Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 00:54 – Retiring at 64 With a $1.2M Mortgage: Smart or Crazy? (David Larry, MI)
• 10:50 – Should I Recast My $1M Mortgage to Free Up Cash? (Leon, Chicago)
• 16:09 – We Make $1.65M and Spend $470K. Can We Retire at 55? (Bandit & Chilli, Atlanta)
• 23:09 – Pay the Mortgage, Retire at 55, Spend $470K/yr? (Bandit & Chilli, Atlanta)
• 29:41 – Outro: Next Week on the YMYW Podcast
• 31:29 – The Derails

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Transcription

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

Intro: This Week on the YMYW Podcast

Andi: Bandit and Chili in Atlanta are 39 with $4.7M already invested. They’re gunning to retire at 55, but they spend $470K a year. Will the money last? That’s today on Your Money, Your Wealth® podcast number 607. Before we get to Bluey’s folks, we have a couple home and mortgage questions: David Larry in Michigan wants to retire in 2 years at 64, and he’s planning to sell a condo and build a $1.5M dream home. Do his finances look good, and is he crazy to try to pull this off? And Leon in Chicago threw half a million dollars extra at his mortgage, but now he’s wondering if a mortgage recast would help him free up cash flow and maybe work less someday. If YMYW makes your money make sense, follow along wherever you watch or listen to us. I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Retiring at 64 With a $1.2M Mortgage: Smart or Crazy? (David Larry, MI)

Joe: We’ll start with, David Larry from Michigan. Hey, pretty, pretty good

Andi: You know that one, right? That’s from Curb Your Enthusiasm. David Larry from Michigan. Pretty, pretty- That’s actually Larry David. Larry David is the character.

Al: Yeah, Curb Your Enthusiasm-

Joe: Yeah

Al: … the show.

Joe: Okay. “Who loves any liquor, wine, and scotch, depending on his mood.

Love to golf. Currently, I’m 62, employed, have 40- 400,000 in a Roth, 290 in a brokerage account, about $2.6 million in my 401(k), an additional lump sum of 1.3 when I retire. All funds are in low-cost ETFs. I’m at a 70 ETF, 30% bond mix.” So he’s saying ETFs is stock- Yeah … even though you can g- buy bond ETFs.

Al: Yes.

Joe: He’s using a product as a proxy for stock.

Al: Yeah. That’s what I, that’s how I read it, too.

Joe: That’s pretty, pretty good.

Al: Yeah.

Joe: “I plan to retire at 64. I will get health insurance until 65, until my employer. All right, I plan to take Social Security at 65. I make $250,000 a year. I max $36,000 into the 401(k) Roth style.

single, no kids. Own approximately $1.2 million of equity of my main home, and only $200,000 left on a low interest rate. I have no debt. I plan to keep my main home for a long time. I know I’m stretching this, but I plan to sell my second home condo for approximately $400,000 profit after tax and fees, and I plan to build a $1.5 million home.

This area is highly sought after, and the builder is giving me a discount to be in the area. I plan to put $300,000 down, 20%, once the build is complete, and have a 30-year fixed mortgage. I know this is a risk. I’ll be retired and have no mortgage, which is pretty costly, however. I’ll be retiring and have a new mortgage,” I’m sorry, “which is pretty costly, however.

I believe this is a great investment and strong appreciation, including the area where I’m building is a high-demand vacation and retirement area, it will appreciate, and the location of the new home is outstanding. I’m hoping later in time interest rates will go down, be able to lock in at about 7%. I feel good about this move, but a little nervous, but if things get stupid, I can always sell and exit with a very good profit out of it.

With the new mortgage, I will need to spend about $200,000 a year. When and if rates go down, that will be lower. Question number one, how do you think my finances look? And number two, do you think I’m crazy to do this build? Do you feel I need to work until 64 or longer? Or any other comments would be appreciated.

Listen to your podcast. Absolutely love all three of you. You make it fun and I learn a lot.” All right.

Al: Well, okay.

Joe: So-

Al: Gonna get a stretch a little bit, get his dream home, vacation home.

Joe: Okay. Let’s run the math.

Al: Like it.

Joe: What we got?

Al: Well, I’ll tell you what. So he, we have, he’ll s- he’s got a second condo that he’s gonna sell.

He thinks he’ll net about $400,000 after tax and fees.

Joe: He’s selling that, then he’s gonna put $300,000 of that-

Al: That’s right

Joe: … down.

Al: and then get a mortgage, which the mortgage he’s already included in his spending, so we don’t really have to worry about that.

Joe: So it’s 200-

Al: Yeah … t- 200K. So, I just, for simplicity, Joe- I just ran it as of today.

Joe: Okay.

Al: Yep. And so, now I know he’d have to be 64, but he gets a, $1.3 million lump sum when he retires, presumably from a pension plan.

Joe: Yep.

Al: So I added that to his assets to get $4.6 million.

Joe: Okay.

Al: And then we got 160, grand, or, we, I’m sorry, we have, $200,000 costs with the mortgage, and then if I se- subtract out Social Security, which I know maybe he’ll take a little bit later, and I don’t know, he didn’t say what it was, but let’s just say it’s $40,000 just to be kinda conservative.

Joe: Okay.

Al: Then his shortfall about 160, divide that into 4.6, it’s 3.5%. I think that’s a good distribution rate. I think this works, and I think it only gets better, when and if interest rates go down and he can refinance to a lower rate.

Joe: He’s keeping his primary.

Al: Yeah.

Joe: And he’s got $1.2 million of equity in that.

So-

Al: Yeah, I mean, as he said, if things get tough, he could sell one of ’em or even both potentially.

Joe: So what is he gonna do with the new build? Is that, like, his summer home?

Al: I think so, yeah. ‘

Joe: Cause he lives in Michigan and he’s gonna buy- Somewhere … where’s he gonna go?

Al: didn’t say.

Joe: Yeah.

Al: Yeah.

Joe: Part of the story.

We’d like to envision where – Where- You think he’s going to The Villages?

Al: Where do you think?

Joe: The Villages.

Al: The Village. Oh, Villages, okay. Remember The Villages? Yeah, in Florida?

Joe: Yeah, down in Florida.

Al: Yeah, get a golf cart.

Joe: Get a golf cart and an STD.

Al: Yeah. What, who’s the guy, Smitty, down there?

Joe: Yep, Smitty. I wonder if Smitty still lives-

Andi: And actually, David Larry here says that the area is highly sought after, so.

Yeah. And he’s being given a discount to be in the area.

Al: Yeah, could be.

Andi: Sounds like The Villages.

Al: Yeah. So, do you think my finances look good? I think they do. I think a 3.5% distribution rate is fine That’s

Joe: not including tax though, right? Everything is gonna come out of a qualifying account. Mostly. So we can make a bit from that.

It’s a good- Yeah … four, and still that’s, all right.

Al: It’s fine. It’s fine. A- and I think, I feel like at some point interest rates will come down. He can probably refinance, although no guarantees.

Joe: Yeah. But he, thinks the build is gonna cost X today, but once they start building-

Al: Could be more

Joe: … it could be-

Al: Yes.

I know. and-

Joe: And he doesn’t have a ton of liquidity. I-

Al: Well, it- he’s- he’s got liquidity, it’s just in a retirement account.

Joe: Yeah. Yeah. That’s- He’s gotta pay the tax plus his living- expense. It’s if that- That’s right … that house gets a little bit pricey. Yeah. So- Is that, what, $400,000 in non-qualified?

Currently at $400,000- No … oh, $400,000 in a Roth. 300. 90 in the

Al: bank, I think. yeah. So it’s, yeah, you’re right. So the tax piece of it makes the 3.5% distribution rate seem… It’s a little bit higher ’cause of all the taxes to be paid.

Joe: Yeah. You schedule.

Al: I think it still works.

Joe: $200,000 a year- And, and- … single guy

Al: … yeah, and plus I did it as of now. If he has another two years of savings, this only gets better, right? If he does it all the way till 65, then, then Medicare, you know, when he can do Medicare, and it’s another year of savings. You know, all… It’s so funny. Every year you work extra at this point, it, makes kind of a difference in what your retirement can look like, but I think it works anyway.

Joe: Unless the AI crash.

Al: Well, yeah.

Joe: If it happens.

Al: It would indeed.

Joe: And, and then his liquid assets are cut in half.

Al: Could be. We’ve been through that before with the dot-com bust-

Joe: Yep …

Al: and the Great Recession. A couple times in our careers.

Joe: Yep.

Al: Yeah.

Andi: Sometime in future it may be necessary for him to consider un-retirement?

Joe: No, I just think he needs to think about his asset allocation from maybe a little bit more diversified from a 70/30 split. He doesn’t need to generate a ton of return.

Al: Yeah, for that distribution, right?

Joe: For the distribution.

Al: What are you thinking s- 60/40, 50/50?

Joe: I don’t know. I mean, I, need to kinda think about-

Al: Yeah

Joe: h- how it all looks and what, liquidity he needs.

Al: It’s a good point. I think if it were me, I probably would tame it down a little bit too.

Joe: little bit.

Al: Only because I need the money, Right.

Joe: Yeah. He, he said pull $200,000-

Al: Yeah

Joe: … out of his portfolio.

Al: Correct. And so-

And I don’t, like I say, he didn’t say what his Social Security was, so I’m guessing at that.

But, but yeah, the majority of his funds are coming from his own assets, and so he’s gotta have enough liquidity e- and even in a bad market so he can weather that storm.

Joe: Yeah. That’s the biggest risk that I see. I think the, the asset levels is fine. I’m not worried about the build. I think the build is always gonna be more expensive than you think.

Yeah. that’s speaking from experience. I just do, like, little remodel projects, and it’s like, it seems like it’s double.

Al: Well, and then you finish the build, and, oh, your old furniture.

Joe: Y-

Al: yeah, Like in, in the olden times-

Joe: Forget that …

Al: that’s, you gotta get new stuff.

Joe: Nothing’s cheap now.

Al: You been to a furniture store lately?

Joe: I have not.

Al: They’re expensive.

Joe: I know, yeah.

Al: So yeah, I think it works. Does he have to work till 64? maybe not, but, you know, the longer he works, the better. I mean that’s how it always is kind of at this point. If he can stomach it for, another year or two, I think that only helps his case probably.

Andi: You know what? This podcast episode has basically no discussion of Roth strategies, which is pretty unusual for us. So if you’re missing it, hit up the episode description for the link to watch “10 Common Roth IRA Mistakes That Can Cost You $50,000 or More,” this week on YMYW TV. A Roth conversion done right can save you a fortune in taxes, but if it’s done at the wrong time, it could cost you just as much. Joe and Big Al walk through the Roth planning slip-ups that trip people up the most, like converting to Roth now if you’re going to be in a lower tax bracket later, jumping an IRMAA threshold, triggering tax on your Social Security, or losing a tax credit. In the description of this podcast you’ll also find the link to grab our Retirement Accounts Guide for free. It’s a full explainer of your 401(k)s, IRAs, and Roth accounts, including conversions, as well as withdrawals, and the common mistakes to steer clear of. Click or tap the link in the episode description to watch YMYW TV and to grab the Retirement Accounts Guide. All yours, all free from Your Money, Your Wealth and Pure Financial Advisors. When you download that guide, the form will ask how you heard about us, so go ahead and choose “podcast.”

Should I Recast My $1M Mortgage to Free Up Cash? (Leon, Chicago)

Joe: Cool. Leon in Chicago, “Good morning, Joe, Big Al, and Andi. It’s been over a year since you first fielded a question from me, and I believe I have a unique question I haven’t heard addressed in the three years I’ve- discovered your podcast. And I’m sure that statement just induced a scoff from Joe, but I’ll continue on

Al: Did it kind of feel like- He knows you well.

No.

Joe: Just bring it on, you know?

Al: Okay. All right, good.

Joe: All right. Before I garner the wisdom from the two financial titans I’m writing to, I bought a house in Chicago suburbs that left me with $1 million mortgage starting in 2021. I was in my late 30s at the time, and the interest rate was a glorious 2.75%. As a person who grew up broke, I hate debt, this led me to make massive payments toward the mortgage over the first two years to the tune of nearly $500,000.

Since becoming a loyal YMYW listener, I changed my ways and have been paying the minimum. Would either of you consider a mortgage recast? I’m hoping you could explain the general pros and cons to this strategy for me, and anyone else out there that may have taken a similar path. My understanding is that assuming the mortgage company allows it, for a small fee I could essentially reamortize, amort-

Al: Amortize?

Joe: Yeah. Can you imagine? Reamortize.

Al: Yeah.

Joe: that’s a tough one for me.

Al: Yeah, yeah.

Joe: Amortize. Reamortize-

Al: There you go

Joe: … my 30-year mortgage to a lower monthly payment significantly, but keep the treasured interest rate. This would allow me to have much more free cash flow month to month, as I would expect a substantial decrease in monthly payment given the large amount of early payments “This is exciting or enticing to me as I would like to have the option to cut back on how I’m working in a stressful job for the next 10 to 15 years, and to do so, I will need to have a healthy brokerage account in savings to make this a reality.

I’m a diligent saver and won’t blow the excess c- cash on golf, Star Wars helmets, or whiskey.” Wow.

Al: Yeah,

Joe: that’s a long time ago.

Al: It was. they still remember, don’t they?

Joe: Yeah. All right. “Or something silly like my children’s college education.” “And if I want to pay it down after the recast, then I could make the choice again if needed.

I truly appreciate the work the three of you do. This is still my favorite pod- podcast by far.” Oh, wow, that’s very nice. “And at the start of every episode, I say a silent cheer for Andi, rooting her to victory in what I know personally can be a difficult battle. Thank you.”

Andi: Thank you, Leon. Appreciate that.

Joe: All right, Leon.

Al: Same. Well, a mortgage recast, you don’t hear about that very much. So basically-

Joe: Years.

Al: Yeah. Y- I mean, in, in the, Great, Recession we did. So I guess maybe I’ll explain. the way to think about a mortgage recast is you take your current mortgage and, you know, in, in, in some cases maybe you keep your same interest rate, maybe not, but y- the term gets spread out if you can’t make the payments, right?

So in other words, you got, let’s say you’ve got, a, a, loan that you can’t afford. You stretch out the term so that it’s, a little bit cheaper for you. That’s kinda where that comes from. Joe, I’m not aware that very many lenders would allow that except in hardship cases. we’re not mortgage experts, but if you truly can’t pay it, they might do that.

Otherwise, they’re not gonna keep that same low interest rate and have you change the terms. They would be crazy to do that.

Joe: Because right now, let’s say he, he had a, million dollar mortgage, right?

Al: Yep. And now it’s 500,000.

Joe: So let’s say at a million dollar mortgage, a 30-year fixed at 2.75%, his payment is $50,000 a year.

And so he’s like, “You know what? I paid $500,000 down- Yeah … on this thing over the past two years, so my mortgage balance now is 500,000.”

Al: Yeah, so he’d like to cut his payment in half, potentially.

Joe: Yeah, but let’s cut another deal and give me 30 more years at the- 2.75%. So his payment goes to 24 nine.

Al: Yeah. Cut it in half. You think the bank’ll do that?

Joe: I don’t think so.

Al: I don’t either. I mean, if they do, great.

Joe: Go for it. Absolutely do that, for sure.

Al: To give yourself flexibility. But that’s my understanding is it’s, generally when they allow it, they don’t necessarily always allow it, but when they allow it, it’s because of a hardship.

I guess the way, assuming the bank doesn’t allow it, which I would be surprised, but l- let’s say they don’t, which is what I think is he’s gonna find out. I think if sometime between now and when you retire, 10, 15 years from now, you refinance, hopefully the rates will be lower and you, achieve the same thing, or similar.

Joe: Yeah. if he can do it, please do.

Al: Yeah. I,

Joe: I think that’s a long shot. It,

Al: it g- it could be tough, yeah.

Joe: All right, Leon. Okay. Well, thanks for listening.

Al: Good question, and we, I don’t think we’ve answered that one before.

Joe: I pr- I don’t, yeah, ever.

Al: In 20 years. Maybe during the Great Recession we did. I don’t remember.

We Make $1.65M and Spend $470K. Can We Retire at 55? (Bandit & Chilli, Atlanta)

Joe: all right. Let’s, where we’re heading now, it goes, “Hey, Joe, Big Al. I love your show. Thank you for everything you do. It has been a huge help to us as we continue on our financial journey. Bandit and Chili here.”

Andi: And I forgot to mention-

Joe: Thank you

Andi: … they’re in Atlanta, Georgia. They did actually tell us that.

We just didn’t include it here.

Okay. Oh, a little fumble.

Yeah.

Joe: Oh, fumble-iah.

Joe: Yep. okay, let’s go to l- back to Bandit and Chili here. Okay. “And we love to get a spitball from both of you. We’re both 39 years, young, with, we are both 39 with two young kids, five and eight.”

Al: Man.

Joe: Oh, that’s almost like me there. “I’m a very high earner.” Oh, that’s like Big Al. “And my income has grown significantly over the few, last few years. who knows how substantially that is, though. We’re also big spenders, so I’d love your perspective on how we’re doing and whether or not we’re on track.

Our goal is to retire at 55 or earlier, if possible. If our net worth ultimately grows well beyond what we need for retirement, we’d also consider buying a second home. First, the important questions. We both drive new SUVs that are fully paid out. I love a martini whenever possible, and my wife doesn’t drink much.

So here are the numbers. Currently saving, $4.7 million.” They got a million dollars in a Roth. And how old is this guy? 40 years old?

Al: yep, 39.

Joe: 39 years old, a million dollars in a Roth.

Al: Can you imagine?

Joe: That’s pretty good.

Al: That’s very good.

Joe: He’s got $900,000 in a tax-deferred account, $2.8 million in a brokerage account, home value’s two million, mortgage is 1.3.

“Current mortgage schedule h- has it paid off when I’m 65. We could accelerate the mortgage if that would be meaningful if, to help us retire a little earlier. But otherwise, I’m comfortable keeping it. Annual cashflow income is $1.7 million. Most of this comes from my income, although my wife still works and enjoys it.”

But we don’t know what she makes

Al: No, we don’t. But yeah, he didn’t split it, but-

Joe: He liked to kind of pump his chest

Andi: He did just say the majority of it is his

Joe: Oh. Yeah, I’m a huge earner. Giant. Not to brag. I make $1.7 million, most of it’s mine.

Al: And pause.

Joe: Yeah, my wife, you know, she likes to do some stuff for fun.

Al: I- Translate. Doesn’t make very much, it’s all me.

Joe: It’s, basically me. taxes are $650,000. Savings is $530,000. Spending is $470,000. Employer matching is $33,000. Total annual savings and investments is $563,000. We can assume we can, we continue this The $470,000 of annual spending breaks down roughly as mortgage 115 grand, childcare 45,000, everyday spending 240,000, larger one-time purchases 70,000.

That 70,000 sounds like it should be temporary, but somehow it repeats every single year.

Al: Always something. You gotta-

Joe: It’s always something.

Al: Yeah.

Joe: There’s always something. The last two years were new cars, and before that it was a home renovation. So for modeling purposes, it’s assumed we’re gonna continue spending that.

I realize $470,000 is an enormous amount of money to spend each year, and it still feels strange to say that given that I grew up in a very low middle in- middle-class family. At the same time, we’re saving more than $560,000 per year, so I’m trying to figure out whether we actually need to change anything.

I won’t have a pension or any other meaningful fixed income in retirement, so assume our portfolio needs to fund the retirement. The main questions we’d love for you to spitball are, at the $4.7 million invested, saving another $563,000 per year, are we on track to retire at 55 w- while supporting something close to our current lifestyle?

Could we realistically retire a little earlier? Would you keep investing the excess cash or start aggressively paying down the $1.3 million mortgage as we get closer to retirement? And if the current plan doesn’t quite work, the easiest level for us to pull would be eliminating some or all of the $70,000 one-time spending and redirect it to savings.

Would love to hear your- what you think and what you would do in our shoes. Thanks again for everything you guys do. Bandit in Chile.

Al: Okay. Well, we’ve got some big numbers here.

Joe: Giant.

Al: So let me add a little context, Joe.

Joe: Okay.

Al: so we’re starting at 4.7 million, so retire in 16 years at 55, saving 563,000 a year.

That’s gonna be- At, a- I did a 6% rate of return to be conservative.

Joe: 18 million.

Al: 26 million.

Joe: Oh, 26.

Al: Okay. Spending at that point would be 450-

Joe: A million bucks …

Al: 3% inflation, 16 year, 750.

Joe: Okay.

Al: So distribution rate, Three … would be three. Yeah. 2.9. I think that sounds just fine. I think when you have $26 million you can kinda-

Joe: Do what you want

Al: do what you want. Now, I ran it at 50 as well, so, and there the assets get to about 17 million. The spend’s about 650. Distribution rate is 3.8%. Which is probably okay given the fact that not all these expenses will be continuing, including, well, pr- it won’t be childcare, but maybe it’ll be tuition for college.

maybe if they wanna retire at 50 or even earlier, maybe they gotta tone down that one, that temporary 70 grand spending. But there’s a lot of, there’s a lot of options here, no matter how you look at it.

Andi: Before we get into whether or not Bandit and Chilli should pay off their mortgage, they’ve got money spread across three buckets: a Roth, a tax-deferred account, and a brokerage. The order they pull from each one in retirement can be the difference between paying the IRS a fortune and paying them almost nothing. Our Tax-Free Retirement Guide walks through how this works, with an example showing how a couple can bring in a hundred grand of retirement income and owe almost zero in federal tax. The guide is free, by the way. It also covers the three-buckets framework, the tax brackets and how to use them to your advantage, how Roth conversions fit in, plus tools most people overlook, like HSAs, qualified charitable distributions, and the home sale exclusion. Click or tap the link in the episode description to download the Tax-Free Retirement Guide, compliments of YMYW and Pure Financial Advisors. Now, back to Bandit and Chilli’s spitball: does it make any difference if they pay off the mortgage?

Pay the Mortgage, Retire at 55, Spend $470K/yr? (Bandit & Chilli, Atlanta)

Al: Well, that’s a good question. I would ask what the interest rate is-

Andi: Yeah

Al: Andi, ’cause I, I don’t know. If it’s a low interest rate, I would not. If it’s high interest rate, then I would start, ’cause there’s a lot of, there’s a lot of savings here to work with. I would start prepaying that a bit or, w- you know, you refinance when the rates go down, if they go down.

Joe: What do you think he does?

Al: as far as paying it down?

Joe: Employment. Oh. What do you think he does for a living?

Al: Oh. Well, he’s got a lot of non-qual, so he’s with a successful company. I’m gonna say high tech. I’m gonna say executive in a high tech company. Yeah, at 39 … maybe sales in a high tech company.

Joe: $1.6 million income.

Al: Yeah. Or maybe m- well, may-

Joe: At 39.

Al: Yeah.

Joe: That’s a ton of income.

Al: I’m gonna say exec and a lot of the comp is from-

Joe: RSU …

Al: stock grants and stuff maybe, yeah. I think that’s where a lot of the savings comes from probably. Does he- You

Joe: think the 560 is savings from RSU, but wouldn’t he put RSUs in here, or no?

Al: Yeah, he would probably. I mean, ’cause that, he gets it, and he gets, and he’s, and he saves it.

Joe: But he doesn’t state that, so.

Al: He doesn’t.

I mean, how, h- what, what kind of job would pay that?

Joe: I don’t know. I don’t know what job will give you cash comp of $1.6 million. That’s a-

Al: I, don’t either. I mean-

Joe: I think-

Al: you think of successful CEOs around the country, they’re probably making a million, but they’re really getting paid through stock.

Joe: Yeah, through the stock.

Al: Yeah,

whi- which doesn’t always show up on a W-2, unless it’s like an RSU, restricted stock unit, that vests each year.

So th- that’s my best guess. I’m gonna guess Silicon Valley. What do you got?

Joe: I don’t know, man. I’ve looked at thousands and thousands of-

Al: I know you have

Joe: … balance sheets and income statements.

Al: And I th- I’ve sat with you for half of them.

Joe: It’s, at 39 at 1.6, that’s just interesting to me. I, it’s gotta be s- sales of some sort.

Al: S- sales or executive- Well … with a, company that’s quite successful where there’s stock comp.

Joe: Yep. B- so the reason why I’m thinking about this and- or, or- Yeah … kind of spitballing it out loud is how long is that comp going to be there?

Al: Well, good question.

Joe: So that, that might change how we look at this.

Do I wanna pay down the mortgage? Is, so he just said, “Hey, I just got this comp, recently, substantially higher.” Who knows how substantial it’s gonna continue to grow. Is it ever gonna get cut? Is it, is he on a hamster wheel every single year, or is there a huge base with bonus? And because if that c- gets cut-

right, the, he’s already at the lifestyle creep of $500,000 a year.

Al: I’m aware of that.

Yep. Yeah, that’s probably gonna get worse.

Joe: And so he thinks, “Okay, I can, cut 70 grand.” Like, I don’t know, it’s probably a little bit more than that, that you’re spending Yeah … I mean, cutting that 70 is still gonna be hard once you’re already used to it year after year I know.

So if that 1.6 goes to a million, let’s say- Yeah … he still has, depending on what state, do we know what he lives in?

Al: we don’t.

Joe: Do we know? I don’t know, f- still 40% of that goes to tax.

Al: Yeah.

Joe: Then you got 150,000 or $120,000 mortgage, right?

Andi: They are in Atlanta, Georgia.

Joe: They live in Atlanta.

Andi: This is the one that I mentioned that they

Joe: know what-

Al: Yeah, he does- State taxes

yeah, he says 650 going to taxes out of the 1.65

Joe: But d- still, if it, if his income gets cut, let’s say-

Al: Yeah

Joe: … one, 650 into 165, what is that? That’s 40%.

Al: Yep.

Joe: So-

Al: It’s like-

Joe: That’s state and federal? Yep. But there’s no FICA there, so that’s a little ta- I mean, he’s probably paying more in tax than that maybe.

Al: Y- well, yeah, but you max out on- Medicare and then FICA

like, I mean, Medicare keeps going, but-

Joe: You have a 1%

Al: or something. Yeah, I wouldn’t… That’s not too much.

Joe: So I don’t know. I, kinda, if, I, I’m guessing he just bought the house. He probably has a 6% interest rate there.

Al: Yep, could be.

Joe: He’s got some good taxable savings. He’s got a ton in Roth. How does he got that much in Roth, too?

Is he doing conversions in the 40%, 37% tax bracket? Well- I mean, this is just like a mystery to me …

Al: it is a mystery. We don’t have, we don’t see this profile.

Joe: Is Bandit and Chili, like- … is this BS- … or is this real?

Al: Well, we’re gonna, for purposes of our show, we’ll assume it’s real, but I-

Joe: Andi, did you write this?

Andi: I did not.

Al: I, yeah, I mean, it’s, unusual.

Joe: Yeah.

Al: And I get your comment.

Joe: Well-

Al: It’s hard to get that much money in a retirement account at that age, particularly a Roth.

Joe: At 40 years old, he’s got $2 million in a retirement account. At 39-

Al: but that, but here’s where I go back to a high-tech company. So he bought, he bought- ‘

Joe: Cause he’s got stock inside the 401(k) maybe?

Al: Yep, that’s what I think.

Joe: And then it t- j-

Al: And then just zook

Joe: … took off.

Al: yeah.

Andi: Maybe it’s his company.

Joe: He lives in Atlanta. No.

Al: Yeah, so who’s in Atlanta?

Joe: I don’t know. Who’s high-tech in Atlanta? I don’t know. All right. Well, congratulations, Bandit and Chili. Depending on your income, I, I would l- I don’t like a $1.2 million mortgage hanging over my head.

Al: Well, and the fact that he’s paying 115 grand a year on the mortgage. Yeah. That’s a lot.

Joe: Exactly.

Al: Yeah.

Joe: Bring that down to half a million.

Al: It, I think- Yeah, so, so let’s now, let’s just for fun, if it’s a 2.5% interest rate-

Joe: Keep it …

Al: it, keep it. I agree. If it’s five, I’d be, starting to pre-pay that. Yep. I sort of in that same camp, as you know.

I’ve sorta changed as I got a little older. Yeah. I don’t really like debt either. So I would be using some of this to pay down. But at 39, if it’s a low interest rate, I would just keep it.

Joe: Sure. He could definitely afford it today, but I don’t know. Make it 1.6, he’s… I don’t know. How stressed is the job?

Yeah. How demanding is it? If you don’t hit numbers, is, they’re gonna bring someone, another hotshot in and pay him 1.8? Or her? You know?

Al: Yeah, So- I don’t know. yep.

Joe: All right. Well, congrats on, the wonderful success in retiring at 55 if everything stays the status quo.

Al: Yeah, that’s, it’s, it’d be easy. Damn.

Joe: Yeah, I wonder if they’re hiring over there. Maybe I should-

Al: Yeah, I think he, I think you’re in the wrong- Look, look- … you’re in the wrong company.

Joe: No.

Andi: Do you have a deep tech background, Joe?

Joe: No, I’m zero tech.

Al: but you know how-

Joe: I’m low tech …

Al: you know how to lead.

Joe: I’m a leader. Not to brag.

Outro: Next Week on the YMYW Podcast

Andi: Larry David, the problem with couches, and Bandit, Chilli and TLC in the Derails at the end of the episode today, so stick around. Next week on YMYW, does retiring four years apart benefit Louden and Carla? Should Brian and Judith knock out $270K in debt or keep maxing their retirement accounts? Join us in episode 608 and find out.

But here’s the thing: listening or watching everyone else’s spitballs is fun and thought-provoking, but everyone else’s circumstances are different than yours. A spitball can only give you the vaguest idea of how prepared you are for retirement. Meeting with one of the experienced professionals on Joe and Big Al’s team at Pure Financial Advisors may not be as entertaining as YMYW, but honestly it is way more useful. A financial assessment costs the same as a spitball – that’s nothing – and the YMYW email inbox is overflowing, so if you request an assessment now you’ll probably meet with the team before you’ll get a spitball, too. We’ve got brick-and-mortar offices from California to Tennessee, but if you aren’t near one, or can’t be bothered to put pants on, just keep that camera above the waist and meet with the team online right from home. They’ll work with you to create a plan tailored to your retirement needs and goals, not anyone else’s. Book yours now while there’s still time on the calendar for end-of-year tax planning: click or tap the financial assessment link in the episode description or call 888-994-6257. Get yours on the calendar now.

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

Transcript
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