Show Notes

• (01:03) Financial Strategies for the Young and Disabled (William, TX)
• (08:16) How to Minimize Son’s Capital Gains Tax on Inheritance (Debbie, HI)
• (14:37) Can I Quit Work in a Year? Should I Do Roth Conversions? (Emily, Rochester, MN)
• (20:22) Worst Case Scenario Retirement Spitball Analysis (Josie, Atlanta)
• (28:45) Are We Going to Run Out of Money? How Much Can We Safely Withdraw? (Alfred Pennyworth)
• (32:35) Life Lesson on When to Take Social Security (Richard)
• (40:15) Can I Withdraw the $17,000 I Paid into Social Security? (Irene, Bremerton, WA)
• (46:00) The Derails

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Transcription

Andi: Harsh realities of life can very quickly change your retirement plans, and your entire financial future. Today on Your Money, Your Wealth® podcast 443, Joe and Big Al spitball on dealing with these realities. What financial strategies can they suggest for William and his 33 year old wife, who has metastatic breast cancer? Debbie and Emily each experienced the unexpected sudden passing of their partners. Is it possible to minimize the capital gains tax on Debbie’s son’s inheritance, and can Emily retire in a year? Josie has lousy longevity in her family, and wants to plan for the worst-case scenario of dying before her husband. Alfred is 81 and concerned that he’s going to run out of money before he runs out of time, and Richard has a sobering story that changed his thoughts about when to collect Social Security. Finally, Irene is subject to the Government Pension Offset – can she withdraw the money she paid into Social Security? I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Financial Strategies for the Young and Disabled (William, TX)

Joe:  We’ve got William off the deck here, Big Al.

Al: Okay.

Joe: The good State of Texas.

Al: Great.

Joe: He goes “Hi Joe, Big Al, Andi. Been listening for a few years. Love the show. Got a tough situation. I appreciate your spitball analysis. My wife was recently diagnosed with-“

Andi: – metastatic, which unfortunately means incurable. (Andi’s note: thanks to the listener who pointed out that the definition of metastatic is the spread of the cancer to another part of the body. While it is treatable, metastatic breast cancer is currently incurable. For the person who receives a metastatic breast cancer diagnosis, this meaning may carry more impact than its definition.)

Joe: “-metastatic incurable breast cancer, which has a 5-year survival rate of about 20%. She’s 33 years old and I’m 35. We have two young children.” Oh, man, William. So sorry to hear, bud. Let’s see if we can help him out there, Big Al.

Al: Okay. Yeah. I mean, first things first, William. That’s a tough situation for you and your wife and your kids. We wish you the best, but hopefully we can help you a little bit.

Joe: All right. He’s “got an income $250,000, expenses $100,000 on average. She’s got a 401(k) plan $300,000, brokerage account $550,000.” How old is he?

Andi/Al: 35.

Joe: Wow.

Al: Doing well.

Joe: “Cash $150,000, Roth IRA $35,000, wife’s Roth IRA’s $15,000, HSA Plan of $23,000, wife’s 457 of $40,000, rental real estate equity of $300,000, commercial real estate of $300,000.”
This guy’s a mogul.

Al: You guys have done well. So by my calculation Joe, that’s about $1,000,000 liquid.

Joe: “Primary residence equity, about $100,000. They both have $500,000 in term life insurance. So, we do not need additional income to live off of right now, but I’m wondering if she should file for Social Security Disabilities since the breast cancer qualifies.” Yeah, most definitely. I think that’s probably one of the first things to do.

Al: Yeah, totally agree. That is something that qualifies, so you should do that immediately.

Joe: I don’t know the answer to this. Now, because they have two young children, if she applies for Social Security disability would there be any family benefit?

Al: I’m not sure either, but it would be worth checking out.

Joe: It’s not every day a 33-year-old- you’re doing planning to- file for Social Security, but yeah that could be another option or something that you would want to talk to the Social Security Administration.

Al: I think so too. I mean, certainly your wife would qualify. Whether the kids would get additional benefits, I’m not sure, but please check it out.

Joe: “Or would it make sense to wait for the survivor benefits?” Well, the survivor benefits only happen upon passing, and then you wouldn’t be able to qualify for survivor benefits until William’s, at least 60-

Al: – 60 is the youngest age, so that doesn’t really work.

Joe: “My wife hasn’t paid in very much. She was a teacher before we had children. So she paid more into the Texas teachers retirement system. I plan to reach out to them.” Yeah, definitely do that as well.

Al: Yeah, they may have some similar benefits too.

Joe: Sure. “I think we can use a child independent care credit. Tell me more, Al.

Al: Well, with the child independent care credit- so there’s a couple kinds of credit. There’s credit for having kids under age 17. There’s also credits for paying for daycare. It’s all based upon your income level. I think that’s right. I don’t know if she was working or not. I guess she was perhaps because she was a teacher. So if the income is lower, maybe they qualify for more of these credits. So yes, that’s definitely worth looking into as well.

Joe: “Also looking at an ABLE investment account, but I’m not sure if the age limit of 26 applies to her. Any comments are appreciated regarding health insurance. My company plan pays for most of everything right now. Our expenses could climb if she tries experimental treatment but that’s probably a couple years away. I don’t drink much, but I love a good cigar. A little Monte Crisco. White Label is the current favorite. Thanks, William.” I’m going to start taking up cigars, Big Al.

Al: Oh, yeah.

Andi: Oh, man.

Al: You go ahead. I’ll pass on that one.

Joe: I’m getting to that age. Getting to the age. Me and William are going to enjoy a little Monte Crisco.

Al: Well, you know, that’s not a bad idea. So the ABLE account, so that’s a- that’s an account that was set up, I don’t know, 15, 20 years ago. It stands for Achieving a Better Life Experience. It’s kind of, it’s almost like a Roth account in a way. You put money in pre-tax. You don’t get a tax deduction and it grows tax-free. And it’s available for people that have some kind of disability before the age of 26 is how that works. And there, you know, there may be a few exceptions, I’m not sure, but that’s the basic rule is you have to be 26 either when you’ve set up the account or you’ve had to have this condition at age 26.

Joe: Yeah, it’s a way for assets to be sheltered that they can still use, but still qualify for Social Security benefits. Because to qualify for any type of state or government benefits when it comes to disability, I mean, you basically need to be on your deathbed.

Al: Yeah, now I think the SECURE 2.0 Act extended it from 26 to 46, but that doesn’t start for a few years.

Joe: So there’s time.

Al: Yeah, so it’s possible you might get some benefit later.

Joe: Yeah, but, I mean, William and his wife have done a very good job of accumulating wealth.

Al: Right. Excellent. Yep.

Joe: And so a lot of these programs were really geared towards people that probably had a quarter of the wealth that they built.

Al: Or a 10th or 20th or 100 or nothing. Right? Yeah.

Joe: But, at 35 and 33 years old, having $500,000 in a brokerage account, several hundred thousand dollars in retirement accounts, having, you know, Roth IRAs and things like that. So I think the good thing here is it sounds like financially, they’re going to be okay. So now maybe is the time where you take some time and really enjoy some time together.

Al: That’s kind of how I would look at too. I mean, it sounds like William has the ability to earn income and perhaps his wife as well. But William certainly would have an in- I mean, that, I think that’s how I would think about it, Joe, which is maybe I take a slight pause, maybe try to work a little bit less in my career for a while to maximize the years, whatever they may be, you know, I don’t know. It’s a- it’s an awful tough one, but I think that, yeah, a couple of things, William, you’ve done a great job saving and you will continue to do so. The Social Security disability, yeah, that’s a great thing. ABLE, I don’t think you qualify for. However, that’s going to change in a couple of years. So maybe you will at that point. But you’re at least financially, I think you’re thinking about these things correctly.

Andi: You know, I just want to mention real quick, you guys know I head up a non-profit that helps people with hereditary cancer. So putting on that hat, there are three things I’ve thought of for William’s wife and anyone who is dealing with breast cancer as well. First, put “breast cancer grants” into your favorite search engines and see what grants or financial assistance you might be eligible to apply for. Next is the fact that metastatic breast cancer at the age 33 is relatively rare. So William, if your wife also has a family history of cancer, she might consider getting genetic testing done, both for her and for your kids. Because if it’s genetic and the kids inherited it, getting them on a regular screening protocol can make a big difference in their lives. And my last suggestion is that, while you take that time together, take lots and lots of pictures and videos together as a family. You’ll be so glad you did.

Joe: All right. Good luck to you, buddy.

How to Minimize Son’s Capital Gains Tax on Inheritance (Debbie, HI)

Joe: All right, let’s switch to Debbie in Hawaii. “Hi, Joe, Big Al. I’m a recently widowed mom in my early 30s.” Oh, this is, this show is coming out real-

Al: Got a theme going, I guess.

Joe: Oh my goodness. Well, I’m sorry to hear that. “My fiancé passed away late last year. We are so incredibly unprepared for my partner’s sudden death. And we are the unfortunate cautionary tale of what happens when you aren’t married and don’t prepare. No will, only work provided life insurance. At the end of probate, our son will be able to be the sole heir of about $150,000 that will be held in trust and another $150,000 in an IRA. My goal is to earmark a good amount of the funds for his education, both primary and secondary, as public education is for- is unfortunately not great in our area. My current plan for the life insurance payout is to put half of it in a 529 and the other half in index funds and withdraw $6000 per year from the 529 plus a minimal amount from the trust in the IRA as needed to cover the remaining annual education cost and other child related costs. Is this wise plan? Or are there other methods to minimize taxes owed on capital gains made in the trust? I was also considering using the trust money to cover living expenses and using the delta to contribute more to the-“

Andi: – high yield savings account.

Joe: Yep. “-high yield savings account or my brokerage account. And use those funds for his expenses now subject to my capital gains rate. Lastly, as a minor with his distributions from his inherited IRA, will that be subject to kiddie tax?” Man, we get a lot of kiddie tax questions.

Al: It’s- they’ve been coming up a lot lately.

Joe: “As for me, I make enough for my job without sacrificing my retirement I think, and from his Social Security benefits that I shouldn’t need to use any of those funds for our housing everyday needs, unless it’s advantageous to do so. My current retirement funds include $250,000 in a 401(k), $30,000 in a Roth, I drive a 2014 RAV4. Little drink of choice is Kona Longboard beer.” That’s your drink of choice, isn’t it?

Al: I like Longboard.

Joe: “Thanks so much for all your entertainment and knowledge.” Another good lesson here. Debbie, sorry for your loss, but if you have children, I think it’s a really good idea to at least have some sort of estate plan in place.

Al: Yeah, and that goes for almost anyone to have an estate plan.

Joe: Married, not married, partners, friends, whatever.

Al: At least a will, right? Because if you don’t, then it goes to- a will you go to probate, your estate goes to probate anyway. But without a will, that your assets get distributed in accordance to state law and not necessarily how you want them to be distributed. Now, it sounds like everything’s going to their son, which is probably fine unless, you know, her partner who passed wanted something to go to her, but it wasn’t specified in the will. So that’s the way it’s going. She wasn’t a relative per se. She was a fiancé.

Joe: Right. So the money is held in trust for the benefit of son, that she can use of course, to maintain her lifestyle, maintain the kid’s lifestyle, kid’s maintenance, education and support.

Al: Education and support. Yeah.

Joe: I like her idea. I mean, you wanna put part of that in a 529 plan. 529 plan’s fine. It grows 100% tax-free. And if you want to use it for education because you feel that the schools- you want to go to a private school- yeah, I mean, I like her idea quite a bit.

Al: Yeah, and you can put $17,000 into a 529 plan. You can do 5 years all at once, so that’s $85,000, and I think she’s going to have $150,000, so half of that- or I mean, so she could put in $75,000, that’s below the $85,000. So I think that works. I think pulling it out for education works. I think it’s $10,000 you can pull out per year for non-college type of education. So, I think that works. I like the 529 plan because all the income is going to be tax-free as long as it’s used for education. I’m not too worried about the taxes.

Joe: Yeah, me neither.

Al: Because if you put half of the money into a 529 plan, now you only have $75,000 in a trust. The first $2900 in the trust is only taxed at 10% and capital gains would be tax-free at that level. And so maybe you hit that threshold in income, maybe not. You can always distribute some of the income out-

Joe: Just distribute the income out, right? And then you just put it into another account. You could- she’s probably going to need the money to put food on the table and, you know, dress, put clothes on him.

Al: Yeah, no, that’s right. But I guess if you distribute it out because the kiddie tax versus the trust tax rates, it’s almost the same. So it doesn’t really matter. So, but I don’t think taxes are the issue here.

Joe: The RMDs are going to be minimal as well.

Al: They’re minimal. And income from an inherited IRA does count for kiddie tax income. So yeah, if there is a kiddie tax, then that will be part of that. But no, I don’t, think that’s too much of an issue. I think Debbie, your thinking is right. I like your plan for how to use this money and just go from there, I guess.

Joe: Okay. Good luck.

Andi: These questions are rough, but the lesson is important: plan now for what could happen in the future. You can make things as easy and straightforward as possible when it’s time for your beneficiaries to inherit your assets by giving them a document that contains everything they need to know about your life, your accounts, and your estate before you pass. Download our Estate Plan Organizer from the podcast show notes at YourMoneyYourWealth.com. It’s organized into helpful blank sections so that you can simply fill out everything, from your financial account details and insurance policies, to your contacts and your final wishes. Put it in a safe place, give a copy to your family, and don’t forget to update it regularly. To get your free Estate Plan Organizer, just click the link in the description of today’s episode right there in your favorite podcast app and you’ll see it under “Free Resources,” just before the episode transcript. To get your money questions answered, click the Ask Joe and Al on Air banner in the podcast show notes, send in all the relevant details, and the fellas will spitball your retirement situation right here on YMYW.

Can I Quit Work in a Year? Should I Do Roth Conversions? (Emily, Rochester, MN)

Joe: “Hi, Joe, Big Al and Andi. This is Emily writing from Rochester, Minnesota.” Homeland.

Al: Yeah. How close is that to where you grew up?

Joe: Oh, a couple hours south.

Al: A couple hours? Okay.

Joe: “I’m 55, widowed. Live with my grey tabby cats, Rhea and Zeus.” Rhea? Rhea?

Al: Yeah. Rhea.

Joe: “My husband and I returned to Minnesota in 2019 after 26 years in California and Ecuador. Minnesota winters are still cold in case you’re wondering, Joe.” Yep. I’ll- that’s why I’m in Southern California there, Emily. “Husband passed away unexpectedly 15 months ago. After discovering YMYW earlier in the pandemic, became an avid listener and loved your show. You make it easy to understand the concepts you are discussing by reviewing details during your spit balling and providing the summary. I turned my sister on the show last year and she loves it too.” A little family affair.

Al: Wow, what’s going on Minnesota? We got two listeners.

Joe: “I often listen while I’m at home on my treadmill, drinking water-” Well, that’s no fun.

Al: But that’s good for you.

Joe: “- or while I’m driving my 2015 white Ford Focus hatchback, enjoy Coke Zero. Any chance I can quit working a year from now? I would love to hear your spitball analysis on whether or not you think this is feasible. I’m not adverse to working part time for a few years. Second question, if you have time, 2023 will be my first year filing single. We have done Roth conversions to the top of the 22% tax bracket for the past few years. Now I plan to do Roth conversions up to the 24% tax bracket. For 2023, I plan to convert about $50,000. Do you think I should go into the 32% tax bracket to convert more? Here’s the numbers. Emily’s got a salary of $140,000, Social Security at age 70 is $51,000. Target retirement expenses currently are $60,000. Currently $60,000- $75,000-”

Al: That’s what she wants, I guess.

Joe: Oh. Okay, “-currently $60,000 and then target retirement expenses are $75,000.

Al: Yep. Yep.

Joe: Okay. “She’s got assets, cash $100,000, I bonds $25,000, a non-qualified brokerage account, call it $400,000, inherited IRA from dad in 2018 is $260,000. She’s got an IRA of $576,000, a Roth IRA of close to $300,000, 403(b) $100,000. She contributes $30,000 annually there. Got a little property in Ecuador, $50,000. Debt on the home mortgage 2.5%, value $260,000, $143,000 mortgage. Thank you for your awesome show.” Okay. I’m sorry- how old is Emily?

Al: She’s 55. Widowed.

Joe: She is 55. Okay.

Al: And Joe, a quick add on the liquid assets, it’s about $1,700,000. So, and if she wants to spend $75,000 out of $1,700,000. So I get a 4.4% distribution rate. That’s a little too much at 55. And so the answer is yes, she can retire, but she probably needs some part time income to do that. And how much you need?

Joe: $10,000.

Al: Yeah, maybe even a little more. If I take $1,700,000 times 3%, I get $51,000 and she wants $75,000, probably $20,000 ish, $20,000.

Joe: All right, but in 15 years, she’s going to receive $70,000 in Social Security.

Joe: Yeah, I have not factored that in.

Joe: So let’s say she wants $75,000 today and we’re going to 15 years from now, 3.5% inflation, future value is going to be $125,000. So how much Social Security is she going to have at age-

Andi: – 70, it’s $51,000.

Joe: $51,000. All right. So I’m going to take- I’m going to inflate that a little bit with inflation, call it $60,000. That’s pretty conservative. All right, so we got $60,000 there, so let’s- so she will need about $65,000 from the portfolio. So I inflated the $75,000, 15 years, call it $120,000, and then you take the $60,000 minus that -she’ll need $60,000 at age 70. You with me?

Al: Yep.

Joe: So let’s say at age 70, you good with a 4% distribution?

Al: Of course.

Joe: So she’ll need $1,600,000 roughly at age 70. She’s got $1,700,000 now. So if she’s pulling 4% out in the market tanks on her- It really depends on the sequence of return risk here.

Al: I agree with that.

Joe: If she could get a 4%, 5% rate of return annually, I think she’d be okay. It’d be close. But the markets don’t work that way. That’s why retirement distribution planning is so much more challenging than accumulation.

Al: Yeah it’s like these are spitball answers. These are not the real answers. I mean, it depends upon so many variables. I’m still going to say if it were me, I’d want $20,000 of income just to be on the safe side. But I agree, because my quick analysis didn’t even consider Social Security, which obviously you have to.

Joe: Yeah. Well, I mean, she could chill in Ecuador, dude.

Al: Well, yeah. And probably spend less than $75,000.

Joe: She could spend $7000. You just chill.

Al: So Emily, I would say, yeah, go ahead and retire if you want to. And maybe get some part time income or maybe your expenses go down because you live in Ecuador or whatever.

Joe: Well, I don’t know. What would you pick? Little Minnesota or Ecuador?

Al: Ecuador. Probably.

Joe: Hands down. All right. Good luck, Emily. Yeah, I think you’re good to go. I think you’re real good. Enjoy.

Worst Case Scenario Retirement Spitball Analysis (Josie, Atlanta)

Hey, welcome back. Josie from Atlanta writes in “Joe, Big Al, and Andi. I’ve emailed before, you might remember me. I’m the one that listens to YMYW in the shower while getting ready to work.” Oh boy. Josie, she’s back.

Al: She’s back, I sort of remember the one in the shower.

Joe: I do. I do remember her.

Al: Because I think that’s only happened once on our show.

Joe: Yeah. Now we got all sorts of freaks calling in saying sex in the driveway and- I love our listeners.

Al: Yeah, they’re wonderful, right?

Joe: In the shower. Yep. Okay. “And I drink an occasional glass of red. Not at the same time.” Okay.

Al: Why not? Wouldn’t that be something? You, YMYW, glass of wine in the shower?

Joe: Okay. “This question is a drag, but I know you’ll find a way to have fun with it- or make fun of it.” Whoa. Okay.

Al: Can we do that?

Joe: I don’t think so. “Actually, it’s two questions. What should our Social Security claiming strategy be? And any suggestion for things we should do differently in planning for retirement? I’m 50. My husband is 58. Actually, almost exactly 8 and a half years older than me. He will likely live a lot longer than me.” How would he live a lot longer than her?

Al: Maybe she’s got- maybe she’s gonna explain.

Joe: Okay. “My family has really lousy longevity. I’ve already outlived most of the women in my family. I’m healthy, knock on wood, but I’d much rather plan for worst case scenario rather than scrambling to figure this out when things go sideways later.” Josie, that’s just a- just in the back of your mind thinking, Oh boy-

Al: Going sideways. Well it’s- Yeah. So plan for the worst.

Joe: I suppose.

Al: So that’s what she’s doing, but hope and dream for the best. I mean, I’ll tell you what, my uncle Dwayne, he lived to age 90. He was almost 91. His father died of a heart attack at 59. And so you don’t necessarily live the same as your parents.

Joe: Hopefully not. My dad died at 61.

Al: Yeah. You’ve got about 4 years?

Joe: I mean, it’s a lot longer than 4, but it’s not like 20. So, yeah I get-

Al: Maybe you should start planning for the worst.

Joe: I plan for the worst every day. Oh man. Yeah. It sucks when you get older, it’s like, you start thinking about things that you never- like that would never happen to me. I’m invincible. But then you’re like, well, maybe not. And you got friends from high school that all of a sudden die and it’s terrible.

Al: Yep.

Joe: Andi, hell of a show so far.

Al: These are actual questions, I guess.

Andi: It makes sense to put them all together in one episode.

Joe: Okay. So, this is what she has. “She’s got $60,000 in IRA, $50,000 in Roth, $24,000 in a 401(k), $20,000 in employer match, $12,000 in Roth, and $2500 in IBonds.” Did you add all that up, Big Al?

Al: Yeah, and I think if you add his, it’s about $350,000.

Joe: Sounds good. “Social Security at 62, she’s going to get $1600, at 67, $2500, and at 73, $3000. His Social Security projections is $1200 at 62, $1800 at 67, and then $2200 at age 70. She earns about $70,000 net. Plan to work as long as possible. He has 40 quarters, but has been a house husband for a few years and will likely remain so.” Well, house husband.

Al: Yeah. Yeah. Okay.

Joe: “Basically we spend what I bring home each year, about $70,000. Before that, I contribute just enough to retirement, 5% to get the 4% match. This year, I switched to contribute all 5% to the Roth 401(k). I’m not sure if the match now goes to the Roth or the traditional 401(k).” Match will go to the traditional 401(k) until the law switch, I think next year, where then the match can go to the Roth if you choose so, as long as the plan allows it.

Al: Right.

Joe: “Given my expected short lifespan, I’m trying to balance between saving and enjoying our life as much as possible, but realize I might be leaving him screwed if I keel over early.” She’s got a good sense of humor.

Al: She’s trying to be realistic about this.

Joe: “We have no debt. Rent is thankfully fixed at $2,000 a month and we don’t have to pay property taxes or maintenance. So it doesn’t seem like trying to buy a house would make sense. Do you agree? With my lack of longevity and him not working, I’m assuming this is one case where best plan would for each of us to claim Social Security early at 62. I assume we should do some Roth conversions, since on YMYW, it seems just about everyone should. But how much? And without brokerage account money, how should we pay those taxes? Okay, that was more than just two questions. Sorry. Love to hear other ideas you might spitball for us. Thanks, Josie in the Atl.” Well great to hear back from you Josie. So rent fixed, $2000, husband’s house husband. She’s making $75,000 a year. Let’s talk Social Security. So if she’s going to continue to work, she wants to work as long as she can. And I’m guessing if she wants to work in past age 62, you do not wanna claim Social Security. Because you make $70,000 and there’s an earnings test when you claim Social Security early. So if you claim it at 62 and you still have employment income, they’re going to take $2 away out of every $1 that you earned depending on how much money that you make. So you would almost wipe out 100% of your Social Security given the amount of income that you make if you claimed your Social Security at 62 and you were still working.

Al: Yeah, I agree with that. Husband’s 58, so 4 years for him. She’s- Josie’s 50. So that’s quite a while away. So maybe let’s talk about the husband, 58 years old, taking it at age 62, $1200. I’m okay with that. I mean, I guess it just depends whether you need it. I’m a big proponent of, if you think you’ve got shortened life expectancy, enjoy your life. I mean, your husband is probably going to be fine. There’s some good Social Security income. You know, you’re not spending that much. I wouldn’t worry about Roth conversions. There’s not enough in IRAs and 401(k)s to create much of a required minimum distribution. So I wouldn’t do Roth conversions right now. And unless you’re in the 12% bracket and it’s super cheap, otherwise I would just- I would just enjoy your life.

Joe: Yeah, I would continue to save as you’re saving. Because if- let’s say if she works another 10 years, so they got $300,000 today. And so if she makes $75,000- she makes more than that because it’s $70,000 net-

Al: – $70,000 net-

Joe: – but whatever, – let’s say she saves $4000. She gets the match. That’s $8000.

Al: Yeah. Yeah. Okay.

Joe: Okay. So we got $300,000, $8000 is gonna go in. She’s got 10 years and then she gets 7% on her money. That’s $700,000.

Al: Yeah. Yeah. Okay.

Joe: She’s got shortened life expectancy, I’m gonna give her 4% on that. So that’s gonna be $30,000 roughly that she could spend. 62, You claim your Social Security. If you wanna retire at 60, that’s gonna get you $1200. He’s gonna get $1200. That’s going to be pretty close to what you’re making now.

Al: Pretty close, yep, yep.

Joe: So, I would continue to save what you’re saving. If you can continue to do that, get the full match, it’s going into the Roth. And then, when the law changes and the match goes- Yeah I think they’re pretty close.

Al: Yeah, I think so too. I wouldn’t worry about doing Roth conversion right now.

Joe: I would just to save as much as you possibly can and-

Al: – enjoy life.

Joe: Yeah. Enjoy. Have more showers and have more wine.

Al: Yeah, that’s right. And let’s try drinking it in the shower.

Joe: There you go. Yeah. Next time you write in, I want, I got a shot of tequila in the shower-

Al: – and I fell over and now I’m in the hospital.

Are We Going to Run Out of Money? How Much Can We Safely Withdraw? (Alfred Pennyworth)

Joe: This one comes in, it goes, “Hey, I just recently discovered your podcast and enjoy listening. I feel my situation’s a little different than most of your questionnaires.” Is that a word?

Al: Sure it is.

Joe: Questionnaires. All right. “They all seem to have a boatload of money. My wife and I are 81, live in Phoenix. No debt, house is worth maybe $400,000. We have a nest egg of $450,000 and receive $45,000 in Social Security. I drive a 2018 Toyota. Love a good old fashioned. I’m trying to acquire a taste for malt liquor in fear of your advice.” All right. Okay. Yeah. “Are we going to run out of money? We used to live comfortably off about $70,000 a year and I have a withdrawal schedule of $2000 a month from our nest egg. However, over the last couple of years, I’ve been making extra withdrawals to pay for one-time expenses. I’m probably taking out more like $40,000 a year.
How much can I safely withdraw each year? I don’t see living past 95, but what if I or my wife do? Thanks Alfred Pennyworth.” He’s got $450,000, no debt, so he wants to take out $40,000 a year.

Al: So that’s about 9%, we’ll call it, 9% distribution.

Joe: Well, $40,000 into $450,000. That’s 12 years.

Al: Yeah. Yeah.

Joe: Or 11 years.

Al: Yeah. Without any income. Without any growth. I’d say Alfred, that’s probably okay. I mean, so you hear us talking about 4%, but that’s for a 65-year-old. When you’re 80, 81, it could be 6%, 8%, 9%, potentially. I mean, don’t take this to the bank. This is just a suggestion because the idea is that you’re not going to live as long necessarily as a 65-year-old.

Joe: You’re not going to have a 40-year retirement. Now he’s got a 15 year.

Al: That’s why we say when you retire at 55, let’s do a 3% distribution rate or 3.5%, not 4%. But when you’re older, you can increase it. But of course, this is something you have to monitor every year. Because if it gets, if the market tanks and you’re taking too much, you may have to revise and spend a little bit less for a while. So this is just kind of an idea. So I would say, Alfred, you probably, you know, $40,000, yeah, you probably could do that. I mean, that’s no guarantee, this is spit balling, but you know, you just have to monitor.

Joe: Okay. At the end of the day, l let’s say he blows through his liquid assets. Yeah. He still has $45,000 of income and he has a house, a roof over his head. He’s debt free. He could potentially do a reverse mortgage at that point.

Al: He could. Right. So there’s all kinds of ways. And I talked to a 90-year-old recently where the distribution rate’s over 10% and I’m okay with that. Right. So it just depends.

Joe: Yeah. Yeah. I mean, he’s doing great.

Al: Yep. And by the way, $450,000 is a lot of money. That is so far above the average. I mean, Alfred, you’re doing well.

Joe: So good job, Alfred. Yeah, let’s have a malt liquor together.

Al: Yeah. Let’s try. I’ll do that too. Why not?

Andi: What are the biggest financial challenges that you face today, which topics that we cover on Your Money, Your Wealth matter the most to you, and what would make the podcast even better for you? You’ve got just 10 days left to answer these and 14 other questions for your chance to win a $100 Amazon e-gift card. Click the link in the description of today’s episode in your favorite podcast app to go to the show notes and access the 6th annual YMYW Podcast Survey – the secret password to fill it out is pure, p-u-r-e, all lower case. Help us make Your Money, Your Wealth your favorite retirement and personal finance podcast. US residents only, no purchase necessary, survey and giveaway close and winner chosen at 4pm Pacific time on August 31st, 2023.

Life Lesson on When to Take Social Security (Richard)

Joe: I have a little comment here Big Al, about when to take Social Security benefits.

Al: Okay, good. I’m all ears.

Joe: Remember what was that, just a couple weeks ago? The guy’s like, you know what, I’m gonna take it at 62, ’cause I’m gonna go party. I’m gonna have cocktails, I’m gonna play golf, I’m gonna do this, I’m gonna do that. I’m gonna enjoy my time.

Al: Yeah, right.

Joe: And we were like, yeah, go for it.

Al: He said, why do y’all tell me not to?

Joe: Yeah. Why is all you financial freaks telling me to take it at 70? I don’t want to take it at 70.

Al: Then don’t.

Joe: Then don’t.

Al: Just, yeah, go for it.

Joe: All right. “Joe and Al, just a comment here related to your topic of Social Security. I’m a financial nerd. So I always enjoy your podcast.” Okay. So you gotta be a financial nerd.

Al: Do we nerd? Do we nerd out of it? I guess.

Andi: Just a bit.

Joe: “Please enable comments on YouTube. Even if you don’t respond to them, I think that your listeners, viewers would enjoy the opportunity to comment.”

Al: I didn’t even know we had a comment section.

Joe: I had no idea. Yeah.

Al: Or not.

Andi: We have them disabled.

Joe: Aren’t you on our YouTube?

Al: I- no. I think I subscribed once.

Joe: Did you?

Al: To get the- to increase our listeners by 20%.

Joe: Increase our subscribers?

Al: Cause we had like 5.

Joe: So, okay. He goes, “I’m a former compliance manager and I think it’s a little over the top to have them disabled.” I agree with you 1000%, Richard.

Al: Yeah, we didn’t, we-

Andi: Me too.

Joe: We’re not the compliance department here.

Andi: The bane of my existence is the fact that we don’t have those comments turned on. I would love to reply to people.

Joe: No, we got Deputy Danni.

Al: We do. And she’s good.

Joe: She’s very tight.

Al: Yeah, she’s tight. She doesn’t let anything slip through.

Joe: No. Anything gray? No, it’s black or white with her. No grey? That doesn’t exist.

Al: Not doing grey.

Joe: We’re not doing grey. “Let your compliance person review any responses and leave it at that. You have loads of disclosures, disclaimers language already in the description box.”

Al: I’m sure we do.

Andi: Yep.

Joe: We just set up a little console. A little compliance department.

Al: I think so.

Joe: “Here’s my take on Social Security. I started advising clients in 1980, including my own mother. And was-“

Al: Were you born yet?

Joe: No, just about. That’s when I got my ice skates, I think. My figure skate-

Al: Figure skates?

Joe: That’s the start of my figure skating career.

Al: Got it. Lasted what, 3 months?

Joe: Not even that. One, one, one time.

Al: One try?

Joe: Yes.

Al: Got it.

Joe: It just ankle beated everything. Oh my God. It was so bruised. He was a retirement specialist. Look at Richard. Look at the big brain on Richard here.

Al: I can imagine.

Joe: “Needless to say, I had to have a good grasp of Social Security from the very start, and always anticipated that I would start drawing my benefits at age 70. Why not receive a premium benefit?” Yeah.

Al: Okay. I’m with you.

Joe: We say that often. 2003, I was flying from Arizona to Michigan for my mom’s 70th surprise birthday.” Oh boy. I know where this is going.

Al: Oh, cuz Andi put it in this show. There you go.

Joe: “She had retired from her job as a preschool resource room teacher specializing in learning disability- learning disabilities. And when I had gone back to work for the district as a consultant when I arrived in Michigan, I learned that my mom had a massive hemorrhaging stroke.” Or-

Andi: – hemorrhagic-

Joe: hemor-

Al: Good enough, we get it. Was on life support.

Joe: Life support. “She lasted two days on life support. Both of her parents had died at age 67 and her grandfather had died the same way she did.”

Al: Oh boy.

Joe: “My dad’s father, he died at 54. All of a sudden, my plans for Social Security changed. I’ve been taking benefits at the age for full benefits, in my case, 66 and 4 months. Keep in mind that I was committed for 23 years to taking my benefit at age 70. This is a fact of life that people need to factor into their equation. While there is much talk about the extended average longevity of the average person, things happen. Bird in a hand, as the saying goes. While I’m not real big on taking benefits at 62, I think most people should plan to take them at normal retirement age. Even if a person doesn’t need the money, they can make use of it, grow their wealth, maybe a little bit more, put it in T bills, index funds. Just don’t assume that you can start benefits at 70 because there are so many people on the lower side of the averages. Enjoy your older years.” One other thing I will say about retirement. While many people spend years thinking about Social Security, they have the misconception about Medicare or make assumptions based on the commercials they see from insurance companies. I spent 26 years in the financial services, most of the last 15 years as a triple principal-” Oh, he’s like a triple black belt of finance.

Al: Yeah, apparently. He should take over the show. What are we doing here?

Joe: “-with many industry designations and certifications. But for all I knew about Social Security, I was surprised when I first had to start thinking about Medicare. It is more complicated than most people think. If people think there are a lot of considerations with Social Security, there are probably way more with Medicare. I’ve spent the last 17 years ghostwriting for advisors and their clients and rarely have been asked to write about Medicare. People need to start taking a deep dive when they’re around age 63. Keep up the good work. Your information is valuable and we will help- and it will help your listeners make good financial decisions going forward. Best, Richard. P. S. I don’t drink alcohol, so my go-to drink is water.” I didn’t see that one coming either.

Al: No, you didn’t.

Joe: “No ice, please.”

Al: After 23 years of consulting on Social Security-

Joe: He’s the black belt finance. I’m just a double black belt. “I drive a Volvo SS 60 Ins-“

Andi: -Inscription-

Joe: “- Inscription. And will probably be picking up my Porsche 982 in the coming weeks.”

Al: Now that’ll be fun.

Joe: Look at Richard driving around, a little Porsche.

Al: Right?

Joe: Flat water.

Al: Yeah. So anyway-

Joe: There was no question. No, but-

Andi: No, it was a comment.

Al: A little rant.

Joe: A little rant.

Al: Social Security. You can take it as early as 62. You can take it a full retirement age, which now is working towards age 67. The last you take it as age 70, the longer you wait, the higher the benefit. Right. You could take it at 63, 64, 65. There’s no magical. You could do it at 63 and 7 months. Every month you wait, it’s more than before. And so the basic advice is if you don’t need the money, and you don’t have an impaired health, then wait as long as you can. And I think that’s good advice for most people, but there’s no such thing as an average person.
These are just averages. If you need the money or if you have impaired health then take it early. Or if you just want to spend the money and it’s not going to impact your retirement negatively, go for it. I mean, this is your money. You do what you want. But that’s why financial advisors will tell you to wait, because when you do the math for the average person, it works out better to wait. But there’s no such thing as the average person. It’s where you think you’re gonna fit and what your goals are.

Joe: Yep. Yeah. Life does happen. You know, it’s, you know, my dad didn’t claim a dollar of Social Security.

Al: Didn’t get a thing.

Joe: Yeah. 61, dropped dead.

Al: So you better make up for it.

Can I Withdraw the $17,000 I Paid into Social Security? (Irene, Bremerton, WA)

Joe: We’ve got Irene from-

Andi: – Bremerton-

Joe/Andi: – Bremerton-

Joe: – Bremerton, Washington. Let’s see, “I’m divorced for over 10 years. Never married- never remarried. I had counting on collecting Social Security for my ex-husband. When I went into the Social Security office, they said I couldn’t collect on his Social Security because of the offset.”

Al: Oh.

Joe: “I worked for the DOD for 38 years.” So she’s got a little pension. She never put into Social Security. “I did pay into it after I retired, but I don’t have 40 quarters. Approximately $17,000 paid in.”

Al: Got it.

Joe: “Is there any way to withdraw my money?” So, Irene thinks it’s like a bank account.

Al: Yeah, like, okay, I need it back now. I’ll just take like 5% interest. Give me about $23,000, that’ll be fine.

Joe: I paid in $17,000.

Al: Yeah, where is it?

Joe: Can I get it back?

Al: Unfortunately, it does not work that way.

Joe: So, here’s the qualifications for Social Security. You gotta put 40 quarters in. She has not had 40 quarters. So 40 quarters or 10 years of putting dollars into the overall system. And a quarter is, I think what classifies as a quarter is like $1700, $1800 of earnings.

Al: Yeah, that sounds right. I was going to say around $2000 bucks a quarter, something like that, in that range.

Joe: So, I don’t know how many quarters that Irene has. So you need to get 40 quarters to get any type of benefits to qualify for the benefit.

Al: True. And so let’s just say she’s got 8 years, maybe she works part time for two years and call it good, get some benefit?

Joe: Yeah. So, but she’s, she probably has a massive pension if she worked for the DOD for almost 40 years.

Al: I would think so.

Joe: So what happens is that there’s the government offset provision or the GOP. Yeah, GPO?

Andi: GPO. Government Pension Offset, or there’s the Windfall Elimination Provision, WEP.

Joe: WEP or GPO. So she qualifies for the GPO. So that’s on a survivor’s or spousal benefit. Because she qualified for a pension, she never put into the system. So she’s going in and saying, hey, I was married for 10 years to my ex-husband and for most people that didn’t have a government job that put into Social Security, they would be allowed to take a spousal benefit from an ex-spouse as long as they didn’t remarry and said, hey, you know, I want to take half of my ex-spouse’s benefit. I would imagine her pension is way larger than half of the spouse’s pension. So she probably wants to double dip here a little bit.

Al: Yeah, and I think that’s why they came up with those provisions so that you wouldn’t double dip.

Joe: Correct.

Al: That’s the reason-

Joe: You didn’t put into the system. But then, so she’s like, that’s fine. I get it. No biggie. But wait a minute. I put $17,000 in.

Al: Yeah, I want it back.

Joe: Come on, son of a gun. I want it back. Or is it lost? Yeah, well, it’s not lost. It’s going to someone else that put 40 quarters into the overall system.

Al: There’s people that put in nothing and get money. There’s people that put in a lot and get very little or zero. It’s just the way the rules can work.

Joe: Ida Mae Fuller.

Al: Yeah, that’s a good example. Right?

Joe: Right. She was, I think the first one to collect Social Security. She put in like, I don’t know, a few bucks and got $100,000 back from the system.

Al: Yeah. She got a lot.

Joe: She did.

Al: Probably wasn’t $100,000 in 1935.

Joe: I do remember the name Ida Mae Fuller.

Al: You did. It was, but she got like a hundred times what she put in at least.

Andi: Here’s the deal. Ida Mae Fuller worked for 3 years under the Social Security program. The accumulated taxes on her salary during those 3 years was $24.75. Her initial monthly check was $22.54. And during her lifetime, she collected $22,888.92.

Al: You weren’t that far off actually.

Joe: So there you go. Yep. So-

Al: So that’s where the $17,000 went. It was already- Ida Mae got it.

Joe: Ida Mae got it. So yeah, so if you get the 40 quarters, you would qualify for the benefit. And you have a long, if you have a long life expectancy, you might be able to get all that $17,000 back. But it’s going to come to you in a monthly payment for the rest of your life. If you qualify.

Al: Correct.

Andi: Download the Social Security Handbook for free from the podcast show notes for much more on how to make the most of your Social Security benefits. In spite of the heaviness of the topics in today’s episode, we still have Derails at the end, on Ecuador, Joe’s figure skates, and malt liquor, so stick around. And do us a favor, won’t you please? Help new listeners find YMYW by sharing the show with your friends, family and colleagues, and by leaving your honest reviews and ratings for Your Money, Your Wealth in Apple Podcasts, and any other podcast app that accepts them.

Your Money, Your Wealth® is presented by Pure Financial Advisors. Click the “Get An Assessment” button in the podcast show notes at YourMoneyYourWealth.com or call 888-994-6257 to schedule your free financial assessment, in person at one of our seven offices around the country or online, a time and date convenient for you, no matter where you are. Chances are, one of the experienced financial professionals at Pure will be able to identify strategies to help you create a more successful retirement.

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.

The Derails

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