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

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

Pat: I'm Pat McClain. Thanks for joining us. Yeah, glad you are here. Taking some time to be part of our lives, both myself and my co-host, both practicing financial advisors. We spend weekdays helping people like yourself and spend broadcast anywhere on the weekends, hopefully helping you. And love taking your calls, answering questions, talking about what's going on in the current world, the financial markets. Hopefully by being part of the program, you could have a little more confidence in your own finances. It's a little peace of mind sometimes.

Scott: It was funny, we were this week we had a number of our advisors together. And for over a couple days had a dinner and just chatting. And I was talking with one of our advisors. We were talking about how interesting it is that we have no wealthy clients. What I mean by that is very few people consider themselves wealthy. So, the person with $2 million says, "Well, clearly, I'm not wealthy. I mean, if I had 5 million, I'd be wealthy." And the person with 5 million says, "Well, I'm not wealthy. I mean, if I had 20 million, then it'd be wealthy." The guy with 20 million, like, "Well, I don't know. You know how expensive it is to do this and that? I've got this. If I had a 100 million, then I'd be wealthy." And, like, there's very little correlation between how much you have in net worth and savings and financial confidence.

Pat: How you feel about it.

Scott: And in part, I think it's those that have done a great job saving, do so because of concern about the future, looking for finances to provide some security. And there's always that portion of it that could be fleeting because there's inflation could eat it up. The stock market can crash, our systems of government, the debt. I mean, if you wanna be awake at 2:00 in the morning and think of all the things that can derail your finances, whether you've got 500,000 say for retirement or 500 million, you can still have a whole list of worries.

Pat: That's confidence.

Scott: Or lack thereof of confidence.

Pat: That's right.

Scott: Yeah. And studies have shown that the people that have a spending plan in place along with an investment plan tend to have more confidence in their finances because then they can remind themselves, "Wait a minute. Even if I'm somebody who charters a private plane or spends, has huge lifestyle, if you can kind of say, here's what I'm spending," Whether you're that person or someone who's got modest savings for retirement, model it out and know with a high degree of confidence that you're gonna be able to maintain your standard of living throughout the rest of your life.

Pat: Based upon what you need to live.

Scott: Based upon what you need.

Pat: And to allow the portfolios to go through cycles.

Scott: Yeah. It was interesting. Wall Street Journal had an article this past week. They asked readers to write in about those who aren't planning on retiring. And they probably did 10 different stories of people. Here's why I'm not planning retiring. Here's why I'm not planning retiring. And you look at the reality, people end up retiring because sometimes the workplace doesn't want 'em anymore or for cognitive reasons. Some might say the person in the White House might...should be in retirement for cognitive reasons. But the key, I think, what we've discovered with people is not necessarily the retirement, being in a position where retirement's an option. So, you're going to work not for the paycheck, not for the financial security. You're going to work for some other reasons. And so, getting to the point where you are financially confident, financially independent, whether or not you work, that in of itself can be a quite a freeing thing.

Pat: Yes, it was. So, we had a bunch of advisors. And I had a conversation with a gentleman who has an adult son. And he said his adult son's mother-in-law and father-in-law had passed away and that his wife had come into a large inheritance. And he said it took his own son less than three years to blow through all of it. It was quite large, all of it. And he said...

Scott: Like, six figure, seven figure?

Pat: Seven figures. And, you know, he said, the son would ask me questions about what to do, but then never took the advice and went through all of it. And he said, "I've got three children. And two of 'em have never acted like that." But the one that inherited the money was like, "We hit the lotto, and we're gonna get rid of it as quickly as possible." And so, he made this observation if they ask questions, but they don't listen. And he said, "And at some point in time, I just quit giving them advice because I knew what was gonna happen. And why waste my time on that?" And I thought to myself, "Isn't this strange that this financial advisor who struggled and built his business and was quite successful then integrated with us how his own children could watch this?" And it made no difference. And I thought nature nurture, I mean, right?

Scott: Yeah. And they always get a kick out of parents. You know, first time parents with young kids and they're doing all these things because it's all gonna work out this. They've got all the whole plan for their kids' lives, right? And if anyone has adult kids, you know that most of the time their hopes and dreams for their lives aren't necessarily your hopes and dreams for their lives.

Pat: They're going to go their own direction.

Scott: So, here's this guy who goes into the profession of financial planning in large part for same reason a lot of psychologists doing stuff, right, their own issues.

Pat: Yeah, yeah, yeah.

Scott: And here his son watching.

Pat: Oh, and he was just so troubled by it. He was just really kind of like it was so hard to watch. And I said, "You know, you just gotta give it up."

Scott: Well, it's always easier looking at someone else's kid and say, "Why don't you just relax and enjoy the journey?"

Pat: I guess that's true. I guess that's true.

Scott: Why don't you just relax? You have no control. It's all gonna work out.

Pat: Yeah.

Scott: Maybe not the way you like but it's gonna work out.

Pat: I did point out, I said, you know, the good thing is unless there's mental illness or addiction, no one starves in America. That was my condolences to him.

Scott: They probably had a good few years.

Pat: I wish I was their neighbor.

Scott: "Hey, you having a party again Friday night? What wine are we drinking tonight?"

Pat: I remember in high school, one of my friends had lost an eye in a BB gun accident when he was 18. He came into all this money from a settlement.

Scott: Oh, no.

Pat: Oh yes. We're 18. He was like, "Let's go here." I'm like, "I don't have any money." He's like, "I got plenty. Like, let's do this. Let's have a big party"

Scott: Young people and money is usually a bad combination.

Pat: You wanna be very, very careful. Well, we've seen it with clients. We've seen it with clients. Their kids get...

Scott: A hundred percent.

Pat: ...settlements or inheritances and it derails.

Scott: Yeah. On that, by the way, I mean, unless your kids are of an age and a responsibility that they can handle an inheritance, we would recommend you structure your estate plan in such a way that there's some limitations on their ability to spend the dollars. And not all kids... I know a lot of parents they wanna be totally equal. I've never taken that approach in life. I've got four kids. Like, they're all different. I'm not gonna be equal. They all have different needs, like, whatever. It's just reality. And it's structured differently where I've got one that I don't think this one is ever gonna be good with money. So, should my wife and I die early, there's some money for her there. She can get a little bit of income based on some factors. She's not getting the principle of it.

Pat: Yes.

Scott: I don't know if she'll ever have control of the principle of it, the way it's structured.

Pat: And the others, you don't have it that same way.

Scott: I've got two minors still. So, yeah. I've got another adult kid that...

Pat: Am I still...

Scott: My son...

Pat: One second, Scott. Years ago, you told me that I was the trustee. Am I still?

Scott: You are for my older two. Yes.

Pat: Am I still?

Scott: You want that job?

Pat: I'll be okay.

Scott: Yep. If they want any money to like start a business, they gotta get it from Pat. Perfect. Yeah, I do have a successor listed, Pat.

Pat: Okay. Thank you. So, but by the way, if you're named as a trustee of an estate, you do not have to actually take that job. You can actually hire a third party trustee or you can name the successor trust.

Scott: Considering Pat and I've been business partners for 30 some years.

Pat: I think I'll be all right.

Scott: All right. Let's take some calls here. If you wanna be part of our program, 833-99-WORTH will get you on Allworth's "Money Matters," 833-99-WORTH. We're in Pennsylvania with Crystal. Crystal, you're with Allworth's "Money Matters."

Crystal: Yes.

Scott: Hi, Crystal.

Crystal: Hello.

Scott: Hello.

Crystal: How are you?

Scott: We're really good.

Pat: Good. What can we do to help or try to help?

Crystal: Okay, well, I am recently retired from an elementary teacher.

Scott: Oh, thank you. Not thank you for retiring. I mean, thank you for being an elementary teacher.

Pat: How many years?

Crystal: Thirty five.

Pat: In what grade?

Crystal: I actually taught them all from kindergarten to fourth and then a semester in fifth grade.

Pat: That is some hard work. I went on a field trip with my daughter's fifth grade class last week, 30 kids to a... Where did we go? We went to a university, a planetarium in the university. And I gotta tell you, Crystal, I couldn't make it as a teacher for more than a day.

Scott: This last Thursday, I drove a carpool with my neighbors. I had six kids in the car in our suburban, six kids, kindergarten through seventh grade. And I literally remember thinking to myself. I'm being very transparent. "I hate this." That's what I thought. Just because there's fighting, the sibling fighting and the ones angry. The whole thing, I'm like this is not a good way to start the day. So, God bless.

Pat: Thank you. Thank you for your...

Scott: Thank you for your service. No kidding.

Crystal: I have really enjoyed it. It was a gift of God.

Scott: Wonderful. Good for you.

Crystal: Well, yes. So, that's where I am in my income. And I have not done a good job doing a lot of savings, but thank goodness for a pension. And now, I have come into an inheritance just a slightly around six digit or six, you know, digit inheritance. My father passed away in June of last year.

Scott: Sorry about that.

Crystal: Thank you. And so, now, my husband and I are trying to make some decisions about what is the best thing to do with that, whether to put it over, roll it over into the 403(k), which is going to be changing when I turn 60, 403(b) right?

Scott: That's correct.

Crystal: Okay. Just to put it in there, or whether to go ahead and pay off our mortgage, which in 2011, we had a 30-year mortgage. So, we still have about 47,000 left on that.

Pat: What's the interest rate?

Crystal: It's a low interest rate actually. And right now, we're currently paying about 500 a month.

Pat: Okay. So, let's start with this. How old are you?

Crystal: I am 59.

Pat: And your spouse?

Crystal: Sixty three.

Pat: And what's your...

Scott: And is he retired?

Crystal: He is our building and grounds supervisor at our church. And he has not always worked.

Scott: My guess it's not a high-paid job.

Crystal: Correct. And he has been a stay-at-home dad for our two children for many of the years. And so, his income is... And so, we are also trying to figure out, this is a second thing, what option to take in my retirement for the pension. So, it's sort of a twofold thing, but yes. His income is not very high. We do not have savings. We're lucky to live paycheck by paycheck. But, you know, with a Dave Ramsey program, we have done all of the... We have no debt.

Pat: Other than the mortgage.

Crystal: The mortgage is it.

Pat: And by the way, so, we have the utmost respect for Dave Ramsey. And his they call 'em baby steps or money steps or all these different programs, which are very thematic. And you can follow 'em if you have the discipline. What will your monthly pension be as a joint and survivor? So, you're going to get the highest benefit to him at your debt.

Scott: She hasn't made that decision yet.

Pat: I understand. But we're gonna start with someone. We'll start with that because that will tell us what the lowest monthly pension that you will receive.

Crystal: Okay. If I were to go 100% where he would get 100%, it would be about 4,000 a month. If we went with a 50% option, that would be about 4,000 a month. So, yeah. Well, they're close. Well, it's 3,960 to 4,118.

Pat: Okay. And so, it's 4,000 a month. We're gonna go with that. Are you Social Security eligible?

Crystal: Yes.

Scott: Is your husband?

Crystal: Yes.

Scott: Okay.

Pat: And no money in savings?

Scott: She got 403(b).

Crystal: Yes, and we actually have been putting our youngest son through college without any debt. So, that pretty much has been where our... You know, when he came into working, my husband did. We just pretty much saved that away for college expenses.

Pat: And how much money is in your 403(b)?

Crystal: Oh, about 250, 000.

Pat: Oh, you've done okay. You've done all right.

Crystal: Oh, okay. Okay.

Pat: You've done, okay.

Crystal: Well, that's the pension. I mean, that's not...

Scott: Yeah, yeah. Yeah. If you didn't have the pension, you would be in trouble.

Pat: Yes.

Crystal: Exactly. Yes.

Scott: But you would've known that as through your career and like, had made some other plans.

Crystal: Yes. Right.

Scott: What was your income just prior to retirement? So, your pension's about 48,000 a year. What were you at before?

Crystal: So, are you speaking just my income or combined?

Scott: Yes. Just your income.

Crystal: My income was 77,000.

Scott: And how much have you been saving into your 403(b) the last few years?

Crystal: No. This is just the rollover...

Scott: No, no. But were you saving, when you were working, were you saving into your 403(b)?

Crystal: No.

Scott: Okay. So, the 250,000 came from years prior?

Crystal: Yes.

Scott: Okay. Just trying to get an idea what it cost to run the household for.

Pat: And so, you inherited, it's $1 million. How much did you inherit?

Crystal: No, no, no, no.

Scott: Six figures, not seven.

Pat: Oh, six.

Crystal: Not seven. And actually, the lowest, you know, it's just gonna be about 100, 000.

Scott: Okay. And your $500 a month mortgage, is that including taxes and insurance? Or is that just principle and interest?

Crystal: Principle and interest. Oh, no, actually, I think it is everything. Let's go with everything.

Scott: And what do you have in the bank?

Crystal: Not much.

Scott: Like, I think you just keep these dollars pretty conservative. First of all, you can't roll them into your 403(b) because that's a tax shelter program. It has to be separate.

Pat: It has to come out of your income in this. And because you're actually retired, there's ways that you do workarounds, but it doesn't work once you're retired.

Scott: If I were in your situation, I would probably take that 100,000 and just put it in some high interest savings. And at the same time, I would take the 403(b) and allocate that a little more aggressively. Just because if you think about over the next decade, I mean, you're gonna have Social Security kicking at some point in time in the future, which we haven't discussed. But you've got some expenses that come up. You need a new car. You need to replace the roof or I mean...

Pat: You wouldn't have her pay off the mortgage. I've worked with you a long time. You're vacillating on this one.

Scott: Well, that's why I asked this. My guess is 200 bucks a month of it is taxes and insurance.

Pat: Yes.

Scott: Is that right? And what's the interest rate on it?

Crystal: You know, my husband does that part. I just know that it was a low one when we got it. So, five, five-ish.

Scott: It's probably lower than that. It's gonna be lower than that.

Pat: I gotta tell you, Scott...

Crystal: It might even be lower than that. It was in 2011. It was probably three.

Scott: You think they should just pay off the mortgage?

Pat: Look, this is the most thing financially...

Scott: It's a push.

Pat: Yeah. Financially, you could make an argument why you should keep it in the bank and not pay off the mortgage. I just think for peace of mind...

Crystal: That's what we were leaning towards. And I'm gonna throw in this too. I am a breast cancer survivor. I worry about going before him. I have been seven years cancer-free right now, but yeah, as I'm thinking peace of mind possibly.

Pat: Here's what I would do. I would actually take the full, based on the information you just gave us, I'd take the full joint and survivor on the pension...

Scott: Joint 100%.

Pat: ...joint 100% on the pension because of the information you just shared with us and then he is older, I'd pay off that mortgage. I'd put the rest of it in a high yield savings account. I'd reallocate that 403(b). I'd roll it into an IRA and I would...

Crystal: Yeah. Yeah. That is gonna happen when I turn 60.

Scott: And with your husband working right now, are you able to manage... You haven't started the pension yet, have you? So, we'll see how the time goes...

Crystal: Right, right.

Scott: ...cash flow wise, because you could always start a little bit distribution from that 403(b), but with your husband working, I would try to hold off.

Pat: I would as well.

Crystal: Yeah. He's gonna work until he's 65. You can take your Social Security at 65?

Pat: You can take it at 62...

Crystal: Or Medicare. Yeah.

Pat: ...if you're not working.




Scott: Medicare at 65.

Pat: Medicare, Medicare at 65. But I wouldn't make that decision today. I'd wait until he was 65. I mean, he works at a church groundskeeper. Does he like the work?

Crystal: Yes. He's very intelligent. I mean, it's a long story. We won't go into that one. But yes. He enjoys the work. He enjoys different things.

Pat: You might find you want to go back to work.

Crystal: Uh-huh.

Pat: Doing something...

Crystal: I know.

Pat: ...part-time or, right? You worked for 35 years. You've raised a family. You were pretty engaged. You might find that when you sit at home for three weeks, you're gonna go crazy.

Crystal: Right, right, right.

Pat: And drive the other people. So, take the full joint and survivor, pay the mortgage off.

Scott: I like the idea of paying the mortgage off. It's half the inheritance. Then you could say, "Wasn't this lovely that... It's horrible that my father passed away, but he helped us get this mortgage paid off."

Pat: All right. In full disclosure, your inheritance is yours. It's not community property. If you pay off that mortgage, it becomes community property. And it is no longer yours. Just throwing it out there whether that changes...

Scott: So if you're about ready to kick your husband out of the house...

Pat: Don't do it.

Crystal: No, no.

Scott: All the other issues aside, let's forget about... From a pure financial standpoint, don't get divorced.

Crystal: No, no. Not planning on it.

Pat: Perfect. Perfect. Perfect. Perfect. You're good.

Scott: All right. Wish you well, Crystal.

Crystal: Okay. Thank you so much.

Pat: Thanks.

Crystal: Bye-Bye.

Pat: Thirty five years in the classroom.

Scott: I mean, I do love... but this carpool this week I'm certainly thinking, I don't like this at all. Some days are fun. Some days you like it. It was a little late, and I had trouble getting the seatbelts and I had to get the seatbelt, and then I'm running late. And then that's the whole thing.

Pat: I enjoyed it when I drove my kids sometimes, and l play marketplace on the NPR marketplace on the radio and have the kids listen to me.

Scott: You do remember. This is Hanson 2.0. So, my wife and I raised two biological kids. And then when our son went off to college, we adopted two girls from the foster system. So, I don't ever regret. Don't get me wrong. But there are times I'm like, "Oh, my God."

Pat: Well, God bless you.

Scott: Frankly, I'm not complaining.

Pat: More blessings than not.

Scott: A hundred percent. One hundred percent.

Pat: More blessings than not.

Scott: One hundred percent.

Pat: All right. Your neighbors are never gonna let you drive the kids. Actually, you know what? I'll tell the story.

Scott: They're wonderful family. I love the neighbors. Don't get me wrong.

Pat: When my kids were little, I drove the kids across the street to school and we went on a field trip. And went on the field trip with the kids and the whole thing. And halfway through the field trip, I'm like, I can leave. And one of the other parents said, "You know, if you wanna go, I could bring your kids home." Well, I forgot to tell them that I was driving the neighbor's kids too. So, I go home and my wife's like, "How was the field trip? Was it good?" "I left early." She said, "How did the neighbor's kids get home?" I'm like, "Oh no." So, I had forgotten I was supposed to pick up the neighbor's kids on.

Scott: Was that slightly strategic because your wife stayed home. Well, you've had five kids, right? So, your wife stayed home, take care of the kids. And so, like, you're gonna be... You own the calendar of these things.

Pat: It wasn't strategic.

Scott: So, if, like, you don't know where all the dishes go, "Honey, where's the [inaudible 00:22:54]?"

Pat: Oh, that was not. Strangely enough, they never asked me to drive. The neighbors never asked me to drive carpool again. I felt terrible about it, but wasn't strategic. You know me. Sometimes I get involved in the thought and I completely space out.

Scott: Our neighbors asked me to carpool. They have five kids, that's controlled chaos in their house. And they've three times forgotten our daughter on a big [inaudible 00:23:18]. I actually understand because I watch these kids and the whole family. They're a beautiful family. But anyway, let's go back to calls. We're in Arizona talking with Maha. Maha, you're with Allworth's "Money Matters."

Maha: Hi, how are you?

Scott: Hi. Did we get your name right?

Maha: Maha. It's perfect.

Scott: Perfect. Oh, good. How can we help?

Maha: Yeah, interestingly, well, I got divorced from my kids at 20. I have twins, 20-year-olds. And their father and I divorced in 2021 July. And we were very amicable. Long story short, he was diagnosed with leukemia six months ago, and he just passed April 2nd.

Scott: Oh, I'm sorry.

Maha: Yeah. And his birthday, you know... What hurts the most was he was still looking forward to retiring. And he just turned 65 on Monday, the 17th. So, you know, it's still a little bit fresh.

Pat: How long were you married to him?

Maha: Twenty eight years. Yeah. And, you know, we were very amicable and towards the end when he was, you know, sick and going back and forth to the hospital, he was like, "Let's get married again." He wanted to make sure I was protected. And, you know, he was, you know, really concerned for the family. I mean, even he worked to the last day of his life. I mean, he, like, Friday he told me, you know, "I don't think I could make it Monday." And he died that Sunday. So, anyway. Yeah. Yeah. So, it's still very fresh. That was the second. And so, you know, I'm getting all these cards, of course, from Social Security saying, "Oh, you know, congratulations. You just turned 65. You could retire. And also..."

Scott: How old are you?

Maha: I'm gonna be 60 this year. But, you know, I'm getting his mail too, right. So, I'm his executor. And I still don't even have a death certificate yet. And pretty much, you know, we tried to put everything in the trust. He didn't really have a chance to put like the beneficiaries in the trust. But the kids are gonna inherit, you know, his life insurance policy and his life insurance policy from work. And that's all good. However, I guess my question, I'm kind of concerned where he worked, they pretty much... I mean, they're very nice, but they dropped my kid's insurance like on the day he died. So, they don't have insurance. And second thing too is Social Security. Someone said to me that even though you were divorced, since you were married for so long... So, you know my question.

Scott: Well, on your Social Security, yeah because there's a widower's benefit assuming you're not working. But we're gonna take a really quick break. Stick around for just a moment. We'll be right back.

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

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

Pat: Pat McClain.

Scott: We're talking with Maha. Maha, you're still with us?

Maha: Yes, I am.

Pat: So, your ex-husband died. You were married 28 years. You're 65 years of age. You have twin...20-year-old twins. And they are the beneficiaries of the life insurance. And your question is, are they eligible for Social Security? Is that what your is?

Maha: Like for Medicare benefit or Medicaid, you know, medical benefits?

Pat: Nothing.

Maha: And also, okay. And then also, I wasn't sure if there was any benefits for me from his Social Security, even though we weren't married anymore.

Pat: Yes.

Scott: Yes. And I said 10 years or 20 years?

Pat: I believe it's 10 years.

Scott: I believe it's if you're married longer than 10 years.

Pat: Are you working now?

Maha: I'm a realtor. So, you can define that how you wanna define that.

Scott: Well, so, you could. At age 60, you could take a widow's benefit based upon your spouse's Social Security, but you can't work at the same time. So, you're limited to... I don't know. It's about $16,000 or $17,000 a year. Maybe it's $18,000.

Pat: Before you start losing benefit. So, it probably doesn't. If you're still working, probably doesn't. And you make over let's say $18,000 a year, it probably doesn't make sense for you to start the widower's benefit.

Maha: Oh, is that what it would be?

Pat: You lose one dollar for every two dollars you earn from that. And then it goes away completely. How much money will they inherit?

Maha: Before we move on, does that also include medical, like for the widower's benefit or...

Pat: It does not. No.

Maha: It does not.

Pat: Oh, no, no, no, no. You're on your own.

Maha: Oh, wow. That's crap.

Pat: The medical thing is done.

Scott: Well, that means they have to get insurance. They can go on affordable care.

Pat: Do they have any income? Do they have any income?

Maha: They're both students and one is part-time...

Scott: Yeah. Affordable care. It's dirt cheap.

Pat: Yeah.

Scott: I mean, it's a high deductible insurance.

Maha: Say that again.

Scott: The Affordable Care Act.

Maha: Oh, the Affordable Care.

Scott: It's dirt cheap. It's not much money at all.

Maha: All right. I could do that. I mean, I thought I did that for myself last year and somehow or another I got into, I guess it just was really crappy all the doctors, but okay, I'll look into that.

Pat: Oh, we didn't say it was good. We didn't say it was good insurance.

Scott: But if you're a healthy 20-year-old...

Pat: It doesn't matter.

Scott: I mean, you really only need insurance if you got something catastrophic happens.

Pat: How much money did the children inherit?

Maha: Well, he had a $300,000 life insurance policy that is gonna be split half to half, you know, so 150 each. I'm not really sure how much his job has. They won't give me any information until they have the death certificate. So, that hasn't come yet.

Pat: Did he have a pension at his job? Did he accrue pension benefits?

Maha: Oh, no. But he had a 401(k) and I inherit that. I'm still the beneficiary of that.

Pat: And how large was that?

Maha: I think it's like 150, something like that. Maybe more, around that range. That's what it was when I was with him. I haven't seen it since.

Pat: So, because of your age in the financial situation, don't expect anything in terms of Social Security until you quit working. And when you quit working, you may want to apply against his benefits rather than your own. But that's a decision you'll have to make at that point in time. And in terms of health insurance, that's nonexistent. It's nonexistent.

Scott: Now, if your kids were under 18, they would qualify for their own Social Security benefit.

Pat: But they're not.

Scott: Yeah.

Maha: Okay.

Scott: Yeah.

Maha: Well, actually I mean, not to get TMI here, but like my son is on the spectrum and, you know, so he gets a lot of... So, I was thinking that there would be like an SSI kind of a...

Scott: Well, there could be a disability.

Pat: But that has nothing to do with the death of his father.

Maha: The death. Okay.

Pat: That is completely independent of the death of his father.

Maha: Got it. Got it. So, all right.

Pat: One of the things you wanna have a long conversation with your children about how those dollars are going be invested and parameters about how to use those monies.

Maha: I know. We wanted to put them in the trust. They weren't gonna get it until they were 30. There's also like a CD that he just opened up. He didn't even have a chance to put beneficiaries on it. So, hopefully, that doesn't go.

Scott: How much will your kids inherit? Do you know?

Pat: At least 150.

Maha: Each. Yeah. And then I'm sure each, you know, I have no idea really how much policy he has from work. But, you know, they'll be okay financially. I just would like to...

Pat: That's what we'll worry about.

Maha: Yeah.

Pat: Is them coming into too much money.

Maha: Right. I know. That's why [inaudible 00:31:18] at 30.

Scott: Particularly if one's on the spectrum.

Pat: Yeah. That's right. That's right. The concern should be is because there's no parameters around it because it never made it into the trust. So, in reality, if things had worked out perfect, you would've named the trust as the beneficiary of all of these dollars. And then there'd be parameters around there, but it didn't happen. So, you really need to... And they're adults. You can't control it.

Scott: You might be able to persuade.

Maha: They're very reliant on me still. They still live with me. And they're looking to me for investment ideas. You know, like, what do I do? They don't need the money now, you know, so, they're not gonna be... You know, they're not partiers. They're good kids, thank God. And so, I think they would be looking for some financial information. And, you know, their dad just opened up a $250,000 policy, not policy, a CD with...

Scott: So, they're getting that as well. And there's probably other money he's got.

Pat: You may wanna hire a financial advisor so that...

Scott: And an estate attorney, and you might wanna, particularly if one's on the spectrum, you might wanna set up a trust and talk to about your kids. Like, we're gonna put this in trust for your benefit.

Pat: Yeah. Those are all things that a good financial advisor would walk you through. You've got a lot of things going on here.

Scott: So, there's some parameters there.

Pat: Lot of things going on there.

Maha: Yeah. And I can't do anything without the death certificate. Yeah. That takes a while.

Pat: Well, the death certificate.

Scott: And boys, I mean, the frontal lobe's not fully developed for a number of years. Right? I mean, that's reality. They don't always make the best choices in their early 20s.

Pat: Yeah. You wanna bring in a third party. And it shouldn't take very long, a week or two to get the death certificate.

Maha: Okay. All right.

Scott: So, all right. We wish you well.

Maha: So, a financial advisor then. Okay. Well, I appreciate it. Thank you so much.

Scott: Yeah. Thanks. You know, it's funny, Pat. I think having a well thought out estate plan, not a perfect one because what happens oftentimes is people go to do estate planning. They start discussing every little aspect. Sometimes couples don't agree, and they never finish the process. Having an imperfect estate plan's better than no estate plan.

Pat: Exactly.

Scott: And some of the major things like assets going to kids, when should they receive that? Because you put it on a beneficiary of your 401(k) or IRA, that's gonna pass automatically.

Pat: It doesn't have any restrictions on it whatsoever.

Scott: And if they're more interested in car catalogs than college catalogs, the money might be going to buy the latest coolest car.

Pat: Yeah. And it depends on the age of the kids. So, my wife and I updated our trust two years ago because the kids became of age. And they were in college and graduated from college. And we had a confidence about who they are as children. And we actually sat down with 'em and actually explained to them, you know, which was... It was really quite interesting. I have four children, two of 'em... Scott had mentioned earlier that I had five children. I had a daughter that passed away years and years ago of health condition, so, four surviving living children. When we did the trust and sat down, I had named two of them as trustees that have business backgrounds. And after the conversation, there are now four trustees on the trust.

Scott: They're all trustees?

Pat: Yes.

Scott: Good luck, kids.

Pat: I know.

Scott: They're gonna have to figure it out.

Pat: That's exactly what I thought. They were really upset the two that weren't named. "Why aren't we all named?" I'm like, "Well, I'll be gone." They'll figure it out. You said not a perfect plan, but better than nothing.

Scott: Yeah. Some ways it might be good. They're gonna have to...

Pat: And then we put restrictions around it.

Scott: I mean, as a parent, you certainly hope that your kids have loving relationships their entire lives, right?

Pat: With each other.

Scott: With each other. Yes. So, maybe that will force them to work together or not. All right. Let's continue on here. We are in California talking with Kathleen. Kathleen, you're with Allworth's "Money Matters."

Kathleen: Hi, good morning. How are you?

Scott: Hi, Kathleen. We're good.

Pat: What can we do to help?

Kathleen: Well, typical question. Should I claim Social Security at full retirement age, which for me will be March of 2024? Or wait if I plan to work less than 20 hours per week after I retire from my full-time job? So, is it worth it to claim Social Security and potentially be penalized or have it reduced due to earning?

Pat: Yes and no. So, it kind of depends on what your overall financial situation and how you feel that the Social Security trust fund is doing. So, tell us about your financial situation. How much money do you have in 401(k)s, IRAs? How much money will you receive in pension?

Scott: Are you married?

Pat: Yes.

Kathleen: Okay. Married. I have a 401(k), but it's not very big. And so, I'm gonna be reliant on Social Security and that 401(k). My husband has a pension that he'll be eligible for in June of 2024. We don't have a sticks and bricks home. We're full-time RVers, and we have about 25K in a mortgage that we're paying down.

Pat: On the RV?

Kathleen: Uh-huh.

Pat: Okay.

Kathleen: And we are residents of South Dakota. Even though we work in California, since we're nomads, we're registered in South Dakota as residents, even though we pay taxes here in California on our income.

Scott: All right.

Kathleen: So, we're gonna leave the state. Once we retire, we will have no ties to California.

Scott: Okay. And how large will your husband's pension be?

Kathleen: You know, he's been teaching about 17 years. So, I think it's pretty decent. I really don't know.

Scott: In March of 2024, you'll be sixty six and a half or somewhere in there?

Kathleen: Yes. Actually three quarters. I have to go through March so I can get the last matching funds on my 401(k).

Scott: And how's your health?

Kathleen: No medications, no heart or...anything, no blood pressure.

Scott: I would strongly encourage you to wait till age 70.

Pat: Especially if you're working.

Kathleen: Really?

Pat: Especially if you're working. Yes. The more you're reliant on Social Security, the better it is to actually push it out, especially if you're able to work. And the idea behind that is if you have a normal life expectancy, if you do a net present value of those dollars, it actually works in your favor. The only time we actually encourage people to take Social Security earlier than full retirement age or age 70. And I don't know why this full retirement age is such why we pay attention to this.

Scott: Well, because you can keep working and collect benefits. What Kathleen's situation is.

Pat: Okay, thank you. But the dollar amount, you know, this 80 to 120...

Scott: Yeah, I mean, I think the concern that we have is let's assume you start Social Security as soon as you can, right, your normal retirement age. I mean, theoretically you can quit working today and claim today, which you've not done. But the concern that we have is, let's assume we're now 71, 72, and you can no longer work of any sorts. And you're relying upon Social Security, which would be a much lesser benefit because you claimed that...

Pat: Earlier.

Scott: A full retirement age is supposed to wait until age 70. If you had a bunch of savings, retirement savings would be one thing. But the reality is, you, you don't have a ton of savings. You've chosen a certain lifestyle, which obviously is working out for you.

Pat: Which is what my point being was, is normally the only time we encourage people to take it earlier is if they don't need it. If they do not need it and they're not working and the reason behind that is, at some point in the future, we believe that they're going to start cutting Social Security benefits, and they'll take it away from those people that aren't reliant on there.

Scott: Well, they will as soon as their trust fund this statutory reduction.

Pat: They say it's across the board, but we know it's not going to be across the board.

Kathleen: Okay.

Scott: Yeah. We think Congress is gonna eventually step up and do something. Everyone's afraid to touch it now, but eventually they're gonna be forced to.

Pat: Well, they did in France.

Scott: They did in France. They're still protesting.

Pat: They're still protesting.

Scott: They might throw all the politicians out.

Pat: The French protesting.

Scott: Write that down.

Pat: No. So, you should absolutely wait till age 70.

Kathleen: Okay.

Pat: Absolutely. Wait as long as you possibly can.

Kathleen: Okay.

Scott: You didn't wanna hear that, but that's our advice to you.

Kathleen: No, I really didn't. That's okay because I still think that I could probably suck it up for about 20 hours a week. I just don't wanna work 40 hours a week anymore.

Pat: Okay.

Kathleen: And I guess if I could find someplace that would still give me benefits for part-time hours.

Scott: You'll get Medicare.

Pat: Your husband, you said, is a teacher though?

Kathleen: Yeah.

Pat: Is he in a public school system?

Kathleen: He is.

Pat: And aren't you covered under his health-care benefits?

Kathleen: I could be if I wasn't working. Yeah.

Scott: But you'll have Medicare, 65.

Pat: Yeah. You'll have Medicare as well. And my guess is that if your husband's health insurance benefits would actually pay for the Medicare supplement. So, you need to look into that.

Scott: Yeah. All right, Kathleen. Appreciate the call. One of our core values at our organization is honesty. And part of the definition of that for our company is telling people what they need to hear, not necessarily what they want to hear.

Pat: It's not always fun.

Scott: No. Because I can't tell you how often as financial advisors, people come in. They plan on retiring next June or whatever the case may be. And we sit down and say, "We highly discourage that. Here's why it's not a good idea for you."

Pat: Yeah. And then sometimes, they go find an advisor that tells them, "Sure, just give me the money to manage."

Scott: I'll never forget, Pat. This was in 1999. And this gentleman had an early retirement offer. He was still in his 50s from the phone company. I don't know. It was about a million bucks or something he had, somewhere in that ballpark. And he came to see me because one of his friends had said, "Don't retire and invest these dollars until you talk to Scott Hanson for whatever." He must have been a happy client of ours. And I remember talking to this guy. And he showed me a printout from some financial... I'm not gonna call him an advisor. He must have been some broker of some sort of, of a variety of different returns. The lowest return assumption was 12%. It was from 12% to 20%. So, this guy showed him a retirement projection based upon 12% to 20%.

Now this was 1999. Stock market was on fire. And I had this conversation. I looked at him and I said, like, "There's no way you should expect those returns going forward." We spent some time looking at historical returns. I'm like, "Look, if you're a good investor and if you can withstand the markets, maybe an 8% long-term return is more a realistic assumption for you. Based upon that, like, you have to take the early retirement offer, but you should probably go back and work for a few years." And we had a long conversation. And I'll never forget it. He laughed and he said, "Scott, I'm really glad we had this conversation. It was hard to hear, but I'm glad we had this conversation." And then a few weeks later, I get a note from him. I forget exactly how the communication was, but it was essentially, "Yeah. I decided I'm taking that retirement offer and I'm using the broker who I talked to the first time."

Pat: That talked about the high returns.

Scott: Yeah. And I can only imagine his situation today.

Pat: Well, you know what happened.

Scott: Yeah. His money was probably put mostly in the tech stock.

Pat: Blew up and then he went back to work

Scott: And then he sold at the bottom. And he went back to work.

Pat: He went back to work. I had a client same thing, Scott. Except this story, he sued the broker that actually did all of the whole portfolio in tech stocks, sued him, got the proceeds from, had some sort of recovery and then came back to us and opened an account and invested the proceeds.

Scott: So, he didn't take our advice the first time.

Pat: Correct.

Scott: Someone blew 'em up, got a settlement, and then came back and...

Pat: Then came back and let us manage the money. Oh, well.

Scott: All right. Let's continue on with calls here. We're talking with Carol. Carol, you're with Allworth's "Money Matters."

Carol: Hi, how are you all today?

Scott: We're great. Thank you.

Carol: So, my question kind of revolves around IRA conversions to Roth and whether it is something that would be beneficial for my husband and I.

Scott: Okay.

Carol: And I don't know what information you need from me. I mean, I've got all of our savings and what we have.

Scott: Perfect. How old you, Carol?

Carol: We're both 65 now.

Pat: And are you working or not working?

Carol: No, I just gave my notice final yesterday and my husband retired six weeks ago.

Scott: Wow.

Pat: Congrats.

Carol: Yeah. Thank you.

Pat: And what will your income for the year 2023 be?

Carol: For 2023 right now, because we're just gonna live off savings. I've got about 175,000 in savings for the next year or two. Our income will be minus the normal deductible, about 72,000 or lower.

Pat: All right. And how much money do you have in IRAs, 401(k)s, that sort of thing?

Carol: So we have about 3.3 million in IRAs. My husband has a Roth IRA with about 134,000. And then we also have a brokerage account with about 850,000 in it. We also own two rental income properties which are paid in full. So, we have about a cash flow of 5,800. Now, it's still being, you know, depreciated and stuff like that.

Scott: Yeah. So, you might wanna work on keeping the income below a certain level so you can still depreciate it.

Carol: Yeah. Yeah.

Pat: And will you receive pensions?

Carol: No. I mean, my husband got ESOPs along the way. And I actually did get a pension, but I rolled it over into my retirement plan.

Scott: And what was your family income for 2022? What have you guys been used to living off of?

Carol: We made about 450,000.

Scott: And have you been in that ballpark income range the last decade?

Carol: Yep. Yep. I mean, it's gone up every year. He works in construction so every year...

Scott: And is your home paid for?

Carol: No, we have a loan 14 more years ago for 360 left, and it's a 15-year 1.99. And that's why I haven't paid it off because the interest rates grow.

Pat: Well, you have a great opportunity for Roth conversions next couple years. A hundred...great opportunity, like, golden, like, yes. Yeah. You want to convert as much as you possibly can in the next couple years.

Scott: And probably delay taking Social Security.

Pat: Yes.

Carol: Would you recommend delaying?

Scott: Yeah. I don't know,

Carol: Because we were thinking about taking Social Security next year and both in the map, that that would raise our income so much.

Pat: Yeah, I actually, yeah.

Scott: I mean, I could take some...just we can just guess. I'll guess some things, but I mean, you really need to run the numbers here and do a variety of different scenarios.

Pat: But I think that this year you should be looking at Roth conversion and next year you should be... I would probably defer Social Security next year and do a massive Roth conversion. And then I would decide for the year 2025 whether I was gonna do the Roth conversion or take Social Security. But quite frankly, what you have to do is you actually have to do the calculation of what you required minimum distribution.

Scott: That and what your true household income needs are.

Pat: That's right.

Carol: Yeah. I mean, I'm figuring we need about 17,000 clear a month for all we have. I mean, that's some of, you know, insurance on our rentals and that's just the whole bucket. We're still helping one daughter through school. She's almost done though.

Pat: When you said the income from your rentals was 5,800, was that annual or monthly?

Scott: A month. Month.

Carol: No, that's monthly.

Pat: Monthly, okay.

Carol: Yeah, that's monthly.

Pat: Yeah, you most certainly wanna do the Roth IRA conversions. And next year is pretty simple and the year after that I don't know.

Carol: Okay.

Pat: Scott, do you have an opinion here?

Scott: I mean, you're like this poster case of working with a good financial advisor and running through, using the calculations with the tax code, all those things and running some scenarios. That's what you're gonna need to do to make these decisions.

Carol: Okay. Because I don't wanna get out into such a high category where the taxes are just enormous. So, like this year, I pay under 100, 000.

Scott: Well, you're used to paying high taxes. What you don't wanna do is take a few years and pay such a low tax rate the way you structure things that suddenly you find yourself in a worse situation down the road.

Pat: Yeah. It's like all of a sudden these required minimum distributions are causing you to go into a much higher tax rate. There's that balance, which is how much do I do now? How much should I defer? When do I take Social Security? And what happens if my account grows at 7% or 8%, my IRA and then the RMDs, you know? And then I take the tax, right? And then I titrate them for inflation to see what bracket I end up in. I mean, it's not as simple as, "Hey, you should do it." What is obvious is that you should be doing...

Scott: You've got a great planning opportunity is what's obvious.

Pat: Some, that's obvious.

Scott: Look, I think if you didn't have your rental and the income it's providing, and you said you needed 17,000 net, I'd probably think it's maybe a little tight long term. But with that, if you look at a 4% distribution from your overall savings, that's $4 million, that's $160,000 a year at 4%, whether you distributed it or not distributed it. I mean, that you should be in a good situation.

Pat: Oh, financially, yeah. And then you kick Social Security in.

Scott: Yeah. They might wanna take it earlier just based upon what your income's gonna be.

Pat: Oh, for Social Security.

Carol: To take it earlier?

Pat: Yes. Yes, because of your net worth and your income.

Scott: And the structure of your wealth, because that requirement of distribution that's gonna keep growing. And by the time you're, you have to take those distributions, it's gonna be a substantial income flow on your tax return.

Carol: Okay. So, should we take Social Security next year?

Scott: Probably. I'd do the financial planning. If I were a betting man, you would take it next year. Yes. So, hey, appreciate the call, Carol. And unfortunately, we are out of time. This show is not only podcast, but it's broadcast on some radio stations as well, which is why we have a kind of clock we need to live behind, which I guess is true with a handful of pod...I listen to some podcasts, the same kind of thing. But anyway I wanna let everyone know that we have some live in-person investment workshops. And our workshops called the "Investment Question." And we'll be answering the top four investing questions that folks like you are asking right now, which are how to generate income in retirement, how to make the most of our cash on hand, what are some of the key facts about the Secure Act 2.0 and Roth conversions. This has to do with how the required member of distribution dates have been pushed out, etc. And also strategies for allocation and diversifying your savings. So, it's gonna be held on various times and in various cities between May 10th and May 20th. And if you wanna sign up and get more information, just go to allworthfinancial/workshops. Again, allworthfinancial/workshops and hopefully it'll be helpful for you. That's all the time we've had. It's been great being with you. This has been Scott Hanson and Pat McClain of Allworth Financial.

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.