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Published On
December 20, 2022

Can you trust the opinion of just one advisor when planning for your entire financial future? Joe and Big Al spitball their second opinions for some retirement plan and Roth conversion strategies, they illustrate one way some financial advisors may be acting in their own best interests, and they explain how to determine if you’re on track for a successful retirement. Plus, can you take penalty-free withdrawals from a Roth TSP to Roth IRA rollover in order to bridge the gap until age 59 and a half? Will paying for a home remodel with Roth conversion funds avoid tax? And, should you use Roth conversion money for these purposes?

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Show Notes

    • (00:56) Are We Missing Anything or Can We Trust the Analysis and Retire? (Ken, Fremont, CA)
    • (07:49) Roth TSP to Roth IRA Rollover: Penalty-Free Withdrawals Before Age 59 and a Half? (Rob, VA)
    • (13:22) Who’s Right About My Roth Conversion Strategy, Me or My Financial Advisor? (Brad, Sarasota, FL)
    • (22:18) Will Paying for Home Remodel With Roth Conversion Funds Avoid Tax? (Cynthia, Edmonds)
    • (26:38) Second Opinion Retirement Spitball Analysis (Roberto, Minneapolis, MN)
    • (36:31)  The Derails

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Transcription

Can you trust the opinion of just one advisor when planning for your entire financial future? Today on Your Money, Your Wealth® podcast 409, Joe and Big Al spitball some retirement plan and Roth conversion second opinions. They illustrate one way some financial advisors may be acting in their own best interests, and they explain how you can determine if you’re on track for a successful retirement. Plus, can you take penalty-free withdrawals from a Roth TSP to Roth IRA rollover in order to bridge the gap until age 59 and a half? Will paying for a home remodel with Roth conversion funds avoid tax? And, should you use Roth conversion money for these purposes? Visit YourMoneyYourWealth.com and click Ask Joe and Big Al On Air to send in your money questions. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Are We Missing Anything or Can We Trust the Analysis and Retire? (Ken, Fremont, CA)

Joe: All right, we got Ken, he writes in from Fremont, California. He goes, “Hey, Joe, Al, Andi. Both my wife and I will retire within the next 12 months, and I’d appreciate your thoughts on the type of analysis we’ve done to determine our readiness for retirement and leaving our jobs. I have access to planning tools and no cost consultation with an intelligent and attentive CFP®-”

Al: Okay, well, that’s good.

Joe: Wow. He’s probably really handsome. Or beautiful.

Al: Yeah, when I first saw that, that’s what I thought, intelligent and attractive. But then I saw attentive.

Joe: Attentive. “-via my employer plan administrator. Using a software tool, MoneyGuide Pro, we’ve considered our overall net worth, expected income sources, plugged in projected basic living expenses, and added some one-time and discretionary expenses for things like roof replacement, new car purchase, and annual travel. The plan provides details on a 30-year cash flow and accounts for inflation and COLA adjustments were applicable. My CFP®-“

Al: – is intelligent?

Joe: And very attentive. And free. Right. No cost. “My CFP® has also discussed investments in our retirement portfolio, asset allocation with this are broadly diversified in a somewhat conservative mix of stocks, bonds, cash is included in the Monte Carlo analysis that the plan includes. I feel the plan is much more than a Monte Carlo analysis as it includes a full cash flow and considering things like RMDs, Social Security and taxes. Each time we have updated the plan over the last few years, it indicates that we have very high likelihood of achieving our retirement spending goals. But this is really decision time for us. Do you think we can trust this level of analysis and say goodbye to our employers in 2023? Might be missing anything by just leaning on our financial goal plan in consultation with our very attractive, attentive and beautiful CFP®.”

Al: Now I’m getting a picture.

Joe: Can’t you just see that CFP®?

Al: I can.

Joe: “Thank you for your insights. I’m still driving my 2017 Volkswagen Golf AllTrack. When I can load up Charlie, our Golden Retriever, and head out to the Creek Trail, followed by a Trumer Pilsner brewed in nearby Berkeley, California.” All right, cool. Thanks, Ken. I think he’s nervous.

Al: I think so.

Joe: I think there’s two sides of retirement. There is the financial side and then there’s the emotional side. And Ken is having a hard time with the emotional side because it sounds like this very good, attractive, beautiful CFP® has really helped Ken out in the numbers side of things.

Al: Well, and the numbers seem to all work out. We don’t have any details so we can’t really-

Joe: We haven’t seen the analysis.

Al: We can’t tell you whether it’s good or not. I mean, it’s as good as the assumptions that you put into it. But assuming that the assumptions are right and you’re conservative on your portfolio, conservative on your rates of return, have kind of an aggressive inflation rate. And if you think you’re okay, you probably are. But you’re right. I mean, some of this is just, now I’m not going to have a paycheck anymore. And then it’s like, this kind of feels rough. I’m not used to that. And so is this really going to work?

Joe: Right. I think Ken is used to saving money versus spending his money.

Al: Right. Right.

Joe: And then it’s like, okay, well, here this is serious time. The wife and I are going to leave our jobs, leave our paychecks behind, and now we got to create our own paychecks from the overall portfolio. And, man, what am I going to do? How am I going to spend my time? Where’s my purpose and everything else? So retirement is not all about the dollars and cents. It’s all about figuring out what the next 20, 30 years is going to look like for you.

Al: Yeah. Filling your time, having a reason to get up. All these important things. You want to have your relationships under control, your hobbies, your volunteering, whatever it may be. You want to make sure you got that thought out. I’ll say one more thing. Anytime you get a really great plan, it looks like this is probably a great plan, you might just do a back-of-the-envelope test here, right? Which is to take a look at your spending and subtract out your fixed income, like Social Security and pension, and see what your shortfall is. See what you need from your investments on an annual basis and divide that number into your total liquid assets. And if it’s under 4%, assuming you’re in your middle 60s, then you’re probably okay. That’s just kind of a back-of-the-envelope check on these things. Because sometimes in analysis like this, you get so far into the weeds, there could be one little mistake that you didn’t even catch. That has a huge magnitude.

Joe: If one assumption is off, this whole plan could look awesome. And then you just fix the one assumption and all of a sudden you run out of money at, like, 68. So you have to be really, really careful when you’re looking at analysis like this. We don’t do Monte Carlo. We like the cash flow analysis that it sounds like he’s going through with the CFP® of just taking a look at, here’s my income, here’s my assets. We have a conservative growth rate on the assets. We have a cost of living adjustments on our income. We have a cost of living or inflation adjustment on our expenses. And so what is the shortfall? How’s it going to look? Is there taxes included in all of this? If it’s detailed like that, I think you’re on the right track. But the assumptions, like you said, Al, will make or break this thing if you don’t really truly understand the inputs. Because garbage in those programs is going to give you garbage out. And so you want to just be careful that you understand all the numbers.

Al: Yeah, that’s exactly right. You can have like a zero off on something and then it’s completely wrong your analysis. MoneyGuide Pro, by the way, is a good software program. So you got a good one. It sounds like you’ve got a good attentive and intelligent CFP®. Maybe attractive, I don’t know.

Joe: Go for it, Ken. Take the leap. Take the leap.

Are you ready to take the leap? Do you know your shortfall? Get a copy of Big Al’s Quick Retirement Calculator Guide from the podcast show notes at YourMoneyYourWealth.com to ballpark how much income you’ll need from your investment portfolio in retirement, and whether you’re on track. This quick formula lays out exactly how to calculate your retirement progress, and you don’t even need to input any of your personal financial data to do it. Click the link in the description of today’s episode in your favorite podcast app to go to the show notes and download the Quick Retirement Calculator Guide – you’ll find it just before the episode transcript. And we all know someone who could use some direction when it comes to money, so while you’re there in the podcast show notes, why not tap that share button and give the free and easy gift of entertaining financial information this holiday season?

Roth TSP to Roth IRA Rollover: Penalty-Free Withdrawals Before Age 59 and a Half? (Rob, VA)

Joe: All right, let’s go to Rob from Virginia. “Team. Thank you again for a great show and the humor in how you answer these questions.” Humorous.

Al: Are we?

Joe: I thought that we were factual.

Andi: Why not both?

Al: I guess we laugh sometimes.

Joe: I guess.

Al: Maybe we think it’s funny. I don’t know if anyone else does.

Joe: “I have a question about my Roth IRA and Roth TSP, and it has nothing to do with the megatron or backdoor.” Okay, well, thank you for that. “I’ve had my Roth IRA for 15 years and began funding the Roth side of my TSP 5 years ago. I intend to transfer the Roth portion of the TSP to my Roth IRA whenever I decide to retire from the military. With that in mind, will all the contributions I’ve made from my Roth TSP over the years be counted as contributions in my Roth IRA? Or would the entire value of the Roth TSP count as the contribution when it transferred to my Roth IRA? Is there some other rules that I’m missing?
I understand that Roth IRA contributions can always be accessed without penalty and that contributions are considered to be the first portion withdrawn from the account. What I don’t understand is how or if that would change once another retirement plan such as the Roth TSP is brought over. I’m trying to keep track of how much of my Roth money can be assessed without penalty to use as a potential bridge from my late 50s to 59 and a half. I drive a 2020 Camry. I like a good old fashioned when cocktails are on the menu or Bud Light from those magnificent blue cans when out on the course. Cheers. Rob from Virginia.” All right, Rob. Well, thank you for your service. There’s got to be a better way. We will answer your question, but I would not want you to tap into the Roth IRA as your bridge account if you’re going to retire from your late 50 s to 59 and a half. You’re too young to start tapping into the tax-free dollars. You want to make sure that that’s going to be your pool of money that you can really control your taxes long term. He’s been in the military for a while. I’m guessing he’s going to have a pension. I’m guessing he’s done a good job saving into his TSP plan. So tax diversification is going to be key for him. So taking the money from that I just don’t think is probably the right answer. But-

Al: Yeah, 100% agree. Because here’s how maybe you want to think about it, is you are going to have a pension, right? So maybe that’s not going to cover all your expenses, and that’s okay. Maybe you have other retirement accounts. But the Roth, ideally, you want to keep your Roth for later on. So you have your pension, you have what other kind of fixed income. Maybe Social Security, maybe whatever. You’ll have some IRA money, that sort of thing that comes to you as taxable. So you’re kind of going along at a certain level. You’re trying to stay out of higher brackets. And the way that you do that is you take only so much from taxable accounts and you take the rest out of Roth. And if you use it all up or mostly up in that 10-year period, you’ve really kind of blown your chance to be in a great tax bracket the rest of your life.

Joe: So here’s the answer. He’s talking about a 5-year clock in regards to the overall Roth in that contributions can be taken out without any taxes because you’ve already paid the tax on it. If you roll your Roth TSP into the Roth IRA, the entire amount is not your contribution. Just your contributions are going to count as contributions. Because you have growth on your contributions that were in the Roth TSP. So you might even want to roll it into a different Roth IRA. No, you don’t want to do that either if you’re going to take the money out, because then that’s going to blow up your 5-year clock. It’s going to be pretty hard for the IRS, really, to track everything. So you’re going to roll it in. Your contributions of the TSP is going to count as contributions. Your contributions for the Roth IRA is going to be FIFO, tax-free, and you can take that money out without any taxes. But I would really want to look at this to figure out a different solution for you. Because at 55, you could take money from your 401(k) plan, in this case, your TSP plan, without any penalties. So I would probably do that before I tap into the Roth. Or you could do a 72T tax election. That could bridge the gap. If you want to retire, let’s say, at 58 and you just want a few years. You have to pull the money out for 5 years or 59 and a half, whichever is later. But the Roth would probably be my last choice.

Al: Yeah. One thing about taking money out of a 401(k) or TSP, you have to retire at age 55 to be able to follow that rule. So, in other words, you retire in your current job with a plan at age 55, then you can pull that money out without penalty. But, yeah, I would much rather have you use other sources of funds or gosh, maybe even get a little part time job, try to guard that Roth. That’s hard to get that money in, and you want to let it grow and be accessible for the rest of your life.

Joe: Yeah. But if worse comes worse, if that’s why you did this, you can still have access to the contributions, but the entire amount of the Roth TSP is not considered a contribution.

Who’s Right About My Roth Conversion Strategy, Me or My Financial Advisor? (Brad, Sarasota, FL)

Joe: Okay. We’re going to Sarasota, Florida here, Big Al.

Al: Okay. Let’s do it.

Joe: We got Brad. He goes, “Hello, Joe- or Hello, Al, Joe and Andi. I love your podcast. You guys are funny, informative, and always entertaining. I never miss an episode. My wife and I are both retired, 63 years old, and moved to Florida from Connecticut about 3 years ago. We love CT, but we’re not missing the winters or the taxes.” Oh, my goodness. I’d be like, I’m not missing the winters. The winters suck. Cold. “We drive a 2019 Ford Fusion hybrid, which we like very much. With all due respect to James Bond, I like martinis, very dry and always stirred, never shaken.”

Al: Okay. Got it.

Joe: Look at Brad, badass from Sarasota, with the hybrid, dressed as James Bond. “I have a difference of opinion with our financial advisor, and it relates to Roth conversions that I would like to get your perspective on. Our retirement assets include $1,700,000 in traditional IRAs, $220,000 in a Roth, $81,000 in HSA, and about $900,000 in a brokerage account. Our investments are mostly balanced between stocks, bonds, and indexed funds, with cash reserves covering two to 3 years of living expenses.” Okay, very good, Brad. Yes, very James Bond like. That portfolio. It’s very big and sexy. “I collect a pension from my former employer of $62,000 a year. We are deferring our Social Security until age 70, which at that time we expect around $78,000 a year. Plus, the deferred to fixed annuity will get us right at $150,000 for lifetime income. I want to draw down our traditional IRAs during our gap years to pay the taxes now at our current historic low rates, maxing out the 22% tax bracket each year. Living in Florida, we pay no state income tax. This amounts to about $150,000 of traditional IRA distributions each year.” So he’s 63, right? And then he is bridging a gap until age 70. So then at age 70, he doesn’t need any more money from the portfolio, it sounds like, because he’s going to have $150,000 fixed income. I’m just assuming that that’s probably what he needs.

Al: Yeah, well, either that or with his portfolio. But the $150,000 plus portfolio would be fine.

Joe: Okay. “I’m allocating $50,000 of the $150,000 of IRA withdrawals to Roth conversions each year. My goal is to fund Roth while using the remaining IRA proceeds and the other savings to cover our living expenses. I plan to continue with annual $50,000 Roth conversions at least until the current tax rates expire in 2026. Our financial advisor strongly disagrees with my Roth conversion strategy. His reasoning is that since we are drawing down the IRA for our living expenses during our gap years, the Roth conversions provide little benefit. By the time we are required to take RMDs, the IRA will be depleted to the point that the RMD tax will be inconsequential.”

Andi: Inconsequential.

Joe: Yes.

Andi: Without consequence.

Joe: Yes.

Al: Yes.

Joe: Those big words always get me. “We feel it’s better to leave the money in the IRA and allow it to grow tax-deferred until it’s needed.” Okay.

Al: Okay.

Andi: He feels it’s better. The advisor does.

Joe: Oh, Okay. Yes. “I’m not sure if I agree with our financial advisor on this. We’re maxing out the 22% tax bracket with our IRA distributions anyway, and I see little harm in directing some of the money to the Roth. The Roth will give us financial flexibility and the opportunity to pass tax-free assets to our heirs. Appreciate if you could spitball this for me. Thanks.” All right. Brad aka James Bond. What do you think?

Al: Well, first of all, I disagree with your advisor, but I think there’s a better plan than even the one you have.

Joe: I agree. 1000%.

Al: Because you have $865,000 in a taxable brokerage account. Wouldn’t it make more sense to live off of that for a while and do $150,000 Roth conversion? You got money to pay the taxes, Now you end up with a lot more money in a Roth IRA. And then retirement at age 70 is much better from a tax standpoint. Remember, you’ve got $150,000 of fixed income, which is already going to put you in the 22% bracket currently, which will be 25% here by 2026. So any RMD that you have on top of that-

Joe: – if it’s $1, it’s going to cost you-

Al: -25%. And you’re probably going to approach Alternative Minimum Tax, which will be more like 28% or even 35% because of that stupid expense that gets phased out with increased income. So you’re actually going to be in a pretty high tax bracket. You want to get as much into the Roth as you can.

Joe: Yep, I would agree with that 1000%, because let’s say you don’t do anything. You let the IRA defer. Okay, so it’s $1,700,000. He’s 63 years old. In 10 years, he’s 73, where he has to take his required distribution. So what do you think that’s going to be worth? Like $3,000,000? Let’s say it could be even worth more than that. $3,500,000. So his RMD at that point is going to be $120,000 on top of his $150,000 income. Well now he’s blown up. It’s like, well, don’t touch the RA until you absolutely need to. That’s the advice a lot of advisors give. Because why do you think- and I’m not going to blow up his advisor because I’m sure he’s a very good advisor and he’s helping out Brad, but a lot of times advisors won’t recommend this. Because if you do a Roth conversion, what happens to the portfolio?

Al: Yeah, it gets reduced.

Joe: It gets reduced.

Al: Because you have to pay the tax.

Joe: And how are advisors paid? On the amount of the portfolio.

Al: Correct.

Joe: So if you’re converting money into a Roth IRA and you’re taking additional money out of the portfolio to pay the tax, you are going to be better off. But the advisor may not be better off because there’s a lower balance. I’m not saying that he’s thinking of this by any stretch of the imagination, but it’s true. It’s like, you look at it, it’s like a little bit more work for the advisor. It’s like, well, you know what, why even bother? Just let it continue to defer. You know? It’s going to be great, it’ll be fine. And then you’re 72 years old and all of a sudden you’re going to get your butt kicked by a huge tax bill.

Al: So I’m going to take the advisor’s side here just for a second, okay? Just for fun. So he’s thinking that if $150,000 gets drained from this account over the next 7 years, let’s call that $1,000,000. And so you had $1,700,000, you’ve drained out $1,000,000, now you got $700,000. Of course it’ll be higher because of growth. Assuming the market grows. So let’s say you got $1,000,000 or maybe a little more, but let’s just say $1,000,000. But even $1,000,000, that’s at a 4% RMD rate, which is roughly what it is in the first year. That’s a $40,000 additional income that sits on top of your $150,000 that you already have. Not to mention whatever kind of income you have from your brokerage account. So you’re probably going to be an alternate minimum taxes with the old tax rates coming back, although you live in Florida, so maybe not. But anyway, you’re going to be 25% to 28%, potentially even 35%, versus right now-

Joe: at 22%-

Al: -22%. I would do the conversions.

Joe: All day long. Or blow them out and do the $50,000 conversion. Who cares? If you do $50,000 conversion over the next 10 years, that’s a lot of money sitting in the Roth that will compound tax-free forever. So why would that be a waste of time, right? Let me do some quick- over 8 years. Let’s say he does $50,000 over 8 years. All right? And then let’s say the market grows at 6%. Now, he’s got $524,000 sitting in the Roth IRA and he is going to be 70 years old.

Al: On top of what he starts with, which is $200,000, which will grow also.

Joe: So let’s call it $800,000 sitting in a Roth. So let’s see, then that grows for another 25 years at 6%, right? So that’s a couple of million dollars compounding 100% tax-free, right? No, that’s not worth it. Don’t do it.

Al: It’s peanuts.

Joe: What does his advisor advise on? Just multi-billion dollar families? Come on. I don’t know. I’m sure he’s a really good guy.

Will Paying for Home Remodel With Roth Conversion Funds Avoid Tax? (Cynthia, Edmonds)

Joe: Got Cynthia…

Andi: …in Edmonds, and her zip code is 98026. So she put as her location “Edmonds 98026.”

Joe: Did she want us to share that with the world?

Andi: That’s what she put as her location.

Al: Is that in Washington?

Andi: I believe so. I think Edmonds is Washington. Yes.

Joe: I thought it was like Cynthia Edmonds-

Al: – at that zip code.

Joe: Yeah. Like 90210. All right. “I am 64, still working as an engineer. I’m remodeling my home before I retire. I borrowed some of the funds I needed using a fixed HELOC, home equity line of credit. My plan is to work to pay that off before I retire in 4 years or so. I am short of funds to complete the project. I don’t want to borrow any more money, so here’s my question.” Okay. “I have been strategically moving funds in my 401(k) to a Roth fund in the plan.” What is up with these people wanting to take their Roth money?

Al: Yeah. For a home remodel or to bridge the gap?

Joe: Come on, Cynthia. “I’ve been careful not to transfer more than what would bump me up to the highest tax bracket. If I withdraw those funds from the Roth to finish my project, will this avoid tax or should I assume I will need to pay tax on the withdrawal at my normal rate?”
No. You’re 64 years old. So you have been moving money from your IRA to your Roth account. You paid the tax on that money, and so that money is yours tax-free. As long as you’ve had the Roth IRA for over 5 years. You’re 64. So anything that you put in as a contribution, you have access to without any taxes or penalties. But don’t do it. Find another way. Take another loan out. Right?

Al: Yeah, that’s what I would do. I would just take a little bit more out of the HELOC. So if you have a little balance when you retire, that’s okay. It’s not the end of the world, but guard your Roth.

Joe: Yeah. Who cares? Take your HELOC. Think of it like this. You paid, you know, she said the highest brackets. So you paid 37% to get the money into a Roth IRA, but you don’t want to take a loan out for 7%. Right?

Al: No, she says she was careful not to transfer more than that would bump me in the highest bracket.

Joe: Okay, so she paid 35%.

Al: Instead of 37%.

Joe: So she paid 35% in tax. I’d much rather give it to the IRS then pay a little interest. I get it. A lot of people don’t like debt and they don’t want to see it on their balance sheet. And they’re like, I want to be rid of this. I don’t want to have anything hanging over my head and blah, blah, blah blah. But guess what? You have something hanging over your head. It’s taxes. If you have a retirement account, that’s like a huge ass mortgage on your retirement account because all of that money is not yours. And when you pull the money out, it’s a lot more interest that you’re paying the IRS than you would if you took a little bit more of a HELOC out to finish your home project. So in this case, spitballing here, we’re not giving advice. That’s something that we do not do on this show. But I would take a HELOC.

Al: 100% agree.

Joe: All right. We agree today. ‘Tis the season.

Andi: To agree?

Joe: Yeah.

Andi: That’s the Christmas present to the listeners. Joe and Al agree.

Here’s another present, but you have to claim it ASAP: The DIY Retirement Guide is our Special Offer right now at YourMoneyYourWealth.com. This free 48-page guide has steps to understand and plan your retirement income, strategies for choosing a tax-efficient distribution method, tips on preparing for the unexpected, and much more. Now, all our other guides are always available in the Financial Resources section of our website, but the DIY Retirement Guide is only available for the next few days! Click the link in the description of today’s episode in your podcast app, go to the podcast show notes, and download the DIY Retirement Guide by this Friday December 23, 2022. After that, it’s gone! 

Second Opinion Retirement Spitball Analysis (Roberto, Minneapolis, MN)

Joe: I’m really not excited about this next question here, Big Al.

Al: It’s a little bit more than two pages.

Joe: When people try to be, like, cute and funny in their emails. And I’m not a very good reader.

Al: And there’s no capital letters and not too many periods. So good luck. Good luck on this one. And I’m just going to read it how they wrote it. Sometimes we get in trouble for doing that. It’s not my fault that people don’t know how to write a standard email. I suppose we have to fix it up and fine-tune it and put grammar in it.

Al: Well, I don’t know. But we do prefer when it’s a page or less.

Joe: All right, here goes nothing, folks. I apologize in advance if I butcher the hell out of this.

Joe: We got Roberto from Minneapolis, Minnesota, from the Homeland.

Al: Yeah. There you go. That’s why I’m reading this, Roberto, because you and I are brothers.

Al: You’re probably at least cousins.

Joe: At least, if he’s from Minneapolis. “Love the show and very glad I stumbled on it. One of my favorite go-to pods on queue. Jake, our COVID rescue Lab/Akita/Shepherd/American Pitbull mix, also loves to tag along on the journey while listening. Not to worry nor need to chug-a-lug too many Coors lattes to unwrap yourself from the axles or untwist your tighty-whities, since I will not be asking about a megatron barndoor backdoor doing.” Wow. I can’t believe I got through that.

Andi: That was good. That was really good. I’m impressed. Apparently he writes like you think.

Joe: Yeah. “After listening to many shows, not sure if I can air them out. I talked to recently married Michael Chipperfield to do a free assessment thingy. After reviewing and chatting over our situation, he says we are merandering on the golden path to chillin’. A couple of spitball looksies is what we’re asking for.”

Andi: That was supposed to be meandering, for anybody wondering.

Al: But I like your-

Andi/Joe: Merandering.

Andi: I like that.

Al: Gotta be the same meaning.

Joe: It has to be. All right, here we go. “What else should we be thinking about doing, especially in the tax arena? Current situation in our humble abode. The commanding CEO is 53, works for a megacorp, likes her job, plans to work for a while. I’m 53, but younger. Work for the federal government, like my job, but I’m tired of working. And wouldn’t mind transitioning to chillaxin, paying in or volunteering type gig after I’m eligible to retire. Two girls, 14 and 13, going on 18, and both are very expensive private schools. Tax-wise, we have been solidly in the 33% tax range for 10-plus years, and in the 37% range when we had or chosen to exercise some of the CEO stock options. We have always maxed out our 401(k)s. And once we started getting inundated by double ARP junk mail, we have been placing our catch-up contributions to the 401(k) Roth. Overall portfolio allocation, carrying an average expense ratio of 0.1%. 70% Stock/30% Bonds. Got some international- blah blah, blah, blah blah. Social Security, CEO and me collect at 70 and/or 67, if the Social Security spousal calculation makes sense for CEO at 70 and me at 62. Pension CEO, no COLA, $18,000 and $20,000 a year, depending on exit strategy, at 62. Me, $20,000 a year at 60, $15,000 a year at 56 when I’m eligible. Yearly savings, 401(k) plus match plus catch-up equals $82,000 a year. Roth IRA for me $7000 conversion, taxable, $25,000. Total $125,000.

Al: Good savings.

Joe: Okay, expenses. Have a good grasp on records on our expenses that currently run about $235,000 a year. Once our girls graduate from high school expenses, will drop to $165,000 a year.

Al: Yeah. Don’t forget college, then.

Joe: Yeah. Okay, so let’s talk about assets. The wife’s 401(k) is $750,000, Traditional IRA is $930,000, Roth IRA is $80,000. Have not done any type of conversions in CEO Traditional IRA is an-“

Al: – amalgamation.

Joe: “- amalgamation of rollovers, crossovers, transfers, etc. in figuring out pro-rata would probably cause us to drink more. Total of $1,800,000. Okay. Me 401(k) $650,000. Traditional IRA, zero. Me. Roth IRA $90,000. Total, $740,000. Total tax deferred, $2,500,000. Taxable accounts, they got checking, $50,000 a year. Mutual funds in a brokerage account is $500,000. Then we have the CEO’s megacorp stock is $105,000 of vested RSU’s. CEO’s megacorp stock options variable. We have some grants that still have some value, some that are underwater. Starting in 2025, we will have to start exercising options due to the expiration date. Total taxable is $655,000, grand total of $3,200,000. So we got college expenses of $65,000 a kid. Housing, recent purchase and whole house COVID remodel valued at $1,700,000, 30 year at 3%, $350,000 in equity. Drink of choice in wheels. CEO meanders- menders- in a 2008 Volvo XC 70 with no USB ports in a single CD player, our girls are destined to inherit and drive to the ground. I scoot along in a kid hauling 2015 Nissan Armada. Drink of choice, preferably local brewed Pilsner, or a properly aged single barrel bourbon or good Napa Cab or a Sultry Organ pinot or a gin and tonic.”

Al: “PS.”

Joe: All right. “PS. And more importantly for Andi, congrats and hats off for the awesome ability and job at corralling these two cats on a regular basis. And hopefully that salary raising meeting turned out okay. Salud.”

Andi: Thanks Roberto.

Al: Well, that was-

Joe: Did you catch a question?

Al: No, there’s no question.

Joe: No question.

Andi: He was asking for a second opinion about whether or not Michael Chipperfield did a good job for him or if you’ve got any other suggestions.

Al: Well, we don’t know what Michael Chipperfield told him. Hard to answer. It says “Looking for a spitball.” Okay. On what? This is great. You did a good job saving.

Andi: Well, Michael said that “they’re on the meandering on the golden path to chillin’.” So would you agree?

Al: Well, yeah. Anyone that has this kind of income, this kind of savings, these kind of assets-

Joe: You’re killing it.

Al: Chillax, man.

Andi: So, Joe, this is one of those emails where you would say they just wrote in to brag.

Joe: Exactly. That’s what Roberto did. He’s like- and then he wanted to be funny by throwing out the chillaxin and the-

Al: When you were reading all the drinks, I was going back to the start. What’s the question?

Joe: What the hell, man? I love it. It’s good stuff.

Al: Seeing if we’re as good as Michael or have any additional tidbits to add.

Joe: I don’t know, he wants to spend $165,000 a year. How old is he? He’s 50 something, right. He wants to retire. He’s going to go on the little part time chillaxin. And the wife is going to continue to grind and make a bunch of money.

Al: Take all this money, have all this savings.

Joe: They’re saving $125,000 a year. They got $3,000,000.

Al: She gets stock options, RSUs-

Joe: like $10,000,000. Roberto’s going to be chillin’.

Al: Probably trade up to a nicer home. Yeah. You get the life.

Joe: Yeah. I think you’re good. I think you are good.

Al: What you really need, if you want to know, you need a full financial plan that charts this out from now- because you’re young. Chart this out to retirement age and see how it works. 20 plus, 30 plus years and 40 years in retirement. Does this still work? That’s what you really need.

Joe: Yeah. Hire Michael Chipperfield.

Al: Just get a professional opinion from an attractive CFP®. I guess Michael would count for that.

Andi: Holiday plans, ice skating, and Derails in the Derails at the end of the episode, so stick around.

The Derails

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