, maybe you take some out of the IRA 401(k), to pay for the house, and maybe you do it a little slowly. Maybe you get a mortgage, maybe you pay that mortgage off over three years. You take a little bit each year and then convert some of the rest. But the point is that RMD is gonna be a pretty high number. So you wanna get converted, certainly well past the 12% bracket, because by the time the RMDs kick in, you’re gonna be in the 22 or 24% bracket. So you wanna get some of that money out. But maybe that’s what I might do, Joe, instead of using the six 30, I might just, I might get a loan and just have a plan to pay it off in three years, five years, something like that, with money from the IRA.

Joe: No, I like that a lot because the problem is you can’t control the RMD, it’s a certain dollar figure that is forced out. And so here it, you, force it out at a better rate. You’re forcing it out at a better rate to pay out the note. Yeah. so yeah, you’re taking money out of it at 12% versus a force out of 24.

I like that math a lot better. Yeah. And even though you’re paying a little bit of mortgage, but if you pay it off three to five years, you add the mortgage expense into like the tax.

Al: Yeah.

Joe: To see what that true cost would be. The cost of capital to carry the no plus, To get it outta the IRA.

Al: Yeah. I’m just thinking about how I would think about it. Paying 6% interest would seem like a lot. For a long term. On the other hand, do I want to use up all my taxable? Not really. So I kind of don’t like either answer, so maybe I, that’s why I think maybe I would probably do some kind of hybrid there.

Joe: Yeah, I would definitely take a note if it were me

Al: and the 80 20, I’m. Totally fine with that. And the reason I am is because it’s a personal choice. Now here they’ve got more money than they need, right? So you don’t have to take as much risk if you don’t want to, but if it’s for the kids and you want to take more risk, by all means. So here’s a case where you kind of have some flexibility depending upon what your goals are. I would say,

Joe: yeah. I also look at, what tax bracket the kids are in. Yeah. A lot of this is gonna go to the kids and if they’re in high brackets. then you convert more if they’re in lower brackets, then you don’t have to be as aggressive in the conversion. You just want to kind of mitigate your RMD as much as you can because then the kids will inherit, they’ll, have to pull the money out over 10 year time period, depending on when you pass.

Al: Yeah. But you also have to think about, I mean, she’s. She’s 65, so she lives another 25 years is what’s their bracket gonna be, you know, in 25 years.

So, which is kind of hard to estimate, but at least you would have a sense based upon the careers, your kids, and what the tax brackets might be.

Joe: True. We don’t know when we’re gonna go out.

Al: We don’t. I’m just saying it’s 65. She could go to 90.

Joe: Yep. And I know why you say that.

Al: because that’s my plan.

Andi: It’s important to understand Roth accounts and how they work so you can take full advantage of the lifetime tax-free investment growth that they offer. Click or tap the link in the episode description to download the Ultimate Guide to Roth IRAs for free. You’ll have valuable information – in print, mind you – about how Roth IRA contributions and conversions allow you to keep and grow more of your money. Plus, you heard the fellas mention the infamous Backdoor Roth strategy earlier? This guide explains how it can help, even if you make too much money to contribute directly to a Roth. Plus, learn the differences and pros and cons of saving in a traditional IRA vs. a Roth IRA vs. a Roth 401(k), the rules for taking money out of your Roth account, and much more. Click or tap the link in the episode description to download your copy of the Ultimate Guide to Roth IRAs, and share YMYW and all the free financial resources with anyone you know who would benefit.

Early Retirement Pivot: Quit at 55 and Convert to Roth? (“Ray Charles, Chicago, IL)

Joe: Let’s go back to Chicago.

Al: Yeah.

Joe: Chi-town. Yeah. You know, we get a lot of advisors now in Chicago. We do.

Andi: It’s good ’cause  we get a lot of questions from Chicago.

Joe: I love Chicago.

Andi: so does Ray Charles. I love his name.

Joe: Ray Charles, by far is one of my favorite artists of all time.

Al: He’s a good one.

Joe: You there nice. hi Al, Joe, Andi found your podcast in Spotify a couple months ago and loved the conversation and humorous style. You guys are my daily partners. During my morning walks with my dog at the gym. Oh, and the gym.

Andi: And at the gym.

Joe: I don’t know how you can listen to this garbage at the gym.

Al: if you’re, I don’t know if you’re doing the treadmill, you gotta listen to something.

Joe: I suppose. I’m 52, my wife’s 50. We both live in Chicago area with our two kids in dog Simba. Okay. Our daughter’s 20 will graduate college in a year, and our son is 17. Getting ready to head off to college this fall, I drive an EV and my wife drives a 2021 Toyota Minivan. Still got the old minivan. Yeah, she likes sweet cocktails. I enjoy cold Yingalingling. The hell’s that called again?

Andi: Good enough. Yuengling, I believe how most people pronounce it,

Joe: Yingling.

Andi: Apparently Yuengling is America’s oldest brewery beer.

Joe: Oh, okay.

Al: All right.

Joe: So, alright. In the summer in the bourbon, he likes a little scotch in the winter. Bourbon and scotch.

Al: Yeah. Warm scotch in the winter. Yeah. It kind of warms you up, right?

Joe: Yeah. It warms you up in Chicago, right? Yeah, Here’s our situation. After a corporate career of 28 years, I’m burn out. And wanna pivot to something less stressful and sustainable. Okay. 52 50, alright. Yep. With likely lower pay, I earn 350 to $400,000 Annually. I’d like to quit the corporate job in 2027, the year I turn 55 and switch to do something non-corporate till I’m 60 before I fully retire.

Ideally, this would be putting part-time job that covers our expenses. So I can pursue my hobbies of hiking, mountaineering, and running while I still can. I plan on doing Roth conversions between 55 and 60 when my income is lower. My wife is a healthcare worker and makes about $110,000. She also enjoys her work and plans to work for a few more years, ideally until she’s aged 60.

Through discipline savings, investments in the magic of compound interest, our nest egg grown to $3.1 million. Here’s the breakdown, man. Lot of wealth in Chicago we’re, yeah, tax deferred, $1.6 million. Brokerage count, 850. Roth IRAs, 290. HSA 45 29 and Upma $370,000 for the kiddos. Our Social Security benefits are estimate to be, let’s see, about 3000, 4,000 or 5,000, depending on if they take it at 62, 67 or 70.

Hers is 2000, 3004, so a little differential there. Yep. Our current annual expenses are 160, 180,000, which I expect to drop to one 30 once the kids are fully launched in a few years. Our home is worth about a million dollars with an outstanding mortgage of $200,000 at 2.1% fixed rate. We plan on staying here for the foreseeable future and we have no other debt.

I’d love to get your spitball analysis and have the following questions. Number one, is this a financial feasible plan? If I stop contributing to retirement savings at 55, will we have enough to save? To spend $130,000 annually in retirement from age 60. I expect we’ll both live to at least our mid eighties.

So that’s $130,000. Yeah. In today’s dollars, right? Correct. He wants $150,000. We got five years. Let’s use three and a half percent.

Al: We got eight years. ’cause he’s 52. He wants to retire at 60.

Joe: He said 55.

Al: No, 55. He said he plans to

Andi: stop contributing to retirement savings at 55, and then he wants to know if he can spend enough in retirement from age 60 and they’ll live into their mid eighties. 25 years.

Al: So yeah, I think he’s  trying to get a part-time job to cover his expenses, so he’s stopped savings.

Joe: Okay, so he’s got eight years you’re saying?

Al: For spending. Okay. For, I, already did some math, Joe, let me help.

Joe: I got 150,000, we got eight years. We got three and a half percent. And then future value there. Okay. $200,000 is his annual spending. All right. And that’s at age 60. And he, they wanna take their, so they, all right, so one 30 go 0.03.

Al: Your math is wrong.

Joe: It’s not, yeah, it’s $150,000.

Al: 130 at three and a half for eight years.

Joe: Oh, I put 150.

Al: Yeah. That’s wrong.

Joe: Oh, okay. Alright. So maybe Ray wants to spend 150 instead of 130. So $200,000. What does he have? Three and a half million dollars today?

Al: Yep. He needs six.

Joe: Yeah. I think he’s, gonna be okay.

Al: I, agree with your conclusion, but I got way different math. What I did is I looked at, for the next two years, saving, I don’t know how much he’s saving. he didn’t say, but I said 2.7 million today. Two years, 6%. Add another 30,000 per year. That’s 3.1 million. Then you got 3.1 million. Five more years at 6%. you end up at with no savings. You end about three and a half million. You wanna spend about 1 65 is what I get. 1 38 years at 3%. So that’s a 4.7% distribution rate. But that’s without regard to Social Security.

Joe: Social Security, yeah.

Al: If wife collects Social Security early, I think it’s right at 4%. So, which is something I might consider just so you don’t see all the dollars slipping away. That’s what I might do. And then I would probably defer my benefit to 70. ’cause it’ll be the larger, the two. And then you got that going.

Joe: Yeah. Okay. let’s see what, let’s, so he’s seeing, is this feasible? Yeah, I think so. I, yeah, I do too. How I look at, it is like, all right, how much money does he need to spend when, so. He needs one 30. I used one 50 in five years. That’s like 180. As long as he’s making 180 to cover the living expenses, I think he’s good. But he’s not gonna save any more money. Hopefully the compounding of his, nest egg does well. So, yeah, I thought he would need around 5 million. He’s got 3 million now in 10 years that could double at six with zero savings right there without taking any dollars out. Although he will take it out ’cause that’s the plan.

Al: Not in 10 years. He’s got 10 years that he was, yeah. He won’t take it out for eight years.

Joe: Okay. I rounded, so 3.1 10 years, that would double. So take out my savings for two years. So that could double. So say it’s 5.7.

Al: Yep. Okay. Four times five. Yeah, it’s close.

Joe: It’s close. Yep. So I did mine in 30 seconds. You probably spent all day on the planning software.

Al: I had to pull out the big spreadsheet. we got a similar answer, different ways to get there. But yeah, I think

Joe: it’s a spit ball.

Al: I know.

Joe: You have a CPA that saw your spreadsheet.

Al: I’m just doing a quick calculation on my calculator Excel.

Joe: So, so, no, I don’t, because I think it’s helpful that like, ’cause if you’re not doing it like on the spot, you can catch yourself if you make some, you know, air Fat finger.

Al: Yeah. Like the putting in 150 instead of 130 that, you know, that kinda thing.

Joe: I gave him a raise. What should our strategy be for Social Security? If I retire early, I would take Social Security at your full benefit age, depending on what the account balance is going to look like when you can claim it at 62. That would be my mindset. I would wanna push Social Security out as far as I could.

Al: Yeah, me too.

Joe: but. If the market turns, then turn it on.

Al: Yeah, I could do that.

Joe: Yeah.

Al: I, like I said, I would consider wife’s Social Security early just to, because it’s a, it’s over 4% distribution rate, and that might feel better. Is the wife younger or older?

Joe: About the same two years younger. Then let his grow. That’s what I, ’cause he’s gonna die before her and then she takes a larger, you always want the higher benefit. You wanna defer that if you can.

Al: Yeah, Good point.

Joe: Yep. Should I use a rule of 55 to draw down my 401(k), which is around $500,000 when I turn 55?

Al: I don’t need it. If you’re working to cover your expenses, you don’t need it.

Joe: Unless he needs, but he’s got a brokerage account too. 850.

Al: Yeah. Yeah.

Joe: No, I’d use that if you have to. Yeah.

Andi: Can you give a quick recap of the rule of 55 for those who haven’t listened before?

Joe: Sure. Rule of 55 is that you can tap into your 401(k) plan as long as you separate from service from that employer at age 55 versus 59 and a half, and avoid the 10% penalty. So a lot of times people will retire early. They don’t know the rule of 55. and they roll the money into an IRA and then it’s over. Yeah. Then you’re stuck with 59 and a half, so then you have to wait or you can do it a stupid 72(t) tax election one. I’m not gonna get into.

Al: That’s another episode you put down the show notes in. Yeah.

Joe: God, there are three different ways to take it. Amortization, the annuitization, all that. Yep. when’s the last time you have seen someone deal with 72 TI? I think anyone that I’ve seen do a 72 T tax election. It was a mistake.

Al: I can probably count it on my fingers and I don’t know that any of ’em made a lot of tests.

Joe: It never was like, wow, that’s really good planning there. It was like, wow. You’re an o You, overspend. Yeah. You were gonna go broke. should I consider paying out the mortgage in the next few years? No, two, 2%. Keep it. You got plenty of assets. You can always cut a check and write the, you know, pay off the mortgage. It’s only a few hundred thousand. The payment’s pretty low. I would want to continue to have the assets compounding for me. I think you’re in awesome shape. Yep. He still has five years to go. He’s already done so much more planning than most. You know, just kind of thinking through this of what he wants to do. I get it right. If you know. Corporate America, you’ve been grinding for 25 years.  It’s like, Hey, I wanna hike. I want to, I get it. I wanna do my what? Mountaineering.

Al: Yep.

Joe: What the hell is Mountaineering.

Andi: It’s, I believe it’s literally climbing mountains.

Joe: is there mountains in Chicago? I don’t think there’s mountains in Chicago.

Al: Not too many, but it’s not that far from Colorado. Maybe. And I don’t know, Montana. mountaineering is, it’s a little bit more scrambling or, ing, scrambling up rocks and stuff sometimes with ropes, I mean. Wow. Yeah. Have you been a, are you mountaineers? I don’t, like rock climbing. No. Though I, no, I, like

Andi: there is actually a Chicago mountaineering club.

Al: Yeah. I’m not, is it

Joe: like indoors when you’re climbing the rock of the

Andi: oh, that’s a good question.

Al: that’s a version, but that’s not mountaineering. Mountaineering is up a mountain.

Joe: What’s it called when you’re like on a fake mountain?

Al: Big mountain year Rock climbing. Yeah. The rock climbing gym. That’s what they called it.

Joe: Oh, rock Gym.

Al: Yeah. I suppose

Andi: this club is bringing together Midwest alpinists climbers and outdoor athletes since 1940.

Joe: Wow. Nice.

Al: Yeah. I would, one mountaineering hike, I would say to Ray Charles, my hiking group, which consists of about 50 or more people in the financial services industry. We’ve got, we’ve got like four or five people still in their seventies. So I think you’re gonna be doing this a while. Keep yourself in shape. You’ll be able to do this for quite some time. That’s, what I have seen,

Joe: hiking, mountaineering, or running. I’d much rather just keep grinding the corporate wire than do that.

Al: I know you would. I would love the hiking, mountaineering. I’m not a huge fan of that running. I don’t particularly like that either, but I do, elliptical at the gym several times a week, so there you go.  That’s how you stay in shape, Mr. Anderson,

Joe: the elliptical. Gotcha. Could just see a, you wear a headband. Wristband.

Al: Oh yeah.

Joe: Short shorts.

Al: Yeah. And I play Stayin’ Alive.

Andi: How much money will you need to have saved by the time you retire? It’s probably more than you think, and many factors impact whether your retirement savings will last as long as you do. This week on a brand new episode of Your Money, Your Wealth TV, find out from Joe and Big Al how your lifestyle and spending, your longevity and health care, inflation and taxes, and where you retire all impact the kind of life you’ll live in retirement. They’ll teach you financial moves that can help you become a millionaire, and income strategies so you don’t run out of money. Plus, download the Retirement Lifestyles Guide to make the most of your lifestyle, growth, health, and relationships in retirement. Click or tap the links in the episode description to watch Will Your Money Last Through Retirement, and to download the Retirement Lifestyles Guide, yours free courtesy of Your Money, Your Wealth, and Pure Financial Advisors.

Should We Borrow From 401(k) For Home Repairs? (Gun & Rose, LA)

Joe: All right, let’s, we got one more. Okay. All right. We got Gun and Roses.

Al: Oh, that’s cool. Gun and Rose.

Joe: Yeah. Love Guns and roses. Guns and roses. love the show. I do, but my wife is happy. I listen and try to plan. Damn. So wife doesn’t care for the show.

Al: Not really.

Joe: Hates the show. Couldn’t get her to listen. She’s like, these guys are idiots. I drive a van and my wife drives a Toyota. I like athletic IPAs, so that’s what Al drinks when he’s on the elliptical with this headband.

Al: That’s right.

Joe: Non-alcoholic and my wife drinks all types of cocktails and wine. I think your wife would like to show with cocktails in wine.

I don’t think she’d even like it with that more than I can keep track of. All right. we have $436,000 in the wine’s. 403(b) tax deferred though. Now we switched to putting it into the Roth, so we have $262,000. in my SP tax deferred, we have $292,000 on our Roth accounts. We have a mortgage of $400,000 on the house.

That’s about 800,000. The reason our mortgage is so high is because we did a cash out refi to do a major project on our property erosion issue. Ooh, where’s Guns N Roses from

Andi: Louisiana.

Joe: Louisiana, okay. Yeah. All, oh, that, yeah.

Al: There’s a lot of water there.

Joe: We, yes, there is. All right. Long story short, it costs about $270,000 in order to get all the cash we needed.

We also took a $50,000 loan for my wife’s 403(b). It was a five year loan. We paid it back with interest. I think like 5%. We are about all paid back, and now we have another project we’d like to do on our house, but it’d be unwise to borrow $50,000 from the plan. Again, it feels like we’re paying ourselves the interest and it only took it.

It’s only taking one six of our savings from the market. Is it bad for me to think of this as a good thing? We were also thinking about using some of the loan, if we take it again to pay off the $15,000 five year car loan. Thanks for your thoughts to the loan from thyself or not to loan. I forget to mention.

My wife job is very stable. Okay. I hate taking the money outta the 401(k) and the loan. Yep.

Al: I knew you were gonna say that. and actually I agree. Let’s see. I think, Joe, you do that if that’s your only option and you have to, but not, this is, doesn’t sound like it’s. This is something he wants to do instead of has like erosion in the house. The house is falling down. And maybe that’s, maybe you do that, but Yeah, I don’t think I’d wanna do it just for a kind of a, an optional home improvement.

Joe: Yeah. It’s like,

Al: why don’t, you explain why don’t you like it?

Joe: No, I, because I did one before I did.

Al: It’s, hard to pay back.

Joe: It sucks because it’s like after tax dollars going back into a pre-tax account.

Al: Yeah. So you get the money. Tax free, but you gotta pay it with after tax. Yep. You have to pay taxes on the money before you pay it. It seems really expensive. Yeah, it does because, alright,

Joe: I get the loan, I get $50,000 loan.

I would take the loan from the house. Yeah, don’t take it from the 401(k).

Al: Yeah,

Joe: because I got the 50,000 now in my hand. I pay off the truck loan, I pay off the car loan. You know, I do whatever. It’s fancy stuff to the house, but then you gotta pay it back. And so when you put it in the 401(k) contributions, if it’s pre-tax, it’s going in the pre-tax account and Right. It’s growing tax deferred. You pay taxes later. But now I’m paying taxes on the dollars and putting it in the pre-tax account to pay off the loan. It’s, hard

Al: to pay off. I don’t care for it. And if you lose your job, it’s all of a sudden fully taxable.

Joe: Fully taxable. I get it. It’s $50,000. It’s one sixth of your overall savings. How old is Guns N Roses? Doesn’t say, you know, if you want to spice up the house and make it nice. And it’s not like he’s taking $500,000 out or, you know. And he’s almost paid off the home loan, isn’t it?

Al: No.

Joe: No. 400.

Al: He’s got 400.

Joe: Yeah. I would, I don’t know if you Absolutely, I don’t think it’s gonna break the bank. You’re, still probably gonna accomplish your goals. It looks like your wife is a educator. Very stable job. Got a 403(b). Keep saving into that. If you wanna pay off the truck loan, if you wanna do that, and it’s gonna take you only five years to pay off. I’m not a huge fan of it, actually. I hate it, but I get also having a nice house, or at least, you know, fixing something that has been bothering you. Your home is your castle.

Al: That’s true. And wife’s job is very stable. Maybe that’s something,

Joe: I mean, that’s all the difference.

Al: All I have to do is read that. Go for it. Yeah. I think I’m kind of with you. I think if there’s no other way to do this, then maybe I get a home equity loan and maybe I’d rather do that.

No, I think so. Yeah. I think so too. Yeah.

Joe: All right. Good luck. Let us know how everything works out. and that’s it for us today. Hopefully. Enjoyed the show, Andi. Great job. And then are you off to Hawaii or are you here another week? I’m off. You’re done now? Yeah. When do you leave?

Al: Saturday. Oh, for what?

A month? Oh no, just a couple weeks. Oh, okay. Two.

Andi: Are we still doing a show with you or are you actually vacationing in Hawaii?

Al: No, I can do shows.

Andi: All right.

Joe: Cool. Yeah. Alright.

Al: Yeah.

Joe: See you all next week. The show’s called Your Money, Your Wealth®.

Outro: Next Week on the YMYW Podcast

Andi: Next week on YMYW, Chris in Minnesota is weighing the new Senior Bonus Deduction against a Roth conversion, Windy Chicago in California isn’t sure what to do after losing cost basis during a Vanguard transfer, Teri in Utah asks the fellas to spitball on when she’s harvested enough tax losses, thank you very much, and Larry and Sally are looking for a strategy for retirement spending and Affordable Care Act subsidies.

Your Money, Your Wealth® is your podcast – we just make it for you. Your questions, your honest reviews, and your YouTube comments keep us making fun of finance. Thanks for being part of YMYW.

And look, if you’ve saved millions for retirement, you know money management isn’t a hobby, it’s a full-time job. Or it should be! Tax laws, market volatility, planning for the long-term – this is complex stuff, and there’s no one-size-fits-all solution. Let Joe and Big Al’s experienced team of professionals at Pure Financial Advisors give you more than just a spitball. A free financial assessment with Pure is a comprehensive review of your taxes, investments, and your plan for retirement income, designed to protect and maintain your wealth for the long run. Meet in person at one of our 14 nationwide offices, or on Zoom, whatever works best for you. Book your free assessment now. Click or tap the link in the episode description, or call 888-994-6257. And tell ‘em you heard about it on the Your Money, Your Wealth podcast.

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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