A Couple’s Investment Dispute, Market Risks from AI and Politics, and the Caller Who Wants to Retire Early
On this week's Money Matters, Scott and Pat explore how political forces are swaying the markets, plus the growing role of AI in shaping financial decisions. Next, they mediate a financial disagreement between a couple wondering if they should move long-term assets into cash. Finally, they check back in with a listener who wanted to know if he and his wife could retire early enough to truly enjoy their golden years. Find out what Scott and Pat advised—and whether he followed through.
Join Money Matters: Get your most pressing financial questions answered by Allworth's co-founders Scott Hanson and Pat McClain live on-air! Call 833-99-WORTH. Or ask a question by clicking here. You can also be on the air by emailing Scott and Pat at questions@moneymatters.com.
Man: 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-WORTH.
Scott: Welcome to Allworth's "Money Matters." Scott Hanson.
Pat: Pat McClain. Thanks for joining us.
Scott: Glad to be with you as we talk financial matters. Myself and my co-host, both practicing financial advisors, have been doing this program for...I don't know when our 30-year anniversary is, but it's coming up in the next weeks or months or something.
Pat: We've been doing it a while.
Scott: Yeah. It's always good to talk with you and take questions and calls and hear what's going on.
Pat: Yeah. Catch up with you, Mr. Hanson.
Scott: Yeah. And if you want to join the program, questions@moneymatters, probably the best way to send us an email. We'll talk. We've got a good program today. We've got some calls. We're going to talk about some commentary on the markets.
Pat: And then our house call, which is always one of my favorites, which is we visit with someone that we spoke to in the past and catch up on what's the advice we gave.
Scott: And what's transpired. Sometimes, Pat, you have a conversation with somebody, you present an idea, present a recommendation at times, and then it gets them to think about other things, right?
Pat: It transpires into something else.
Scott: And it transpires into something else. And that's why the whole financial planning process is very dynamic. It's not a static thing. I mean, maybe if you're 42 and you're saying, "I want to retire at 60. How much should I save?" All right, that's kind of basic.
Pat: Yeah, that's a math question.
Scott: But particularly as we get further in life and as we start having some savings accumulated in investments, it becomes a little more dynamic. And then it's, how do we think about our lifestyle and how do we think about our estate plan, and do we think about gifting some today, and how do we minimize our tax burdens, and how do we accomplish these objectives while minimizing our tax burdens?
Pat: And are we doing the right thing for the people downstream? The whole gamut. And that's why I like these, what we call, house calls where we just follow up and see what happens. But I do want to talk to you about two things, Scott. One is I know you ran the Boston Marathon. I want to talk about that.
Scott: On Monday, yep.
Pat: And the other is the volatility in the marketplace. I was driving in this morning. I was trying to remember. Has it ever been this volatile in the last 30 years that we've worked together?
Scott: Well, clearly, the financial crisis and the dot-com thing. It's just, what's so fascinating about this one, it feels like self-induced. It's like, ever since Liberation Day, the markets have been going crazy. And we're recording this on Tuesday. What is the day today? The 22nd of April.
Pat: So, we know.
Scott: And so, as of right now, the market's up a little over...the Dow is up a little over a thousand.
Pat: Yesterday it was down, what?
Scott: About a thousand.
Pat: Yes.
Scott: And one thing we need to remember, as the markets go higher and higher and higher, the numbers, as a percentage of your portfolio, mean less and less. So, a thousand.
Pat: But it's still 3%.
Scott: Yeah, 2% to 3%. Yeah.
Pat: It's a pretty big swing for a daily basis.
Scott: That's a big swing on a daily basis. There's no question about that. That is a big swing. And it does feel a little bit self-imposed. This Jerome Powell thing is really...
Pat: Well, you mean, Trump called him a total loser? Is that what it was he sent out in the tweet, a total loser?
Scott: It's, I mean, I don't know. Even the die-hard MAGA can't think that's a good idea to put out on a tweet, the Fed chairman is a total loser.
Pat: I don't think you're garnering friendships.
Scott: Well, I think that's what's a... We really try to stay away from politics on this program, and primarily because we don't think this is the avenue.
Pat: And historically, whether it's a Dem or Republican in office, it has no statistical significance whatsoever...
Scott: That's right. Over the last 100 years.
Pat: ...on the outcome of your portfolio, not on the outcome of your tax planning...
Scott: That's right.
Pat: ...but on the outcome of your investment portfolio.
Scott: Well, but short term, it could be all over the map. And I think, I mean, the reason we're seeing the volatility is the uncertainty. And day by day, it's like, what's happening?
Pat: Are other countries coming to the table to negotiate?
Scott: What does that really mean?
Pat: I don't know. We don't know. I don't know. Yeah.
Scott: We don't really know. We get a tweet every once in a while that it's beautiful or something.
Pat: They say, maybe. But nothing's been really announced. Like, Vietnam hasn't come and said, "Okay, this is what our trade policy looks like with the U.S.," right? That's what you worry.
Scott: So we try to stay out of politics, but the reality is this market volatility is a direct response to the political environment today.
Pat: A hundred percent.
Scott: Yeah.
Pat: But this, too...
Scott: ...shall pass.
Pat: This, too.
Scott: And every downturn in the market looks different. The whole "This time, it's different" is true. It's always a little bit different. Every time there's a recession, it's just different causes for it. And anytime there's a bear market, a 20% decline or more in the stock market, it's a different cause.
Pat: One thing that is always the cause is uncertain visibility into the future.
Scott: People get scared.
Pat: And they react.
Scott: We're humans. Even professional money managers are human.
Pat: Their jobs depend on it.
Scott: And so sometimes they emotionally react. And it's very, very difficult. So I was talking to my...who was I talking to, my brother about...
Pat: This is, what, the risk premium. This is what it's called.
Scott: Why you make more than you would in, say, a money market account.
Pat: This is the risk premium. You're paying it now. You're not paying it when you're making money. You're paying it when you're losing money. That's the risk premium, right?
Scott: And it is so tempting to say, "Why don't I just get on the sidelines and wait till the dust settles?"
Pat: Let's just wait. Let's just wait, right? Even going into the market, if you're a little worried, just go in in tranches. You don't have to go in all at once, but you can go in in tranches.
Scott: You mean if you have cash to invest?
Pat: Yes.
Scott: I think the people it's most challenging for right now, by and large as a group, and this is a very general statement, but it's those that either have just retired or just about to retire.
Pat: I would agree.
Scott: And probably even more so those that have just retired. Because once we retire, we have more time on our hands. We can sit and look at our portfolio all day long and run all kinds of calculations.
Pat: We can actually pull it apart and look and say, "Well, if I didn't own this, I would have done X. If I owned this, I would have done Y."
Scott: That's right.
Pat: Right?
Scott: It's easy. I just remember, years ago, I met with...it was, gosh, 28 years ago.
Pat: We need those sound...
Scott: No, we don't have sound. No, I'm glad we don't have sound effects in the program.
Pat: ...sound effects in the background.
Scott: No, I'm glad we don't have any of that story stuff.
Pat: So he never became a client, but he said to me, "Pat, it's not that difficult." He said, "All you need to do is buy those things that are going to go up in value and not own those things that are going to go easily."
Scott: Okay. I mean, he's a fool.
Pat: Right?
Scott: That's a definition of a fool. I'm sorry.
Pat: Yes. Yes. But it's not that easy. It just isn't that easy, right? Because the market over the short term is driven by emotion. Over the long term, it's driven by earnings.
Scott: Correct. So, right now, we don't really know how this is going to impact earnings of companies over the long term. And one thing I think, Pat, what else is different this time, and let's don't discount the tail when we have the AI transformation that is occurring...
Pat: Thank you.
Scott: It feels a lot like Internet 2.0. Like, first was the dot-com. We had pets.com and some of the kind of...it was just, like....
Pat: Whatever they could sell.
Scott: But then but then companies figured out, like, Amazon figured out, how do we really create a business model off of the internet, and it's transformed business. And right now, when you look at the things that are happening with AI, I think just even within Allworth, the technological improvements we've experienced in the last year or two and making our advisors that much more efficient...
Pat: It's crazy.
Scott: It's kind of nuts in how it's coming fast.
Pat: Yes. Yeah. And things that were really super mundane, right, time-consuming tax returns, right? Tax returns. AI can do the simplest tax returns now. But as it learns, it will be able to do the most complex tax returns.
Scott: And complex financial planning.
Pat: That's right.
Scott: I was talking to a friend who's a chief marketing officer for a relatively large company, and he talked about they did some secret shopping. I think they hired a company to go out and secret shop a bunch of their competitors. And he said he got all these different reports, and he says, "Oh, my gosh, it's going to take me hours to kind of decide." He said he put it all into, I don't know, ChatGPT or one of the ones similar to that.
Pat: To summarize?
Scott: And he said, like, in two minutes, he got this just beautiful summary. I mean, he said, literally, he said, "This would have taken me three to four hours. And now it's immediate."
Pat: Yes.
Scott: But, I mean, I just...
Pat: There's tailwinds. There's absolutely tailwinds.
Scott: Tremendous amount of tailwinds. And I think it's important that we remember that as well because we can get pretty concerned and freaked out about the current markets, and I don't think human nature has changed all that much. The country is not going to set aside and watch tariffs destroy the marketplace.
Pat: Yes.
Scott: It's just not going to happen. No. There's lots of checks and balances in them. And I don't know too many people at all that are terribly excited about all these tariffs.
Pat: I will reserve judgment.
Scott: I'm not asking your opinion. I don't think there's...
Pat: But I think that there are people that are excited about these. I disagree with you. I think some people are very excited about these tariffs because they feel that the U.S. has been taken advantage of for years and years and years. How they are instituted is something completely different.
Scott: Maybe rephrase. Most people that have accumulated significant wealth.
Pat: Okay. Thank you.
Scott: Most of the people we're talking with, I think, are not so excited about the tariff and how it's happening, what's going on?
Pat: Okay. Yes. And the effect on their portfolios.
Scott: Yeah. All right.
Pat: So let's go to some calls.
Scott: All right. We're going to talk here with Anne and Patrick. Anne and Patrick, you're with Allworth's "Money Matters."
Anne: Hi, Scott and Pat. Thanks for taking our call.
Scott: Yes. Nice to have two of you. This is good.
Anne: Your opening remark is actually a perfect segue into our question.
Scott: Oh, good.
Anne: So the volatility of the market has us both pretty freaked out. We're both retired, have been for some time. My husband is going on 72. I just turned 70. And so, recently, my husband has said to me that he would like to basically go all in to cash.
Patrick: In the money market part.
Anne: You know.
Pat: Yes. And how long have you been retired? How many years?
Anne: Well, our first retirement was in 2005. And then the financial crisis hit, and we both went back to work. And then recently re-retired in the end of 2013.
Scott: Okay. So you first retired at 50 and 52.
Anne: Correct.
Scott: Relatively.
Pat: That's young.
Scott: And do you have pensions?
Anne: No.
Scott: Okay.
Pat: Okay.
Patrick: We've been riding this wave of the stock market for a good 20 years now.
Scott: And how did you guys navigate through the financial crisis? Like, what were some of the investment decisions you made as the markets were going crazy then?
Patrick: We didn't do a good job of that one, of 2008.
Scott: Yeah, tell us about it.
Patrick: We lost 50% of our portfolio in that crisis. And since then, we learned that we needed to have more cash available to ride out these waves. And that's what we've done for this one. But my feeling is that this is going to be a long downturn, that even if our leaders decide something different, it's going to take a while to build that trust back with these other countries and that it's going to be a long, long, slow growth back. And I expect that it's going to get far worse before it gets better.
Pat: So let me ask you a question. So back in 2008...
Scott: That's exactly where I was going to go to.
Pat: Go ahead, Scott, go.
Scott: No, go ahead.
Pat: Back in 2008, you said you lost 50% of the portfolio. At one point in time, the portfolio, if you were 100% equities, was down by about 50%. What did you do at that point in time? How did you react?
Anne: So we were actually professionally managed during that.
Pat: Okay.
Anne: And basically, the professional management managed the portfolio through much of that process. Again, whatever buy-and-sell processes, it was done by professional managers.
Pat: Okay.
Anne: And it was, I believe, in 2009 was when we basically stopped doing the professional management. We did not...we went...
Pat: You went to cash? Did you go to cash?
Anne: No, we went very slowly into cash, you know. It wasn't like we sold off a bunch and then went into cash.
Pat: You went to cash... Ultimately, you went to cash, though.
Anne: We went to...again, it was about a four-year, four- to five-year, how much we would need to be able to last four to five years in cash.
Pat: Okay.
Scott: Okay.
Pat: Okay.
Anne: And then the rest, we kept. And so where we're at currently, I can give you some numbers.
Pat: Yeah, fire away, please.
Scott: And by the way, if you tell me today you're 100% stock and you're relying on your portfolio, we would say you need to sell some of your stocks today to have enough cushion.
Anne: No, we're not.
Scott: Okay.
Anne: Right.
Pat: So tell us the account balances and how much income you're taking from them.
Anne: Okay. So, in my IRA, I have 1.2, and then I have a Roth of 380. My husband is pretty much the same, 1.2 in the IRA and 380 in the Roth. The breakdown is about 63% to 64% in stock, 23% in bonds, and about 13% in cash.
Pat: Okay.
Anne: We go through about...we pull out about 110 per year, and that's before taxes. We are currently...
Scott: So it's a little less than 4% of your portfolio.
Pat: Yeah.
Anne: Correct, yeah. We collect Social Security of about 5.4k per month. I have a very, very small pension, and my husband has an inherited IRA. And that combined is about $1,000 per month.
Pat: How much time is left on the inherited IRA?
Patrick: We had the ability. The interesting thing is the thing that's different for me is, in 2008, I had the ability to go back to work.
Scott: That's right.
Patrick: So did my wife.
Scott: That's right.
Patrick: So did Anne. Now, we're looking in our 70s, that's going to be a lot harder, right? And we went back to work, by the way, in 2008. So, you know, she got it...we both got jobs and worked for five years.
Pat: Well, early 50s is pretty young to retire. So let's think about this, right? Because it's not an all or nothing, Patrick. It's not an all or nothing. It doesn't mean, "Hey, either we're in or we're out," right? So, right now, you're about 65%, 60% equities, and the rest is bonds and cash.
Scott: You've got about a decade to go with your withdrawals, and that's even if you increase your withdrawals for inflation, before you have to start selling any stocks. Ten years.
Pat: You've got a long, long time. Part of being a financial advisor, Scott and I have done this for a long, long time, is managing emotion. That is probably...the most difficult part of the portfolio is not actually the portfolio itself. It's the client attached to the portfolio. Did that come out wrong?
Scott: No.
Anne: No.
Patrick: No.
Pat: So, if you were my client, Patrick, if you were my client, I'd acquiesce a little bit. I'd give up 10% of the portfolio and equities just to keep you grounded in the rest, to make you feel good. Because the problem is you want to feel like you're doing something. No one wants to sit in a burning building and think, "Why am I sitting in this burning building?" That's what it feels like.
Anne: I draw the analogy as to, you know, I think we ordered a Lyft to come to our house and pick us up, and what showed up is an Uber, and the driver is drunk. And we can't get out of the car.
Pat: Right? That's how you feel, right?
Anne: That's how it feels.
Pat: And actually, when we started this conversation, Patrick used the word feel twice. He said, "I feel like this time I can't go back to work."
Scott: Well, it's real, right?
Pat: Well, you could. You just don't need to. You don't want to. By the way, you don't have to. Like, if you took every word we said as gospel, Scott and I would say you're fine, right? You're fine. Because you are.
Scott: You are.
Pat: But you don't feel that way.
Anne: No, we don't feel that way.
Pat: So let's give it a little.
Anne: And again, up until, like, even two weeks ago, I was still of the opinion of we just need to...we've got cash that can get us through the next four to five years, so we should be okay. But I tell you, I mean, it is just so. Every day feels like something has blown up.
Pat: I hear it from...
Patrick: I don't want to come out of this in four to five years with half my portfolio.
Pat: I hear it in your voice. I hear it in your voice, right? I hear it in your voice. If you want, you could go all to cash, right? We could put you in a high-yield short-term treasury, and you get...
Scott: You get to a standard 4%.
Pat: Yes. And you won't grow, but you won't shrink either, other than by your distributions.
Scott: Inflation.
Pat: And distribution.
Patrick: And that's exactly what I suggested to my wife. Because I said, "I know we can get 4%. We're living off of 4%. We would come out no worse than where we are right now."
Pat: It's a terrible idea.
Patrick: And we can live on that.
Anne: What's that?
Pat: It's a terrible idea.
Anne: Okay. Okay, convince us why.
Pat: Well, the cost of living 10, 15, 20 years from now is going to be much higher than it is today.
Anne: But at 90, we're not going to be, you know, spending like we have, right? We won't be doing trips, and I mean, obviously...
Pat: Maybe, maybe not.
Anne: ...we won't.
Pat: I have clients in their late 80s that...
Scott: Still travel a lot.
Pat: ...travel a lot. A lot, right?
Scott: Depending on health. Then you can have...
Patrick: I hope we are.
Anne: Yeah, I certainly hope we are.
Patrick: We are. We enjoy that.
Pat: So where we're at right now, you said you're approximately 60 equities.
Scott: And I added your cash and your bonds together because that's not tied to the stock market. You can sell bonds to help produce your income. You've got a decade-plus there. And, like, the most important thing is to have a portfolio that you guys will live with through this turmoil, because it might be done in three weeks. It might be done in three years. That's the problem.
Patrick: You really think in three weeks it would be any better?
Scott: Oh, could be. Oh, no, I don't think...
Pat: It wouldn't surprise me at all if it was better in three weeks.
Patrick: In what way, though? I see, that's the part I'm struggling with.
Pat: It happens.
Patrick: We have done so much damage with our trading partners.
Pat: No. They trade. Look, they trade.
Scott: Very much symbiotic relationships there.
Pat: Look, they trade. We call them...in our industry, we compete with Fidelity and Charles Schwab. We use Fidelity and Charles Schwab, right? They're frenemies. They're friends one day, they're enemies the next. They're frenemies. They don't want us to take clients from them. You know, we don't want them to take clients from us. But we all do business together. And it's the same with trading partners. So it won't take much, right? It will not take much for if Vietnam comes back and says, "Okay, this is the deal we've got."
Scott: Look, the reality is nobody knows what's going to happen in the future.
Pat: But it could be three weeks. It could be three years.
Scott: We might have already hit the lows in the stock market. I don't know. Yeah.
Pat: But we're talking about you and your portfolio.
Anne: Yeah. So back to Pat, you had said something about maybe to, you know, help create more of a buffer, that creates, again, that feeling of, well, one, we've done something, and two, it gives us a little bit more of a cushion, a feeling of safety. You talked about maybe 10%.
Scott: That's right.
Pat: That's right.
Scott: That's right.
Pat: Ten percent. Give up 10% equities, move it into bonds. You're not going to crush yourself, right? You're not going to crush yourself.
Scott: Or money markets, cash, whatever you feel most comfortable with.
Pat: Yeah. Or, you know.
Scott: My treasuries.
Pat: Treasuries.
Scott: CDs, whatever.
Pat: But you're not going to crush yourself by that. But you going all out of the market at this point in time, you're going to crush yourself over the long term.
Scott: And, I mean, I'm picturing clients right now that went to cash in March of 2009, about a week before the bottom of the stock market. Literally, one week prior. And I picture them on my mind, they're retired. Their financial life...not their financial life, their life never came back because the market's recovered, they didn't really quite get back in, it changed the dynamic. And you might look at it and say, "Well, we have over 3 million bucks saved. Like, what do we need to worry about the markets?" But you already have a decade's worth of spending outside of the stock market. If you want, put a little bit more there. But the statistical chance of the market being lower 10 years from now than today is so minor. And there are some risks we can't escape. Let's assume...I mean, if this system of government that we have completely falls apart and the dollar becomes worthless, there's not a lot you're going to be able to do. It's all about political connections at that point.
Patrick: Right.
Anne: Right.
Pat: Well, that's cheery, Scott.
Scott: I'm just saying.
Pat: Right?
Scott: We live in this system. We have to...
Pat: That's right.
Scott: No, the reality...I mean, people talk about, "What if I have gold?" No, you need to be gold. You need to be highly connected. You need to be highly connected politically if we have some complete change.
Anne: Right. We're not interested in going into gold or that sort of thing.
Pat: Thank you.
Anne: You know, again, I mean, like I said, if it was, like, one of those ultimate...
Pat: You can't eat gold.
Anne: You should be buying guns and butter, right?
Pat: Thank you. Thank you. Thank you. Thank you.
Scott: And hire a militia.
Pat: A militia. So give up 10%. Give up 10%, make yourself feel like you did something. Any more than that, you're doing some long-term damage to yourself. And even then, I would try to convince you not to give up the 10%. The problem is, look, the psychological problem is I've kept clients in markets long past the time that they wanted to be.
Scott: That's right. So a month from now might be worse, and you think, "That son of... Hanson and McClain."
Pat: They don't know what they're talking about.
Scott: They're a bunch of idiots.
Pat: And then the coins go out completely. So that's why I mean, psychologically, we're a little bit more apt to give up a little early on because...
Scott: You need to live through this.
Pat: You need to live. You feel hopeless.
Scott: Right.
Anne: Yeah, the primary difference, and I think that Patrick was talking about it, was that at least, you know, during....we lived through the dot-bomb first in 2000, we lived through the financial crisis. But in those two instances, I always felt like we had people within positions of authority that had the complete responsibility for what's happening, and I felt like they were working towards trying to find a solution.
Pat: Okay. So here's what I just heard.
Anne: I don't feel like that now.
Pat: Yeah. Here's what I just heard is you're not a MAGA fan.
Scott: Well, from your position. So my take on things is I think the government does more damage than they do good by and large when it comes to the marketplace.
Pat: Okay.
Scott: I really do. I am a free marketer to my core. And I believe the beautiful thing about the capital markets is there is truth, and money flows to where the companies that provide the goods and services that people want. And when companies are making money, it's just...
Pat: And when the government gets in there, look at all that money that was given to Intel for the CHIPs Act, right? You're less like, "What the heck?"
Scott: So I've never...
Pat: Who would give any money to Intel?
Scott: And the financial crisis, I believe, was created because of the government backing all these crappy loans.
Pat: Lack of regulation.
Anne: Exactly.
Patrick: Yeah.
Scott: So I've never had a lot of faith in our government.
Anne: I agree. I absolutely agree with that. But I truly felt as though that, you know, when things started getting pretty bad that there was an effort to try to make things better. And again, it has nothing to do with the other stuff, you know, red, blue, whatever.
Pat: I get what you're saying. I get what you're saying. That's the view of the world.
Scott: But here's the reality right here. So this is primarily one individual that's pushing the tariffs, right? Trump. I mean, let's call it what it is.
Patrick: Right.
Scott: And most business leaders are not happy about this. There's already been some cracks within his base, right? So, he doesn't have unlimited power. I know that some people think he's...but he really doesn't. We've got Congress that can act. We have the Supreme Court that we can act. We have an impeachment. There's lots of things, checks and balances in place. So he's burning a lot of political capital right now.
Pat: That's true.
Scott: He is burning a lot of political capital. And if the Dow continues to slide and the S&P continues to slide...
Pat: He'll fold.
Scott: Eventually, he's not going to have any friends left. Mar-a-Lago is going to be empty.
Pat: All right. Just make that little minor change in the portfolio and hang in there.
Anne: All right.
Pat: All right. Take care.
Anne: We really appreciate. Thank you.
Pat: All right.
Scott: And we don't know...by the way, we have no idea what's going to happen in the future any more than you do. But if you look over history, if you go back...
Anne: Yeah, I understand. But you certainly have...you know, you're not as emotionally tied to this, although I'm sure you're getting lots of phone calls from clients.
Pat: You know, actually, I got to...people keep asking me that. So I've been doing this for a long time. My newest client has been with me for 15 years, right? So they're not... Right? We've been through the dance multiple times.
Scott: This is part of it.
Pat: This is it.
Anne: Yes, it is.
Scott: This is part of it. It really is. This is how we get the average of stocks. Historically, I've done seven percentage points above that of the rate of inflation since 1925. Seven percentage points above the rate of inflation.
Pat: Why, Scott?
Anne: Yeah.
Scott: Why?
Pat: Risk. The risk.
Scott: Yeah, otherwise, they would have been bit up to the point where, yeah, the yields were low. Anyway, appreciate the call. All right. Wish you guys well.
Anne: All right. Thank you.
Scott: You know, it's funny, you have these conversations, and I mean, very likely, it could be a year from now and the markets are lower than they are today.
Pat: Oh, I know.
Scott: Very likely.
Pat: We've had these conversations.
Scott: I mean, if you go back to the downturn in 2000 to 2002, and my numbers might be slightly off, but I believe we had a peak in March of 2000, the Dow hit 10,000, we didn't hit a low until November of 2002. So there was almost three years. I mean, it was two and a half years of the slowward March down. It'd be down and up a little bit and down, down, down, up a little, down, down, down, up a little down, down. Two and a half years. But that was the Dow was at 10000. This was 25 years ago. The Dow is roughly 40,000, 39,000, 38,000, 41,000, depends on the day.
Pat: It's almost like it grows 7% over the rate of inflation.
Scott: It does. But any five-year period, who knows? It could be all over the map.
Pat: That's why it's a long-term asset. All right. Let's do the house call, Mr. Hanson.
Scott: Yeah. And really it's the time, and, Pat, this is your idea that, originally, you wanted with people we had a conversation with months ago. You wanted to...
Pat: Yeah, I got it from Click and Clack.
Scott: The car guys.
Pat: The car guys.
Scott: Is that what they call themselves?
Pat: The Tappet Brothers. Click and Clack.
Scott: Yeah, I think that shows...
Pat: Yeah. Oh, well, since one of them has died, it's not...
Scott: It's changed the dynamics of the show a bit.
Pat: It's been the same.
Scott: So, yeah, at the beginning of this month, we spoke to a Georgia man named Cass [SP]. He's a podcast listener. He's not an Allworth client. And the lifelong law enforcement officer wanted to see whether he and his wife could retire young enough to enjoy their golden years. And here's a clip from the original call.
Pat: How old are you now?
Cass: I'm 51.
Pat: And how old is your wife?
Cass: She's 49.
Pat: And how many children?
Cass: We have four kids, two adult children who are out of the house and self-sufficient and then two younger kids who are...one is a freshman, one is a sophomore in high school.
Pat: And how much money do you make a year?
Cass: I have a salary of 150.
Scott: You say salary. Do you have much overtime as well?
Cass: No, I'm an appointed position, so I'm a salary position.
Scott: Okay. All right. So it's not like you're working a bunch overtime and making more money that we need to account for or so.
Pat: And do you have money in a 401(k) or 457?
Cass: Yeah, I have a city 457 plan. I've got about 900,000 in that.
Pat: And how much are you putting in?
Cass: I was contributing the max. The last three years, I had to drop down to only putting in 10% because my mother fell ill and had to move in with us. And we had to build a room onto the house. So she recently passed. So I'm actually about ready to move that back up, back to the max.
Pat: What's the value of the home today?
Cass: About some 385.
Pat: And how much do you owe on it?
Cass: A hundred and ten, got 10 years left on a 15-year that I refi at 3.25.
Pat: And do you plan on staying in the home when you retire?
Cass: Yes.
Pat: Okay.
Scott: And how early can you retire?
Cass: So the earliest I'm pension eligible is at 58, and that would be 92,000 a year. The pension is based on years of service, so it doesn't have a cap. So if I work till 60, it's 103. And if I work till 62, it's 113.
Scott: And if you...let's assume you retired, you left your employer at 58. Do you think you'd continue in some sort of work at all?
Cass: I might do some consulting or something, but it would have to be part-time.
Scott: Is that something you think you want to do?
Cass: My daughter's got...we have a grandchild now, so that's really changing your focus, makes you want to spend more time with the kids and the grandkids.
Pat: How is the 457 allocated?
Cass: I'm 72% U.S. stock, 12% international, 9% bonds, and 8% REITs.
Scott: Sounds great. Yeah.
Pat: Actually, that's good.
Scott: So let's assume that you are 58 today, right? You'd have a pension of 92,000. Your 457, some talk about the 4% withdrawal rule, which means you can take 4% out of your principal each year, increase that with inflation. Does your pension have a cost-of-living adjustment?
Cass: It does not.
Scott: Okay. So I think one kind of longer-term risk for retirement for you that we would need to consider is inflation on that and making sure we have assets. Do you have...will you be eligible for Social Security?
Cass: I will.
Scott: Okay.
Cass: Right now, I have an SSI login already. Surprising. And I think I'm at 2,100 a month at 62 right now.
Scott: If you work till 62, you can replace your income without touching your 457. But let's assume for a second you're 58 right now and you've got 900,000, your 457. I might say, let's pull, say, let's call it 3% a year, 27,000 a year could come out. But you're not 58 today. You're 51. So we've got seven more years of contributions and earnings. There's a good chance it'll double in that seven years. Or, look, call it 1.8 and then 3% off of that.
Pat: Fifty-six thousand.
Scott: Fifty-four thousand dollars.
Pat: Fifty-four thousand a year.
Scott: At 58, you got 92,000 pension, another 54,000.
Pat: And then you might even take a little bit more out until Social Security kicks in at the Social Security bridge.
Scott: You'd have more at 58 because, right now, you're contributing to your 457 and you're paying into FICA taxes. Those are the two expenses you only have.
Pat: And then your home mortgage will be close to done. You might actually just want to pay that off at that point in time. You're fine.
Scott: You're on track for retirement at 58.
Pat: Now, mostly because of that pension. The thing that I would actually make sure is that you actually have a will or trust that's up to date. I assume you do.
Cass: Sure.
Pat: Right?
Cass: I do have a will. Actually, I do need to update it, with my youngest two.
Pat: Oh, the youngest two aren't named in it?
Cass: No, it's been 10 years since we did our...15 years since we did our will, so the youngest two aren't on it.
Pat: Okay, that's an issue. That's a big issue, right? So you want to update the will or trust.
Scott: And by the way, on this, don't boil the ocean here. Don't shoot for the perfect estate plan. Your biggest issue is you guys...if something happens today, the biggest issue is who's got the kids. Whoever has the kids, how are they going to fund the expenses?
Pat: That's right.
Scott: And then these dollars, when do the kids get it? And if they don't get it all on their 18th birthday, which you would recommend not, who's responsible for making sure it's doled out correctly so it's a benefit to them and not a detriment?
Pat: And dole it out over time, right?
Cass: Yeah.
Pat: And then the last thing is that you might need some term life insurance. I'm sure you can purchase it through your employer to bridge your wife to that pension.
Cass: Yeah, I've got some now, but I probably do need that. I only got 250.
Pat: My guess is unless that pension accelerates in terms of its payout with an early death, you probably need over $1 million.
Scott: Yeah.
Cass: Okay.
Scott: Yeah.
Pat: In fact...
Scott: I would use some of that inherited money to pay for your insurance. It's really until you retire. You don't need...
Pat: That's right.
Scott: You don't need a whole life...you just need a term until you retire and have the pension. And then I'd look in to see what happens. If you died today, what happens to that pension? Is your wife vested for how much, if any?
Pat: Yes.
Cass: Right. Oh, like, if something happens before I actually die?
Pat: Yeah, that's right.
Scott: You die, yeah.
Pat: So there's...
Scott: It sounds like you're driving right now and talking on the cell phone, which sounds very dangerous.
Cass: No, no, no, no. I actually stepped out.
Scott: I'm just teasing you.
Cass: I'm not driving on the phone.
Pat: So you want to figure out how that works, because many pensions have these cliffs where, look, if you die...
Scott: Fifty-eight to cliff. If he left at 57 and 11 months, you'd have some deferred vested pension.
Pat: Or died.
Cass: Okay.
Scott: The question is, what happens if you die?
Pat: Cass is with us now. Cass, thanks.
Cass: Hello.
Pat: Hello. Thanks for taking some time to join us again.
Scott: So, Cass, where do you...
Cass: Thank you. I appreciate it.
Scott: Where did you land?
Cass: So I went back in after talking to you all, and you all brought up a few things that I hadn't even considered at all. One thing I did figure out, I forgot to mention, I did have some life insurance to work, so I wasn't as bad off as I thought. But I still definitely need to get more. The pension is the one thing that really threw me. I never even thought about it. But I found out, talking to HR, if I pass away before I start claiming, it's only a 50% survivorship.
Pat: Okay, that makes sense.
Cass: And so, obviously, all my planning has been on me taking 100%, which were the numbers I gave you. And so, now, the question is, now that I know that it's a 50, is that just offset by additional life insurance?
Pat: That's correct.
Cass: All right. Okay.
Pat: Because you can't do anything about it, right?
Cass: Right.
Pat: And so, when you go to retire, they're going to give you a menu of choices, which is, do I take 80%? And then, at my death, my wife gets that same 80%.
Scott: Or 88%, whatever the number is.
Pat: Whatever the number is. And oftentimes, it's driven by your age and your spouse's age.
Cass: Yes.
Pat: But you can't do anything about that.
Scott: Typically, you're best getting rid of the life insurance. Right now, you're going to use life insurance to protect your pension because there's nothing you could do right now to ensure that your wife would receive more. Once you go to retire, 99% of the time, I'm making up that number, but the vast majority of the time, you're much better off taking some reduction of your pension to provide a spousal benefit than you are having 100% to you, 0 to your spouse, and trying to use life insurance to bridge that.
Pat: Yeah, what they call...
Scott: Pension maximization.
Pat: ...pension maximization with life...
Scott: Pension minimization.
Pat: ...with life insurance. And that's assuming that you're both in good health. So what drives that that decision is life expectancy. So that's what you ended up with, is just so you're going to plan on retiring at 58 and just going forward.
Cass: Yeah, it'll be either 58 or 60. It'll be somewhere in that.
Scott: Yeah, you'll be perfect. And then, what about the will or trust?
Cass: Yes, that is the next thing.
Pat: Okay.
Cass: That is the next thing on the list of the life insurance, is to get that updated. And, you know, that's one of those things...we've been talking about it for years.
Pat: Oh, you're kidding.
Cass: "You know, we need to get the will updated," and then you just kick it down the road.
Pat: You're kidding. Never heard that. Never heard it. Look, I cannot tell you how many times that we have sent attorneys to someone's home when they are gravely ill because they kicked it down the road so far.
Scott: Well, if you're gravely ill, then you can still do something about it. I had a call early Monday morning last week of a good friend's brother passed away unexpectedly as a freshman in college and a junior in high school. Boom. Like, just...
Pat: That was it.
Scott: Yeah, completely unexpected. And I don't know what estate planning they had done, but it's those things.
Pat: And by the way, estate planning today is not...doing a trust today is not the same as doing a trust 10 years ago. You can do it online. You can do it inexpensively. You can do it with or without the help of an attorney.
Scott: Yeah. You want the basics for yourself.
Cass: Okay.
Scott: Who has custody of the kids? Who's responsible for the financial assets?
Pat: That's it. That's it.
Scott: Those are the main things.
Pat: All-righty. Get it done.
Cass: Awesome.
Pat: Get it done.
Cass: Thank you so much.
Pat: Listen, a goal without a date is nothing but a dream. You've got to get it done. You have to.
Scott: I don't know how many times I've heard that from McClain over the years, "Well, I'm planning on doing this." "When is it going to get done?" "Well, I don't know." "Okay, well, a goal without..."
Pat: A goal without a date is nothing but a dream.
Scott: All right, appreciate the call. All right, Cass.
Cass: Thank you.
Scott: Wish you well. You know, essentially, so even in my own situation, and I still have two minor children, if my wife and I were to die today, there's a couple that would take care of the kids. But there's another person that would be responsible for monitoring those assets.
Pat: That's right.
Scott: They don't have to be the same people.
Pat: Yeah. So two things before we go, because we're almost out of time here. I was asking about the Boston...
Scott: Podcast, you have all the time in the world. You can go eight hours if you want.
Pat: The Boston Marathon. But talking about that, I ended up in the ICU for seven days last week.
Scott: That's a bigger story. I didn't know if you wanted to be public with that.
Pat: Oh, 100%. Because it gets back to this estate planning. So, last Wednesday afternoon, my brother and myself...
Scott: So a week and a half ago.
Pat: A week and a half ago, went for a bike ride, road bike, American River bike trail, beautiful. We went 40 miles. And I was like, "Yeah." I was a little warm, kind of dehydrated. But 40 miles, it's like, "Yeah," you know.
Scott: And you ride quite a bit. You've been a very active person.
Pat: Yeah, yeah, we just...
Scott: You're highly active.
Pat: ...got back from skiing. Highly active, right?
Scott: And how old are you?
Pat: Sixty-two.
Scott: Okay.
Pat: The only thing wrong with my health is a heart murmur. So we go on this bike ride. I'm a little warm. I get off the bike. I kind of get the chills. I've got the chills. I realize I'm a little dehydrated. That's 100%. So I drink a ton of water. Eat half a bowl of soup, salty soup, go to bed. Don't wake up for 36 hours. And when I wake up, right, I don't really wake up. I get out of bed, I pass out. My wife calls an ambulance, brings me to the hospital. And I've got sepsis. Something got into my blood, right, a pathogen, and they don't know why. And it does heart damage. You got this forever now, which was really weird, Scott, because I always worried when you go for a bike ride, because you have friends that have been in accidents, and you're just, "You know, you got to be really careful." Anyway. But when we talk about wills and trusts and things like this...
Scott: You don't think, "I'm going to go on a ride. Better be careful because I might be septic."
Pat: That's right.
Scott: That doesn't cross your mind.
Pat: Yeah. Right. Yes. So anyway, so when people talk about wills and trusts, and I was...they called an ambulance, transported me. I don't remember the first three days in the hospital. I was in the ICU. Then, fortunately, they had an infectious disease specialist that came in and diagnosed me right away and put me on injectable antibiotics and put a little tube from my arm into my heart to spray these antibiotics. I don't know if it's spraying. Anyway, so.
Scott: And I thought of the irony, when Pat was right out of college, he spent a couple of years with a pharmaceutical sales rep selling intravenous antibiotics, right?
Pat: Exactly, these kind of things that actually save these types of lives.
Scott: Yes. Here you are, a recipient of that.
Pat: So when you put off the will and trust, don't put off the will and trust. It's not that big of a deal. People make it like it's a big deal. You can do it from the privacy of your own home. You can do it online. It's easy.
Scott: And how's your health today, Pat, and your future prognosis? Because, obviously...
Pat: Well, I've got...I'm on injectable antibiotics for six weeks, but I'm up and around.
Scott: In the studio today.
Pat: Infection is mostly cleared in my body, mostly. But, you know, in the whole process, I had little mini strokes. So you can't see it facially, but I had a couple of mini strokes, they say I should recover mostly from. So if I make mistakes, it's not my fault.
Scott: Nice.
Pat: Anyway, tell us about the Boston Marathon.
Scott: Oh, it's not nearly as interesting as your story. Your story is...
Pat: Oh, Scott, it was terrible. Well, tell me about the Boston Marathon. How many times have you run it?
Scott: This is my third time, Boston Marathon.
Pat: Okay.
Scott: But the fun...I was with a good friend, Dave Cantor, who's been in the industry for a financial services firm.
Pat: I did not know you ran it with Dave Cantor.
Scott: Yes. I was a guest at their house. He picked me up. I flew out Easter morning, a 5 a.m. flight, to get there. He picks me up at the airport, have dinner with his family that evening, stay at his house. His wife drives us to the start in the morning. Complete VIP.
Pat: And it's on a Monday.
Scott: It's on Monday. It's on All Saints' Day.
Pat: Why is that? Oh, got it.
Scott: Or Patriots' Day.
Pat: And what firm was Dave Cantor with?
Scott: Fidelity, for years. Now, he's got his own kind of consulting thing. But, yeah, it was a great experience. It was great. The thing is...
Pat: And what was your time? Am I allowed to ask that?
Scott: Yeah. 3:25 and some change, 3:25.
Pat: What was it 10 years ago?
Scott: My best was 2:59. I only did that once. Typically, 3:00. I got to tell you, being 58, I'm running the thing, I almost got teared up around mile four. Like, I just was so grateful for...
Pat: What mile?
Scott: About four or five.
Pat: Okay.
Scott: Like, I'm 58. I still have...I'm able to do this. I have my health. I've got a friend who's...I mean, we all have friends that have health issues.
Pat: Now, you have one, too, in me.
Scott: A friend. No, I was thinking...I mean, you and there's a couple of others that are going through stuff, you know, all that right now. And so, I don't know, just felt really grateful.
Pat: Oh, that's nice.
Scott: The only hitch was, at the end, they had arranged me to shower up and have a meal at this private club in downtown Boston, the swing club. Actually, I had dinner there a couple of years ago with a different colleague and was kind of excited. This would be fun. And so his poor wife was there to meet us. And there's an accident. She was about an hour late, so I'm just kind of sitting down on the sidewalk.
Pat: No, you're sitting there?
Scott: Because I can't get into the club without...
Pat: Oh, without them.
Scott: Yeah, yeah. And then, because it was the Boston Marathon, they weren't operating valet parking that day. There was nowhere for a park, so she couldn't come in long enough for me to order. She got me in enough to...I was able to use the shower and clean up. But I was not...
Pat: Not lunch.
Scott: Yeah, I tried. I went to the counter, and they said, "Sorry, you need a member here." And I'm...
Pat: You tried.
Scott: So I didn't have that. And then I flew home, Monday night.
Pat: So it was there and back.
Scott: Two days. It was a mistake flying home afterwards.
Pat: Were you sore?
Scott: Yeah. Yeah. And I ran a slightly slow...slower, I probably wouldn't have been sore. It's interesting.
Pat: Or not at all.
Scott: If I had not run, I would not have been sore. Anyway, I don't know why we're talking about this garbage.
Pat: All right. Well, because I asked.
Scott: You did ask.
Pat: I was interested.
Scott: Your story is much more interesting.
Pat: Oh, anyway, thank God. Thank God.
Scott: And for those who listen to the podcast or show last week, you'll know how different it is without Pat on the show. First time.
Pat: Oh, yeah, I apologize for that.
Scott: Don't apologize. It was just, like, so out of character for you. I've seen Pat with nasty colds and stuff. You just push through.
Pat: Oh, I was sick.
Scott: Yeah, you were really sick that time. That's true.
Pat: Yeah, yeah, actually. I would have felt bad if I hadn't gone to the hospital after going in sick.
Scott: Well, that was...
Pat: Yes. It's almost like I had to.
Scott: I broke my ankle on a mountaineering expedition 15 years ago.
Pat: And you made it.
Scott: And the mountain guide said, "Well, maybe it's just a bad sprain." And I was lifted on...
Pat: I remember that.
Scott: ...a rope from a helicopter. And I remember thinking, "It's better. I don't think I'd be broken now because..." "Oh, it's just a little sprain, Scotty." Anyway.
Pat: Too much.
Scott: We'll see you again next week. This has been Scott Hanson and Pat McClain, Allworth's "Money Matters."
Man: 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.
Scott: Welcome to Allworth's "Money Matters." Scott Hanson.
Pat: Pat McClain. Thanks for joining us.
Scott: Glad to be with you as we talk financial matters. Myself and my co-host, both practicing financial advisors, have been doing this program for...I don't know when our 30-year anniversary is, but it's coming up in the next weeks or months or something.
Pat: We've been doing it a while.
Scott: Yeah. It's always good to talk with you and take questions and calls and hear what's going on.
Pat: Yeah. Catch up with you, Mr. Hanson.
Scott: Yeah. And if you want to join the program, questions@moneymatters, probably the best way to send us an email. We'll talk. We've got a good program today. We've got some calls. We're going to talk about some commentary on the markets.
Pat: And then our house call, which is always one of my favorites, which is we visit with someone that we spoke to in the past and catch up on what's the advice we gave.
Scott: And what's transpired. Sometimes, Pat, you have a conversation with somebody, you present an idea, present a recommendation at times, and then it gets them to think about other things, right?
Pat: It transpires into something else.
Scott: And it transpires into something else. And that's why the whole financial planning process is very dynamic. It's not a static thing. I mean, maybe if you're 42 and you're saying, "I want to retire at 60. How much should I save?" All right, that's kind of basic.
Pat: Yeah, that's a math question.
Scott: But particularly as we get further in life and as we start having some savings accumulated in investments, it becomes a little more dynamic. And then it's, how do we think about our lifestyle and how do we think about our estate plan, and do we think about gifting some today, and how do we minimize our tax burdens, and how do we accomplish these objectives while minimizing our tax burdens?
Pat: And are we doing the right thing for the people downstream? The whole gamut. And that's why I like these, what we call, house calls where we just follow up and see what happens. But I do want to talk to you about two things, Scott. One is I know you ran the Boston Marathon. I want to talk about that.
Scott: On Monday, yep.
Pat: And the other is the volatility in the marketplace. I was driving in this morning. I was trying to remember. Has it ever been this volatile in the last 30 years that we've worked together?
Scott: Well, clearly, the financial crisis and the dot-com thing. It's just, what's so fascinating about this one, it feels like self-induced. It's like, ever since Liberation Day, the markets have been going crazy. And we're recording this on Tuesday. What is the day today? The 22nd of April.
Pat: So, we know.
Scott: And so, as of right now, the market's up a little over...the Dow is up a little over a thousand.
Pat: Yesterday it was down, what?
Scott: About a thousand.
Pat: Yes.
Scott: And one thing we need to remember, as the markets go higher and higher and higher, the numbers, as a percentage of your portfolio, mean less and less. So, a thousand.
Pat: But it's still 3%.
Scott: Yeah, 2% to 3%. Yeah.
Pat: It's a pretty big swing for a daily basis.
Scott: That's a big swing on a daily basis. There's no question about that. That is a big swing. And it does feel a little bit self-imposed. This Jerome Powell thing is really...
Pat: Well, you mean, Trump called him a total loser? Is that what it was he sent out in the tweet, a total loser?
Scott: It's, I mean, I don't know. Even the die-hard MAGA can't think that's a good idea to put out on a tweet, the Fed chairman is a total loser.
Pat: I don't think you're garnering friendships.
Scott: Well, I think that's what's a... We really try to stay away from politics on this program, and primarily because we don't think this is the avenue.
Pat: And historically, whether it's a Dem or Republican in office, it has no statistical significance whatsoever...
Scott: That's right. Over the last 100 years.
Pat: ...on the outcome of your portfolio, not on the outcome of your tax planning...
Scott: That's right.
Pat: ...but on the outcome of your investment portfolio.
Scott: Well, but short term, it could be all over the map. And I think, I mean, the reason we're seeing the volatility is the uncertainty. And day by day, it's like, what's happening?
Pat: Are other countries coming to the table to negotiate?
Scott: What does that really mean?
Pat: I don't know. We don't know. I don't know. Yeah.
Scott: We don't really know. We get a tweet every once in a while that it's beautiful or something.
Pat: They say, maybe. But nothing's been really announced. Like, Vietnam hasn't come and said, "Okay, this is what our trade policy looks like with the U.S.," right? That's what you worry.
Scott: So we try to stay out of politics, but the reality is this market volatility is a direct response to the political environment today.
Pat: A hundred percent.
Scott: Yeah.
Pat: But this, too...
Scott: ...shall pass.
Pat: This, too.
Scott: And every downturn in the market looks different. The whole "This time, it's different" is true. It's always a little bit different. Every time there's a recession, it's just different causes for it. And anytime there's a bear market, a 20% decline or more in the stock market, it's a different cause.
Pat: One thing that is always the cause is uncertain visibility into the future.
Scott: People get scared.
Pat: And they react.
Scott: We're humans. Even professional money managers are human.
Pat: Their jobs depend on it.
Scott: And so sometimes they emotionally react. And it's very, very difficult. So I was talking to my...who was I talking to, my brother about...
Pat: This is, what, the risk premium. This is what it's called.
Scott: Why you make more than you would in, say, a money market account.
Pat: This is the risk premium. You're paying it now. You're not paying it when you're making money. You're paying it when you're losing money. That's the risk premium, right?
Scott: And it is so tempting to say, "Why don't I just get on the sidelines and wait till the dust settles?"
Pat: Let's just wait. Let's just wait, right? Even going into the market, if you're a little worried, just go in in tranches. You don't have to go in all at once, but you can go in in tranches.
Scott: You mean if you have cash to invest?
Pat: Yes.
Scott: I think the people it's most challenging for right now, by and large as a group, and this is a very general statement, but it's those that either have just retired or just about to retire.
Pat: I would agree.
Scott: And probably even more so those that have just retired. Because once we retire, we have more time on our hands. We can sit and look at our portfolio all day long and run all kinds of calculations.
Pat: We can actually pull it apart and look and say, "Well, if I didn't own this, I would have done X. If I owned this, I would have done Y."
Scott: That's right.
Pat: Right?
Scott: It's easy. I just remember, years ago, I met with...it was, gosh, 28 years ago.
Pat: We need those sound...
Scott: No, we don't have sound. No, I'm glad we don't have sound effects in the program.
Pat: ...sound effects in the background.
Scott: No, I'm glad we don't have any of that story stuff.
Pat: So he never became a client, but he said to me, "Pat, it's not that difficult." He said, "All you need to do is buy those things that are going to go up in value and not own those things that are going to go easily."
Scott: Okay. I mean, he's a fool.
Pat: Right?
Scott: That's a definition of a fool. I'm sorry.
Pat: Yes. Yes. But it's not that easy. It just isn't that easy, right? Because the market over the short term is driven by emotion. Over the long term, it's driven by earnings.
Scott: Correct. So, right now, we don't really know how this is going to impact earnings of companies over the long term. And one thing I think, Pat, what else is different this time, and let's don't discount the tail when we have the AI transformation that is occurring...
Pat: Thank you.
Scott: It feels a lot like Internet 2.0. Like, first was the dot-com. We had pets.com and some of the kind of...it was just, like....
Pat: Whatever they could sell.
Scott: But then but then companies figured out, like, Amazon figured out, how do we really create a business model off of the internet, and it's transformed business. And right now, when you look at the things that are happening with AI, I think just even within Allworth, the technological improvements we've experienced in the last year or two and making our advisors that much more efficient...
Pat: It's crazy.
Scott: It's kind of nuts in how it's coming fast.
Pat: Yes. Yeah. And things that were really super mundane, right, time-consuming tax returns, right? Tax returns. AI can do the simplest tax returns now. But as it learns, it will be able to do the most complex tax returns.
Scott: And complex financial planning.
Pat: That's right.
Scott: I was talking to a friend who's a chief marketing officer for a relatively large company, and he talked about they did some secret shopping. I think they hired a company to go out and secret shop a bunch of their competitors. And he said he got all these different reports, and he says, "Oh, my gosh, it's going to take me hours to kind of decide." He said he put it all into, I don't know, ChatGPT or one of the ones similar to that.
Pat: To summarize?
Scott: And he said, like, in two minutes, he got this just beautiful summary. I mean, he said, literally, he said, "This would have taken me three to four hours. And now it's immediate."
Pat: Yes.
Scott: But, I mean, I just...
Pat: There's tailwinds. There's absolutely tailwinds.
Scott: Tremendous amount of tailwinds. And I think it's important that we remember that as well because we can get pretty concerned and freaked out about the current markets, and I don't think human nature has changed all that much. The country is not going to set aside and watch tariffs destroy the marketplace.
Pat: Yes.
Scott: It's just not going to happen. No. There's lots of checks and balances in them. And I don't know too many people at all that are terribly excited about all these tariffs.
Pat: I will reserve judgment.
Scott: I'm not asking your opinion. I don't think there's...
Pat: But I think that there are people that are excited about these. I disagree with you. I think some people are very excited about these tariffs because they feel that the U.S. has been taken advantage of for years and years and years. How they are instituted is something completely different.
Scott: Maybe rephrase. Most people that have accumulated significant wealth.
Pat: Okay. Thank you.
Scott: Most of the people we're talking with, I think, are not so excited about the tariff and how it's happening, what's going on?
Pat: Okay. Yes. And the effect on their portfolios.
Scott: Yeah. All right.
Pat: So let's go to some calls.
Scott: All right. We're going to talk here with Anne and Patrick. Anne and Patrick, you're with Allworth's "Money Matters."
Anne: Hi, Scott and Pat. Thanks for taking our call.
Scott: Yes. Nice to have two of you. This is good.
Anne: Your opening remark is actually a perfect segue into our question.
Scott: Oh, good.
Anne: So the volatility of the market has us both pretty freaked out. We're both retired, have been for some time. My husband is going on 72. I just turned 70. And so, recently, my husband has said to me that he would like to basically go all in to cash.
Patrick: In the money market part.
Anne: You know.
Pat: Yes. And how long have you been retired? How many years?
Anne: Well, our first retirement was in 2005. And then the financial crisis hit, and we both went back to work. And then recently re-retired in the end of 2013.
Scott: Okay. So you first retired at 50 and 52.
Anne: Correct.
Scott: Relatively.
Pat: That's young.
Scott: And do you have pensions?
Anne: No.
Scott: Okay.
Pat: Okay.
Patrick: We've been riding this wave of the stock market for a good 20 years now.
Scott: And how did you guys navigate through the financial crisis? Like, what were some of the investment decisions you made as the markets were going crazy then?
Patrick: We didn't do a good job of that one, of 2008.
Scott: Yeah, tell us about it.
Patrick: We lost 50% of our portfolio in that crisis. And since then, we learned that we needed to have more cash available to ride out these waves. And that's what we've done for this one. But my feeling is that this is going to be a long downturn, that even if our leaders decide something different, it's going to take a while to build that trust back with these other countries and that it's going to be a long, long, slow growth back. And I expect that it's going to get far worse before it gets better.
Pat: So let me ask you a question. So back in 2008...
Scott: That's exactly where I was going to go to.
Pat: Go ahead, Scott, go.
Scott: No, go ahead.
Pat: Back in 2008, you said you lost 50% of the portfolio. At one point in time, the portfolio, if you were 100% equities, was down by about 50%. What did you do at that point in time? How did you react?
Anne: So we were actually professionally managed during that.
Pat: Okay.
Anne: And basically, the professional management managed the portfolio through much of that process. Again, whatever buy-and-sell processes, it was done by professional managers.
Pat: Okay.
Anne: And it was, I believe, in 2009 was when we basically stopped doing the professional management. We did not...we went...
Pat: You went to cash? Did you go to cash?
Anne: No, we went very slowly into cash, you know. It wasn't like we sold off a bunch and then went into cash.
Pat: You went to cash... Ultimately, you went to cash, though.
Anne: We went to...again, it was about a four-year, four- to five-year, how much we would need to be able to last four to five years in cash.
Pat: Okay.
Scott: Okay.
Pat: Okay.
Anne: And then the rest, we kept. And so where we're at currently, I can give you some numbers.
Pat: Yeah, fire away, please.
Scott: And by the way, if you tell me today you're 100% stock and you're relying on your portfolio, we would say you need to sell some of your stocks today to have enough cushion.
Anne: No, we're not.
Scott: Okay.
Anne: Right.
Pat: So tell us the account balances and how much income you're taking from them.
Anne: Okay. So, in my IRA, I have 1.2, and then I have a Roth of 380. My husband is pretty much the same, 1.2 in the IRA and 380 in the Roth. The breakdown is about 63% to 64% in stock, 23% in bonds, and about 13% in cash.
Pat: Okay.
Anne: We go through about...we pull out about 110 per year, and that's before taxes. We are currently...
Scott: So it's a little less than 4% of your portfolio.
Pat: Yeah.
Anne: Correct, yeah. We collect Social Security of about 5.4k per month. I have a very, very small pension, and my husband has an inherited IRA. And that combined is about $1,000 per month.
Pat: How much time is left on the inherited IRA?
Patrick: We had the ability. The interesting thing is the thing that's different for me is, in 2008, I had the ability to go back to work.
Scott: That's right.
Patrick: So did my wife.
Scott: That's right.
Patrick: So did Anne. Now, we're looking in our 70s, that's going to be a lot harder, right? And we went back to work, by the way, in 2008. So, you know, she got it...we both got jobs and worked for five years.
Pat: Well, early 50s is pretty young to retire. So let's think about this, right? Because it's not an all or nothing, Patrick. It's not an all or nothing. It doesn't mean, "Hey, either we're in or we're out," right? So, right now, you're about 65%, 60% equities, and the rest is bonds and cash.
Scott: You've got about a decade to go with your withdrawals, and that's even if you increase your withdrawals for inflation, before you have to start selling any stocks. Ten years.
Pat: You've got a long, long time. Part of being a financial advisor, Scott and I have done this for a long, long time, is managing emotion. That is probably...the most difficult part of the portfolio is not actually the portfolio itself. It's the client attached to the portfolio. Did that come out wrong?
Scott: No.
Anne: No.
Patrick: No.
Pat: So, if you were my client, Patrick, if you were my client, I'd acquiesce a little bit. I'd give up 10% of the portfolio and equities just to keep you grounded in the rest, to make you feel good. Because the problem is you want to feel like you're doing something. No one wants to sit in a burning building and think, "Why am I sitting in this burning building?" That's what it feels like.
Anne: I draw the analogy as to, you know, I think we ordered a Lyft to come to our house and pick us up, and what showed up is an Uber, and the driver is drunk. And we can't get out of the car.
Pat: Right? That's how you feel, right?
Anne: That's how it feels.
Pat: And actually, when we started this conversation, Patrick used the word feel twice. He said, "I feel like this time I can't go back to work."
Scott: Well, it's real, right?
Pat: Well, you could. You just don't need to. You don't want to. By the way, you don't have to. Like, if you took every word we said as gospel, Scott and I would say you're fine, right? You're fine. Because you are.
Scott: You are.
Pat: But you don't feel that way.
Anne: No, we don't feel that way.
Pat: So let's give it a little.
Anne: And again, up until, like, even two weeks ago, I was still of the opinion of we just need to...we've got cash that can get us through the next four to five years, so we should be okay. But I tell you, I mean, it is just so. Every day feels like something has blown up.
Pat: I hear it from...
Patrick: I don't want to come out of this in four to five years with half my portfolio.
Pat: I hear it in your voice. I hear it in your voice, right? I hear it in your voice. If you want, you could go all to cash, right? We could put you in a high-yield short-term treasury, and you get...
Scott: You get to a standard 4%.
Pat: Yes. And you won't grow, but you won't shrink either, other than by your distributions.
Scott: Inflation.
Pat: And distribution.
Patrick: And that's exactly what I suggested to my wife. Because I said, "I know we can get 4%. We're living off of 4%. We would come out no worse than where we are right now."
Pat: It's a terrible idea.
Patrick: And we can live on that.
Anne: What's that?
Pat: It's a terrible idea.
Anne: Okay. Okay, convince us why.
Pat: Well, the cost of living 10, 15, 20 years from now is going to be much higher than it is today.
Anne: But at 90, we're not going to be, you know, spending like we have, right? We won't be doing trips, and I mean, obviously...
Pat: Maybe, maybe not.
Anne: ...we won't.
Pat: I have clients in their late 80s that...
Scott: Still travel a lot.
Pat: ...travel a lot. A lot, right?
Scott: Depending on health. Then you can have...
Patrick: I hope we are.
Anne: Yeah, I certainly hope we are.
Patrick: We are. We enjoy that.
Pat: So where we're at right now, you said you're approximately 60 equities.
Scott: And I added your cash and your bonds together because that's not tied to the stock market. You can sell bonds to help produce your income. You've got a decade-plus there. And, like, the most important thing is to have a portfolio that you guys will live with through this turmoil, because it might be done in three weeks. It might be done in three years. That's the problem.
Patrick: You really think in three weeks it would be any better?
Scott: Oh, could be. Oh, no, I don't think...
Pat: It wouldn't surprise me at all if it was better in three weeks.
Patrick: In what way, though? I see, that's the part I'm struggling with.
Pat: It happens.
Patrick: We have done so much damage with our trading partners.
Pat: No. They trade. Look, they trade.
Scott: Very much symbiotic relationships there.
Pat: Look, they trade. We call them...in our industry, we compete with Fidelity and Charles Schwab. We use Fidelity and Charles Schwab, right? They're frenemies. They're friends one day, they're enemies the next. They're frenemies. They don't want us to take clients from them. You know, we don't want them to take clients from us. But we all do business together. And it's the same with trading partners. So it won't take much, right? It will not take much for if Vietnam comes back and says, "Okay, this is the deal we've got."
Scott: Look, the reality is nobody knows what's going to happen in the future.
Pat: But it could be three weeks. It could be three years.
Scott: We might have already hit the lows in the stock market. I don't know. Yeah.
Pat: But we're talking about you and your portfolio.
Anne: Yeah. So back to Pat, you had said something about maybe to, you know, help create more of a buffer, that creates, again, that feeling of, well, one, we've done something, and two, it gives us a little bit more of a cushion, a feeling of safety. You talked about maybe 10%.
Scott: That's right.
Pat: That's right.
Scott: That's right.
Pat: Ten percent. Give up 10% equities, move it into bonds. You're not going to crush yourself, right? You're not going to crush yourself.
Scott: Or money markets, cash, whatever you feel most comfortable with.
Pat: Yeah. Or, you know.
Scott: My treasuries.
Pat: Treasuries.
Scott: CDs, whatever.
Pat: But you're not going to crush yourself by that. But you going all out of the market at this point in time, you're going to crush yourself over the long term.
Scott: And, I mean, I'm picturing clients right now that went to cash in March of 2009, about a week before the bottom of the stock market. Literally, one week prior. And I picture them on my mind, they're retired. Their financial life...not their financial life, their life never came back because the market's recovered, they didn't really quite get back in, it changed the dynamic. And you might look at it and say, "Well, we have over 3 million bucks saved. Like, what do we need to worry about the markets?" But you already have a decade's worth of spending outside of the stock market. If you want, put a little bit more there. But the statistical chance of the market being lower 10 years from now than today is so minor. And there are some risks we can't escape. Let's assume...I mean, if this system of government that we have completely falls apart and the dollar becomes worthless, there's not a lot you're going to be able to do. It's all about political connections at that point.
Patrick: Right.
Anne: Right.
Pat: Well, that's cheery, Scott.
Scott: I'm just saying.
Pat: Right?
Scott: We live in this system. We have to...
Pat: That's right.
Scott: No, the reality...I mean, people talk about, "What if I have gold?" No, you need to be gold. You need to be highly connected. You need to be highly connected politically if we have some complete change.
Anne: Right. We're not interested in going into gold or that sort of thing.
Pat: Thank you.
Anne: You know, again, I mean, like I said, if it was, like, one of those ultimate...
Pat: You can't eat gold.
Anne: You should be buying guns and butter, right?
Pat: Thank you. Thank you. Thank you. Thank you.
Scott: And hire a militia.
Pat: A militia. So give up 10%. Give up 10%, make yourself feel like you did something. Any more than that, you're doing some long-term damage to yourself. And even then, I would try to convince you not to give up the 10%. The problem is, look, the psychological problem is I've kept clients in markets long past the time that they wanted to be.
Scott: That's right. So a month from now might be worse, and you think, "That son of... Hanson and McClain."
Pat: They don't know what they're talking about.
Scott: They're a bunch of idiots.
Pat: And then the coins go out completely. So that's why I mean, psychologically, we're a little bit more apt to give up a little early on because...
Scott: You need to live through this.
Pat: You need to live. You feel hopeless.
Scott: Right.
Anne: Yeah, the primary difference, and I think that Patrick was talking about it, was that at least, you know, during....we lived through the dot-bomb first in 2000, we lived through the financial crisis. But in those two instances, I always felt like we had people within positions of authority that had the complete responsibility for what's happening, and I felt like they were working towards trying to find a solution.
Pat: Okay. So here's what I just heard.
Anne: I don't feel like that now.
Pat: Yeah. Here's what I just heard is you're not a MAGA fan.
Scott: Well, from your position. So my take on things is I think the government does more damage than they do good by and large when it comes to the marketplace.
Pat: Okay.
Scott: I really do. I am a free marketer to my core. And I believe the beautiful thing about the capital markets is there is truth, and money flows to where the companies that provide the goods and services that people want. And when companies are making money, it's just...
Pat: And when the government gets in there, look at all that money that was given to Intel for the CHIPs Act, right? You're less like, "What the heck?"
Scott: So I've never...
Pat: Who would give any money to Intel?
Scott: And the financial crisis, I believe, was created because of the government backing all these crappy loans.
Pat: Lack of regulation.
Anne: Exactly.
Patrick: Yeah.
Scott: So I've never had a lot of faith in our government.
Anne: I agree. I absolutely agree with that. But I truly felt as though that, you know, when things started getting pretty bad that there was an effort to try to make things better. And again, it has nothing to do with the other stuff, you know, red, blue, whatever.
Pat: I get what you're saying. I get what you're saying. That's the view of the world.
Scott: But here's the reality right here. So this is primarily one individual that's pushing the tariffs, right? Trump. I mean, let's call it what it is.
Patrick: Right.
Scott: And most business leaders are not happy about this. There's already been some cracks within his base, right? So, he doesn't have unlimited power. I know that some people think he's...but he really doesn't. We've got Congress that can act. We have the Supreme Court that we can act. We have an impeachment. There's lots of things, checks and balances in place. So he's burning a lot of political capital right now.
Pat: That's true.
Scott: He is burning a lot of political capital. And if the Dow continues to slide and the S&P continues to slide...
Pat: He'll fold.
Scott: Eventually, he's not going to have any friends left. Mar-a-Lago is going to be empty.
Pat: All right. Just make that little minor change in the portfolio and hang in there.
Anne: All right.
Pat: All right. Take care.
Anne: We really appreciate. Thank you.
Pat: All right.
Scott: And we don't know...by the way, we have no idea what's going to happen in the future any more than you do. But if you look over history, if you go back...
Anne: Yeah, I understand. But you certainly have...you know, you're not as emotionally tied to this, although I'm sure you're getting lots of phone calls from clients.
Pat: You know, actually, I got to...people keep asking me that. So I've been doing this for a long time. My newest client has been with me for 15 years, right? So they're not... Right? We've been through the dance multiple times.
Scott: This is part of it.
Pat: This is it.
Anne: Yes, it is.
Scott: This is part of it. It really is. This is how we get the average of stocks. Historically, I've done seven percentage points above that of the rate of inflation since 1925. Seven percentage points above the rate of inflation.
Pat: Why, Scott?
Anne: Yeah.
Scott: Why?
Pat: Risk. The risk.
Scott: Yeah, otherwise, they would have been bit up to the point where, yeah, the yields were low. Anyway, appreciate the call. All right. Wish you guys well.
Anne: All right. Thank you.
Scott: You know, it's funny, you have these conversations, and I mean, very likely, it could be a year from now and the markets are lower than they are today.
Pat: Oh, I know.
Scott: Very likely.
Pat: We've had these conversations.
Scott: I mean, if you go back to the downturn in 2000 to 2002, and my numbers might be slightly off, but I believe we had a peak in March of 2000, the Dow hit 10,000, we didn't hit a low until November of 2002. So there was almost three years. I mean, it was two and a half years of the slowward March down. It'd be down and up a little bit and down, down, down, up a little, down, down, down, up a little down, down. Two and a half years. But that was the Dow was at 10000. This was 25 years ago. The Dow is roughly 40,000, 39,000, 38,000, 41,000, depends on the day.
Pat: It's almost like it grows 7% over the rate of inflation.
Scott: It does. But any five-year period, who knows? It could be all over the map.
Pat: That's why it's a long-term asset. All right. Let's do the house call, Mr. Hanson.
Scott: Yeah. And really it's the time, and, Pat, this is your idea that, originally, you wanted with people we had a conversation with months ago. You wanted to...
Pat: Yeah, I got it from Click and Clack.
Scott: The car guys.
Pat: The car guys.
Scott: Is that what they call themselves?
Pat: The Tappet Brothers. Click and Clack.
Scott: Yeah, I think that shows...
Pat: Yeah. Oh, well, since one of them has died, it's not...
Scott: It's changed the dynamics of the show a bit.
Pat: It's been the same.
Scott: So, yeah, at the beginning of this month, we spoke to a Georgia man named Cass [SP]. He's a podcast listener. He's not an Allworth client. And the lifelong law enforcement officer wanted to see whether he and his wife could retire young enough to enjoy their golden years. And here's a clip from the original call.
Pat: How old are you now?
Cass: I'm 51.
Pat: And how old is your wife?
Cass: She's 49.
Pat: And how many children?
Cass: We have four kids, two adult children who are out of the house and self-sufficient and then two younger kids who are...one is a freshman, one is a sophomore in high school.
Pat: And how much money do you make a year?
Cass: I have a salary of 150.
Scott: You say salary. Do you have much overtime as well?
Cass: No, I'm an appointed position, so I'm a salary position.
Scott: Okay. All right. So it's not like you're working a bunch overtime and making more money that we need to account for or so.
Pat: And do you have money in a 401(k) or 457?
Cass: Yeah, I have a city 457 plan. I've got about 900,000 in that.
Pat: And how much are you putting in?
Cass: I was contributing the max. The last three years, I had to drop down to only putting in 10% because my mother fell ill and had to move in with us. And we had to build a room onto the house. So she recently passed. So I'm actually about ready to move that back up, back to the max.
Pat: What's the value of the home today?
Cass: About some 385.
Pat: And how much do you owe on it?
Cass: A hundred and ten, got 10 years left on a 15-year that I refi at 3.25.
Pat: And do you plan on staying in the home when you retire?
Cass: Yes.
Pat: Okay.
Scott: And how early can you retire?
Cass: So the earliest I'm pension eligible is at 58, and that would be 92,000 a year. The pension is based on years of service, so it doesn't have a cap. So if I work till 60, it's 103. And if I work till 62, it's 113.
Scott: And if you...let's assume you retired, you left your employer at 58. Do you think you'd continue in some sort of work at all?
Cass: I might do some consulting or something, but it would have to be part-time.
Scott: Is that something you think you want to do?
Cass: My daughter's got...we have a grandchild now, so that's really changing your focus, makes you want to spend more time with the kids and the grandkids.
Pat: How is the 457 allocated?
Cass: I'm 72% U.S. stock, 12% international, 9% bonds, and 8% REITs.
Scott: Sounds great. Yeah.
Pat: Actually, that's good.
Scott: So let's assume that you are 58 today, right? You'd have a pension of 92,000. Your 457, some talk about the 4% withdrawal rule, which means you can take 4% out of your principal each year, increase that with inflation. Does your pension have a cost-of-living adjustment?
Cass: It does not.
Scott: Okay. So I think one kind of longer-term risk for retirement for you that we would need to consider is inflation on that and making sure we have assets. Do you have...will you be eligible for Social Security?
Cass: I will.
Scott: Okay.
Cass: Right now, I have an SSI login already. Surprising. And I think I'm at 2,100 a month at 62 right now.
Scott: If you work till 62, you can replace your income without touching your 457. But let's assume for a second you're 58 right now and you've got 900,000, your 457. I might say, let's pull, say, let's call it 3% a year, 27,000 a year could come out. But you're not 58 today. You're 51. So we've got seven more years of contributions and earnings. There's a good chance it'll double in that seven years. Or, look, call it 1.8 and then 3% off of that.
Pat: Fifty-six thousand.
Scott: Fifty-four thousand dollars.
Pat: Fifty-four thousand a year.
Scott: At 58, you got 92,000 pension, another 54,000.
Pat: And then you might even take a little bit more out until Social Security kicks in at the Social Security bridge.
Scott: You'd have more at 58 because, right now, you're contributing to your 457 and you're paying into FICA taxes. Those are the two expenses you only have.
Pat: And then your home mortgage will be close to done. You might actually just want to pay that off at that point in time. You're fine.
Scott: You're on track for retirement at 58.
Pat: Now, mostly because of that pension. The thing that I would actually make sure is that you actually have a will or trust that's up to date. I assume you do.
Cass: Sure.
Pat: Right?
Cass: I do have a will. Actually, I do need to update it, with my youngest two.
Pat: Oh, the youngest two aren't named in it?
Cass: No, it's been 10 years since we did our...15 years since we did our will, so the youngest two aren't on it.
Pat: Okay, that's an issue. That's a big issue, right? So you want to update the will or trust.
Scott: And by the way, on this, don't boil the ocean here. Don't shoot for the perfect estate plan. Your biggest issue is you guys...if something happens today, the biggest issue is who's got the kids. Whoever has the kids, how are they going to fund the expenses?
Pat: That's right.
Scott: And then these dollars, when do the kids get it? And if they don't get it all on their 18th birthday, which you would recommend not, who's responsible for making sure it's doled out correctly so it's a benefit to them and not a detriment?
Pat: And dole it out over time, right?
Cass: Yeah.
Pat: And then the last thing is that you might need some term life insurance. I'm sure you can purchase it through your employer to bridge your wife to that pension.
Cass: Yeah, I've got some now, but I probably do need that. I only got 250.
Pat: My guess is unless that pension accelerates in terms of its payout with an early death, you probably need over $1 million.
Scott: Yeah.
Cass: Okay.
Scott: Yeah.
Pat: In fact...
Scott: I would use some of that inherited money to pay for your insurance. It's really until you retire. You don't need...
Pat: That's right.
Scott: You don't need a whole life...you just need a term until you retire and have the pension. And then I'd look in to see what happens. If you died today, what happens to that pension? Is your wife vested for how much, if any?
Pat: Yes.
Cass: Right. Oh, like, if something happens before I actually die?
Pat: Yeah, that's right.
Scott: You die, yeah.
Pat: So there's...
Scott: It sounds like you're driving right now and talking on the cell phone, which sounds very dangerous.
Cass: No, no, no, no. I actually stepped out.
Scott: I'm just teasing you.
Cass: I'm not driving on the phone.
Pat: So you want to figure out how that works, because many pensions have these cliffs where, look, if you die...
Scott: Fifty-eight to cliff. If he left at 57 and 11 months, you'd have some deferred vested pension.
Pat: Or died.
Cass: Okay.
Scott: The question is, what happens if you die?
Pat: Cass is with us now. Cass, thanks.
Cass: Hello.
Pat: Hello. Thanks for taking some time to join us again.
Scott: So, Cass, where do you...
Cass: Thank you. I appreciate it.
Scott: Where did you land?
Cass: So I went back in after talking to you all, and you all brought up a few things that I hadn't even considered at all. One thing I did figure out, I forgot to mention, I did have some life insurance to work, so I wasn't as bad off as I thought. But I still definitely need to get more. The pension is the one thing that really threw me. I never even thought about it. But I found out, talking to HR, if I pass away before I start claiming, it's only a 50% survivorship.
Pat: Okay, that makes sense.
Cass: And so, obviously, all my planning has been on me taking 100%, which were the numbers I gave you. And so, now, the question is, now that I know that it's a 50, is that just offset by additional life insurance?
Pat: That's correct.
Cass: All right. Okay.
Pat: Because you can't do anything about it, right?
Cass: Right.
Pat: And so, when you go to retire, they're going to give you a menu of choices, which is, do I take 80%? And then, at my death, my wife gets that same 80%.
Scott: Or 88%, whatever the number is.
Pat: Whatever the number is. And oftentimes, it's driven by your age and your spouse's age.
Cass: Yes.
Pat: But you can't do anything about that.
Scott: Typically, you're best getting rid of the life insurance. Right now, you're going to use life insurance to protect your pension because there's nothing you could do right now to ensure that your wife would receive more. Once you go to retire, 99% of the time, I'm making up that number, but the vast majority of the time, you're much better off taking some reduction of your pension to provide a spousal benefit than you are having 100% to you, 0 to your spouse, and trying to use life insurance to bridge that.
Pat: Yeah, what they call...
Scott: Pension maximization.
Pat: ...pension maximization with life...
Scott: Pension minimization.
Pat: ...with life insurance. And that's assuming that you're both in good health. So what drives that that decision is life expectancy. So that's what you ended up with, is just so you're going to plan on retiring at 58 and just going forward.
Cass: Yeah, it'll be either 58 or 60. It'll be somewhere in that.
Scott: Yeah, you'll be perfect. And then, what about the will or trust?
Cass: Yes, that is the next thing.
Pat: Okay.
Cass: That is the next thing on the list of the life insurance, is to get that updated. And, you know, that's one of those things...we've been talking about it for years.
Pat: Oh, you're kidding.
Cass: "You know, we need to get the will updated," and then you just kick it down the road.
Pat: You're kidding. Never heard that. Never heard it. Look, I cannot tell you how many times that we have sent attorneys to someone's home when they are gravely ill because they kicked it down the road so far.
Scott: Well, if you're gravely ill, then you can still do something about it. I had a call early Monday morning last week of a good friend's brother passed away unexpectedly as a freshman in college and a junior in high school. Boom. Like, just...
Pat: That was it.
Scott: Yeah, completely unexpected. And I don't know what estate planning they had done, but it's those things.
Pat: And by the way, estate planning today is not...doing a trust today is not the same as doing a trust 10 years ago. You can do it online. You can do it inexpensively. You can do it with or without the help of an attorney.
Scott: Yeah. You want the basics for yourself.
Cass: Okay.
Scott: Who has custody of the kids? Who's responsible for the financial assets?
Pat: That's it. That's it.
Scott: Those are the main things.
Pat: All-righty. Get it done.
Cass: Awesome.
Pat: Get it done.
Cass: Thank you so much.
Pat: Listen, a goal without a date is nothing but a dream. You've got to get it done. You have to.
Scott: I don't know how many times I've heard that from McClain over the years, "Well, I'm planning on doing this." "When is it going to get done?" "Well, I don't know." "Okay, well, a goal without..."
Pat: A goal without a date is nothing but a dream.
Scott: All right, appreciate the call. All right, Cass.
Cass: Thank you.
Scott: Wish you well. You know, essentially, so even in my own situation, and I still have two minor children, if my wife and I were to die today, there's a couple that would take care of the kids. But there's another person that would be responsible for monitoring those assets.
Pat: That's right.
Scott: They don't have to be the same people.
Pat: Yeah. So two things before we go, because we're almost out of time here. I was asking about the Boston...
Scott: Podcast, you have all the time in the world. You can go eight hours if you want.
Pat: The Boston Marathon. But talking about that, I ended up in the ICU for seven days last week.
Scott: That's a bigger story. I didn't know if you wanted to be public with that.
Pat: Oh, 100%. Because it gets back to this estate planning. So, last Wednesday afternoon, my brother and myself...
Scott: So a week and a half ago.
Pat: A week and a half ago, went for a bike ride, road bike, American River bike trail, beautiful. We went 40 miles. And I was like, "Yeah." I was a little warm, kind of dehydrated. But 40 miles, it's like, "Yeah," you know.
Scott: And you ride quite a bit. You've been a very active person.
Pat: Yeah, yeah, we just...
Scott: You're highly active.
Pat: ...got back from skiing. Highly active, right?
Scott: And how old are you?
Pat: Sixty-two.
Scott: Okay.
Pat: The only thing wrong with my health is a heart murmur. So we go on this bike ride. I'm a little warm. I get off the bike. I kind of get the chills. I've got the chills. I realize I'm a little dehydrated. That's 100%. So I drink a ton of water. Eat half a bowl of soup, salty soup, go to bed. Don't wake up for 36 hours. And when I wake up, right, I don't really wake up. I get out of bed, I pass out. My wife calls an ambulance, brings me to the hospital. And I've got sepsis. Something got into my blood, right, a pathogen, and they don't know why. And it does heart damage. You got this forever now, which was really weird, Scott, because I always worried when you go for a bike ride, because you have friends that have been in accidents, and you're just, "You know, you got to be really careful." Anyway. But when we talk about wills and trusts and things like this...
Scott: You don't think, "I'm going to go on a ride. Better be careful because I might be septic."
Pat: That's right.
Scott: That doesn't cross your mind.
Pat: Yeah. Right. Yes. So anyway, so when people talk about wills and trusts, and I was...they called an ambulance, transported me. I don't remember the first three days in the hospital. I was in the ICU. Then, fortunately, they had an infectious disease specialist that came in and diagnosed me right away and put me on injectable antibiotics and put a little tube from my arm into my heart to spray these antibiotics. I don't know if it's spraying. Anyway, so.
Scott: And I thought of the irony, when Pat was right out of college, he spent a couple of years with a pharmaceutical sales rep selling intravenous antibiotics, right?
Pat: Exactly, these kind of things that actually save these types of lives.
Scott: Yes. Here you are, a recipient of that.
Pat: So when you put off the will and trust, don't put off the will and trust. It's not that big of a deal. People make it like it's a big deal. You can do it from the privacy of your own home. You can do it online. It's easy.
Scott: And how's your health today, Pat, and your future prognosis? Because, obviously...
Pat: Well, I've got...I'm on injectable antibiotics for six weeks, but I'm up and around.
Scott: In the studio today.
Pat: Infection is mostly cleared in my body, mostly. But, you know, in the whole process, I had little mini strokes. So you can't see it facially, but I had a couple of mini strokes, they say I should recover mostly from. So if I make mistakes, it's not my fault.
Scott: Nice.
Pat: Anyway, tell us about the Boston Marathon.
Scott: Oh, it's not nearly as interesting as your story. Your story is...
Pat: Oh, Scott, it was terrible. Well, tell me about the Boston Marathon. How many times have you run it?
Scott: This is my third time, Boston Marathon.
Pat: Okay.
Scott: But the fun...I was with a good friend, Dave Cantor, who's been in the industry for a financial services firm.
Pat: I did not know you ran it with Dave Cantor.
Scott: Yes. I was a guest at their house. He picked me up. I flew out Easter morning, a 5 a.m. flight, to get there. He picks me up at the airport, have dinner with his family that evening, stay at his house. His wife drives us to the start in the morning. Complete VIP.
Pat: And it's on a Monday.
Scott: It's on Monday. It's on All Saints' Day.
Pat: Why is that? Oh, got it.
Scott: Or Patriots' Day.
Pat: And what firm was Dave Cantor with?
Scott: Fidelity, for years. Now, he's got his own kind of consulting thing. But, yeah, it was a great experience. It was great. The thing is...
Pat: And what was your time? Am I allowed to ask that?
Scott: Yeah. 3:25 and some change, 3:25.
Pat: What was it 10 years ago?
Scott: My best was 2:59. I only did that once. Typically, 3:00. I got to tell you, being 58, I'm running the thing, I almost got teared up around mile four. Like, I just was so grateful for...
Pat: What mile?
Scott: About four or five.
Pat: Okay.
Scott: Like, I'm 58. I still have...I'm able to do this. I have my health. I've got a friend who's...I mean, we all have friends that have health issues.
Pat: Now, you have one, too, in me.
Scott: A friend. No, I was thinking...I mean, you and there's a couple of others that are going through stuff, you know, all that right now. And so, I don't know, just felt really grateful.
Pat: Oh, that's nice.
Scott: The only hitch was, at the end, they had arranged me to shower up and have a meal at this private club in downtown Boston, the swing club. Actually, I had dinner there a couple of years ago with a different colleague and was kind of excited. This would be fun. And so his poor wife was there to meet us. And there's an accident. She was about an hour late, so I'm just kind of sitting down on the sidewalk.
Pat: No, you're sitting there?
Scott: Because I can't get into the club without...
Pat: Oh, without them.
Scott: Yeah, yeah. And then, because it was the Boston Marathon, they weren't operating valet parking that day. There was nowhere for a park, so she couldn't come in long enough for me to order. She got me in enough to...I was able to use the shower and clean up. But I was not...
Pat: Not lunch.
Scott: Yeah, I tried. I went to the counter, and they said, "Sorry, you need a member here." And I'm...
Pat: You tried.
Scott: So I didn't have that. And then I flew home, Monday night.
Pat: So it was there and back.
Scott: Two days. It was a mistake flying home afterwards.
Pat: Were you sore?
Scott: Yeah. Yeah. And I ran a slightly slow...slower, I probably wouldn't have been sore. It's interesting.
Pat: Or not at all.
Scott: If I had not run, I would not have been sore. Anyway, I don't know why we're talking about this garbage.
Pat: All right. Well, because I asked.
Scott: You did ask.
Pat: I was interested.
Scott: Your story is much more interesting.
Pat: Oh, anyway, thank God. Thank God.
Scott: And for those who listen to the podcast or show last week, you'll know how different it is without Pat on the show. First time.
Pat: Oh, yeah, I apologize for that.
Scott: Don't apologize. It was just, like, so out of character for you. I've seen Pat with nasty colds and stuff. You just push through.
Pat: Oh, I was sick.
Scott: Yeah, you were really sick that time. That's true.
Pat: Yeah, yeah, actually. I would have felt bad if I hadn't gone to the hospital after going in sick.
Scott: Well, that was...
Pat: Yes. It's almost like I had to.
Scott: I broke my ankle on a mountaineering expedition 15 years ago.
Pat: And you made it.
Scott: And the mountain guide said, "Well, maybe it's just a bad sprain." And I was lifted on...
Pat: I remember that.
Scott: ...a rope from a helicopter. And I remember thinking, "It's better. I don't think I'd be broken now because..." "Oh, it's just a little sprain, Scotty." Anyway.
Pat: Too much.
Scott: We'll see you again next week. This has been Scott Hanson and Pat McClain, Allworth's "Money Matters."
Man: 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.