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
May 28, 2024

Are women better investors and financial planners? Today on YMYW, three different husbands want to retire, while their wives feel they need to work longer. Can Jack and Diane, Mark and Belle, and Mike and his wife hit the slopes now, or do they need to keep wearing their suits? Joe and Big Al spitball on who’s right. Plus, should Ellie take her pension in a lump sum or in monthly annuity payments? The fellas also consider a solo 401(k) contribution strategy for self-employed types from our buddy Will. 

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Show Notes

    • (00:40) Can We Retire Now or Do We Need to Wait a Few Years? (Jack & Diane, Houston – voice)
    • (09:35) How to Bridge the Gap in Early Retirement? (Mark & Belle, VA)
    • (19:44) Help Me Convince My Wife to Retire This Summer! (Michael, MN)
    • (26:28) Should I Take the Pension Lump Sum or Monthly Annuity Payments? (Ellie, PA)
    • (31:52) How’s My Solo 401(k) Contribution Strategy? (Will)
    • (36:51) The Derails

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Andi: Are women better investors and financial planners? Today on Your Money, Your Wealth® podcast number 483, three different husbands want to retire, while their wives feel they need to work longer. Can Jack and Diane, Mark and Belle, and Mike and his wife hit the slopes now, or do they need to keep wearing their suits? Joe and Big Al spitball on who’s right. Plus, should Ellie take her pension in a lump sum or in monthly payments? The fellas also consider a solo 401(k) strategy for self-employed types from our buddy Will. I’m producer Andi Last with the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA, and we’re kicking things off today with a priority voice message.

Can We Retire Now or Do We Need to Wait a Few Years? (Jack & Diane, Houston – voice)

Hey Joe and Big Al, this is Jack from Houston. I’ve been enjoying your show for years and figured it was my time to call in to get a little retirement spitball from you. I’m 52 and my wife, Diane is 49. I drive a 2021 Honda CRV and the wife enjoys driving a 2016 Honda Civic. My beverage of choice is a Lone Pint Yellow Rose IPA, and the wife likes a little Belgian triple every now and then. I have a 401(k) with $1,900,000. My wife has a 403(b) with $20,000. We have after-tax brokerage accounts of around $2,000,000, Roth accounts  with $140,000.  We have $20,000 emergency and around $1000 in cash.  Our house is worth $550,000 and we have a small mortgage of $150,000 left on the house. We do have two boys that will be starting college in the next one to two years, but we have 529 accounts that should cover their expenses in full. We currently have combined annual income of $280,000 and annual expenses of $120,000. I plan to take Social Security at age 70 and expect $48,000 per year. And the wife will take Social Security at the same time and will get $24,000 spousal benefit. I would like to retire now.  But the wife is convinced that we need to work a few more years. So I would really appreciate your spitball to help us settle our little dilemma. Love the show. Keep doing what you’re doing. Look forward to hearing from you. Thanks.”

Joe: Jack from Houston.

Al: How about that?

Joe: A little H town.

Al: Yeah, like it. You’ve been there.

Joe: I know.  Wife wants to move there.

Andi: Really? Oh my.

Joe: Kidding.  That’d be tough.

Al: You have some family there, right?

Joe: No, friends.

Al: Oh, friends. Okay. Got it. Yep.

Joe: All right. He wants to retire now at 52. Wife’s 49. Yeah. Wants to spend $120,000 a year. Okay. Let’s  see. The math, he’s got what? $4,000,000?

Al: Yeah, he got a little more than 4,000,000. Wants to spend $120,000. He used a 3% distribution rate, which is kind of maybe on the edge at that age, and you get $120,000.  So that’s, it’s kind of right on the bubble. I don’t know, Jack, I hate to say it. I might work a little bit more if I were you.

Joe: Yeah, I agree. It’s close. 52, 49. That’s really young  to retire, but $4,000,000. I mean, it’s just going to be how he’s going to establish the retirement from the portfolio.

Al: Right.

Joe: Because it’s the sequence of return risks that’s going to blow him up.

Al: Yeah, so-

Joe: Because he’s got 20 years roughly until his fixed income comes in because he wants to wait until age 70, well, until he takes Social Security, so roughly 20 years.

Al: So, so now I’m going to contradict what I just said. Here’s a way that it could work, potentially. So number one is you want to make sure you’ve got $120,000 times, at least 5, 5 years of spending, regardless of what the market does, in bonds, high yield cash accounts, something that’s going to be there if you need it, if the market craters. So that’s- and maybe you want more than 5 years, but a minimum of 5 years. And the second thing I would do if you really want to make this happen is be flexible to where you could spend $100,000 instead of $120,000, if need be. Okay, so if you do both those things, then yeah, this could potentially work.  That’s what I, that’s what I’m going to say.

Joe: Yeah. I’m with you. I think if he established the right income strategy, maybe, I don’t know, if he works part time makes $50,000.

Al: Yeah. Well that would, then there’s plenty of cushion, right?

Joe: But they’ve saved a ton. $280,000 was what they were making. So making $280,000 and giving up that $280,000 paycheck-

Al: in your 50s-

Joe: – and you’re 50.

Al: Yeah, right in the early 50s, 52, 49. Yeah. It’s a, it’s a little hard, particularly, I know the kids are covered by 529 plan, but what if masters, Doctor, you know, what if, right?

Joe: I don’t know, you- to save that much money, to make that much money, they’re hard chargers in a sense, right? They probably work long hours, probably stressful jobs, and I can see why they want to retire early.

Al: I can too. And, and so as you recall, Joe, I was roughly the same age, wanting to retire.

Joe: Look at you. You’re still working.

Al: And I’m still here. And you know what? I think at least this is how it was for me. So the kids were- they were in college or they were getting ready to go to college. And it’s like, it’s like I had too much energy. I was too young to retire, even though it seemed like the right thing to do. And, and of course what happened was the real estate market and the great recession changed all that to where, what I thought I had on paper?

Joe: It was no longer on paper.

Al: Went away a bit, and so I, I didn’t really, I had it, but, but now looking back on it, it’s like, I’m really sort of glad I continued working because it sort of kept me younger and more relevant, and I’m still, now several years later, still working, albeit not at a full time clip, but having a, having a good time. I mean, it does, it does, particularly if you do something that you enjoy, which maybe Jack-

Joe: Maybe he hates his job.

Al: Maybe he’s had enough and I get that, but Jack, if that’s your case, if you really- if you just don’t want this high stress anymore, then maybe do this couple of things to have, have a little bit of flexible spending. If the market you know, it doesn’t do. And then also maybe just for your own sanity, get a part-time job, something that you actually would enjoy. So you’ve got just a little bit more cushion as you get closer to your fixed income.

Joe: Yeah. Well, Diane doesn’t want to retire it sounds like maybe. But maybe she’s not going to work if Jack leaves.

Al: You’re right. That’s, that’d be a hard sell, right?

Joe: All right, honey, I’m, I’m done. Keep grinding. So, I don’t know. He’s really close. A lot of things that you could do if you want to slow down. I mean, he’s got- I was talking to a buddy of mine that he doesn’t have a plan B.  And he’s working in an environment where part of his job is tied to another group. So even though he kind of works for himself, there’s other people that are involved and it’s like, hey, this new group came in and I don’t really care for them. They don’t really care for me, but I don’t have like a FU plan B.

Al: Yeah, that’s a good point.

Joe: And so, but I think Jack does here. It’s like, all right, well here you have enough saved. He’s done a great job of saving and if he needs to take a year off to figure out what his plan B is, I’m totally fine with that, but it’s going to be tight and I don’t know if you want to- you’re just going to create another, a totally different stressor. By looking at this $4,000,000 account when the market turns and you’re taking $120,000 out, if that thing drops to  $3,000,000, even though $3,000,000 is a ton of money, but if you had $4,000,000 two weeks earlier, you’re going to freak out.

Al: Well, that’s exactly right. And so, I mean- so my, my first answer was I would still work a little bit longer. It’s a little bit too tight, although it’s kind of a weird thing to say. Someone that has $4,000,000. I mean, theoretically-

Joe: You have a plenty. You have a ton of cash.

Al: There’s a lot of money. I go back to one of my comments. If you have the ability to handle flexible spending, in other words, spending less in down markets. And maybe spend a little bit more when the markets do better, then this could work. If, if you’re the type of person that $120,000, you can’t go a penny below that, then you’re, you’re right on the cusp based upon the numbers you just gave us.

Joe: All right. Good luck. Thanks for the voicemail.

Andi: When you’re ready to start spending your retirement savings, you gotta watch out for the common trap doors that can upend your entire plan! Master the art of retirement withdrawals and learn how to spot and avoid those trap doors you find along the way. Click the links in the description of today’s episode in your favorite podcast app to watch Withdrawal Trap Doors on YMYW TV, and to download the free companion Withdrawal Strategy Guide. It’ll tell you more about sustainable distribution rates, optimizing from which accounts you make your withdrawals and when, the impact of market volatility and inflation on your retirement spend-down plan, and tax-saving strategies to make your money last longer in retirement. Watch Withdrawal Trap Doors on YMYW TV and grab the Withdrawal Strategy Guide from the podcast show notes.

How to Bridge the Gap in Early Retirement? (Mark & Belle, VA)

Joe: We got Mark and Belle from Virginia.  “Hello, Joe, Big Al, Andi. Stumbled upon YMYW when it popped up as a podcast recommendation.”  How does that happen?

Al: I don’t know. Andi?

Andi: In Apple Podcasts, they actually, you know, it’ll just show you at the bottom, other shows that you might be interested in listening to, or on YouTube, it can show as well there.

Joe: I wonder what terrible show he was listening to, not to recognize.

Al: Yeah, well-

Joe: It’s got to be the same caliber.

Al: Well, it could have been a terrible show and that you might like this better, or it could have been a great show. And it’s like, well, if you get bored, this one’s not too good, but-

Andi: It’s one of those other people listen to this show kind of thing. So you got to be like your friends.

Joe: Cool.

Al: Okay.

Joe:  “And I’ve been enjoying it almost as much as my go-to beverage, a little glass of red wine.”  I don’t know. I would probably prefer a glass of red wine than listening to this.

Al: You and I, we are united. We don’t really like to listen to our own show.

Joe:  There you go. “Though I must admit, on a sunny day, nothing beats an ice cold crisp Miller Lite while reading The Week and listening to 70s rock.”

Al: Ah, that’s, that’s my kind of music.

Joe: All right, cool. “My wife, Belle, on the other hand, is definitely a coffee aficionado, though she indulges in champagne on occasion. As for transportation, we share the vehicles, alternating between 2023 Ford F150-“

Andi: Lightning-

Joe: Wow, Lightning. I didn’t know there was a Ford F150 Lightning.

Andi: That’s apparently the electric.

Joe: Okay.

Al: Yeah. Okay.

Joe: “- 2013 Mercedes E350 convertible. Currently residing in Virginia, Belle and I are planning to move in a couple of years to kickstart our pre-retirement phase when our youngest son heads off to college. We’re eyeing locations close to the slopes, potentially in Utah, Idaho, Wyoming, or Montana.  When it comes time, we’ll be selling our primary residence as well as possibly our rental and vacation homes.” Okay. “All of these  properties are mortgage-free and valued at $1,200,000, $1,000,000, and $300,000, respectively. We’re looking at purchasing something in the range of $1,500,000 to $2,0000,000. Our ultimate retirement destination may involve either water or mountains, but that’s still up in the air.” All right, he’s got a real visual here.

Al: Yeah, he sure does. I mean, we’re, we’re kind of, we’re kind of thinking about, do we want mountain, maybe by the water, maybe, maybe by a lake that the, or a stream in the mountains, best of both worlds.

Joe: “At 53 and 50 years old, respectively, I’m eager anticipating retirement while Belle may continue working indefinitely.” Something happens at age 50 there, Big Al.

Al: Yeah, this is the second in a row, huh?

Joe: Once you hit 50, you’re like, you know what? I’m over this. I’m done.

Al: Tell me about your own experience.

Joe: Uh, man. “My saving strategy is primarily focused on my 401(k) and real estate investments, but I never truly considered how to fund in early retirement until recently. I currently have $1,100,000 dollars in pre-tax IRA, $250,000 in a Roth 401(k), $100,000 in a high yield savings account, approximately $70,000 in a brokerage account. With my employer match, I contribute $40,000 annually to my 401(k), mostly towards the Roth.  Additionally, I’m saving about $2000 a month in a post-tax savings and brokerage account. Although my company offers a deferred compensation plan, I haven’t taken advantage of it. I anticipate receiving about $3300 a month in Social Security at 65 and no pensions are lined up. While I believe Belle’s financial situation mirrors or exceeds mine, my insight into her finance is limited to our joint account.  Given that most of my net worth is tied up in real estate and retirement accounts, I have relatively little in post-tax savings and brokerage to sustain me between 55 and 59 and a half. Belle supports the decision to retire at 55 as long as I can continue to contribute $8000 per month towards our living expenses.”

Al: Okay.  It’s very clear.

Joe: Okay. “I’d appreciate your and Big Al’s insights on the following.  Can I comfortably retire at 55 without resorting to lower paying part-time work?” Check that box. We’ll see. Okay. “Number two, got to bridge that gap between 55 and 60. Should I redirect my aggressive retirement savings towards post-tax savings and/or a brokerage account?  Number three, given our 35% federal tax bracket, should I enroll in my employer’s deferred compensation plan? If so, what percentage should I defer?” Man, this is kind of really getting into the, some detailed recommendations here.

Al: Correct.

Joe: “Would a Roth conversion be a wise move? If yes, when should I consider it?  Looking forward to your thoughts. Warm regards, Mark.”

Al: Yeah.  Okay. Well, let’s start with the first one. Can Mark retire comfortably at 55 without resorting to lower paying part time work?

Joe: What have you got, $1,500,000?

Al: $1,500,000, I just did a little math here. Couple years, adding $40,000 a year, 6% return, he probably ends up about $1,800,000.

Joe: Yeah, $1,700,000.

Al: Yeah, $1,700,000, $1,800,000. So, $1,800,000, you take a 3% distribution rate at age 50, just as a- as a starting point, right? So that’s like, that’s like $50,000 to $60,000-

Joe: $60,000-

Al: Yeah, $55,000, somewhere in there, right? But he needs $100,000,  Okay, so it’s a little tight. His actual distribution rate, if he, if he needs $100,000 out of $1,800,000, it’s about 5.5%. That’s a- that’s a little, that’s a little rich, unfortunately for a 55-year-old, I would say.

Joe: Yeah. But so many things can happen here. If the market is up the first 3, 4 years in retirement, he’ll be fine. The market’s down is 3, 4 years in retirement, he’s going back to work in like 10 years.

Al: Yeah. On the other hand, like let’s say they, they sell the real estate-

Joe: But he’s buying a $2,000,000 place in Idaho,  Montana, or Wyoming.

Al: I know. That’s what I was going to say. Maybe you spend $1,500,000 instead of $2,000,000 and you got $500,000 left over. Then you got a little bit more to work with. So may- you know, maybe that could be a way to make this work a little bit more.

Joe: They’re gonna sell their $1,200,000 mortgage-free house and $300,000, you know, retirement place. So they’re gonna hold a note for the rest of- the other $500,000?

Al: No, no, they got 3 properties, $1,200,000,  $1,000,000, $300,000. So it’s about $2,500,000 total real estate. So if they, if they sell all that, what are they gonna net? I don’t know, $2,200,000, $2,300,000. They buy a $2,000,000 property. Then by the time they have closing costs and they fix it up and furnish it, they probably- they don’t have any extra money. But if they buy $1,500,000 property, then they probably have some extra. So there’s a little bit more cushion perhaps.

Joe: So I didn’t, I didn’t see that extra $1,000,000.

Al: It’s a- fifth line.

Joe: Yeah, no, no, $1,200,000, $1,000,000 and $300,000. Let’s see. Yeah. Right, right. All right.

Al: I would say, can you retire comfortably without resorting to part-time work or relying on equity from real estate?

Joe: He’s going to be fine. If he punches at 55, there’s plenty of assets here. It’s just kind of back to that other- we’re kind of getting to the nitty gritty here. If you have to spend $120,000, oh my gosh, God forbid you spend $100,000 versus $120,000. You go on vacation every other year. You’re still living in a $2,000,000 house in Utah, Idaho, Wyoming, or Montana.

Al: Yeah. But what if, uh- is it Belle or Bella?

Joe: Whatever. Belle? Bella.

Al: Bella. Bella. Yeah. So we’ll- I’ll call her Belle, Bella. Uh, well, what, what if she pretty much demands that $100,000 from Mark and then that’s- then it puts some strain on their, on their marriage.

Al: Well, he’s going to pay her $100,000. There’s no strain on the marriage. It’s going to be a strain on his finances.  That check is going to Belle, $8000 a month, sir.

Al: Yeah, one way or another.

Joe: One way or another. I don’t care what you got to do, that money’s coming to me.

Al: And of course, we’re not including Social Security, which-

Joe: He’s got a gap, you know, so he’s got 15 years probably.

Al: But here’s a comment I would make, and that is if- so if you, if you want to make this work and you’re right, Joe, just like our last call, there’s levers you can pull and push to make this work. We’re just giving you just quick off the cusp, you know, basic raw numbers. But if you do want to make this happen, here’s what you do. You take your IRA, $1,100,000 of pre-tax IRA. You go ahead and roll a whole bunch of that, maybe the whole thing.  And then when you retire, as long as you’re age 55 when you retire, you have access to those funds without the 10% penalty, because it’s a 401(k) that you retired. It’s an active 401(k) that you retired at your employer at age 55 or later. So that would be the way to, to cover this gap period.

Joe: Yeah, because you’re going to need the flexibility and he doesn’t have a ton of cash outside of the retirement accounts, right? So he knows that he’s real estate rich and retirement rich and he doesn’t know what Bella has. So he’s like, all right, this is, I’m on my own. I need to get $8000 a month here. So you’re going to need the liquidity depending on what you sell and what you buy in regards to your retirement dream home. So yeah, move all of that into the 401(k). I think he’s good. I get it, man.  I don’t know. Should he do Roth conversions? The answer’s probably no. At 35% tax bracket? Wait till you retire, because then you’re gonna be in a lot lower tax bracket. Then I would convert a bunch.

Al: Yeah, and depending upon what Bella wants to do. I mean, I assume she’s making a bunch of money, although we don’t know. We don’t really know much about her finances, but you probably file a joint tax return. So the answer is Roth conversions, yes, but in terms of when, we don’t have enough information to tell you whether it’s a good idea right now or not.

Joe: All right. Thanks for the question. Good luck.

Help Me Convince My Wife to Retire This Summer! (Michael, MN)

Joe: We got “Hi Joe, Big Al and of course, Andi. I love the show and hope you consider my email for a spitball.” Well, look it’s your lucky day. Here we go. Yeah. “I’m married. And about to pull the trigger at retirement, 57, my wife also 57, is less confident and might work for a few more years, though maybe your spitball will relieve some of her concerns.” You know what? This is like a trend. Women are such better investors and financial planners than men. This is the third question we get, is like, the guy writes in, is like, hey, I’m ready to pull the ripcord.

Al: I’m done.  And my wife says, not so sure yet.

Joe: I don’t know.  Probably not, buddy.  All right.  Let’s see if we can gain some confidence here. All right. “We live in Joe’s home state of Minnesota. Don’t you know. Not the kind of state to retire- not the kindest state to retirees, but still a beautiful place to live with plenty of outdoor activities during all 4 seasons. I have a wide range of spending projections of $120,000 to $180,000 per year. We want to enjoy life and not be stressed about the budget. However, we are both quite analytical and do monitor our spending carefully. There’s no way we would spend $180,000 year after year, but we might occasionally and want to be okay with that. Spending about $140,000 a year is a pretty solid number and includes $25,000 for healthcare insurance and expense- and expenses given we will both be retired before we qualify for Medicare.  We own our house, which is worth about $625,000 with a $165,000 mortgage that matures in November 2031.  We will move someday, but we’ll stay in the same price range. I have a pension that will provide $96,000 a year, a 50% survivor. My wife will earn about $160,000 a year for as long as she continues to work. She doesn’t have a pension, but again, I hope to convince her to retire as soon as well.”  He’s got a 96,000 pension?

Al: Yeah. That’s excellent.

Joe: That’s, that’s solid. “We plan to delay Social Security to maximize that benefit. A financial advisor estimated my Social Security to be $70,000 a year at 70 years and my wife’s to be $53,000 at 68 years.”

Al: Okay, that’s-

Joe: Why is a financial advisor estimating your Social Security versus just looking at your Social Security statement?

Al: Well, I don’t know. Maybe he’s put in place-

Joe: Maybe he’s putting a giant ass COLA in there.  I don’t know, you might want to be a little bit more conservative.

Al: Yeah, you might.

Joe: But, anyway. I talked to this financial advisor and they said I’m going to get like $70,000 a month from Social Security you just roll your 401(k) over to my firm.

Al: Yeah, that one year Social Security went up, what, almost 9%? I guess if you run it that way, I’m going to make over $100,000 on Social Security.

Joe: You’re going to kill it, Al.

Al: Big time.

Joe: “For investments, we have $2,200,000 in tax-deferred IRA, 401(k)s. We got $200,000 in a Roth, $140,000 in an HSC, $600,000 in a brokerage, and $150,000 in cash, and feel pretty comfortable pulling the trigger this Summer.”  All right. “Should I be- would I need to be stressed about the spending range. More importantly, how can I convince my wife to retire with me? I appreciate your spitball.” So I get it. So Mike’s freaked out, talks to the financial advisor. He’s like, what can you do to make sure that you- make my wife feel a little bit comfortable with us pulling the trigger here.  So the financial advisor goes, well, hey, how about if I say that your Social Security is going to be like $1,000,000 a year? Would that work?

Al: Then there’s no way. You don’t even need the savings.

Joe: He’s like, yeah, why don’t you do that for me? Then I’m going to bring in my wife.

Al: And she’s going to be, oh, I didn’t realize that.

Joe: Wow. So, yeah. You’re going to pick the whole-  Okay.

Al: Well, so he wants to spend $140,000 and he’s already- he’s already got $96,000 coming in on a pension.

Joe: I think it looks pretty good.

Al: So, so let’s just-

Joe: He needs $50,000 a year and he’s got $2,000,000 bucks.

Al: He’s got- he’s got $3,000,000.

Joe: Oh, $3,000,000. $2,200,000.

Al: Well, yeah, he’s, he needs- we’ll round up.

Joe: So just assume your Social Security is half of what you’re going to estimate, you’re still pretty good.

Al: You’re covered.

Joe: Unless your pension is not $96,000, unless your financial advisor inflated the hell out of that too.

Al: Yeah. I mean, if you need, if you need $40,000, $50,000 and you got over $3,000,000.  I don’t care when you retire.

Joe: Yeah, how old is he?

Al: Well, he’s 57.

Joe: He’s 57. Alright, yeah.

Al: No, I would say this looks good, Michael.

Joe: Michael!  Minnesota. What does he drink? He’s got Grain Belt. We got Landmark. What do we- I don’t think he put that in.

Al: I don’t think so.

Joe: He likes the outdoor, all 4 seasons.

Al: Yeah, maybe.

Joe: He’s done a hell of a job saving.

Al: For sure.

Andi: Yeah, he doesn’t give us those specifics.

Al: I think this looks really good.

Joe: All right, Michael, next time I’m in Minnesota, talk to me about, maybe I could meet your financial advisor.

Al: Maybe you’d get more out of your Social Security, Joe.

Joe: We got a long way to go for that.

Andi: Got a couple exciting programming notes to mention here: first, Joe and Big Al will each be getting in their summer vacations over the next several weeks, but I’m rearranging things so that you won’t miss a single Tuesday episode. And, to help us catch up on the backlog of your emails, I’ve asked some of the experienced professionals on Joe and Big Al’s team here at Pure Financial Advisors to join me for YMYW Extra. Look for these short podcast episodes coming to the Your Money, Your Wealth feed in your favorite podcast app starting this Friday.

And second, drum roll please, after 11 years on YouTube, we’ve opened up the comments on our latest videos! Can you even believe it?! Shoutout to our compliance department for making it happen! Help me show them how great this is by joining the conversation on YouTube and keeping it friendly – that way we can go from soft launch to full YMYW community. I’m in the process of adding the first 189 episodes of YMYW from way back in 2016 through 2018, once a day to YouTube, so you can binge the archive, check out past interviews, and laugh at the old jokes. Find the link to our channel in the show notes, and we’ll see you on YouTube!

Should I Take the Pension Lump Sum or Monthly Annuity Payments? (Ellie, PA)

Joe: We got Ellie from PA, goes, “Hey guys, I’d like to kick around some numbers.”  All right, we’ll kick- we’ll kick them around.  All right. She’s ready. She likes them. “Ready to kick back and drink without thinking about having to get up at 5 a.m. for work.”

Al: Oh, yeah. She’s- like to retire.

Joe: Well, early riser.

Al: Yeah. Okay.

Joe: “The plan is to retire in 2026 at age 56. The wife is already retired. She’s 67.  I like a stout or IPA in winter- in the winter and a gin and tonic in winter.”

Al: Big, big drinker in the winter.

Joe: One of those is probably Summer.

Al: I’m thinking that too. Maybe the IPA in the Summer.

Joe: Yeah, maybe. “I drive a 2020 Tesla Model 3. My wife drives a 28 Nissan Ultima.” Got that old Model 3, don’t you, bud?

Al: I do. What year do I have? 2022.

Joe: Okay. She likes a good Chardonnay. “I’m wondering if I should take the lump sum or the higher annuity pension amount. I’m wondering which option works out best mathematically. Assuming I invest a lump sum, lump sum amount is $350,000 and I would receive- or I would receive $63,000 for life.”  Okay. Hold on. Oh, the lump sum of $350,000 and in addition, $63,000 a year per life?

Al: That’s how I read it. Yeah.

Joe: Okay. “No lump sum, which- “maybe he’s having a little gin and tonic while he’s writing this. Or she is.

Al: That’s possible.

Joe: All right. Let’s see. “No lump sum, which would get me $81,000 per year. My annual expenses are roughly $50,000. We own our home. We have no debt. My wife is retired already, and she has a $55,000 pension, as well as withdrawing $20,000 annually from her 457 plan covers her needs and wants. I should mention, I have $250,000 in my 403(b) and roughly $175,000 in cash.  I’d appreciate your best guess about my plan to leave my colleagues in carbon free dust. Oh, I love the show. I’ve been a fan for about 6 months.”  Yeah, new record, folks.  I need a calculator. I don’t have my calculator to actually give them the net present value of what these two things are.

Al: I already did. Okay, so I took, so at 56, I took 30 years.

Joe: 30 years, so 56, so he’s gonna live to 86.

Andi: She.

Joe: Oh, she. Oh, I’m sorry. Ellie. Yeah. I didn’t see the name.

Al: Okay. So 30 years, I did 6% discount rate. I said, okay, $63,000 is your present value. So that’s $870,000.

Joe: So $63,000 a year for the next 30 years, you take a present value of what the lump sum would be on that. What’d you use as a discount rate?

Al: 6%.

Joe: 6%. Okay. Pretty high. So you bring that back to today and that’s worth $875,000.

Al: Yeah. Then I add that to $350,000, so I get $1,200,000.  Then I did the same calculation for $81,500, and I get $1,100,000.

Joe; It’s almost identical.

Al: Almost identical. I would, you know, when it’s, when it’s close or in this case, the lump sum is, I’d rather the lump sum anyway, because you have more flexibility. So I go lump sum.

Joe: And there’s several different scenarios you can run. I mean, if you run a different discount rate, you’re probably going to get a little bit different answer. But how I would look at this, Ellie, is go to your overall financial plan. Is that, how much money do you need? This kind of goes back to the other question. You don’t necessarily want to create a lot of income that you’re not necessarily spending. Yeah. Right? So you said, hey, my income needs are $50,000 a year. Well if the pension’s going to pay you $63,000, that’s pretty good.

Al: That’s right. And you could take the $350,000 and then move it into an IRA. You can invest in any way that you’d like, and you’re not going to get taxed on it until you have to take the distributions. You get a little bit more flexibility. If you’re risk adverse and say, I don’t want to deal with the $350,000, I don’t want to invest it. I don’t want to deal with it. I don’t like the markets. Then take the annuity, take $81,000 and spend more money and have more fun and do whatever that you want to do, or give more to charity or, kids, grandkids, whoever, relatives. So, I mean, that’s how I would look at it. I mean, we could look at it mathematically. It’s almost going to be very similar. But, depending on what assumptions you use. If she’s going to live to 120, right or 100.  I mean, then probably the annuity is going to work out a little bit better.

Al: It does. Right. It’s- and you’re absolutely right. So first of all, if you want autopilot, just go for the payment. And secondly, it depends upon the assumptions. I just ran one set of assumptions. And so if they come out about the same, when they come out about the same, I kind of like the lump sum. It just gives you more flexibility. If you pass away early, then your spouse is going to get the, you know, the remainder. So, so that, and plus you’ve got, you have the ability to access the lump sum where you don’t have the ability to access payments, you just get the payments, which is a great, I’m not saying it’s bad, you just have more flexibility.

Joe: Right. If you want a couple extra bucks that year, because you want to go on a European cruise, you can’t dip into the pension. You just got to wait till the income comes.

Al: You got to wait 5 years to save enough from that pension to go on that cruise. Right.

How’s My Solo 401(k) Contribution Strategy? (Will)

Joe: We got, hello, Papa Joe. Globe trotting Al, and Everlasting Andi.” Wow. “Love the podcast. Always entertaining and educational. It seems as far as YMYW is concerned, there will be another thing certain in life, death, taxes, and Roth.  I believe Joe commented that the people that will be responsible for keeping the law are the ones that are establishing, or that are stashing as much as they can right now.”

Al: So he’s commenting on how the Roth rules might change.

Joe: Yeah, I haven’t said that in a long time.

Al: No, you haven’t.

Joe: But I still stand by it.

Al: Yeah, okay.

Joe: I still stand by that statement.  “There’s always a possibility that it will get amended, right? Maybe have a limit or a time frame.” In regards to the Roth contribution or conversion limits, I guess he’s talking about.

Al: Yeah, I would think so. And I would say that’s very possible.

Joe: “They didn’t make it stretch IRA.”

Al: They did.

Joe: Yeah, they did.

Joe: “Changed file and suspend Social Security benefits.”  Yeah, they did that too. Yep. “For solo 401(k) individuals, what do you think of this strategy?  If the net income is below the maximum allowable contribution, currently at $70,000 a year or $69,000 a year, put everything in a Roth IRA and self-directed after-tax, solo 401(k), including  the 3 to 6 month living expenses. Invest normally except the amount for the 3 to 6 month living expenses where either it will go to a high yield savings or CD if the fund is needed. It can still be withdrawn after year 5 of the Roth IRA since it’s the contribution.  If it’s not needed, then its interest will be tax-free.  I’m hoping to get a thumbs up after you guys often state that getting money into the Roth IRA-“

Andi: – getting money into Roth anything is hard.

Joe: Oh, yes, I believe.  “Thanks, always. Will. Still getting the occasional free gas.” I knew this was gonna be that-

Al: that guy?

Joe: Because he talks and like-

Al: You recognize how he writes.

Joe: It’s very hard to follow.  It’s like, where is this guy going?

Al: Yeah, well, okay.

Joe: So this guy that siphons gas out of people’s cars.

Al: That’s why it’s a little hard to follow.

Joe: Yeah, because he’s probably drank a little bit too much.

Al: Probably. But I guess he’s basically saying, why do you have a brokerage account or a cash account or a savings account? Why not just put everything in the Roth and you can pull out your contributions if you need it for emergency cash?

Joe: I suppose.

Al: Yeah, I don’t- if that’s, I mean, someone that makes less than $60,000-

Joe: He’s giving an example that fits .5% of the entire population.

Al: I was going to say one in 1000.

Joe: One in a 1,000,000.

Al: So, so basically what you’re saying is you make less than $69,000 a year, but you don’t need a penny of it for your own spending.

Joe: And he’s self-employed. So if that relates to you, here’s the strategy.

Al: Yeah, no, there’s nothing wrong with it. But yeah, the likelihood, Will, when you find someone that this works for, then write us back.

Joe: Oh my God, Will.  We gotta put like a red flag on this guy.

Andi: Okay.

Joe: So then I’m prepared. All right. We’ll see you guys next week. Show’s called Your Money, Your Wealth®.

Andi: In the Derails at the end of this episode, Joe ponders where he’ll retire, and we talk about our morning routines and how long YMYW listeners hang with us, so stick around.

Help us grow YMYW by leaving your honest ratings and reviews everywhere you can, especially on Apple Podcasts and now on YouTube. It also makes a big difference when you tell your friends about the show, and we appreciate you for listening, participating, and spreading the word!

Your Money, Your Wealth is presented by Pure Financial Advisors. Schedule a free financial assessment with the experienced professionals on Joe and Big Al’s team at Pure to get more than just a spitball on your retirement plans. You’ll find links to book your financial assessment the podcast show notes, at YourMoneyYourWealth.com, or you can call 888-994-6257. Meet in person at one of our offices in California, Washington, Colorado and Illinois, or meet with the Pure team via Zoom from any location. No cookie-cutting here, they’ll help you tailor a plan that meets your specific retirement needs and goals.

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.

The Derails



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

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

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