Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 01:16 – When to Pay Off the Home, Retire, and Do Roth Conversions? (Jack & Swan, FL – voice)
• 06:10 – Should We Include Taxes in Annual Expenses? (Jennifer, CO)
• 09:47 – Draw Social Security in 2025, or Postpone and Convert to Roth in 2025 and 2026? (Kevin, Scottsdale, AZ)
• 14:57 – Download the Social Security Handbook, Calculate Your Financial Blueprint
• 16:08 – Should We Pay Off the House to Be Debt Free in Retirement? (Jennifer, CO)
• 21:08 – State Tax Spitball: Should I Convert Even More to Roth? Does Big Brother Really Count the Days for State Residency? (Skipper, TX)
• 29:54 – Watch 6 Secrets to Bigger Tax Savings from Your Nonprofit Donations on YMYW TV, Download the Tax-Smart Charitable Giving Guide
• 30:39 – Can We Both Stay Home in the Go-Go Years? Wife Says I Have to Go Back to Work (Harry & Helen Tasker, MN)
• 43:40 – Can We Afford to Spend $120k/Year Inflation Adjusted in Retirement? (Tomb Raiders, Strawberry Plains, TN)
• 51:29 – Outro: Next Week on the YMYW Podcast

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Transcription

Intro: This Week on the YMYW Podcast

Andi: When should Jack and Swan in Florida pay off their home, retire, and convert their savings to Roth for lifetime tax-free investment growth? Jennifer in Colorado wonders whether she should take taxes into account when calculating her expenses, and whether she should pay off her home to be debt-free in retirement? That’s today on Your Money, Your Wealth® podcast number 503. Plus, should Kevin in Scottsdale collect Social Security in 2025, or postpone and do Roth conversions over the next two years? Should Skipper in Texas do Roth conversions to the top of the 24% tax bracket instead of the 22? And just how closely will Big Brother watch his state of residency if Skipper buys homes in Florida and another location for his retirement? Harry Tasker in Minnesota’s wife Helen says he needs to continue working. Is that a true lie? Harry asks Joe and Big Al to spitball on whether he and Helen can stay home during their go-go years. And can the Tomb Raiders afford to spend $120,000 a year in retirement? I’m executive producer Andi Last with the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA. To ask a money question or get a retirement spitball analysis of your own, click Ask Joe and Big Al on Air in the episode description and send us an email or a priority voice message, like this one:

When to Pay Off the Home, Retire, and Do Roth Conversions? (Jack & Swan, FL – voice)

Jack: Alrighty then, spitball request from Jack, 61, and Swan, 57, in Florida. We’ve listened to your show via podcast for over a year, and checking out some of your shows on YouTube. Like the show. Educational and entertaining. Okay, she drinks a sweet Moscato every now and then, but mostly water. I regularly drink whiskeys and dark rums, primarily. Arrrr. But why is all the rum gone? She drives a 2009 Mercedes ML. And I drive a 2014 Mercedes C300. Both have high miles. We’re going to drive them until they drop. And probably, she’ll get a new vehicle and I’ll get a used one.

Okay, combined savings. Tax advantage, $692K.  Roth, $178K. After tax, $318K. My pension, $30K per year with no COLA. I get this at 65. Thinking of taking this with a 100 percent survivability for her. My income, $110k per year. Hers is $120K per year. Expenses, which does not include the $1.9K per month P& I, is about $7,000 per month. That’s what, $84K per year. Our home is valued at $645K, we’ve got an outstanding mortgage at $211K. 2.5% rate, I love this rate – I love this rate! Home would be used for her long term care. Alright, so we’re thinking of both retiring at the same time, which is our baseline plan, 65 and 61. We plan on doing SSA at 67 for me and 65 for her.  Here are the three questions:

Should we pay off the home in four years, or now, or not early at all? Second question, do we retire now, or wait until the 65 and 61 baseline plan that we have?  And of course, knowing the answer, but here it is anyway, do we do any Roth conversions at all? Thank you. Looking forward to your response. Love the show. I said that, right?

Al: Wow. Now Jack’s got a lot of personality, doesn’t he?

Andi: Arrr.

Al: Like it.

Joe: But the voice.

Al: You know what? That kicks us off. He might, maybe he’s a, fellow podcaster with that voice and that personality.  Just guessing.

Andi: He’s doing the Pirates of the Caribbean thing.

Al: I think you’re right.

Andi: Why is all the rum gone?

Al: Yeah.  Well, Joe just doing a little math here. So they’ve got about $1,200,000 right now, which is fantastic.  They’re spending about $108,000, and if they retire right now, this is, of course, well before Social Security, it would be a 9% distribution rate. So I don’t like retiring (inaudible) go with the baseline, working another 4 years.  I’m not sure if we even got Social Security figures, so we can’t really talk about that. But yeah, I would definitely, go back to the baseline, I would work 4 years. I would not pay off the home mortgage at that interest rate. I love the mortgage. I love the rate. Keep it. No need to pay that off early. And Roth conversions, of course. What do you think, Joe?

Joe: Yeah, I was so lost. I was just-

Al: You were just caught in the entertainment.

Joe: I was talking about why is the rum all gone, you know? Then he starts going through the numbers.  I saw, Big Al, you’re taking notes, so-

Al: Yeah, yeah, yeah.

Joe: I’m gonna punt on this one.

Al: Yeah, well, he’s got, out of the $1,200,000, we’ll call it $700,000 in a, in tax-deferred, call it almost $200,000 in Roth and call it $300,000 in, in, non-qualified. So, assuming he’s got decent Social Security, he and his wife, they’ll probably be in what is currently the 22% bracket in the future, I’m guessing. And, so yeah, but I wouldn’t do, I wouldn’t do Roth conversions until they retired. Right now, I think their income’s too high. I’d wait till you retire. If, you, if in fact you do retire in 4 years, that would be the time to think about it.

Joe: Yep. Totally agree.

Should We Include Taxes in Annual Expenses? (Jennifer, CO)

Joe: Alright, let’s switch gears. Let’s go to Jennifer from Colorado. She goes, “Hi Andi. Not sure if I’m spelling your name correctly. Sorry, love the show. It’s fabulous. Quick question.  When you all quote people’s budgets, does this assume they are including their taxes in the number? Thanks. Makes a big difference on the withdrawal rate.”  Depends. Sometimes people say, excluding tax and some people say including tax, so, but in most cases when you’re doing your own calculations, I would exclude tax, just look at your, I would say besides, property tax, but not federal and state tax.

Al: Yeah, keep off federal and state tax. The reason we think that way is you have some measure of control on your income taxes, federal and state, where you don’t have really much control over a lot of other stuff, like property taxes, like mortgage, like, you know, household expenses, food, transportation, and so forth. With taxes, you do have some ability to control it. For some people, Joe, it’s easier than others, people that have big pensions and Social Securities and not much savings that they don’t have much ability to save taxes because it’s all ordinary income. But those that have saved outside of retirement or even inside of retirement and can consider Roth conversions into tax-free income for lower rates later, then that’s, where you can make a big difference.

Joe: Well, yeah, I think the biggest thing in regards to your retirement strategy is finding a way to control the taxes as best you can. And so, having tax diversification is a key component of that. Making sure that not all of your eggs are sitting in a basket that is going to be taxed at ordinary income rates. So if you have a pool of money that’s taxed at cap gains, if you have a pool of money that’s tax-free, plus your tax-deferred accounts that are taxed at ordinary income, you know, then you can control the distribution on how you’re pulling from those accounts that potentially could keep you in a lot lower tax bracket long term, if you weren’t diversified from a tax perspective. So, you know, I think sometimes people lose sight of, you know, they ask, well, should I do a Roth conversion? It’s like, well, the main reason why we like Roth so much is because you get the diversification from a tax perspective on your retirement income strategy. So many people, and if you’ve listened to the show for any amount of time, is that the bulk of their assets are sitting in that retirement account because we did what we’re told. It’s easy to save in a 401(k). You get a nice tax deduction, you get the tax deferral of it. But for those of you that saved very well and have other fixed income sources, now you have this big pool of money sitting in a tax-deferred account that’s all going to be taxed at ordinary income. We hear all the time that you’re going to be in a lower tax bracket in retirement, and that is true for most. Don’t get me wrong, that is true, that rule of thumb works for most people. Because most people haven’t saved a lot of money, and especially in their retirement account. So, the majority of the population will be in a lower tax bracket in retirement. Cause Al, what’s the latest statistic of, you know, average balance or what’s the median balance of a retirement account? You know, it’s, a few hundred thousand bucks.

Al: Correct. Yeah. $200,000, $250,000, something like that. So we know a lot of people are going to be in a low bracket and that’s, Joe, that’s the average of people that actually have retirement accounts. There’s like a quarter to a third of the people that have no savings at all. So yeah, a lot of people will be in a very low bracket. But a lot of folks that listen to this show are listening because they have saved a little bit more and they want, they’re curious about the strategies that can help them.

Draw Social Security in 2025, or Postpone and Convert to Roth in 2025 and 2026? (Kevin, Scottsdale, AZ)

Joe: We got Kevin from Scottsdale, Arizona, writes in. And he’s like, “Hey, I’m single, newly retired. I’m 66 years old, $3,200,000 invested in the market. Got $500,000 in cash, $1,000,000 pre-tax, $150,000 Roth, $150,000 HSA, $200,000 in an inherited IRA.  And he’s got dividends in interest annually of $80,000.” Okay, where’s that $80,000 of interest in dividends coming from?

Al: I think, well, if you add up what he told us, it’s $2,000,000, and he said he had $3,200,000 so- Maybe there’s $1.200,000 of non-qual. I don’t know. We’ll go with that.

Joe: “No dependents. I drive a 2014 Honda Odyssey and enjoy craft beer. Should I draw Social Security in 2025 or postpone until and do Roth conversions in 2025 and 2026? Thanks.” Okay, so we’re a little sporadic here. So he’s single, he just retired, he’s 66.

Al: Right.

Joe: $3,200,000 in the market.  So, I look at $500,000 plus $1,000,000 is $1,500,000, plus $200,000 is $1,700,000.

Al: Yeah, it adds up to $200,000.

Joe: It doesn’t add up to $3,200,000.

Al: I think he’s, I think he’s admitted his non-qualified account, I’m guessing.

Joe: So, do you think he looks at the non-qualified account as just an income versus a balance?

Al: That’s what I would guess, right? Because he gave us the income from that account, not the balance of it.  And the income apparently is $80,000 in interest and dividends.

Joe: Or let’s say a 2% dividend yield or interest, I mean, that’s $4,000,000.

Al: Could be a lot. But he said he had $3,200,000 invested in the market, which presumably includes his pre-tax? I don’t know. Who knows?

Joe: Maybe it’s $3,200,000 plus all this other stuff. I don’t know. Should he do Roth conversions? That’s the question. He’s got all this dough. You just retired. You can’t, you know, the math is off.  Should he do conversions? He’s got $80,000 of interest and dividends. So that’s in the 15% tax- Well, no. he’s single. So, some of that is going to be taxed at cap gains. So, he’s already the threshold given the standard deduction. Should he do conversions? You’ve got $1,000,000 pre-tax.  I don’t know what he spends. Let’s say he spends $80,000 or $100,000.  It might make sense to do a little conversion.  He’s 66, he’s got another 10 years roughly, for RMDs to hit. So that could be $2,000,000.  That’s going to give them another $80,000 of an RMD on top of the $80,000 of interest and dividends on top of his Social Security that could pop them up into a higher bracket.

Al: Yeah, I think it makes sense and I think at least for- Well, he says ‘25 and ‘26. I would say for 2024 and 2025, ’cause we know the tax rates will be lower then. We don’t know yet about 2026, they’re scheduled to go back up to higher rates. So we’ll just have to see. Yeah.

Joe: But yeah, you just- I heard, so it depends on what his income was this year. What’s his tax rate?

Al: That’s true. That’s true. Maybe his income is too high. But at any rate, I would certainly do it for 2025. What I would go up to is probably me personally, assuming that he’s got all this money in non-qual, which it seems like he does. He’s got the money to pay the taxes. Maybe I’d go to the top of the 22% at least, maybe even consider more. But, then as far as, yeah, so we’ll make that assumption as income’s too high for 2024 when you do it in 2025, 2026, we’re just going to have to wait and see what happens with the tax rates.

Joe: So would you, so this is the hard part for people is that, all right, should I delay Social Security?  I’m at 66, I can see my Social Security check coming in, it’s gonna give a fixed income, should I delay that? Well, you’re gonna get an 8% delayed retirement credit. So, depending on what your longevity is, does it make sense to push that thing out? You might even want to push it out to age 70 and clear the slate on taxable income for the next couple of years, depending on what happens with tax brackets, and then continue to do the conversions and take your Social Security at age 70.

Al: But yeah, I agree.

Joe: That’s hard for people to do. Most people, I mean, that, that’s the advice, I think, on most advisors, but I would say probably a very small percentage of people actually do it.

Al: Yeah, I agree with that. I think it, when you’re single, a lot of it depends upon your health and your, life, what you think is your life expectancy. Like if it’s shortened for any reason, you might take it earlier. If not, you might push it out just because then you get a much higher income rest of your life. Of course, no one knows, right? That’s the hard part, but I think most people in their mid to late 60s have a sense of, am I average, above average, below average? Where am I at?

Joe: What are-  You wait until 70 there, bud?

Al: I’m waiting until 70 myself. Yeah.

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Should We Pay Off the House to Be Debt Free in Retirement? (Jennifer, CO)

Joe: We got Jennifer, another Coloradian, Coloradian, is that right?

Andi: I think that there’s a chance it’s the same Jennifer that asked about whether or not she should include her taxes in her budget. I think that was a pre-question for this one.

Joe: Sure. Right. So Jennifer, she’s “recently retired from the military, relocated and I’m buying a new home at the age of 48. My spouse and I make roughly $400,000 per year, which $130,000 is a military retirement pension. And $82,000 of that is non-taxable. We currently spend around $210,000 on mandatory and fund expenses per year, including the mortgage. We have roughly $800,000 in Roth accounts and $1,000,000 in a traditional deferred account. I contribute to my company’s Roth 401(k) to take advantage of the company match. I contribute-

Andi: $685.

Joe: “-$685.  Company contributes $685 per month.  Other investing is currently paused to build up our down payment on the new home due to the high amount of guaranteed income we keep our retirement accounts invested in the NASDAQ, S&P, and similar mutual ETFs to maximize returns. Question.  For your spitball. Our mortgage for the new home at $1,100,000 is at 5.4%.  Should we stop all additional investing to pay down the mortgage as fast as possible to be debt free in retirement?  I’ll keep investing into the 401(k) to receive my company match, but all other excess income should go towards the house. I like the idea of being mortgage free before retiring in about 10 years. I really enjoy red wine, variety of beers and a whiskey neat. But not all at the same time. I drive a 2012 minivan-” They still make minivans.

Al: They do.

Joe” Well, I suppose 2012. I don’t know, I haven’t heard of a 2024 minivan.

Al: I would have thought with two kids you’d already have one.

Joe: Yeah, no, my parents had one. I grew up in a minivan.

Al: Got it.

Joe: “-and a 2008 Jeep Wrangler-” I had a Jeep Wrangler.  Al: I remember that.

Joe: “-and don’t plan to buy any new cars until our youngest daughter is old enough to drive in about 4 years, at which point she will inherit one of the two older cars.  And if they still, and if they’re still running, I listen to your podcast while walking my two Laberdoodles.” Lab er doodles.

Al: Lab er doodle.

Joe: Lab er doodle.

Al: There you go.

Joe: Okay. Well, first of all, thank you for your service.  A lot of great fixed income here. $130,000, $82,000 of that is tax-free. So they make $400,000, Big Al.

Al: Right.

Joe: 5.4% interest rate on the house.

Al: Yep.

Joe: Accelerate paying that thing off or what do you think?

Al: I wouldn’t. I, you know, it’s not a great rate compared to what they have been say two, 3 years ago, but, compared to history, it’s actually not all that bad. I’d rather have them keep up savings and watch the interest rates. If they go down, then refinance later. That’s, what I would rather have them do, I think.

Joe: Yeah. If you want to pay it down to $1,000,000, I don’t think you can write off anything over $1,000,000. So they got $1,100,000, so maybe $100,000 that you pay off a little bit more rapidly just because you’re not paying tax deduction on that?

Al: Yeah, well, tax update, the new rule is $750,000.

Joe; Oh, that’s $750,000?

Al: Right.

Joe: When does that start?

Al: That already started a few years ago.

Joe: Oh boy.

Al: Yeah. Yeah. So anyway, but yeah, I mean, that’s a good point. I mean, certainly the higher parts would make more sense to pay down because you’re not getting a tax break, but, yeah, I think-

Joe: Here’s what we see is that you want liquidity- 5.4% not awful. I mean, we’ve seen interest rates double digit. So if you’re taking every last dollar and throwing it into the house, you know, you’re going to have a paid off house, but then you’re not going to have any liquidity. And if all your money’s in a retirement account, I don’t know. I like the balance. Yeah, I would continue to have, build up your savings, build up your brokerage account. And let’s say that builds up to $1,000,000. Well, you can always pay off your mortgage. You can just cut a check at that point. So, I like to have the optionality versus just throwing everything, you know, with the kitchen sink there at the mortgage.

Al: Yeah. And I will just say one more thing. If it feels good, go ahead and make a couple hundred dollar extra payment per month or whatever. Just, don’t go all in. That, that’s, how I would think about it.

Joe: Oh, that’s going to make her feel really good. Couple extra hundred bucks a year.

Al: No, no. Per payment.

Joe: Oh. Okay. Oh, even better.  All right.

Al: Or whatever. Yep.

Joe: Okay. Cool. Well, good luck with that.

State Tax Spitball: Should I Convert Even More to Roth? Does Big Brother Really Count the Days for State Residency? (Skipper, TX)

Joe: We got “Andi Joe, Big Al, Skipper here. Back with a question. I haven’t heard you cover much the impact of state taxes, but first, love the show.” All right. Thank you.  “Tried listening to other financial podcasts, but found them all to be very dry, preachy, and/or overproduced.”

Andi: We try to keep it underproduced here.

Joe: We want to keep this thing simple as pie. “Love the conversational tone of YMYW. I’d rather listen to a 5-year-old YMYW episode than a current episode of any other financial podcast. Keep up the great work. Relevant information.”  Here we go. Wow. A 5-year-old YMYW.

It’s like an aged wine.

Al: It just gets better, right? Or so the Skipper says.

Joe: Love the Skipper.  Overproduced. I wonder what’s an overproduced, financial podcast.

Andi: Too many bells and whistles, I guess? Lots of flashy graphics and things?

Al: Or maybe, too many free offers or whatever, I don’t know. Or not so free offers.

Joe: Overproduced. Preachy.  Big Al, you preachy. You’ve got the sermon.

Al: I can be, if you want me to.

Joe: Alright, let’s get to the relevant information here. Okay, “Skipper’s likely to retire in 2-3 years at 61 or 62, $120,000 estimated annual spending in retirement, $60,000 annual pension, $35,000 annual Social Security at 67, and $10,000 of annual royalties.” So, 67, eighty, ninety, $105,000, he spending $120,000. That looks pretty good so far. Skip.  “$300,000 in Roth, adding $60,000 a year to retirement, not counting conversions. He’s got $500,000 in IRAs and another $425,000 in a brokerage account. And 120- or $1,200,000 in real estate. No debt, pending inheritance of $2,700,000 in an IRA in the next two to 10 years. Our benefactor is in their 90s.”  All right, let’s go.  “Number one. My pension plus the RMDs from the inherited IRA account will far exceed our spending needs. During the 10 years of those RMDs, we will invest the excess and not touch any other investments or file for Social Security. After a decade of growth and further investing, the other accounts should have grown significantly and I’ll start drawing my Social Security benefit. So unless the market tanks, we’ll be in a much higher tax bracket then than we are now.  After listening to YMYW, I’ve been doing Roth conversions to the top of the 22% tax bracket. Should I be more aggressive with the conversions? Does your answer change if I tell you there is a 99% probability I will move to Texas?”

Andi: Move out of Texas.

Joe: Oh, move out.

Al: Yeah.

Joe: Not gonna move in.  “The lack of state taxes is great, but it’s just too damn hot here.  I haven’t heard you talk a lot about the impact of state taxes on conversion decisions, so please share your thoughts. Number two, more on state taxes. Upon retirement, our plan is to sell our big house and buy two modest houses. One in the north and one in the south.  Probably state tax-free Florida and then travel between the two based on the- travel to the two based on the weather. My question is about establishing residency. My research shows that you must spend 6 months and one day to place to declare your permanent residence. Our children live in 3 different states. We have family overseas and we do a fair bit of travel for hobbies and sightseeing, so I doubt we’ll spend more than 5 months at either house.  Can you speak about the relationship- or can you speak about establishing residency in a new state in this situation? Does Big Brother really count the days?  Thanks for the spitball.”  Alrighty.

Al: Okay, why don’t you take the first one, I’ll take the second one.

Joe: He’s gonna get $2,700,000 dollars in an IRA here in the next couple of years.

Al: Yeah, should he, should he be more aggressive?

Joe: He’d be more aggressive than, yeah, I would convert to the 24%. But if you move out of Texas, depends on where you move and what’s your residency.  So, I guess it, it kind of hinges on number two to answer number one appropriately.

Al: Good point.

Joe: $2,700,000 IRA that has to be distributed out in 10 years. I would be more worried about how are you going to distribute that out? Well, no, it’s going to be based on the 90-year old’s life expectancy because he’s already taking RMDs.

Al: So, yeah, it’s, I always hate to do a financial plan based upon an inheritance. Right?

Joe: Yeah. Me too. But we’re not going to plan out. It’s called a spitball.

Al: Well, if it were me. Right? I’ll put it that way.  So, he’s got about $500,000 in an IRA, which doesn’t require an overly aggressive conversion, but the fact that he may have $2,700,000 coming puts him in a much higher bracket because of the RMD. Let’s say that $500,000 or a majority of that’s in a Roth that’s going to compound tax-free. But he doesn’t have to take an RMD there. He’s going to have plenty of income on the distribution potentially from, I mean, he’s already at 95% of his income with just his fixed income, not including any of his liquid assets. So, I think he could be a little bit more aggressive, by converting his IRA.

Al: I agree with you. I just wanted to sort of throw that out because chances are-

Joe: Because that money could be gone with healthcare for the 90-year-old.

Al: It could.

Joe: He could live to 120.

Al: Could. Yeah. Right, and there’s $3 left in the IRA that he gets. Gotta spread that over 10 years.  So, yeah, I would probably go to the 24% bracket. I mean, especially since he’s in the state of Texas right now. Right? I think that makes sense. As far as moving out of state, establishing new state taxes or state of residency. So there’s a couple things the IRS looks at. One is the number of days you are in any particular state. And if you pass, it’s called the 183-day test. If you’re 183 days in one area, then that kind of indicates that’s your state of residency. But in a lot of cases, that’s not necessarily true. People spend some time in one state, some time in another. Maybe they travel, maybe whatever. So it depends upon facts and circumstances. But here’s what I would do. If Florida’s one of the states, make that your state of residency because there’s no taxes there either. Right? And so when you move to Florida, compared to the other place that you want to have a home in, I would probably get the nicer home in Florida to make that look like your residence. I would get a driver’s license in Florida. I would register to vote in Florida. I would do your bank accounts and your brokerage accounts in the state of Florida. I would do all that stuff. And then I would also do one more thing, Joe, I would, when I went on a trip, I would leave from Florida. And I would come back to Florida, which then indicates you are a Florida resident during that whole trip. That’s how I would do it. And then the other state that you move to will probably not be as cheap as Florida because Florida is free with regards to income taxes. So that’s what I would probably do. But right now he’s in a Texas. He’s in Texas, no state tax, why not at least crank up the conversion to the top of the 24% because we know we have that at least for the next two years.

Joe: Yep. Facts and circumstances. So he’s not there 183 days. He gets audited. I mean, he’s like, do you think big brother is going to be that detailed? Then what would be your tickets?

Al: If you’re faking it, yeah, they will like, like, if it’s pretty clear, you bought this, you know, you rented this cheap place in Florida and you got this mansion in Minnesota.

Right? And it’s pretty clear you’re spending most of your time in Minnesota. They might ask for your grocery bills and your utility bills and all kinds of stuff to show- they might want to ask for your phone records. Where are you making calls from? They’re allowed to do that. No, they’re not going to call days, but they can get a pretty good sense by looking at other type of evidence.

Joe: Alright, Skipper. Good luck with that.

Watch 6 Secrets to Bigger Tax Savings from Your Nonprofit Donations on YMYW TV, Download the Tax-Smart Charitable Giving Guide

Andi: Ever donate to those birthday fundraisers on Facebook? Or give an old car to your local public broadcast station? Or write a check to support your favorite charity? It feels good, right? But as the end of the year approaches, those may be completely missed opportunities to save big on your taxes and give even more to the causes that matter to you. Learn 6 Secrets to Bigger Tax Savings from Your Nonprofit Donations on Your Money, Your Wealth TV, with Joe Anderson CFP® and Allison Alley, CFP® filling in for Big Al. Watch the show and download the companion Tax-Smart Charitable Giving Guide to get your strategy in place before year-end. Click the links in the episode description to get started. Then, share the show and the free resources with your friends.

Can We Both Stay Home in the Go-Go Years? Wife Says I Have to Go Back to Work (Harry & Helen Tasker, MN)

Joe: Thanks. “Hi Joe, Big Al, Andi. It’s Harry and Helen Tasker here. Yes, from the 1994 movie True Lies.”  Remember that movie Big Al?

Al: I do. Yeah, Jamie Lee Curtis. Yeah, I remember that.

Joe: Curtis?  I said Arnold and you said Jamie Lee Curtis.

Al: That’s where my mind went to.

Joe: How about Tom Arnold?  Yeah, I guess, I guess so.

Joe: Then, Tia Carrera.

Al: Oh yeah, that’s right. She was in that too.

Joe: Yeah, man, it’s 4 right off the, just right off the cuff.

Al: Look at you, huh?

Andi: When did you watch that movie last, Joe?

Joe: When is the last time I watched it? Oh, that’s 20 years probably.

Andi: Wow, good memory.

Joe: Steel trap. I do have a good memory.

Al: You do have a good, especially for movies. You just, it just goes in and never comes out. It’s, just there.

Joe: Yeah, I, do like a good movie there.

Al: I do, I, remember the Jamie Lee Curtis scene in the bedroom. That’s, why I remember it. Oh, you remember that?

Joe: Yes, I do remember that, Big Al. I was going to say, I thought you were going to say the helicopter.

Al: But well, that, no, that was fun too.

Joe: Yeah. Got it. It’s good movie. All right. So they’re writing in from “Joe’s home state of Minnesota.” All right. “Don’t you know? We have been listening to the show for several years and love it. Helen has started watching some of the TV episodes and she just can’t get enough. We often listen while we’re driving and often I find myself chuckling out loud. We both like how Joe and Big Al do not always agree. Just like Helen and I-“ little smiley face! Oh, cute Harry. “-But I value the insights and knowledge you share on your thoughts process, on your thought process, all of which makes the show authentic and prompts good discussion. Now to the important details. We drive old model Fords, older Model Fords- “I thought Model T, that’s what I thought we were going to say, Ford Taurus. Oh my God, Ford Taurus. It’s the last time you’ve seen a Ford Taurus. You’re right. Holy- that is older than-

Al: It’s been a couple decades since I’ve seen one.

Andi: They stopped making them in 2019, so-

Joe: They stopped making a Ford Taurus in 2019?

Andi: Yeah.

Al: I haven’t seen one in 20 years, Joe. I can’t recall.

Andi: Maybe that’s why they stopped making them.

Al: No one bought them.

Joe: Oh.  “But I’m hoping to upgrade to the cherished Ford F150 in the future.” Alright, good luck with that. Okay, “I prefer a good bourbon with a clear large ice cube, but Helen changes her mind pretty much daily. But some of her favorites are cocktails with vodka or tequila, wine, a little beer and we have no pets. We need your help with a little bit of a spitball. I’m 58, Helen’s 55. Both our companies have been downsizing, and I recently got the hammer. Helen has a high likelihood of being impacted in early 2025. Assuming Helen is laid off, due to her severance, we could have our 2025 expenses covered. And in 2026, we could both tap into our retirement accounts without penalty. We’re both willing to look for other positions, but really hoping your spitball says we can just stay home.”  All right. “However, given our ages, our retirement could be closer to 40 years versus 30 years. Helen is hesitant to take this approach and feels I need to be heading back to work. She does not feel she needs to. Okay, so we need a spitball here. Here are the relevant details. We have just shy of $5,000,000.”  Oh boy. Okay, you’re good. Stay home.

Al: You can do it. Do whatever you want.

Joe: You live in Minnesota, you drive a Ford Taurus.

Al: You’re not gonna overspend.

Joe: You got $5,000,000. Stay home. Alright. Okay. “401(k). They got $2,300,000 in a 401(k), $500,000 in a Roth, $70,000 in HSA. Stocks and bonds is $115,000. Total $4,900,000.  Alright, “We have no debt. And our kids are fully launched. I have no- I have long term care insurance of $300,000 with a life insurance payout if not used. And our home is paid for with another $400,000, which we are planning to cover long term care if needed for Helen. So now for the spending. Today, we spent $130,000 annually. We are estimating this continues plus an additional $20,000 for health insurance until we hit Medicare, an additional $20,000 for the go-go years.”

Al: Those are your favorite. I know.

Joe: I hate it.

Andi: Actually tried to find out where that came from and it’s just always existed. I cannot find the source of the go slow, go, no go, thing.

Joe: -the slow go, the no go.

Andi: Yeah. And everybody is just latched onto it except you guys.

Al: Oh, I like it. I like the go-go years.

Joe: Yeah. You’re in your go-go years, bro.

Al: I’m working on it.

Joe: Oh, God. Well, maybe when I get a little older, I will be like, man, I’m in my go-go years.

Al: I want to hear you say that.

Joe; All right.

Andi: You just did. I’ve got it on tape.

Al: You’re right.

Joe: “This brings our estimate annual spend of $170,000 before taxes. Since most of our funds are in pre-tax accounts, I know I have to pay the tax man. And the spreadsheet, I’m estimating a combined federal and state tax around 30%, bringing our annual need of $220,000. Yes, I rounded, and 30% is 5% more than what we pay now, but the hikes are coming.  If you have a better guesstimate, please let me know and I’ll use it.  We have the following retirement income all in today’s dollars. Helen has a pension of $24,000 at 62. I’ll take Social Security at $22,000. Helen will wait till 70 and she’ll take hers at 53.” All right.  “Can we both just stop working with the latest downsize actions taking expected or expected to be taken?  Do we have enough for a 40 year retirement? If we don’t have enough, how would you project retirement spending needs to be reduced? We have a slush here and there, switch to cheap bourbon, Helen, to all light beer. She’ll not be happy with this. I know we are 401(k) heavy, is it worth doing conversions using the pre-tax money to pay for the tax since we are looking at a longer retirement? Would it be worth liquidating our stock/bonds or even tapping into the Roth to pay the tax for the conversion? i.e., we could do smaller amounts to keep it within a favorable tax bracket until RMDs start? What am I missing?  By the way, we have predicted, Joe will say, we can do-“

Andi: -can do-

Joe: “By the way, we have predicted Joe will say we can do, and Big Al will say we need to pick up some part time work. For the record, if this happens, I bet I’ll be heading back to work and Helen will be staying home. Could our predictions be correct? Thanks much, and thanks Andi for keeping the guys on track. Keep up the great work. Harry.”

Al: Alright, so you already said-

Joe: How old is Harry?

Al: He is 58.

Joe: Yep. So he’s got a 10 year bridge.

Al: Yeah. So she’ll, she may get let go next year at age 56, but have severance to last through the rest of next year. Right? So it’s really 2026 and beyond they’re concerned about. So, here’s a couple numbers, Joe, and that is this, that, if, I just take the, what his, what he gave me, or what he gave us, $170,000 in spending, $170,000 in spending, and she has a pension of $24,000, so the shortfall is $146,000 without even considering Social Security, divide that into the $5,000,000, it’s a 3% distribution rate.

Joe: 3.5%.

Al: 3%. $124,000 divided by-  $146,000 divided by $5,000,000.

Joe: Okay.

Al: Anyway, I’m good with a 3% distribution rate without considering Social Security and the fact that since they drive older cars, I know they could spend less if they need to. So I don’t think they need to work. I don’t think he has to have a part time, get a part time job.

Joe: Well, you’re missing taxes, so there’s probably close to a 4% burn rate. 58 out of 4% for the bridge of 10 years. Couple things, I know that they’re not going to retire.  Even if I said, both of us said, yeah, take it off. I don’t think they would. I think they would continue.

Al: Probably not.

Joe: Somewhere.

Al: Yeah.

Joe: I don’t think they feel comfortable with the dollar figure that they have. He’s probably run a 400 spreadsheets and he’s run different scenarios. And I bet most of them come out pretty good, but it depends on the assumptions that he’s running. If he runs like a sequence of return risk type of scenario and it’s a doomsday as soon as he retires and it’s down 20% for two years, I mean that could blow him up quite a bit. If tax rates go sky high, that could blow him up a little bit.  But if he goes to cheap bourbon and light beer, I mean, I think they’ll be all right. And not upgrade to the Ford F150 and just keep cruising in the Taurus.

Al:  And the Taurus. Yeah. I feel like with their ability to save, they have the ability to spend less. I feel like they can adjust. I don’t think they necessarily have to work.  Here’s what maybe you should try though, or they should try is maybe not working for a year and figure out, is that feel good? Or do you feel like, okay. You know, at age 58 or 59, you’d kind of like to get back in the game.

Joe: Yeah, I wish they had more non-qualified assets, though.

Al: Yeah, it makes the Roth conversions difficult, for sure.

Joe: Right, so they’re really good at saving in retirement accounts, but then from any other type of savings outside of that, there was a little bit of a struggle because most of the, probably, the free cash flow went to the retirement account. So, but the good news is that they got $5,000,000. The bad news is that, you know, they have $4,500,000 in retirement accounts that is all going to be taxed at ordinary income rates. So, it’s a big number, but he doesn’t have $4,250,000 in a retirement account.  You got to take 30% off of the top because of taxes depending on what his distribution strategy is.

Al: Yeah, true. But he still has over $3,000,000 if you think of it that way. That’s still a big, big number.

Joe: Well, that’s $90,000 – Yeah, no, it’s still a huge, giant number. I’m not, don’t get me wrong.

Al: I would say, so maybe we’re saying something different than he anticipated. I would say almost anyone with $5,000,000 that is able to watch their spending and dial it down if need be, when you save that much money, You can, you know how to spend less. So they want to spend more because they want to do the go-go years. Great. Try it. But if it feels like the money’s draining too quickly, or we have a couple of years of bad markets, make adjustments. If you have to get, go back to work, do it. But I feel like when you have that much in investments, you’ve got, you’ll, you have the ability to make adjustments and changes depending upon what happens.

Joe: Live the slow go years, but his age is really the go-go.

Al: No, no, no, he, he’s doing the go-go, but he might have to get his airplane tickets on points instead of dollars.

Joe: Yeah, I would look at trying to figure out a diversification strategy as well. So he’s not working this year, depending on the severance, depending on what their income is. You know, if, they’re in the 24% tax bracket, I’d probably want to get some of that money into a Roth IRA in that 24%, because that’s probably going to go to 28%.  You’re right, I don’t, You know, who knows what they’ll actually be spending, but that’s a giant number. The RMDs could blow them up into even higher tax brackets. So, I’m sure Harry’s got a spreadsheet and he’s kind of running the numbers here. But, yeah, I think, you’re right, if he can be flexible in the spending, go for it, retire. But he’s young, I mean, it’s like, well, what are you going to do? Are you going to be bored? Or is there activities? Is there still things that you want to, you know, keep your mind active and have purpose and all of that good stuff? So, but, congratulations, Harry.  Very good. Well, Minnesota. Minnesotan. Right there. Right. Land of the free.  Home of the Vikings.

Can We Afford to Spend $120k/Year Inflation Adjusted in Retirement? (Tomb Raiders, Strawberry Plains, TN)

Joe: We got, let’s see, Joe and Angelina Jolie. Interesting.

Al: Yeah.

Andi: I don’t know if that’s supposed to be a reference to you and Angelina Jolie.

Joe: Oh, might as well.  Strawberry Plains, Tennessee. “Hello, Joe, Big Al, and Andi. I’ve watched YMYW for the last 5 years and watched all episodes from the beginning.”  What is wrong with you? How many episodes have you seen, Big Al?

Al: Let’s see. I told you about 3 weeks ago, I watched one. I think that’s it.

Joe: Okay. “I’m 63 and my wife is 57. Drink of choice is a good Hefeweizen beer, and the wife prefers a Moscato-” Another Moscato. What the hell is Moscato?

Andi: I believe it’s a sweet wine.

Joe: It’s a wine.

Al: Is it?

Andi: Sweet wine.

Al: Sweet wine?

Andi: Yep, that’s it.

Al: That sounds right.

Joe: Moscato. “-when the mood hits. I’m semi-retired now with passive income from rental properties of $1600 a month. The little lady is still working full time and covers the insurance and a few bills we have.  We are completely debt free, as in owe nothing on our house, valued at $400,000. And the Nissan Pathfinder’s paid off.  I have $1,300,000 in IRAs, $1,000,000 in traditional, $300,000 in Roth. And each year I’m moving $100,000 from the traditional to the Roth. We have a brokerage account, $25,000, along with passive income mentioned earlier. We have an emergency fund of $80,000 in savings and an HSA totaling $50,000. The wifey makes $70,000-“, where’s this guy from? He’s like, here’s that little lady-

Andi: Strawberry Plains, Tennessee.

Joe: She likes a little Moscow when she’s in the mood. Help me here, little lady.

Al: Is that, what you, call your little lady?

Joe: Rosemary.

Al: You can’t get away with that in California. The little lady, the wife. Yeah. Have you ever said-

Andi: Wifey, even.

Joe: Oh, I think she’d slap me.

Al: Yeah, me too.

Joe: “The wifey makes $70,000 from work and has IRAs, $50,000 in a traditional, $30,000 in a Roth, along with several CDs totaling $40,000. I plan to collect Social Security at age 70, if all goes well, which will be $4,300 a month and we can retire early at 65, which would be $1,400 a month due to early, but possibly collect spousal benefit if higher.  We would like to retire abroad, maybe Asia, to stretch out our retirement dollar a little bit further and enjoy some sightseeing. That said, we’re planning on using $120,000 per year adjusted for inflation.  With the income as it is now, are we doing fine? But what would you do? And what does Big Al think? Are we on track? Thanks! Tomb Raiders!”  Tomb Raiders, okay.

Andi: Angelina Jolie!  Was there a male in that movie named Joe? I don’t even know. I mean, the whole thing was about Angelina Jolie.

Joe: There’s a couple of different Tomb Raider movies.  Seen them both.

Al: Have you?

Joe: Oh yeah.

Al: I only remember her, to be honest.

Joe: I figured.  Well, they’re alright. Those were ages ago too.

Al: That’s a long time ago, yeah.

Joe: So Al, what do you say?

Al: Well, so they’ve, got about $1,500,000 Joe, and expenses are $120,000. He’s got about $20,000 of rental income. So they’re short about $100,000.  But wifey is working.  If wifey wasn’t working, it doesn’t look very good. They’d have about a 6.7% distribution rate, but with the wife working and getting to the point where, you know, she would trade work for Social Security. Yeah, then I, at retiring at age 65, then I think  it probably does work. Right. I, that’s a number of years off, but I think they’d be okay as long as she continues to work, but she’s going to have to. But that’s what he’s implying. He’s saying that she can retire early at 65.  So that’s, I guess he’s thinking that would be early for her while he is semi-retired. So, yeah, I think it may work, Joe.

Joe: She’s 57. She’s going to work until 65?

Al: That’s what he’s implying, it seems. He goes, “I plan to collect Social Security at 70-“

Joe: Well, that’s a year, so 70. He’s gonna be 70?

Al: Yeah, “Plan to collect Social Security at 70 if all goes well, which will be $4,300 a month and she can retire early at 65.” So I think that’s what he’s thinking.

Joe: So 70 is the retirement date for him, 65 for her. Yeah. So he’s going to have the $20,000. So that’s $50,000, $70,000 with inflation with her. Yeah. That’s $90,000. They’re spending $120,000 adjusted for inflation.

Yeah. Yeah. I think they’re.

Al: I think it works.

Joe: I would wonder where the Tomb Raiders are going to go.

All: Good question. I, a lot of people like Thailand and I’ve heard the cost of living is a lot cheaper there. So maybe-

Joe: I would imagine like Japan would be pretty expensive.

Al: I think that’d be maybe even more expensive will be more expensive than Tennessee. I would think.

Joe: Right. It would be more expensive than almost Southern California.

Al: Yeah. Right.  Certainly.

Andi: I hope they visited the place that they’re planning on retiring before they actually like set down roots there.

Joe: Yeah, I’m going. I think I have a trip to Korea next year.

Andi: Wow.

Al: You have a trip.  Really?

Joe: I don’t know how I’m going to make it. I don’t know what they’re going to put.

Al: Wait a minute. Not only do you have a trip, you have a trip across the ocean to Asia, Korea? That’s amazing.

Andi: In episode 500, we just revisited the fact that Joe’s been to like 3 countries in his entire life. This is, this is, you’re stretching your wings, literally.

Al: Wait a minute, are you starting your go-go years now?

Joe: No. Yeah, the countries, usually you could drive to. When I lived in Minnesota, I could drive to Canada. If I lived in San Diego, I could walk to-

Al: You could walk.  Well, you have to take, yeah, you have to drive down to the border and walk across. Yeah. Yeah.

Joe: My, my, my wife is, what is she? A quarter Korean. So I guess we’re going to just pack up the family and-

Al: Got it. Well, you should go to Thailand. You should go to Thailand too.

Joe: No, I think this would be the last family trip of the-

Al: Is that right?

Joe: Okay. I don’t know. I like to stay in my bubble.

Al: I know you do.

Joe: Yeah, stay tuned. Let’s see if we actually plan this trip. Alright.  I gotta get out of here. We’ll call it a day.  Wonderful job, everyone.

Al: Yep, it was fun.

Joe: Aaron’s back from Croatia. He’s still, he’s, Aaron’s about to pass out.

Al: He’s still in a different time zone?

Joe: He can’t wait to get back in the ocean.

Al: Yeah, I’m starting to sweat here. I’m getting hot. I gotta go jump in the ocean.

Joe: Yeah. All right, Andi. Well, yeah, we can do some more of this some other time.

Andi: Sounds good.

Joe: That’s it for us. Show’s called Your Money, Your Wealth®.

Outro: Next Week on the YMYW Podcast

Andi: Ted in Madison, Wisconsin, Barney and Betty, and Ricochet J from Colorado, Joe and Big Al spitball for you next week on YMYW podcast episode number 504. Your Money, Your Wealth is your podcast, and this show would not be a show without you. Leave your honest reviews and ratings in Apple Podcasts; like, comment and subscribe on YouTube, and tell a friend about YMYW, won’t you? 

Your Money, Your Wealth is presented by Pure Financial Advisors. To really learn how to make the most of your money and your wealth in retirement, you need more than a spitball: schedule a no-cost, no obligation, comprehensive financial assessment. Click the Free Financial Assessment link in the episode description, or call 888-994-6257 to book yours, and meet with the experienced professionals on Joe and Big Al’s team at Pure, either in person or online. They’ll work with you to create a detailed plan that’s tailored to meet your needs and your goals in retirement.

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

_______

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