Show Notes

• • 00:00 – Intro: This Week on the YMYW Podcast
  • 00:56 – Can We Exit the Rat Race in Our 40s With $6.5M? (Martha & George, DC)
  • 16:07 – Can I Retire at 51 Instead of Waiting for the Rule of 55? (Bandit & Chilli, CA)
  • 36:29 – Can I Retire Before My $3M Deferred Comp Pays Out? (Kevin & Winnie, Chicago)
  • 44:28 – Outro: Next Week on the YMYW Podcast

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Transcription

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

Intro: This Week on the YMYW Podcast

Andi: Today on Your Money, Your Wealth® podcast number 580, Joe and Big Al are spitballing for some folks who’ve done the work, hit the numbers, but aren’t sure if they can really walk away yet. Martha in DC is 44 and says her soul is being sucked out of her body by her employer. When can she stop working full-time and foster puppies instead? “Bandit” is bullish on his company stock in archeology instruments, but not so much on his work itself. “Kevin” is staring down a wall of deferred comp and needs a spitball on how aggressive his and “Winnie’s” Roth conversion strategy should be before RMDs hit. Can both “Bandit and Chilli” and “Kevin and Winnie” call it quits this year? Do us a favor and leave your honest rating and review in Apple Podcasts. It’s a big part of how new listeners find a finance show that doesn’t sound like a tax seminar. I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Can We Exit the Rat Race in Our 40s With $6.5M? (Martha & George, DC)

Joe: We got, Martha from Washington, DC. Joe, Big Al, Martha here. From Washington, DC, your show is cooking. Because Andi has y’all rocking.

Andi: Aw, thank you, Martha.

Joe: I found you guys eight months ago and eagerly await new spitballs every Tuesday. Enjoy listening to the show after pouring a red glass of wine, drawing a warm bubble bath. I’m reclining, listening to Big Al’s smooth baritone voice.

Al: Is that what you do when you take a bath?

Joe: Yes. Oh, Joe’s hilarious commentary keeps me laughing. Oh, thank you, Martha. You remember we can do tax chat?

Al: I know. I still could. I got lots of energy still.

Andi: I should be in that bathtub for a long time.

Joe: Yeah. Man, Martha in the bathtub with little wine.

Al: Listen to you and me.

Joe: Let’s, let’s set the stage. I’m 44. Drive a Toyota Sienna minivan. George is also 44 and drives a Ford F-150 Raptor.

I believe those are quite fast if, if I know my Ford F-150s.

Al: they usually are, and then they’re strong. Yeah. They can pull a lot of weight.

Joe: Probably sounds like a beast.

Al: Probably.

Joe: When I’m not drinking my red wine, I enjoy vodka martini with a little blue cheese olives. The dirtier, the better. He likes multiple smoked old fashions. Or a neat pour of pappy. Yeah.

Andi: What is a smoked old fashioned?

Joe: A little smokey whiskey or rye.

Andi: Got it.

Joe: and then a little pappy Van Winkle.

Al: Oh, y- you would know.

Joe: Love some pappy over the holidays. do you like, blue cheese olives, big el?

Al: yes, I do.

Joe: I got banned from drinking vodka because of blue cheese olives.

Al: Oh, really?

Joe: Yes, they

Al: actually-

Andi: Because of the olives themselves?

Joe: I don’t know. I was drinking very dirty, martinis with the blue olives. I’m guessing

Al: it was the vodka.

That was the problem.

Joe: I don’t know. They were pretty good. They were going down.

Andi: Were you

Joe: pitching the

Andi: olives across the restaurant or something?

Joe: no, I don’t … I wish- Don’t remember. Could remember what, what I said to my, lovely bride.

Al: Okay. She probably knows.

Joe: Yeah, that was several years ago, so I haven’t touched it, since.

Got it. I don’t know. I just kind of stick to the old easy basics.

Al: You

Joe: know?

Al: It, works, right?

Joe: Yeah, of course light. Yeah. You don’t get in trouble.

Al: Yeah, it’s,

Joe: easy. You have, you try to be fancy. And then next thing you know, the wheels come off. the question, I love my job, but I find myself thinking about retirement daily.

Al: Wow.

Joe: She’s 44.

Al: She doesn’t like it that much then.

Joe: that sucking … That sucking sound you hear is my soul being pulled out of my body by my employer.

Andi: Wow.

Joe: I stress about having many mouths to beat at my office. I’m always hustling for new work. I barely see my kids, and I’m looking for a reset. In true big old fashion, that might look like working part-time once I pull the ripcord on full-time work.

I’d like to know your thoughts on what age I can stop working full-time and do one of, one, retire, work part-time, or foster puppies. I like Martha’s sense of humor here.

Al: Yeah. Did you catch that, it’s George and Martha in Washington, D.C.?

Joe: Is that, George Washington? I think

Al: so.

Joe: Look at you history, Bob.

Al: That’s because I haven’t had the much in yet. I just said to see, that’s what

Andi: they look like.

Joe: Yeah, very beautiful couple.

Al: Yeah, lovely.

Joe: Handsome. Martha’s a very handsome woman.

Al: Yeah.

Joe: all right, the numbers. I make approximately $2 million a year. My husband makes nothing. Oh, Martha.

Sugar mama. He manages the kids in the house and drinks old fashioned.

I started contributing $70,000 per year to the mega backdoor Roth, and we also put $14,000 combined into backdoor Roths. I also have a cash- cash balance plan, and I contribute $200,000 a year. I’m planning to save $350,000 per year, starting in 2026 to add to my brokerage account. Assuming a 3% housing value growth rate, we have $1.6 million in equity in our primary home.

When my last child goes to college, we will sell this place and downsize to a smaller town in the countryside. We also have a late front rental home that we rent and use ourselves. It’s paid off and worth about two and a half million. If we ever had to borrow money in a pinch, I’d borrow against the lake home.

We have the following in our accounts. $2.8 million in cash, really, it’s in treasuries. $665,000 in a brokerage account, 670 in Roth accounts, $2.4 million in 401. He’s barely worked, so his Social Security will be $1,200 a month at 62. Mine will be $5,000 a month starting at 70, the goal. I like to start retirement with the ability to spend $350 to $400,000 per year.

I’m sure that will change as we age. My family lives … My family lives to be old, so I’m planning to at least 95. My thoughts. I’m thinking of starting retirement by spending down the cash and brokerage account first while doing Roth conversions out of the 401(k)s. RMDs … RMDs could be large. Given our current savings, what’s the earliest age that you think I can retire?

What if I work part-time at the same job? My pay gets reduced pro rata based on how many hours I work. I have to … I have no desire to work full-time until I’m … let’s see. I have no desire to work full-time until I’m 55. I’d rather go part-time and take the pay hit to try and stretch to 55 if you think I need to use the rule of 55 to assess my retirement accounts early.

At what age would I need to start dipping into the retirement accounts? The withdrawal strategy is intimidating, but I need to find a way out of this rat race to get more time for myself, my kids, and for doing good in this world. My husband can’t be the only one simping drinks, down the dock, or taking up golf.

She wants watch.

Al: She wants to have a little fun.

Joe: All right, cool. I wonder what she does. Attorney?

Andi: and she gets paid by the hour and she makes two million. What is that gig?

Joe: an attorney, could be.

Al: Could be. Yep.

Joe: Hourly rate.

Al: Could be. Yep.

Or maybe she gets paid for the clients she brings in and other people work on them.

Joe: Yeah.

Al: Who knows?

Anyway, I’ve got a couple thoughts here, Joe.

Joe: Okay. She’s 44.

Al: Mm-hmm.

Joe: She wants to retire ASAP.

Al: Okay.

Joe: Because her soul-

Al: It’s getting

Joe: sucked out.

Andi: Sucked out.

Joe: Sucked out of her l- her life by your employer.

Al: So I … first of all, it, when I hear something like that, what does it look like if you retire tomorrow?

And they got, six and a half million, so that’s, amazing, right? And, you know, if you look at six and a half million, although it’s a young age, 44, right? I just ran at a 3% distribution rate, that’s 200,000. You could say that’s even too high of a distribution rate, but some … The spending you could do right now, if you retire right now, right today, without part-time work is maybe a couple hundred thousand or thereabouts.

So if you wanna spend 350, then you need part-time work for another 150 or maybe 200,000 to cover it. So, that’s one way to think about it.

Joe: Mm-hmm.

Al: Another way is, gosh, you’re making a lot of money, you’re saving a lot of money, you’re saving 650,000 a year, you work a few more years, you get yourself set up for life, you have longevity, as long as you can stand it.

And so I ran it, Joe, for six years, at age 50. Okay. Seems like a reasonable goal, right?

Joe: Sure.

Al: 6%, six years, adds 650,000, you’re starting with six and a half million, you get, you’ll end up with 13.8 million, and then you can pretty much do anything you want to, right? Now, at that point, if you just, look at spending at that point, you know, 3% of 13.8 million is 414,000, which in today’s dollars is 350, which is right on target with what she wants to do.

So I would be pretty tempted to, to do that but that may not be the answer you wanna hear. I mean, it’s perfectly fine when you’re making this much money and you have the ability to ratchet it down, have more free time and still make a good amount of money. I would certainly be tempted to think about it.

Joe: Yeah. I, think her number’s 12 to 13 million.

Al: Yeah, based upon the spending. Yeah. Mm-hmm.

Joe: Mm-hmm. So that’s the target and- And I might- … As long as you, you can’t until you get the target, because giving up a couple million dollars at 44 years old.

Al: It’s a lot. Yeah.

Joe: You know, can you just- Can you

Al: repla- ever replace that?

Joe: No, it’s gonna be top. Yeah. Can you put your mind somewhere else?

Al: just knowing you could retire at 50 and know you could ha- be set up for life. I mean, maybe that helps you get through it.

Joe: Yeah. I mean, l- let’s call it close to $7 million. Yeah. They’re gonna sell, they’re gonna downsize. I don’t know, is there college cost in here?

They have the two and a half million dollar lake house, could they downsize that, buy a different lake house? Yeah. I don’t know. Yeah, Like they’d like … I mean, there’s a lot of different ways that you can slice this. So if she really wanted- That’s fair. … on tomorrow, I, think there’s ways that she could.

Al: There is absolutely ways to do that.

Joe: But if, you’re used to the lifestyle and you wanna, spend 400,000, 350, 400,000 in after tax in retirement-

Al: mm-hmm. …

Joe: yeah, then you’re gonna have to work probably another five years.

Al: Yeah. And I wasn’t counting Joe’s Social Security because they’re 44. Right. So it’s a ways off.

Joe: Sure. let’s see. Yeah, I don’t know. I mean, yeah, the withdrawal strategy is intimidating, you know? Yes. Because saving money is one thing, taking money out of your accounts is something totally different. And I think we plan to be a little bit conservative on the show of just using, you know, three, 4% distribution rate.

We get a lot of emails from you of saying, “Oh, that’s too conservative, this and that. ” Yeah, I get it, because it’s a, more of a dynamic withdrawal rate is really what you wanna do. The 4% rule is kind of a joke in my opinion, but we use it as a spitball just to give people an idea of where they should be thinking about as a number as they approach retirement.

I think you would wanna plan more conservatively than aggressive and potentially run out of money. So once you start retirement in s- or you, l- leave your job, how you take money out is going to be a little bit different each year of what assets that you sell, what accounts that you take the money from, what is the market going to do?

How do you manage the risk? How do you manage your taxes? How do you continue to get tax diversified from a Roth conversion standpoint, or do you take advantage of the, 0% capital gains rate? So there’s a lot of different things that you wanna consider as you t- start taking distributions or start creating that retirement income.

But I think for a spitball, we’re just kind of looking at back of the envelope, are you on track, are you close? Are you not close? And what are some of the things that you should be thinking about in regards to what’s your number? Most people wanna l- you know, what’s your number? Remember that commercial when people would walk around and they had that big number above their

head?

Al: I sure do.

Joe: I mean, that, that was like almost 20 years ago.

Al: Yeah, it was.

Joe: but I think still people have that in mind. I don’t care if their number’s 50 million. What Martha’s here’s almost 15 million. Some people’s number’s gonna be a million. Some people’s numbers are gonna be 200,000.

Al: Yeah, if that.

Joe: Right.

Al: Some people

Joe: don’t- Or zero. …

Al: don’t have a number because they have a pension.

Joe: Yeah, they have a pension. So it’s really figuring out what you need to be doing with your money to figure out what strategy and plan moving forward. So if she wants to work the next five years, okay, c- continue to say what you’re saving, but I mean, that’s only kinda half the story, right?

There’s a lot of other techniques and strategies that she should be thinking about that is probably too technical and too in the weeds for this program.

Al: there’s a lot here. I mean, a lot of times when people get used to spending this much, there are ways to cut. If you really don’t wanna work anymore, or if you wanna work a lot less and make a lot less.

There are ways to cut. There are, you know, part-time income. You know, I, would be tempted in this case, I’m just taking her word for this, that she can work less and make less. Why not think about that if you want more free time? maybe that would allow you to work another six years and sort of get set up for life.

just a thought.

Joe: Al, you’re making $2 million a year.

Al: Yeah.

Joe: You leave and then you get a job making 150.

Al: no, you wouldn’t do that. You would just reduce your hours where you’re currently at.

Joe: How hard would that be?

Al: I don’t know.

Joe: She’s making like 150 a paycheck.

Al: That’s why they’re spending 350 to 400.

And

Joe: then it’s like, okay, here, I’m gonna go part-time and, make 200,000. Yeah. You would think 200,000 is …

Al: Yeah.

Joe: Even though it’s a ton of money, but if you’re making two million, 2.2 million dollars a year-

Al: Yeah.

Andi: I mean, she could just go to working halftime and still be making a million a year.

Al: if, she’s right, if this is scalable, Andi- Yeah.

we don’t know for sure. But, anyway, if it were me-

Joe: Her paycheck’s 85,000.

Al: If

Joe: it were … She gets paid 26 times a year.

Al: If it were me, I would, work another few years to get set up for life. and I, get it. You wanna be with your kids while they’re younger? I 100% get that. But, you know, sometimes I think to get the lifestyle that you want in retirement, and this is

And we’re talking about age 50, not y- not retiring at 70, right? So …

Joe: Yeah. th- they don’t have to buy Papi.

Al: Yeah. Do, without Pappy.

Joe: Yeah. I mean, that’s expensive stuff.

Al: Got it. Okay.

Anyway, it looks really good. And how, whatever you decide, there’s all kinds of paths to do it. But that’s what we got.

Joe: Yep, congratulations.

Al: It’s a great story.

Andi: Spend down the cash and the brokerage first, do Roth conversions out of the 401(k) while you’re in a low tax bracket, and let the Roth keep growing tax-free for later. Tax-deferred, taxable, tax-free. The order you pull from each one in retirement can be the difference between paying the IRS a fortune and paying them almost nothing. We’ve got a free guide that walks through exactly how this works, with an example showing how a couple can pull a hundred grand of retirement income and owe almost zero in federal tax. This guide is called the Tax-Free Retirement Guide, and it covers the three-buckets framework, the tax brackets you need to know, 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 for free. When you request it, you see that dropdown that says, “how did you hear about us?” Choose podcast.

Can I Retire at 51 Instead of Waiting for the Rule of 55? (Bandit & Chilli, CA)

Joe: All right, let’s, we got a long email here. it’s gonna be a doozy. Hi, Joe, Al, Andi. Bandit here from California. Bandit.

Andi: Do you know that reference? That’s Bandit and …

Joe: Smokey and the Bandit?

Andi: No, that’s Bandit and Chilli from the cartoon Bluey, which is an Australian cartoon, which I haven’t ever seen because I’m not of kid age, but apparently it’s hugely popular here and in the US.

Al: Oh, you;ve seen that?

Joe: blue … Yeah, my son watches Bluey.

Al: Yeah, so you know it.

Joe: Yeah, he’s got a little, Bluey,

Al: Little sweatshirt or-

Joe: Yeah. Or something. Yeah.

Andi: And you don’t know the Bluey theme song?

Joe: Nope. I do not. I do not know the Bluey theme song.

Al: Probably better not to.

Joe: Yeah.

Andi: that’s Bandit and Chilli there.

Joe: So if it’s Bandit, I, my generation is Smokey and the Bandit. Right.

Andi: Yeah,

Al: Exactly. That’s what I thought, but I was wrong.

Joe: All right. Love your show. Superbly entertaining and educational. I’m an avid listener since finding you earlier this year and enjoying your hilarity during my commute. I’ve been bringing all your episodes up with, the help from your fantastic search function.

Thank you for sharing. Oh,

Andi: somebody that actually uses the website and it works, that’s amazing.

Joe: Unbelievable.

Al: That’s great.

Joe: Thank you for sharing your wisdom and putting a smile on my face. Thank you very much for that compliment. I drive a 2008 Toyota Prius, Chile, my wife. See, when I hear Chilli,

Andi: yes, I do too. You think, what’s their name? TLC. Thank you. Yes. T-Boz, Chile and, can’t remember the third woman’s name.

Al: And I think-

Andi: Left Eye Lopes, that’s right.

Joe: Left-Eye Lopes that died and burnt down Andre Reed’s house.

Andi: Yes. Yes.

Joe: Yeah.

Andi: Yeah,

Al: but

Andi: Chili from TLC. Yeah.

Joe: Yeah.

Al: I think of a potluck at a church on Sunday.

Joe: all right. Okay. So, Chilli drives a 2008 s- what is that? Second?

Al: Scian….

Joe: I think it’s a

Andi: Scion, yeah.

Joe: Scian, Scion XB. neither I nor my wife drink alcohol. Never enjoyed the taste, to be honest, but we love a good smoothie or Yohannes shared with Bluey and Bingo.

Andi: I think it’s Yonanas.

Joe: Gonanas. Oh, okay. Yonanas. What the hell is Yon- okay.

Andi: it’s a thing that makes a smoothie, frozen dessert thing.

Joe: This, is, gonna be a tough one.

Al: Yeah, keep going.

Joe: It’s got Bandit and Chilli. Keep going. Talking. Best you can. yo- yanna’s …

Andi: Yonana.

Al: Yona. Yonana.

Joe: With Bluey and Bingo, especially on a hot summer day.

Al: That first paragraph already.

Joe: I know. It’s this killing me.

Al: And here we go.

Joe: All right. I’m 51, Chilli, 48. We have 2.4 million dollars in a brokerage. Majority of my company stock do an ESPP plan. and the-

Al: Archeology-

Joe: Archeology instruments.

Al: yeah,

Joe: yeah. I’m very bullish on archeology instruments in my company’s stock long term, even if there may be volatility in the media f- future.

FYI, please don’t mention the stock.

Al: Yeah, okay. They got that. All right.

Joe: 1.8- And

Andi: just so you know, this is what archeology instruments look like.

Joe: Yeah, sure. He’s digging up, what, dinosaur? Yeah.

Andi: Apparently so, yeah.

Joe: All right.

Al: Yeah, okay. Cool.

Joe: He’s bullish.

Al: Yeah, bullish on that.

Joe: Yeah. All right. $1.8 million hits in a 401(k), but I only have 260,000 dollars in a rod.

Chilli has $400,000 in her traditional IRA and 280 grand in her roth. That totals approximately $5.1 million with 40% company stock, 60% low cost index funds. We also have $200,000 in savings, money market accounts and CDs, no debts other than the $200,000 mortgage, which will end in 2035. We won’t be paying it off early since the interest rate is 1.75, home is worth $1 million.

So they got five million bucks, a couple hundred thousand in cash, and a home worth one million. My current salary is 200,000. Chilli’s is 70,000, expecting to take Social Security at age 70 for me, 67 for Chilli. Social Security calculator estimates $60,000 annual for me, 24 for her. Annual expenditure is $110,000 for the full Heeler family.

We’ll assume the same at retirement. Additional expenditures include plans for moving from our townhome to a single family home, plus Bluey and Bingo attending college when I’m 55 and 57. We also allocate $1.2 million for that. Appreciate your spitfall in the following questions. They’re gonna allocate 1.2 million to college?

Is that what he’s-

Al: and buying a home.

Joe: and- A better home. … in the home. Okay.

Al: Yep.

Joe: All right. Question one. My original plan was to retire at 55 mainly so I can access my 401 and leverage the rule of 55, but job satisfaction has plummeted. I thought you’re bullish on the-

Al: you- …

Joe: The dinosaur bones.

Al: Bullish for the investment, but not the job.

Joe: Not the job.

Al: Apparently.

Joe: Yeah. I wonder, does he sell them? Is he out there at the trade shows?

Al: Maybe.

Joe: So dinosaur, archeology in- instruments.

Al: Have you ever thought of buying one of those?

Joe: I was thinking about going to the San Diego Convention Center.

Al: You know, I think they’re having a convention this weekend.

Joe: Both assortment-

Al: Yeah, right. …

Joe: instruments.

Al: Yep.

Joe: my job satisfaction is plumbing, so I’m wondering if I can retire early, 2026, if feasible. Chilli would continue to work under her, Until 52, she enjoys her work. Unlike me, if I retire 2026, there will be an additional $30,000 annual cost for medical insurance from age 51 to 65.

This would mean drawing down the brokerage until 59 and a half for expenditures, medical, Roth conversions, and adding up our savings for save money. Maybe three years worth. All right. So how much are they spending? I didn’t catch that.

Al: Yeah, they’re spending 110K. And let me put a little math behind this

Joe: for you.

All right. $10,000, they got $5 million. They wanna spend 110 plus 30, call it 140, 150, plus tax, plus the cost of living.

Al: Yep.

Joe: All right.

Al: So if you take their 5.3 million that they have right now, they wanna back out 1.2 million because that’s for college and a better home.

Joe: Okay.

Al: Leaves them 4.1 million, okay?

And so without the insurance, health insurance, that’s about a 2.7% distribution rate. That’s great. even at that young age of 51, with insurance though, $30,000, it’s about a 3.4% distribution rate. But, Bandit said that Chile’s gonna keep working for three or four more years.

Joe: You make 70. It’s

Al: a machine makes 70, so that at least covers that.

I think it could work. It’s a little tight. I, think there’s a lot more cushion if they work till age, he worked till age 55, but I think it’s possible.

Joe: Yeah. I like the numbers. Five and a half million dollars. Yeah. How a job saving.

Al: Yeah, and not-

Joe: 51. And not

Al: spending too much?

Joe: Yeah. $110,000 is what they wanna spend.

She makes 70. The math works pretty good.

Al: Yeah, but that’s only for three, four more years. And the, and so they’re gonna have a long time before Social Security. That’s my only concern.

Joe: Yeah. I suppose it, it’s all dependent on if they really spend 110. Mm-hmm. I don’t know if that’s-

Al: And every time we do this, it’s dependent upon the market and the spending and the type of investments.

I mean, there’s a lot of variables here.

Joe: What can you do part-time in the archeology, in- instrument,

Al: I think you can be a trainer for the other salesman.

Joe: Got it. Part-time

Andi: digger.

Al: Part-time digger.

Joe: Question two. Simplest strategy for bridging the gap until 59 and a half is using the brokerage. Would you also consider 72(t) SCPP out the 401(k)?

All right. For those of you that don’t know what a 72(t) tax election is, that you take a separate equal periodic payment. So you could take money out of a retirement account prior to 59 and a half. You just have to take the same amount of money out of the account every single year till you turn 59 and a half or five years, whichever’s longer.

So there’s always rules around these penalties, but you just have to follow the rules to avoid them. So does it make sense for him to do a 72(t) tax election from age 51 to 59 and a half?

Al: Right.

Joe: they got … Yeah, it might. I mean, you could draw that down. The, amount of dollars that you’re gonna pull out is probably gonna be taxed at some at 12 and 22%, so it’s not gonna kill you in taxes.

You would wanna get it out in those lower rates anyway, either get it out and spend it or get it out- Yeah. … and convert it.

Al: Yeah,

Joe: and then that would save some of the brokerage account. I don’t actually mind that strategy in this scenario.

Al: In that, in this scenario, because it’s not like 20 years or-

Joe: Right.

Or it’s not p- you know, there’s, But he does have enough, brokerage account dollars where I think I would probably live off the brokerage and convert.

Al: Yeah.

Joe: So, but- But the 72(t) tax election is probably not gonna be all that much. How much does he have in retirement accounts?

Al: He’s got, Three million?

Yeah, 2.2, call it.

Joe: Two?

Al: Yeah.

Joe: I- It’s probably 40, 40 grand.

Al: Yeah, I th- I think, I, like the second thing you said. I, probably would live off the brokerage account and do Roth conversions, try to get that, tax deferred account down. And, I mean, you could do 72(t) and it wouldn’t be the end of the world, but I think that’s what I’d probably do, is, you got a brokerage account that’s pretty high.

Why not live off of that for a few years?

Joe: Well- Which one do you think he’s more emotionally tied to?

Al: The brokerage.

Joe: I know you.

Al: Because he has access to it.

Joe: So then do the 72(t).

Al: Yeah. Well-

Joe: Because they, you don’t care if that’s gonna drawn down, you’re paying more close attention to the brokerage account, so you wanna see that grow.

Al: That’s a good

Joe: point. Do the 72(t), then I think that will make you sleep better at night.

Al: But you would do the other.

Joe: I think I would take the brokerage and do conversions.

Al: Yeah, me too.

Joe: But, but I look at my brokerage account a lot more than I do my 401.

Al: Do you? I

Joe: do.

Al: Yeah.

Joe: and I don’t know why. And I don’t look at them often.

Al: When, you’re over 59 and a half, it doesn’t even matter.

Joe: I, look at my 401 I think once a year. Okay.

Al: got it.

Joe: And then I’d look at my brokerage account, I think twice a year.

Al: Got it. that’s probably healthy.

Joe: I looked at it actually today because I had to log in to make my, IRA contribution, my backdoor Roth contribution.

Oh,

Al: good, good for you. Yep. Yep.

Joe: It’s … Oh, it’s your birthday. Tomorrow?

Al: on Friday.

Joe: All right. Yeah, come up 70.

Al: All right. That’s right. Yep.

Joe: It’s, tax day, by the way, people. Happy tax day.

Al: Yes. As we record

Joe: this. As, we’re re- recording this, and you’ll hear it in June.

Al: Or whatever, whenever it’s ready.

Joe: so it’s Big Al’s birthday too, so wish him a happy birthday.

Andi: Happy birthday, Dig Al.

Al: Thank you.

Joe: we don’t have bonds in our portfolio, okay? That’s great. Long term, they don’t seem to perform. no, they do perform. They’re there to help with volatility. so I think don’t think of bonds in a way of how you’re, gauging your stocks. Right. It kind of seems like, they’re not performing.

Should I go high yield? I don’t know. I, think you still wanna have some bonds in your portfolio.

Al: you know, I think he’s saying you, they didn’t perform well compared to high yield savings, money market or CD. And that-

Joe: what timeframe are you looking at

Al: too?

right. O- over the

Joe: last- A little recency bias.

Al: Over the last three, four years, that’s been true, but that’s not normal. Typically, bonds earn more than those ins- … not … high yield savings, money market CDs, typically bonds outperform.

Joe: Yes. It depends on if they’re short term, long term, you know, are they corporate bonds, high yield bond?

Al: But the, reason they haven’t performed well in the last few years is, if you’ve noticed, interest rates have gone up, right?

When interest rates go up, bond values go down. When interest rates go down, bond values go up. And it’s not, dramatic, you know, like the stock market, but that is a reality of bonds. And so if you look at the long term, bonds outperform savings, money market, even high yield savings, but hasn’t been recently.

Joe: Yeah. if you’re planning on retiring, and I think the, burn rate on his is close enough, and they’re pretty young. I don’t know. I would not wanna have a all stock portfolio.

Al: Oh, for sure.

Joe: You wanna make sure that you have some safety, and I would rather have bonds in my portfolio than my, fixed income being a high yield savings account.

Al: Right.

Joe: I think I would want both. You wanna have a high yield savings- Yeah. … account to use as your cash or high yield savings, but you also wanna have bonds in the portfolio to, to kinda help weather out the storm when markets get volatile.

Al: Right. And, you do that so that when markets do get volatile and go down, your bonds tend to stay even.

Actually, in many cases, bonds go up while stocks go down. And that hasn’t been the case the last couple years because interest rates have been climbing. But in general, you kinda see that relationship. Stocks go down, bonds go up, flight to safety, right? So that’s why You wanna have some bonds in your portfolio.

When the markets do go down, you’re not pulling completely out of your stocks because I hate to pull money out of a low stock market fund and, you know, you got the bond fund that didn’t go down, right? And then so you, pull money out of that and let the stock market recover and you do better than decimating that account.

Joe: Yes, sir. All right. If somehow I’m able to endure the, and take advantage of the rule of 55, how bad really can’t be in the archeology instrument business be?

Al: It’s gotta be really stressful.

Joe: I mean, this guy just wants to take one of these instruments and just-

Al: may- maybe there’s only so many diggers. I don’t know.

But he’s, but he is bullish on the industry.

Joe: Yeah. He’s just, he hates his job. If somehow I’m able to endure and take advantage of the rule of 55, I’m reading that penalty fee-free withdrawals are allowed in the year a person turns 55. You are correct. In other words, I could be 54 in January, retire, take advantage

Man, you’re just counting the minutes- Yeah. … take advantage of my 401(k) without penalty as long as I turn 55 by December of that year. Is that correct? Have any of your clients done this? Thanks so much. With lots of love from all of us. Bandit, Chilli, Bluey, and Bingo.

Al: Okay.

Joe: Yes, a lot of our clients use the rule of 55.

You have to turn 55 the year. you separate from service to take advantage of the rule of 55. Yeah. Did you look up the, exact rule, Al?

Al: I did. it’s true.

I did. Yeah, so the, rule is as long as you … It doesn’t really matter when you retire within the year as, and you pull money out of a 401(k) as, as long as you’re 55 before the year’s over, that comes out from your 401(k), at, penal- penalty free.

But Joe, as I think of that, maybe that’s not right, because you don’t have to be 55 when you terminate from service.

Joe: Yes.

So

Al: I think I stand corrected.

Joe: You have to be 55 when you turn … But he’s got another question here because he’s like- Yeah. … he, written to his HR.

Al: Okay.

Joe: I wonder what HR’s thinking about Bandit here.

Al: HR’s saying it can’t happen soon enough.

Joe: I mean, HR’s probably talking to Bandit’s manager of like, “Hey, I think, we got some red flag here.” We got a

Al: problem.

Joe: Bandit is asking for his personnel file. Is, curious about the rule of 55.

Al: Yeah, right.

Joe: So we might find a, have to find a replacement. My company’s 401(k) allows the rule of 55, but at a lump sum withdrawal.

Okay? I’ve written HR to offer partial withdrawals. Assuming it doesn’t change is my only strategy to roll over a portion of the 401 to a traditional IRA and take the remainder as a partial withdrawal. I will only be able to do this once enrolling over the IRA, then remove excess to these funds until 59 and a half again.

Is it worth working another three plus years or can I just retire now? Thanks, Bandit. Move it into an IRA, do the 72(t), take your $40,000, live off of Chilli’s $70,000 of income that’s gonna cover most of your living expenses for the next three years. Then from there, live off the brokerage account, do Roth conversions until 59 and a half, and then you’re good to go.

Al: Yeah. So I’m gonna go back because now I even di- doubted myself. That, is true. And I did look that up. As long as you turn 55 in the year that you retire, that rule of 55 works.

Joe: But he can’t do partial withdrawals at his 401. So he’s got to do one partial withdrawal and then roll the rest into an IRA so he doesn’t have access to the IRA because he moved it to the IRA.

There is no rule of 55 in IRA. It’s only 401

Al: s. No. So, I guess if you could leave some in the 401 he could do that. That’s what he’s … I think that’s what he’s asking. My,

Joe: my company allows the rule of 55, but at a lump sum withdrawal.

Al: So, so you take a lump sum out to IRA, but you leave … Or that means the whole thing.

Joe: Yeah. You can only do one partial for that year, then everything goes in the IRA.

Al: Got it.

Joe: Is what I’m reading.

Al: maybe what he’s thinking is he pulls out enough for X number of years, from the 401 and gets the rule of 55 and just stores it.

Joe: Yeah, but he has to pay ordinary income tax on it.

It probably doesn’t make sense. I was just doing 2T tax.

Al: I know. And plus-

Joe: Because let’s say you take three years out. Was he gonna take 300,000 and that’s 200? He’s 100 in tax?

Al: Yeah, I know. And he’s got plenty of non … He’s got plenty of brokerage accounts. I’d still go back to that probably. Yeah.

Joe: I would do the 72(t) tax election, which this is the first time I think ever in my 25 year.

Al: Hey, let me, hold me. Let me, get that. Joe’s right.

Joe: Yeah.

Al: I was saying 72(t)’s okay.

Joe: No, because … Yeah, I, think it’s okay in this situation because he’s got plenty of money. He’s got $5 million. I know. A ton of cash here.

Al: And he’s not overspending.

Joe: No. $110,000 plus $30,000.

Al: Yeah,

Joe: The wife’s working, go on the wife’s insurance.

Al: Yeah, exactly.

Joe: Yeah. Or just sell a couple more tools or whatever the hell you do in the instrument business.

Al: Yeah.

Joe: All right.

Andi: When you walk away from your job, what do you actually do with that 401(k)? In general, you’ve got four options: leave it where it is, roll it, withdraw it, or convert it. But don’t confuse “rolling” and “withdrawing.” If you take the money as a check instead of rolling it directly into your IRA, you’re paying tax on every dollar, and that is a tax bill that can run into the tens of thousands, depending on how big your 401(k) actually is. Joe and Big Al break down all four options, the pros and cons of each, and more of the costly mistakes that can drain your retirement accounts, this week on YMYW TV. They’re giving away the Retirement Readiness Guide along with it. It goes way beyond the 401(k) decision. It’ll show you how long you actually need to plan for, how to build income that lasts, when to claim Social Security, the healthcare costs most people underestimate, how to think about taxes in retirement, long-term care, and protecting your legacy. To watch “401(k) After Retirement? Here Are Your 4 Options and the Costly Mistakes” on YMYW TV, and to grab the Retirement Readiness Guide for free, just click or tap the links in the episode description.

Can I Retire Before My $3M Deferred Comp Pays Out? (Kevin & Winnie, Chicago)

Joe: Let’s see. Retirement readiness spitball for Kevin. 58 and Winnie, 57 from Chicago.

Al: Okay.

Andi: You know that reference, right?

Joe: Kevin and Winnie. I know Winnie. isn’t that like a, the, a natural life or-

Al: Oh, that was the,

Joe: Shit.

Al: Gosh, that was, what was that Chicago- A

Joe: wonderful-

Al: Wonderful life. Wonderful

Andi: world. it was called the Wonder Years.

Joe: Wonder

Al: Yes. That’s it. We were so close.

Andi: Kevin and Winnie.

Joe: Oh, God. Winnie and Kevin. no pets.

Four kids with only a high school senior still in, still at home. $200,000 saved for a 529 plan for her. The other three are done with college. I drive a 2013 BMW five series and Winnie has a 2019 Volkswagen Atlas. Both paid for. Drink of choice. Winnie sticks with ice water. While I prefer Buffalo Trace poured over,

Al: Cor- Quarry.

Joe: Quarry ice spear. What the hell is a quarry

ice?

Al: Isn’t, is, that big block that’s in the black, I’m guessing.

Joe: I’m not a fan. I’d much rather go- If

Andi: it’s a sphere, it sounds like it’s a big round hunk of ice.

Joe: Yeah. maybe

Al: it’s a round

Joe: one. Yeah, the-

Al: Oh yeah, it’s a round. It’s not a square one.

Yeah, you’re right.

Joe: Sphere.

Al: I got ahead of myself. I didn’t read that last word.

Joe: I do like Buffalo Trace. I’ve had that a couple of times. Mike Pash always likes to drink a little Buffalo Trace.

Al: Okay.

Joe: So-

Al: What is that? I don’t even know what that

Joe: is. Bourbon. Whiskey.

Al: Bourbon?

Joe: Okay. All right. so I’ve had it from time to time.

I don’t know if I like a quarry ice sphere. I like rocks.

Al: You like rock?

Joe: Yep, I do. I like the rocks.

Al: Got it. Okay.

Joe: we are looking for a spitfall analysis as to my ability to retire at the end of 2026. Our pre-tax income should be $425,000 in 2026. In January 2027, my company would make a one-time $325,000 payment under a long-term incentive plan.

Starting in January 2028, I will receive 10 annual payments of $310,000 each from a non-qualified deferred comp plan. Winning plan is to continue work for at least a couple more years to maintain health insurance for the family costing 400,000, or $400 a month. Her income is fairly limited, but she loves her job.

We would like to be able to spend about two and a quarter after taxes. Our qualified accounts total four million, of which $85,000 in, Roth. We also have $60,000 in an HSA. Brokerage account is 650,000, and our mortgage-free home is worth a million. Our most recent Social Security statements show a monthly benefit of $5,000 at age 70, 2000 and age 70 for her.

Okay. let’s see. So that will be about $85,000 a year combined. No other pensions. We have two questions. Is 12 / 31 / 2026 a feasible retirement date for me? Should we plan on doing Roth conversions up to the 24% tax bracket after I retire? We appreciate the levity the team brings to each podcast. Keep up the good one.

all right.

Al: so just give you a couple numbers. they’re spending 225 for the next 11 years. They’re gonna have over 300,000.

Joe: Yep.

Al: So that, that looks pretty good.

Joe: Yep.

Al: Which means they can let their other money grow for 11 years. And even with no additions, Joe, it would be at a 6% rate of return to be 8.8 million.

Call it nine million. 10

Joe: million.

Al: 10. Yeah, whatever, right?

Joe: Sure.

Al: So yeah it looks fine.

Joe: Yeah. Social Security though.

2,000 is less than half of 5,000, but that’s at age 70. I’m guessing she would wanna do the spousal benefit. So prior … So for them to both push to age 70, I don’t know if that makes sense.

Al: Yeah, because it’s pretty clo- they’re pretty close to half and half. I mean, 50% of, yeah.

Joe: So the spousal benefit is 50% of Kevin’s benefit, because Winnie’s benefit is 2,000 at age 70, Kevin’s is 5,000.

So let’s just assume that was at full retirement age.

Al: Yeah.

Joe: So Winnie’s benefit would be actually, 2,500, right?

Al: Yeah.

Joe: Well- versus 2,000?

Al: Yeah. it’d be less than that because it’s 67, but still.

Joe: But I’m just saying, let’s just assume that the benefit of 5,000, 2,000 at 67. So, yeah, thanks for 500 bucks a month.

So you might wanna look at, a different claiming strategy for both of you to, to push. So,

Al: Yeah, I think I might … If I were Kevin, I’d go to 70, and Winnie, I’d probably do it at full retirement age.

Joe: Yeah. And then she would revert to the spousal when he claims that 70. Yeah. So there could be … Yeah.

Yeah. I think I would … I think that’s the right move Winnie would claim earlier.

Al: How about Roth conversions?

Joe: Okay.

Al: they got, four million in a retirement account?

Joe: Yeah, they’re, the, deferred comp kills them and from a tax bracket standpoint- It

Al: makes it, tricky. Yeah.

Joe: So do, you go to the top of the 24% tax bracket, they have $300,000 of deferred comp.

The top of the 24 is what, 400? So you got about $100,000 that you can convert. Yeah. Yeah. You would wanna convert all day-

Al: To the top of the 24.

Joe:… to the top of 24. because let’s say his retirement accounts are gonna be a … If it doubles in 10 years or 11 years, that’s-

Al: It’s alive. …

Joe: 10 million dollars. Your R&B’s 400,000 plus your Social Security of another 100, that’s 500.

You’re probably in the 32% tax bracket once the RMBs hit.

Al: Probably, and if you convert to the 24, you might stay in it. It’s hard to know just on a backlog.

Joe: Yeah. Yeah. You, have to run some different numbers with different assumptions. What do you think the target rate of return is on the investments that you’re in?

If you have high growth in your retirement accounts because you don’t need them and you want them to continue to grow over the next 10 years and they get a decent rate of return, I mean, that’s great. You got a lot more money, but then you’re giving a lot more money to the IRS. So you would wanna be aggressively converting.

Maybe you go to the 32 and have that same investment strategy or be a little bit more aggressive in the Roth IRA than you would be in the IRA. You don’t need to take on any risk because he doesn’t have huge needs for those dollars. Right. So if he takes on less risk, that’s gonna dampen the growth, of course, of the account, but that’s also gonna dampen the, RMD issue as well.

So there’s a different … It’s, it’s all really based on what are you trying to accomplish? Are you trying to maximize the ultimate wealth to the, family- mm-hmm. … to the kids? are you, do you wanna spend a lot more money in retirement? Do you wanna, negate taxes as much as you can? And I don’t know.

It really depends on the goals is what’s gonna determine, I think, the conversion strategy. But yeah, just up the back of the envelope, 24, I think for sure you would, look at that. And in some cases, you might wanna go a little bit higher because of what’s ahead of you.

Al: I agree with that. And I would add

I, I like the 24% bracket, but I would add, Joe, that, maybe do the 32% bracket when there’s a down market.

Joe: Sure.

Al: And then the recovery will be in the rock. So I think that’s the only thing I would amend on what you said.

Joe: All right. Andi, hope you feel better.

Andi: Oh, thank you. I appreciate that.

Joe: Aaron, hope you feel worse.

Andi: Okay. Wow.

Joe: You do have a smile for everyone you meet.

Al: He does.

Joe: All right, Big Al. And then, you’re off. Are you back? Are you … Where are you going?

Al: I’ll be back. I’m going to Bay Area and Hawaii. I’ll do a showing from Hawaii just for fun. Yeah.

Joe: happy birthday.

Al: Thank you.

Joe: And that’s it for us. We’ll see you next time. Show’s called Your Money, Your Wealth®.

Outro: Next Week on the YMYW Podcast

Andi: Next week on YMYW, should June take her pension as a lump sum or a monthly check for life? “Pompous Assets” financial advisor is fighting him on Roth conversion. Why? The fellas also spitball Roth strategies for “Homer and Marge,” and why “Johnny Mercer’s” annuity might not be what he’s hoping for. Don’t miss it.

Your Money, Your Wealth is your podcast, and this show would not be a show without you. If you have thoughts about this or any other episode, jump into the comments on our YouTube channel and let us know. Our YouTube viewers get pretty vocal if they think the fellas missed something, so if you’ve already gotten a YMYW spitball, why not go see what they’ve said?

“Martha and George”, “Bandit and Chilli”, and “Kevin and Winnie” all have real money, real questions, and an intimidating withdrawal strategy. Now, is that you, too? That’s exactly the kind of situation Pure Financial Advisors built the free financial assessment for. Pure’s experienced professionals will sit down with you, look at where you are now, where you want to be in retirement, and what it actually takes to get there. There’s no cost, and no obligation. Click or tap the Free Assessment link in the episode description to schedule yours.

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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