Announcer: Would you like an opinion on a financial matter you're dealing with? Whether it's about retirement, investments, taxes, or 401(k)s, Scott Hanson and Pat McClain would like to help you by answering your call. To join Allworth's "Money Matters," call now at 833-99-WORTH. That's 833-99-W-O-R-T-H.

Scott: Welcome to Allworth's "Money Matters." I'm Scott Hanson.

Pat: I'm Pat McClain. Thanks for joining us.

Scott: That's right. On this middle of April weekend. Myself and my co-host here, we're both financial advisors, certified financial planner, chartered financial consultant. We spend our weekdays with people like yourself, helping them plan their financial future, and we broadcast on the weekends, being your financial advisors on air.

Pat: Yes. And we like to take the calls, questions, try to help people out.

Scott: Yeah. Make sense of what's going on in the world of finance.

Pat: The volatility has continued. A little bit more on the upside now.

Scott: I was reflecting, Pat, on Silicon Valley Bank. We're not gonna spend a whole lot of time talking about that today, but that, what, five weeks ago or so, whatever, blew up overnight. Right? Overnight.

Pat: Well, it had been a long-term in the making.

Scott: Fair. My point is there was a risk in that organization that nobody saw. Right? The executives didn't see it. The board didn't see it. The regulators didn't see it. In hindsight, it's always easy because you can go in and, "What a bunch of idiots. How did you not see that?" But no one anticipated a bank run...

Pat: That's what it was. A hot bank.

Scott: ...in a social media era where it was precipitated by a well-respected venture capital, Peter Thiel, in that particular geography with lots and lots of followers. Here's my reason for bringing this up. We all hear about the importance of diversification. Diversification is a strategy not used to enhance returns. Diversification is a strategy used to protect what you've got. It is a risk mitigation technique. When you're in your 20s, maybe don't diversify. You're working for a fast-growing company, maybe let it ride. If it doesn't work out, you got decades ahead of you to make it up. When you're in your 40s, 50s, 60s, and you've arrived or have gotten pretty darn close to being there or you can see financial security in the near future, independent financial security, that's when it makes sense to divest a bit, diverse your portfolio. There are people, leaders at that bank that had the majority of their wealth tied up in that bank stock because the stock had been doing so great, and it's Silicon Valley Bank. What could go wrong with Silicon Valley Bank?

Pat: Scott, this conversation brings back waves and waves of memories. In the '90s, with me working with individual clients, I remember the client that had a bunch of HP and Agilent stock, and we diversified away from it. And for the first year that we had diversified away from Agilent...

Scott: They grew mad at you.

Pat: ...the clients were less than happy. Like, why did you do this? Why did you recommend this? This is a terrible strategy. Until it wasn't.

Scott: So, Silicon Valley Bank, was this the third or fourth-largest bank failure in history? Something like that. It was way up there. It's a large institution. Blows up overnight. Equity holders wiped out overnight. Sixteenth-largest bank in the country overnight wiped out. So, Pat, I know there are people listening to us right now that have greater than 50% of their savings tied up in one particular company.

Pat: Single company stock.

Scott: Most likely their employer or something they inherited from a family member. And they think, "Oh, this is such a good company though. Why do I need to worry about this?"

Pat: Well, they're all good companies for a while. Not all of them. I think about all the SPACs.

Scott: But I just remember even back in Enron, all the people that had an Enron had the majority of their 401(k) in Enron stock. And they said they lost their retirement account.

Pat: Look, they knew the risk, they chose to ignore it, they chose to look past. If you came to a portfolio... This is how I always been. Someone comes in and they have a highly concentrated position in an individual company stock and they come in... I'm not taking new clients on, but when I did and they'd come in and they'd say, "Well, I've got 50% of my portfolio in this particular company stock, Pat."

Scott: Here's why it's so good. It's different.

Pat: And then...

Scott: Here's why I'm not worried about it. You don't understand. I know...

Pat: My response to them was, "You came to me for advice. Let's say you didn't own this company stock and that you came into my office with $1 million and I told you to take half of it and buy a individual stock with 50% of it, what would you think of me as a financial advisor?" And they said, "We think that you'd be a terrible advisor." And then I'd say, "Well, you're doing it to yourself. Doesn't that make sense for you to diversify? If you just told me if I did it, it's a bad idea, but if you do it and continue to do it, it's an okay idea." And that was the only way I could actually cut through the emotional fog that they lived in, that just because I know this, this makes it okay.

Scott: And I bet some of you listening right now, this conversation is resonating with you because you have a large concentration in one particular stock and odds are what's going on in your mind is, "Yeah, but it's been doing so well. I don't wanna sell any of it yet." Or, "Yeah, but it's down right now, so I don't wanna sell it now. I'm going to wait until it comes back." Both are poor choices. Next week, tomorrow, today, you should look at diversifying away.

Pat: If you could sit in this seat, remember a lady, she was gifted a tech stock and she called me and she said, "I've got $500,000 in this particular stock." And I said, "Who gave it to you?" She said, "How do you know someone gave it to you?"

Scott: Because she has nothing else.

Pat: Well, she had some other money, but I said, "You wouldn't have made this move." And she said, "A relative who started this company gave it to me." And I said, "Let's start diversifying away from this." True story. She said, "We're just going to wait for it to double again. And it doubled." Right? This is during the dot-com bubble.

Scott: Okay. This is a long time ago, but yeah.

Pat: A long time ago. And I said, "Okay. How about now? How about we get rid of half of it now?" And she said, "No, we're just gonna wait for it to double again." And it doubled again. And I said, "How about now?"

Scott: And now it's worth a couple of million bucks?

Pat: Yeah. Over $3 million.

Scott: Over $3 million, which is life-changing money for a lot of people.

Pat: It was...

Scott: This was 20 years ago as well.

Pat: Yeah, yeah. She was in her mid-40s. I said, "You can be done. This is it. All you gotta do is make this one call."

Scott: The financial security is there.

Pat: "Would you just diversify?"

Scott: Pay the tax, so what?

Pat: Forever.

Scott: Yeah. You got 2 million bucks cash in the bank.

Pat: We ended up liquidating that stock in her portfolio three years later for less than $100,000. Less than $100,000, less than the value that it was gifted her to her at. And I'm like, "I can't make you do it. I can only make recommendations." And when she said, "Do you think I should hold it $100,000?" "Now you want my advice?" But that is...

Scott: And there's a chance in a situation like that, you might sell half of your holdings or two-thirds your holdings or a quarter of your holding, and it might keep going higher, and 10 years from now, you might look back, and say, "Well, that was foolish." Just like I can look back the last 10 years and what I've paid for fire insurance on my house and think, "Well, that was foolish. Why did I pay for that insurance? I've never had a house fire." I've been a homeowner for 30 years. Now I think about it, I've never had a major claim on it.

Pat: That's a great analogy, Scott.

Scott: And I think I must've spent 100 grand in insurance over those years.

Pat: So, if you have a...

Scott: California is not cheap fire insurance.

Pat: If you have a highly concentrated position in your portfolio either in a particular sector or more specifically in a particular company, ask yourself what happens if it falls by half, three-quarters, or 100%? And then if you say, "I don't know what to do, I'm uncertain," sell half the position because you'll be right either way.

Scott: That's right. Sell 50%.

Pat: Sell 50%.

Scott: If it goes down, look how smart you were for selling it. If it goes up, look how smart you were for keeping.

Pat: Sometimes when you don't know exactly what to do, sometimes it's okay to just go up the middle.

Scott: These are risk mitigation, like fire insurance on a house.

Pat: Excellent analogy.

Scott: Anyway, I don't know why I got started with that, but...

Pat: I know why. I know exactly why.

Scott: Actually, I know why as well, because we had a...

Pat: We had a client that had a highly concentrated position that was affected...

Scott: At Silicon Valley Bank, our advisor had convinced this person to reduce their exposure over the years.

Pat: Over the years.

Scott: And they were seven figures of reduction of exposure over the years.

Pat: That's exactly right. That's exactly what it was because I saw that story, and I'm proud of the advice that we provide here.

Scott: Anyway, let's take some calls. 833-99-WORTH is the number to be part of Allworth's "Money Matters." 833-99-WORTH. And we are in Arizona talking with Dave. Dave, you're with Allworth's "Money Matters."

Dave: How are you doing?

Scott: We're great.

Dave: So, my question. So, I kind of lay it out simply. I have about 1.9 sitting in stocks that I've developed on my own. And then at the same time, I'm still working at a company where I'm still putting into the 401(k) and getting the match and all those things. And as a result, I have about 251k. So, I'm thinking about retiring here, hopefully, within a year. And I'm trying to consider, should I take that 251k and bring it over and turn it into a Roth? Like, do it like a backdoor or something like that?

Pat: How old are you?

Dave: Sixty-two.

Pat: What's your income?

Dave: One-sixty.

Pat: And when you retire, let's say in a year, where will your income come from? Will you have a pension?

Dave: Yep, I have a pension.

Pat: How much will your pension be?

Dave: It's only about $1,100. But then I also have dividends of about $9k per month. And then I've got Social Security, which I'm not sure when to take it.

Pat: And when were you thinking of converting this 401(k) into a Roth?

Scott: So, your stocks are almost all high-dividend stocks, is that right?

Dave: Well, actually, it's kind of a 75-25. I got about 75 monthly dividend-generating kind of REITs, and then I got, I wanna say, about 800k out of the $1.9 million is just dividend stocks or discrete stocks.

Pat: And what's the rest?

Dave: Well, no, that's the combo right there. It's a bunch of REITs. I have $1.1 million in REITs and about another 800 and some K in just other different stocks.

Pat: You have $1.1 million. So, let's add everything together. You have, let's take the 401(k) and the $1.9 million you have in your brokerage account. So, we're at $2.15 million total, and you have $1.1 million of it real estate investment trust?

Dave: Type of stocks, yeah.

Pat: Are they individuals or are they ETFs?

Dave: Yeah, they're individual stocks that are...

Pat: And they're all REITs?

Dave: Yeah, they're REITs. Yeah.

Pat: Traded REITs.

Dave: Traded REITs, exactly.

Pat: How long have you owned these traded REITs?

Dave: Let's see. Combination. Some I've had for probably about three years, others I've had about a year.

Pat: And what drove you to buy so much in the traded REITs?

Dave: Only because of the... I think I started with the whole...

Scott: The interest, the high dividend.

Pat: The yields.

Scott: That's because you got $9,000 a month, over $100,000 a month in dividends of a $2 million portfolio, $1.9 million portfolio.

Pat: I saw that.

Dave Yeah.

Scott: So, you've been chasing yield?

Dave: Yeah, exactly. I mean, of course, I'm looking at the stock. I don't wanna get totally blindsided, but that's what I'm, you know, seeing which ones are monthly paid versus the other stocks I have, which are not. They're quarterly paid.

Scott: This $1.9 million, has this been saving over the years?

Pat: Did you inherit this money or did you save it?

Dave: No.

Scott: All right, good.

Dave: No, it's all generated, self-generated.

Pat: Okay. So, we're gonna answer the Roth question. Do you want our opinion on your allocation or should we just keep it to ourselves?

Dave: No. Obviously. This is the good stuff.

Pat: Okay. Yeah. Because the Roth thing is a pretty easy answer to that. Your allocation to this real estate investment trust, the fact that you are actually reaching for yield scares me some. And you've gotta remember, the higher the yield on these REITs, on publicly-traded REITs, especially, the tendency to have more risk in it, which is what drives the yield. So, I think you're probably overweighted by at least... Well, in a maximum, I wouldn't have any more than 20% of the portfolio in REITs at max. At max.

Dave: Sure.

Pat: And Scott's shaking his head because he wouldn't have even that much.

Scott: Well, we don't have that much allocated for our clients.

Pat: That's why I said at max.

Scott: I can't think of any client we have with 20% REITs.

Pat: I'm not talking about... Let's get them from 50% down to a lower number, Scott. You're overly concentrated in this sector significantly, and especially if you're going to be relying on income. And so remember, when you're building a portfolio, what you wanna think about is total return, right? So, people have a tendency to focus on yield or interest yield or how much income is going to be derived from the portfolio. It's the wrong way to look at it. You're interested in total return. So, what is total return? Total return is capital appreciation, interest, and then dividend, right? So, the interest comes from the bonds and the dividends come from dividend-paying stocks or real estate.

Scott: But the capital appreciation is a real deal. I mean, think of all the companies you would never own if all she wanted was a high dividend.

Pat: That's right. That's right. You'd stay out of any growth sector of the economies quite frankly.

Scott: And the REITs can be highly volatile. I mean, last year, the REIT index was down... I just pulled this up. Not that I remember these things off the top of my head. But it was down almost 25% last year, 24.4%. The REIT index was last year.

Pat: Scott, I mean, we're starting to see a weakness in multifamily which we haven't seen. I mean, in fact, he's calling us from Arizona, right? There was a massive bankruptcy...

Scott: Foreclosure in...

Pat: ...in Arizona on a REIT, multifamily, which is apartments. You're overly concentrated in this REIT by a long shot on the REITs.

Dave: My simple statement would be is I just started playing around in it, and I wasn't totally 100% REITs, but I was playing around with it, just looking at how they've been going.

Pat: That's right.

Dave: And I don't know... I mean, should I say a stock for you or what?

Pat: Should you do what?

Dave: Should I tell you a stock, a REIT that I have?

Pat: Well, I'm not gonna make an opinion on it.

Scott: It's not gonna matter.

Dave: Well, I'm only saying it because one of the stocks I had... I don't know. I probably had about 300K in. They made an announcement this year that they were cutting their dividend by 26%. I was like, "What?" And they cited all the economic factors of why they were cutting it down by 26%. Again, I was like, "Oh. So, is that gonna be for the rest of my REITs?

Scott: Let me ask you this question, Dave.

Pat: Wait, wait, Scott. Let him finish. And so what happened to that particular stock?

Dave: Oh, it did. It dropped by 26% and I looked at it as, oh, well, I went into it with some good faith thinking, hey, they sound really good. So, they just did a surprise announcement that we're cutting it by 26%, and I was like, "Whoa." And they stated some economic factors of why they were cutting it, and I was like, "Oh, well, then is this going to happen to the rest of my REITs."

Scott: Let me ask you this question. So, oftentimes, when people get closer to retirement and have accumulated more in assets, they use outside advisors to help with this. Have you had bad experience in the past, or do you just not feel that it's gonna add any value to your life by hiring a good advisor?

Dave: This is the conversation. This is the prime moment. I mean, for me, I haven't really gone to any advisors.

Pat: Okay. By the way, to understand why there was a 26% decrease in that particular sector, in that particular stock would require... When you said it came as a surprise, it didn't come as a surprise to anyone actually that was tracking that particular stock or those REITs inside of that because a large portion of it has to do with whether their debt is adjustable or not adjustable and whether the due dates that they actually...

Scott: That's exactly right.

Pat: ...readjust are coming in. Because what it did was cause their cost of borrowing to go up, which actually then narrowed their spread between what the expected yield would be on their apartments.

Scott: If two years ago you bought an apartment building, a commercial property, a warehouse, I don't care what it was, right? And you used a fixed interest rate financing for 7 years, 15... Maybe it was something through the Federal Home Loan Board or whatever for an apartment. Maybe it was a 15-year fixed loan. You're in great shape because you locked yourself in as a good interest rate. Even if rents declined a little, you should be in fine shape. But if you had variable rate, adjustable rate debt, which a lot of these buyers had, now your cost of service and your monthly net on the loan might have doubled, tripled, and then...

Pat: Some of it takes. All the profit is gone.

Scott: And all the profit is gone.

Pat: So, you put risk. You were going in a direction in order to try to alleviate risk and just get yield because you viewed stocks as risk, my guess. What you did is you inadvertently put yourself...

Scott: In greater risk.

Pat: ... in greater risk by actually not diversifying the portfolio. So, in a perfect model, you shouldn't have any more than 10% of your portfolios in REITs.

Dave: Okay.

Pat: Okay. And by the way, yes, it could get a lot worse for the REITs. We may have seen most of the damage done in stocks and bonds to date.

Scott: We may, we may not.

Pat: We may, we may not. But a lot of that damage has been done. I don't think that the damage is done on the REITs sector by a long shot. In fact ...

Scott: Which is a personal opinion.

Pat: That is 100% personal opinion. We just haven't seen it in the prices in the marketplace, quite frankly yet, but it will show up. And when I say in the marketplace, if I'm going to go out and buy a commercial building today, the prices haven't dropped as much as you would expect. But they have in the REITs. So, the answer to your question ...

Scott: On your original question.

Pat: The answer to your question on your Roth, yes, it probably makes sense for you to actually do a Roth conversion, but not while you're working.

Dave: Right.

Pat: So, once you retire...

Scott: You've got some great planning opportunity.

Pat: Especially before you start Social Security. But what you really need to do is...

Scott: And maybe even before you start a pension, if you have the ability to defer it for a year or two...

Pat: That's right. Yes.

Scott: ...or three.

Dave And I get to decide when.

Pat: Correct. Correct. So, you've got to defer investment pension to get it decided.

Scott: But I'm on a planning opportunity.

Pat: Scott, if you were sitting in our office, we wouldn't talk about Roth conversion. We'd talk about portfolio construction. It's a minimus relative to what...

Scott: Correct.

Pat: ...the things you should be working on, the things you... And I know why you've got this way because I'm sure you read lots of articles about building income portfolios.

Dave: That's right. Just playing around, trying to figure out how to keep growing it. That's all.

Pat: That's right. Maybe we shouldn't worry about keep growing it. We should worry about preserving it and then growing it.

Scott: Yeah. Well, the key is how do we make sure at this point that Dave has financial security so that he can retire in the next year or two and never have to worry about going back to work, never have to worry about changing his lifestyle? My guess is that's more important to you than which REIT you own or...

Dave: Yeah. That's right.

Pat: You should pay for a quality advice, quite frankly.

Pat: Yeah. I would get a good certified financial planner.

Pat: Anyway, I'm sorry we didn't give you the... I'm glad you called, though. I truly am glad you called. If you were my brother...

Dave: It was nice.

Pat: Here's what I told a relative recently. I said, "What are you doing reaching for yield and putting risk on the part of the portfolio that shouldn't have the risk in it?" I told my own relative that. I go, "You're buying these high-yield bonds for such a large percentage of your portfolio? Why are you putting that risk in the part of the portfolio that shouldn't have the risk in it? Maybe you should recognize what part of the portfolio should have the real risk in it and what shouldn't." And that's what you've done, is exactly what my relative did, who, by the way, much like yourself, he pays for some advice. Well, I mean, like I...

Scott: And, Dave, so much appreciate the call. I kind of understand why... First of all, people that are listening to us think, "Well, these guys are self-serving because they're advisors." Fine. Yeah. Okay. Maybe. But I don't need to keep doing... I mean, like, there's a lot of different career paths I could choose. Frankly, I think I see the value we bring to...good advice brings to clients. But I think our industry as a whole, there are so many lousy advisors out there that people call themselves advisors. They're just product salesmen. Most people have been burned by somebody over the years, being sold something they didn't really want or need or that sort of thing. I mean, I do understand why people continue to just go it alone. And, look, maybe 5% of the population doesn't need an advisor. It's probably smaller than that.

Pat: Yes.

Scott: And typically, when people have larger savings, one, they can say, "I can afford an advisor. So, like, even if it costs me something, like..."

Pat: They will have a tendency to seek it out, and quite frankly, that's where Dave is at. This is a pivotal point in his life where he needs to make sure going in there...

Scott: Retirement is right in sight.

Pat: ...right there. How do I get to the end of it?

Scott: And it's not at all atypical when somebody getting near that point to start... To your point, Pat, if you build a portfolio strictly for income and that's your main driver, you're gonna end up with portfolios that are out of whack.

Pat: That's right.

Scott: Or you're gonna own stocks of companies that are no longer growing or maybe in decline.

Pat: Yeah. Actually, so, it was interesting, Scott and I looking into each other, when he told us how much income his portfolio was deriving and it was 100% stock, we were like, "What did he put in this?"

Scott: Oh, my gosh.

Pat: Without even him telling us how much he had in REITs, we knew that it was...

Scott: Not the S&P 500.

Pat: That's right. Yeah.

Scott: We're taking a quick break. We'll take some more calls when we get back. This is Allworth's "Money Matters."

Announcer: Can't get enough of Allworth's "Money Matters?" Visit allworthfinancial.com/radio to listen to the "Money Matters" podcast.

Scott: Welcome back to Allworth's "Money Matters." Scott Hanson.

Pat: Pat McClain. Thanks for sticking with us.

Scott: I assume.

Pat: I don't know. That's presumptuous.

Scott: Well, if you're a podcast listener, the break was about two seconds. I don't think we ran any ads in there. I don't. We're certainly not gonna sell our time to people who hawk products because that's not what we do.

Pat: Unless...

Scott: Well, I'll tell you what. We're gonna go to Bill here in a moment. Bill, thanks for being patient with us. But years ago, we've been in this industry a long time, 30-plus. There used to be something called soft dollars.

Pat: Yes, the soft dollars.

Scott: Soft dollars. And a soft dollar was... I'll give you an example. Strong mutual fund. I don't know if I should mention the name. There was a mutual fund company, a large mutual fund company years ago that had hired an industry consultant, an economic consultant of sorts for favors. And so this consultant was able to get a bunch of visas to some country last minute all by his connection. He came from the government previously. His revenue, the way he earned his money, was not by these companies writing him a check. They were direct trades, their clients' trades...

Pat: This doesn't have anything to do with us.

Scott: No, no, no, no.

Pat: No, no.

Scott: They would direct their clients' trades through his firm so that the commissions that were generated would go into his pocket. So, rather than finding best execution, rather than looking at how do I get the best price for my customers, my clients...

Pat: Which is the mutual fund clients.

Scott: Instead, you're placing trade... Those were called soft dollar trades, used all the time with investment management firms, and, frankly, still used to this day on people paying for research soft dollar trades. We'll put some trades through you. We'll give you...drop a ticket.

Pat: And the reason for that is there's two components to a mutual fund. There is the mutual fund owner which actually owns the mutual fund, which is you who invest money in the mutual fund. And then there's a mutual fund management company that charges fees to manage that mutual fund.

Scott: Why would I just think of the soft dollar?

Pat: I had forgotten that story completely until you mentioned it.

Scott: It was one of those times in life when you look at something and thinking that may be legal, but that is highly unethical.

Pat: That's right.

Scott: I remember looking at the guy as he's telling me his business plan. He's a guy proud of himself.

Pat: It's because I said we don't do advertising and I said unless.

Scott: Oh, yeah, yeah. Because you don't. No, we don't.

Pat: We don't.

Scott: We harden rules on things.

Pat: We don't.

Scott: Because those things are slippery slopes.

Pat: I was joking when I said unless.

Scott: All right. Let's take some calls.

Pat: Unless they wanna give me a new car, in which case, I will read an ad for you and right here I will tell you, "Yes, this is a beautiful Mercedes, I know because Mercedes gave me one."

Scott: Listen, I've heard financial advisor... I think Susie Orman got in trouble for this years ago for pitching Ford or GM's leases or something like that. I know, in a large city, there's a prominent financial advisor. He reads ads for a Mercedes dealership, and I'm thinking, "Whatever."

Pat: Whatever.

Scott: Whatever. And you're not going to find us selling cars. Not that there's anything wrong with selling cars. There's not a knock on that, but...

Pat: Okay. Let's go.

Scott: As independent advisors, we wanna have our interests as closely aligned with clients as possible. All right. We're in Colorado talking with Bill. Bill, you're with Allworth's "Money Matters."

Bill: Hi, guys.

Scott: Hi, Bill.

Bill: Thanks for taking my call. I appreciate it.

Scott: Yeah. We appreciate you.

Bill: So, I don't know if I can form this as a question, but I'm just looking for additional input and insight when I'm making big purchases. My wife and I are recently retired and we have a house in Colorado. We sold the house we had previous to that and now we repurchased a new house there. And now we're looking...

Scott: Really quick on that. So, you had a house, probably lived in for a number of years, sold it, bought a new house in Colorado. Did you move up in price or down in price?

Bill: No. It was about cross, a little bit down. But we did make some money off of it. And so that's part of the equation here. The other thing is we're interested in finding a place in Arizona. And so maybe something like a townhome and maybe for around $300,000 is our upper limit. So, I guess my question is I'm trying to get as much input as I can. I have two different financial advisors since you were talking about advisors. And I really trust you guys in how you dissect things, and so I said, "Man, maybe I should call these guys."

Scott: That's good. I appreciate the call. Do you have kids or grandkids in Arizona?

Bill: We have one kid in Arizona and one in Colorado.

Scott: Okay.

Bill: We're both retired, so we have fixed income with our Social Security and then I have a pension income. But we have, from our house sale, $255,000 there. And I also have some inheritance of about $50,000. And so what I'm trying to figure out is...

Scott: And what do you owe on... Do you have a mortgage on your primary home?

Bill: I do. It's $180,000.

Scott: Thirty-year fixed? And [crosstalk 00:32:17]

Bill: It's 30-year fixed, yes, sir. We have two IRAs of about 850K. And, again...

Scott: I'm sorry to ask. The combined value is $850,000?

Bill: Correct. Yeah. And then the house sale was 255K. We've got savings of 25K and an inheritance of, like I said, about $50,000. Okay. So there's a few different ways that we were thinking we could possibly go, and this is what I was looking for input from you. And that is, given the interest rates we have these days, is it good to possibly buy a house, let's say it's $300,000, I could probably put together the funding to do that, and then I wouldn't have a house payment...

Scott: Yes, I like that.

Bill: ...or should we put partial down, maybe $200,000 from the previous house sale, and then have $50,000 to help furnish the house as well as maybe make monthly payments to help out with that for a while?

Pat: What's the interest rate on your primary mortgage? I'm sorry. Before you go to the third. What's your interest...

Bill: That's right. 2.6% I think.

Pat: Okay. All right. And what was your third alternative?

Bill: Oh, the third alternative is just to finance the majority of it and keep cash.

Pat: What's the income from your Social Security and pension?

Bill: Sixty-five.

Pat: And do you live comfortably on that?

Bill: We do well, yes, sir.

Pat: Okay. And how old are you?

Bill: I'm 70, and my wife is 57. Excuse me, 67.

Pat: Okay. I was gonna say, "Wow. Okay. Big spread." I'm not worried about purchasing the home. You could purchase the home. I'm worried about what your lifestyle would look like by servicing... Let's assume we paid cash for these houses. You'll have very little left over on a monthly basis after you're taking care of...

Scott: All the maintenance.

Pat: And of all of those things. Do you like to travel? Do you vacation, or would you just move between these two houses and we'll call it quits?

Bill: Probably the latter because it's so hot in Arizona, and then it gets so cold in Colorado.

Pat: That's right.

Scott: Yeah, yeah. No. A kid in each spot. I mean, it sounds like a perfect situation.

Pat: I was on a Zoom meeting this morning with a guy that lives in New Jersey, but he was on a Zoom meeting from his house in Phoenix.

Scott: Are you taking income from your IRA right now or have you the last couple of years?

Bill: No. A couple of thousand here and there, but no.

Scott: Nothing to speak of.

Bill: I'm not ready for RMD yet. I still got a few years there.

Pat: If I were to do it, I would try to do it all cash. I wouldn't put any debt on it whatsoever. But that's not what worries me. What worries me is what your...

Scott: How much is your pension? I don't think I'm as worried as Pat is. What is your pension a year?

Bill: So, it's $2,000 a month.

Pat: So, like, $24,000.

Bill: So, $24,000 a year.

Scott: If you were to pass away today, what would your spouse get?

Bill: Half.

Pat: Twelve thousand. And your Social Security between the two of you is $41,000 a year.

Bill: Yeah.

Pat: So, Scott, if you did a 5% distribution on the IRAs, so that puts you at about 40K a year. So, if you needed to do that, you'd be at $105,000 a year and you'd be supporting the two houses. You'd leave that debt on that mortgage on your home forever. You're gonna die with that.

Bill: Correct.

Scott: What's that house worth?

Bill: Now, probably $500,000.

Scott: And have you spent any time... Have you ever rented a place in Arizona? Are you pretty confident that you'll be there a good chunk of... I mean, with your family there, this answers the question.

Bill: Right. We're thinking maybe five months a year.

Scott: Yeah. I mean, typically, I would recommend someone go rent something first, but considering your daughter is already there. Do you have grandkids there?

Bill: No.

Scott: Not yet?

Bill: No, no.

Scott: Yeah, I'd pay cash for it, and... I'd pay cash for it. And maybe take a little small distribution from your IRA on a monthly basis to help make up the income needs.

Pat: That's right.

Scott: I mean, look, Pat, if you look 10 years... If at some point down the road you get a little more cash-strapped, you could always sell one of the houses.

Pat: That's right. That's right. That's right. That's right. And you may end up selling the one in Colorado and living in Arizona.

Bill: Correct.

Scott: Or have a small mortgage on it, under $100,000.

Pat: Why would you take a mortgage, though, Scott? Just to not drain off the IRA?

Scott: Yeah. Because he'll be left with almost nothing in the bank.

Pat: But the money in the IRA is completely liquid.

Scott: Yeah. You can take a little from the IRA then.

Pat: I'd try to pay cash and I'd try to stay under the $300,000 mark and then I'd pull any money out for furniture or whatever, drapes, whatever the heck people put in houses. They still put drapes in houses?

Scott: Yeah.

Bill: Yes, they do.

Pat: I would take that.

Scott: I don't know because we did a remodel and I saw what they were gonna charge me for a flippin' rod, a drape rod. I'm like, "Sorry. I'm not spending that on a drape rod. Go find me something different."

Pat: Yeah.

Scott: Anyway.

Pat: Get the burlap like...

Scott: It's amazing.

Pat: Get the burlap like what I grew up with. Yeah, you can make it swing. You could do that. Try to stay under the $300,000 mark. I wouldn't be in any hurry either because you're a cash buyer. I just wouldn't in this marketplace. And I'm not telling you I know where the market is going, but I wouldn't be in a hurry to purchase a home. Scott?

Scott: Yeah, I would agree.

Pat: And I wouldn't worry about the interest rates. I'd pay cash for 100% of it.

Scott: Yeah. I don't know what the market is doing in Arizona. And you might wanna just say, "Why don't we just go lease a place for a year?"

Pat: Yeah, it wouldn't be a bad idea either.

Scott: I can't predict the future, right? Real estate prices could be higher a year from now, they could be lower a year from now. But if I had to make a wager, which is what you're looking at doing, like, the odds of Arizona property values being worth more a year from now than they are today seem pretty small to me. I don't see where the demand is gonna come from.

Pat: We've already seen the shrinkage in at least the acceleration of rents in Arizona. They seem to be coming back on themselves. Most certainly. So, you're gonna go down the...

Scott: But I could be wrong. Maybe it's higher than... I don't know.

Pat: But he's not going to go down to Arizona right now when... Well, you could next month or two, but you won't be there in July or August.

Scott: Unless he finds a great deal on a house that someone needs to sell quickly.

Pat: That's right. So, don't be in a hurry, but pay cash.

Scott: I'd be up for cash. I don't know if I'd leave something... Good point. You're probably not gonna want something in the summer. But it may not be a bad time to be looking and look for a good opportunity.

Pat: But you can make it work.

Scott: By the way, are you still there, Bill? What did your other advisors tell you to do?

Bill: I guess I got a mix. One said, well, one thing, it was more like, you know, put partial down and then use the rest to help you with monthly payments and furnishings. And then the other was... She never really gave us, you know, a really clear direction, but, yeah, [crosstalk 00:40:13]

Scott: By the way, Bill, I think this is a good idea for you. You're 70 and 67. Family is important to you. You want to be closer to your daughter in Arizona. I'm assuming that you all have a good relationship and enjoy seeing each other on a more frequent basis, right?

Bill: Absolutely.

Scott: And for most people, not everybody, for a lot of people, those family relations are the most valuable thing in their lives.

Pat: That's right. And I gotta say, I see these ads...

Scott: That is for me.

Pat: I see these ads, all these retirees traveling, and I think to myself, "That is so aspirational" because if you talk to most retirees and you say, "You're gonna go on a safari in Africa."

Scott: It's gonna take you a day and a half to get there.

Pat: Most of them would say...

Scott: The flight is gonna be delayed, they're gonna lose your luggage.

Pat: It's gonna be uncomfortable. By the way, you can't eat or drink a lot of the food that you're gonna get when... That's all aspirational. But when you really talk to, like, real retirees, over 50% say, "No, I don't plan on... I'm not going anywhere. I'm not traveling."

Scott: And your objective, Bill, at this stage in life is not to make sure you live a lifestyle to have the highest net worth the day you die, right?

Bill: No. No.

Scott: It's to enjoy.

Bill: Correct.

Scott: You've worked hard. You've got a pension. You've put money into Social Security. Your house is almost paid. You've got cash in the bank and you've got almost 1 million bucks in your retirement account.

Pat: Enjoy it.

Scott: Yeah.

Pat: Enjoy.

Scott: I think it's a good move for you.

Bill: That's exactly right. And I tell my wife that, I say, "You know, we've worked our tails off all these years and, my gosh, we need to..."

Scott: And look, maybe you'll both live another 25 years.

Bill: Maybe.

Scott: But maybe you won't, right?

Bill: That's correct.

Scott: It's having that balance. Hey, Bill, really appreciate the fact you called. Unfortunately, we are running out of time on our program. I wanna let you guys know, we've got this coming Wednesday, April 19th, Pat and myself are gonna be in the studio just taking phone calls. So, this program, sometimes we take record calls earlier, whatnot, but we're gonna have just a time in the studio between 1:00 and 2.30 p.m. Pacific time to take your calls. And if you wanna join us, you can sign up at moneymatters.com, questions@moneymatters.com. Just send us an email, questions@moneymatters.com. Or you can call on that day at 833-99-WORTH. It's been great being here with you all, and we appreciate you being listeners of Allworth.

Pat: By the way, if you haven't given us a review in a while, please do so. And if this has been helpful to you, pass it on to one of your friends.

Announcer: This program has been brought to you by Allworth Financial, a registered investment advisory firm. Any ideas presented during this program are not intended to provide specific financial advice. You should consult your own financial advisor, tax consultant, or estate planning attorney to conduct your own due diligence.