April 8, 2023 Money Matters Podcast
- Bad actors accused of scamming thousands 00:05
- Should I do a Roth conversion? 15:50
- What happened to my late father’s assets? 26:00
- How to retire to the fullest 33:07
- I need help with my 529 plans 43:20
When bad actors scam good people, the search for a late father’s assets, and the four components that create financial peace of mind.
On this week’s Money Matters, Scott and Pat discuss two men accused of ripping off thousands of people of their hard-earned money. A 71-year-old wants to know whether it’s time to do a Roth conversion. You’ll hear Scott and Pat try and help a man track down his late father’s assets. Plus, they interview the author of the new book, “Retire to the Fullest.” Finally, a lesson on how to manage a 529 plan if the child never goes to college.
Join Money Matters: Get your most pressing financial questions answered by Allworth's CEOs 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 email@example.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-W-O-R-T-H.
Scott: Welcome to Allworth's Money Matters. Scott Hanson...
Pat: Pat McClain.
Scott: With myself and my co-host. Practicing Financial Advisors, meaning that we spend time with people like yourself, helping them plan their financial futures. But also, we broadcast here on the weekends to help you.
Pat: We try our best.
Scott: We do try our best.
Pat: We try our best.
Scott: Most of the time. It's hard.
Pat: Most of the time we try?
Pat: Most of the time we try our best?
Scott: I can't say I'm always trying my best every time on the program.
Pat: That's correct.
Pat: And I mean, you can't be on 100%, Scott. You're only human.
Scott: Thank you. I mean, I don't get my... If I'm honest, I don't give 100% of everything I do. I don't give 100% at my relationships with my kids. I don't give 100% of my relationship with my wife. I don't give 100% of my personal... I mean, why am I talking about this? This is a financial program [inaudible 00:01:19].
Pat: This is like counseling. If you've got a counseling problem you need solved.
Scott: Anyway, we've got a great program lined up. We got a good guest. The second half, we've got some questions from our callers like you. And if you wanna be part of our program, 833-99-WORTH, we'll get you on the show.
Pat: Or you could go to firstname.lastname@example.org. Moneymatters.com.
Scott: Yeah. Email us, email@example.com. And before we start, so Pat, I'm sure you followed the story about this guy North Carolina, Greg Lindbergh, who had... He essentially bought these insurance companies and rated them.
Scott: And he was in federal prison. He was indicted and his eviction was overturned. Now he's back out living luxury in Miami. The problem was these insurance companies are in receivership. And so, they're not paying any benefits to...
Pat: The people that bought the annuities.
Scott: These annuities.
Pat: So very similar to you making an investment. You think it's there, it might be there, it's not there. It kind of shows up on a statement, but you can't get to it. There's no liquidity involved. And this Greg Lindberg, it was interesting. It kind of got buried in the headlines when it happened because there was so many other things going on.
Scott: Yeah. I don't even know if we talked about this guy.
Pat: Yes. There's so many things that are going on. You were talking about the one last week or the week before about the guy Stanford in Texas. That was Stanford. Stanford in Tex, the guy Stanford.
Scott: I didn't remember his first name now. I already forgot about it.
Pat: It was such a big deal. But because he was overshadowed by the Madoff, it didn't... And these are more of the same. So this guy named Greg Lindbergh went out, raised some money, and then used basically, money from one insurance to buy another insurance company, to buy another insurance company.
Scott: It was a Shell game, looted it. It was like, watch the ball, the moving ball here.
Pat: And the thing that to kind of remember...
Scott: Allegedly, because I guess he spent...
Pat: He was in and outta prison.
Scott: He was in federal prison on bribery charges. And he was released when the appeals court overturned his conviction and a retrial schedule for this November. But he was just indicted recently for something else again.
Pat: Yeah. But the point being here is these people bought... This is what the saddest part of the story was.
Scott: There are 70,000 holders of annuities through these insurance companies totaling 2.2 billion, and they're unable to withdraw their money. So unlike Silicon Valley Bank, you think about the differences here, right? Silicon Valley Bank that went under a few weeks ago, the majority of the depositors were... It was either start-up money from venture capitalists that were funding these companies, it was their working capital, or it was actually the accounts of venture capitalists that was in there. Rich people.
Scott: But the government stepped in and made it whole.
Pat: Immediately. Not even having to wait a week. Not a day, not a week. But this Lindbergh... And these were...
Scott: These people are waiting years.
Pat: These were with small no-name insurance companies. They weren't the big names that had been around... Well, they'd been around for years and years, but they were small little insurance companies. The saddest part about this, God, I did read this article last week, couple of articles on him. The saddest part was many of them were sold to bank customers at banks. So there's a woman or a man...
Scott: There's two stories in this story.
Pat: Right? One is stay away from like the second tier, third tier, if you're gonna buy an annuity at all, first of all, you've got to question why. But if you're going to, why would you use a second or third tier?
Scott: Like, one of the names was Colorado Banker's Life Annuity. That sounds pretty reputable. It's right in Colorado. The Rockies.
Pat: It's probably been around 100 years, but it was super small. If you're gonna buy annuity, buy one from The Hartford, or MetLife, or Allianz, or some of the big, big companies. But the saddest part was they were sold. Many of these were sold by bank brokers. So you go... This happened to my grandmother years ago. My grandmother said... I was doing some estate planning, this has gotta be 20 years ago. I was doing some estate planning with her, and I'm like, "What are your assets?" And I'm like, "Well, what do you got?" And she had all these little annuities. And I said, "Where did you get these?" And she said, "Well, the bank, the bank. I bought 'em at the bank." I'm like, "These don't have anything to do with the bank." And she said, "No, no. I bought 'em at the bank, Patrick," it's my grandmother telling me this. I said, "Well, how'd this come about?" "Well, I went to the counter. I had a bunch of money in my bank account, and the teller said, 'You should talk to Bill over there in the corner.' And I sat down with Bill and he put me in this. And the interest rate was higher than what the bank was giving."
Scott: That's exactly how these people [crosstalk 00:06:31].
Pat: It's exactly what it was. And some of 'em were not little accounts, half million, 700 mil... Half a million, 700,000, million-dollar accounts where these people have no liquidity in 'em.
Scott: So there's an insurance company pool similar to FDIC insurance, not quite the same, that ensures these account balances up to $250,000. But people can't pull their money out until actually, until the insurers are put into liquidation. They're not in liquidation. This Lindbergh has been holding off as long as possible to get these into liquidation. So they've been in, never-never land for four years now.
Pat: And these poor people can't get to their money. And for many of 'em, large portions of their net worth was tied up.
Scott: So two things. One, don't do business with Lindbergh. Maybe three things, okay. Be really careful. Like annuities, there are a time and place for 'em sometimes, but...
Pat: You should be cynical of things. Speaking of...
Scott: And third, it's the business, Pat, it's the business model with the brokers in a lot of these small banks. It's because they are paid on a commission basis. It's kind of, I hate to sound crass, but you eat what you kill, right? You don't make money based on someone's outcome, their success in their financial life, you make money on a transaction. That's still how most of these small bank brokers work.
Pat: Many of them, yes.
Scott: Selling a financial product like this to earn a commission. And the reason I've always had a problem with it besides this, like the challenge is there tends to be a high turnover. So somebody goes in, your grandmother is an example, goes in, buys this annuity from Bill, it's two years later, she's got a question about that, or she wants to withdraw some money, and Mary's there now. And Mary's like, "Well, I don't really know much about that." And Mary's thinking, I can't afford to spend much time with you because I get paid nothing unless I sell you something. So it's a screwed-up business model.
Pat: They're not gonna answer your question or I'm gonna try to switch your annuity.
Scott: I'm hoping most of the banks are moving away from that. But that's how it's been traditional.
Pat: Speaking of frauds. Did you see this in the last...the Sam Bankman-Fried. I can't wait until the movies start coming out of this.
Scott: The FTX guy.
Pat: The FTX...
Scott: The guy looked like he was the most unhealthy 30-year-old. I mean, just look, I could care less about.
Pat: They think that he took... Couple of his cohort buddies took $2.2 billion out of the company for themselves. And now, they're trying to indict him for trying to bribe a Chinese official with $40 million. You tell me that this guy didn't know that he was... He's like, "Well, it's just miscalculations." Look, you don't accidentally take $2.2 billion outta your company, and you don't accidentally try to [inaudible 00:09:39].
Scott: Do you think anyone thinks he's innocent of this?
Pat: I hope his parents do.
Scott: At least his mother.
Pat: Oh, but it continues. This whole crypto thing, if you've been listening to the show for any amount of time, it's not gonna end well.
Scott: Well, the regulators are now stepping up.
Pat: Finally. After billions and billions and billions.
Scott: Trillions. Market cap of cryptocurrency at its peak was $3 trillion.
Pat: That wasn't necessarily what was lost though.
Scott: You mean if you had something that was worth a penny and it went up to $1 million dollars and went back to $10, did you lose, did you lose almost 10 million or did you lose nothing? You made 10 bucks.
Pat: Yes. That's my point. So people like to measure things from the top of the market, the market cap. That isn't what [inaudible 00:10:36].
Scott: Somebody lost a lot of money.
Pat: Some people lost a lot of money because someone actually... Well, it's hard to tell with this because they were actually making their own markets, and so driving their own price up by buying their own coins with their own money because they were issuing the coin and making a market for it. So we don't know. We'll never know whether they... You just never know. In a regulated environment, those that issue the shares aren't allowed to normally make the market for the shares as well. That would kind of be...it would kind of be against the law.
Scott: Well, federal regulator sued Binance. It's the world's largest cryptocurrency exchange and two of its senior executives, a week ago. They knowingly disregard government laws in the financial markets. Because they said that the coins weren't securities.
Pat: They weren't, they're 100% securities.
Scott: They looked like a security. They acted like a security. They raised capital just like they were securities.
Pat: They traded on an exchange like a security.
Scott: And I believe now that the securities regulators are saying, "Eh, sorry." If it walks like a duck. Acts like a duck. It's a duck. Anyway, that'll be more interesting.
Pat: It will. And as always, if you're younger than the age of 30, you probably have no cryptocurrencies in your portfolio. I was talking to a young man at the gym and he said, "What do you do?" And I said, "I'm an investment advisor, financial planner." And he said, "Oh, what do you think of crypto?" And he says, "I do some investing." And I said to him... I didn't even wait. I said, "I bet it's crypto." And he said, "How'd you know?" And I said, "Well, because you're under the age of 30," and that's what you think investing it.
Scott: That's what you think investing is. That's your ticket to financial prosperity.
Pat: Yes. Well, that's not a fair statement because I know many children under the age of children. The old guy says, "I know many children under the age of 30 that do that." But if you were going to guess who makes most of the market in cryptos, it was the big hedge funds that got in it early. They were big. Let's not pretend that they didn't have a role in this.
Scott: Oh, yeah.
Pat: Because they've seen these boom and bust cycles before and they tried to get out before the bust and then the sub 30. So...
Scott: I did have a conversation with my daughter recently, my oldest daughter. Like, she's 27 and this was a year or so ago. I know I talked about it in this program where I'm talking to her one day and she says, "Yeah, Daddy, I bought some stocks this week." I said, "What? You bought socks?" Because I couldn't... Why are you telling me you bought socks, right? That's what I'm thinking... "No, stocks." I'm like, "Wait a minute, you bought stocks?" "Yeah." "What do you mean you bought stocks?" "Yeah. I opened an account at Robinhood and I bought $200 worth of stocks." That's what she told me.
Pat: What did she buy?
Scott: Oh, all the crap you can imagine, right? So I'm like, "You do realize your father is an investment advisor?" "Yeah. But like..." So anyway, I saw her a couple weeks ago. I said, "How's your stock account doing?" She said, "Oh, I think it's worth about 30 bucks."
Pat: She should listen to our show from last week where we talked about harvesting short-term losses.
Pat: You gotta...
Scott: My own child.
Pat: Aren't you glad that it was only $200 though?
Scott: Because she didn't have much money.
Pat: Well, I would prefer that they learn on that.
Scott: Correct. I think if she had some actual... I mean she's got a Roth. Had she taken some savings she had, I would've been a bit worried.
Pat: That was the...$200 was the cost of the conversation, if she wants to have conversations with her friend.
Scott: That's probably right. You're probably right.
Pat: She was probably getting too much crap for not having...
Scott: Having a Robinhood account.
Pat: ...[inaudible 00:14:33] and yeah.
Scott: You have to have a Robinhood account. You're no one. It used to be like puka shells. Now, you have to have a Robinhood.
Pat: Well, you're too young for puka shells.
Scott: I had puka shells.
Pat: Did you have puka shells?
Scott: Junior high school, I had puka shells. I had the velour shirt. Remember like kind of velour, like terry cloth velour-type thing?
Pat: Yes, yes, yes.
Scott: OP shorts, corduroy OPs, 100%. Kind of on the tight side. And you'd have the boxer shorts that would hang out past the bottom. It's a little different than like the showing the underwear like guys do now. Hanging out at the bottom would the... That was the look and the puka shells and the flip flops. The puka shells and the...
Pat: Like a mini Jeff Spicoli.
Scott: Pretty much.
Pat: Okay, let's go to the show.
Scott: Yeah. Spicoli, you gotta be under 40 to know who Spicoli is too.
Pat: No, you have to be over 40.
Scott: Over 40. I'm sorry.
Pat: I watched that movie in the last couple years, "Fast Times at Ridgemont High." It was quite depressing actually.
Scott: Fast Times at Ridge... Well, there was a theme of an underage girl gets pregnant by an older guy, has an abortion. The whole thing was like, this was quite disturbing.
Pat: But the one guy was working at Perry's Pizza was moving up the corporate chains after. It was very inspiring.
Scott: Fast Times. Anyway, let's go. We're talking with Art in California. Art, you're with Allworth Money Matters.
Scott: Hey Art, how can we help you?
Pat: Hi, Art.
Scott: You've both of us with our undivided attention.
Art: Yeah, great. Thank you. I was listening earlier to your annuity conversation and maybe that'll come up. But my initial question is my wife and I are nearing the age for required minimum distribution and I was thinking that we may be better off since we don't need the RMD income to do a Roth conversion.
Scott: Probably. How old are you?
Pat: How old are you?
Art: Seventy-one. Both of us are 71.
Scott: And what's your income look like now? Where's it coming from and where's the ballpark?
Art: We've got about a little over 20k a month in pension. We have about 7k a month in Social Security, and we have about 7k in rental income.
Scott: And how much do you have in retirement accounts?
Art: Retirement accounts. Okay.
Scott: IRAs, 401(k)s.
Art: Yeah. We have roughly about 150,000.
Pat: And that's all you have in retirement accounts? I mean, you've got a lot of other income sources.
Scott: Yeah. Not that you... And IRAs, everything, it's 150k?
Scott: And do you give money to charities on a regular basis?
Pat: I don't know. How do you ask this nicely on a radio show?
Scott: Because the required minimum distribution, if it's sent directly to a nonprofit, it avoids being taxed, it avoids it even showing up in your tax return.
Pat: And your required minimum distribution is not gonna be large at all. I wouldn't even mess with... So, if you gave $4,000 or $5,000 a year to charity, which is a percentage...
Art: We don't do that much.
Pat: Okay. Well, so your required minimum distributions are gonna start at about 3 percent-ish. And how old did you say you were?
Scott: I wouldn't worry about it.
Art: You wouldn't worry about converting to Roth?
Pat: That's correct. If you had a million and a half or $2 million, I dig into... It's inconsequential. Scott, you go through the numbers.
Scott: I mean, what I'm looking at is like who... So we don't know what the future tax brackets are gonna be, right? They're quite progressive.
Art: They're gonna go up.
Scott: Okay. But the percentage might go up, but the brackets might not change at all. So taxable income...
Art: Looks like we are nearing a higher bracket give or take 10,000 or 20,000 in income, in additional income. Looks like we're gonna be...
Scott: Well, so between a married couple, taxable income between 90,000 and 190,000, it's taxed at 22% Federal. Then from 100...
Art: Go ahead.
Scott: Thank you. Then from 190,000 to 360,000, it's taxed at 24%. From there, it goes 32%, etc. And we also have the Obamacare tax at 250.
Art: Yeah. I think we're at 360.
Scott: So look, that bracket at 24% is tremendously large. You can take $100,000 a year out of your retirement accounts and of course, that will over a year and a half and still be in the same tax bracket. So are tax rates gonna go up? They could. But if this were 1.5 million, then you would dig in and just see what to do. And what state do you live in?
Scott: And do you think you'll live in California forever?
Scott: I mean, if you feel good about converting some to Roth, convert to Roth. I wouldn't.
Pat: Yeah. Your required minimum distribution is really, really, really small relative to the rest of your income. And how would you pay tax on this? On the conversion?
Art: We'd just take it out of our liquid funds.
Scott: And how much money do you have in liquid funds?
Art: Roughly about 300,000.
Scott: You can, if you want. It's not a big deal.
Art: And I...
Scott: I don't see the tax arbitrage. Like, there's no... I don't see this as a tax arbitrage.
Art: Well, it wasn't so much tax, but again, we don't need the RMD income. So we thought we'd do a Roth and leave it for our two daughters.
Scott: And what's their tax situation like? What's their income like? Well, do they make 300,000 a year like you do?
Art: No. The one daughter is probably in the middle 200s and the other one is probably maybe around 125.
Scott: So that would be an argument that you wouldn't wanna actually do it because they're in a lower marginal tax rate than you are. Clearly, the one daughter is. The one daughter is.
Art: Yeah, but I mean for we... Well, we thought again, for inheritance purposes, that Roth could go over there at a step-up...
Scott: Yeah. No, it doesn't. The step-up doesn't matter with the Roth.
Pat: When you convert, you have to take some of your net worth today and hand it to the tax man at your tax rate. So if you're planning on not spending these dollars, and there's a high probability of your errors being in a lower tax bracket, that would make the argument of not converting to the Roth.
Scott: Because they're going to pay taxes when they withdraw the dollars out at a lower marginal tax rate than you're in. And so, it has nothing to do with basis. The basis thing doesn't apply to qualified accounts, IRAs, Roths, any of that. So I couldn't make an argument there. You can go through the exercise, you can do the conversion if it makes you feel better, and you can pay the taxes on it, but it's not gonna change the outcome. You're not gonna die with a higher net worth. In fact, assuming your kids are gonna inherit what you've got, they will probably inherit less if you do a Roth conversion...
Pat: That is correct.
Scott: ...at the end of the day, by the time all the taxes are figured out.
Pat: That is correct. At the end of the day, if we go out 30 years and you and your spouse have passed on and the kids had inherited the money and we looked at the net worth of the estate and you had done a Roth, I would bet money that they would inherit less because...
Scott: Slightly. It's around [crosstalk 00:22:40].
Pat: ...almost nothing. But nonetheless...
Scott: Now, the one argument I can make against that, Pat, that would be assuming that the investments would be the same because he's got quite a bit in liquid cash, right?
Pat: But he should have 100% of these dollars in equities.
Scott: That is correct. So it might...
Pat: How's it allocated today?
Scott: Sorry? I'm sorry. We lost you there for a second. How was it... How is your cash allocated today in the money in the IRA?
Art: About two-thirds value stocks and one-third aggressive.
Scott: I'm okay with that. It's all equity. It should be all equity. And so, here's what I would do. I wouldn't do the Roth conversion. But every year, I would, when you hit your required minimum distribution, I would use the IRA to determine what's going to charities and whether it's 2,000, 3,000, 4,000, 5,000, whatever the number is. But I wouldn't bother with the Roth conversion. It's a waste of time and energy.
Art: That was an important answer. I appreciate that. I have another question.
Scott: All right. Fire away. Yeah. Make it quick. Yeah.
Art: So, we've been pitched for annuities and we've heard those pitches before and I've always sort of not been interested. But this particular pitch, they talked about some data being roughly quasi-guaranty double-digit income, and doubling of our contribution using the Rule of 72 in maybe 7 or 8 years.
Scott: All right. You are the last candidate that I would recommend an annuity to. You have $20,000 a month in pension income, right? So these annuities, some guaranties in place might make sense when people have no other guaranties in place.
Pat: You're not even gonna listen to what the annuity does, Scott?
Scott: No. And I know why I'm not going to, because they don't have any access to financial products that aren't available to everybody else. They can't just make up something out of thin air, they are insurance companies. Insurance companies are designed not to lose a dollar, right? They're designed to make a profit. They cover losses, but they take in more in premiums than they pay out in losses. That's how they survive. And so, when they build financial products, I don't care what kind of product it is, whether it's a life insurance product, an annuity product, they build these products.
First of all, they have to go into the marketplace like we all do to invest premium dollars. They have the same fixed income restraints we've got. And they have to manage their portfolio in a conservative...
Pat: And why would you use anything in this portfolio where you really don't have much liquid? You've got $450,000 between your IRAs and your liquid cash and you don't need any downside protection? Zero.
Scott: No. Last thing you should be buying is an annuity.
Pat: Yeah. And stay away from those people.
Scott: You're in phenomenal shape financially.
Pat: Yeah. Stay away from those people that tell you about this stuff too.
Scott: Yeah. Good call. 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, thanks for sticking with us.
Scott: We're taking a quick call and then we've got a special guest set. Let's talk with William. William, you're with Allworth's Money Matters.
William: My dad passed away a couple years ago. My brother and I inherited the house as everybody that knew my dad knew was going to happen. And they thought everything was kinda settled, or at least I would assumed he did. Recently, my brother mentioned to me that at least he wished he go back in time to find out what my dad meant when my dad told my brother a few times in the last few years of his life, that my brother and I would both be pleasantly surprised when it came time to disperse his assets. And my brother didn't ask what that meant, or if he did, he wasn't told what that meant. But now, we're starting to find out that we don't really have any way to find out what that meant. Apparently, the will was never probated. The house went to us. I have a cousin who was the executor of the will, although we haven't talked to her...
Scott: It wasn't probated, because the assets were so small other than the house? Why didn't...
William: We don't know. Chalk that up is one of the things we'd like to find out. We don't know if my dad had some sizeable assets, or significant assets that we didn't know about or that nobody knew about. But he had told my brother that we...
Pat: So every...
Scott: And who was the executor on this?
Pat: Your cousin was. Why was your cousin the executor or not you or your brother? Do you know?
William: Because the Air Force kept sending me to different places where...because in the service and kept getting transferred to different places. And my brother was moving around as a newly-married person. So my cousin who lived in the same state as my dad seemed to be the logical choice.
Scott: Okay. Sorry, do you...
Pat: How long ago did you... Sorry, Scott. So, first of all, for the rest of the listeners, location doesn't matter when you name a trustee and executor on an estate. For the rest of the listeners, it shouldn't play any role in it. It should be the skill and the ability to actually perform the function, not where they are geographically located. How long ago did your father die?
Pat: Okay. And what did your father do for a living?
William: He was a superintendent for a highway construction company that built a large percentage of the freeways in Ohio for 30 or 40 years.
Pat: And have you...
Scott: What did you inherit? Only a house? He had no other savings?
William: We don't know. We're trying to find out.
Pat: No. Will, you inherited the house though, correct?
Pat: Okay. So you inherited the house and you and your brother disposed...
Scott: Here's what I'm a little perplexed by, and here's what your biggest roadblock's gonna be. This was eight years ago?
Scott: Yeah. And by the way, so everything is relative. So pleasantly surprised, right? I don't know what that means. He doesn't know what that means. It's everything is relative, right? So, look, where I grew up, like the guy that drove...
Pat: We have no rich clients.
Scott: Yeah. That's right.
Pat: Because regardless of how much money you say, would you count yourself rich? They might have $30 million, $100 mil. They, "Well, no, I'm not really rich. That guy's rich." Everything is relative. Where I grew up, the rich people actually bought new cars. The not so rich people bought used cars, never saw a new car in our household, ever, right. That just didn't happen because only rich people bought that. That's relative, right? Everything is relative. The only way you'd actually track this down is if you pulled up old tax returns, and assuming that he didn't buy annuities or life insurance contracts, that would be the way it would be in the tax returns. So...
Scott: Unless it was a bunch of gold buried in his backyard.
Pat: Yeah. And the other way is you can search in the state that he lived to see if there was any lost or misplaced assets, which at death, financial institutions are required to turn them over to the state. So if you really think there was something there, you could actually just go to...you said he was in the state of Indiana, you could go to the, what is it? The...
William: Actually it is Ohio.
Pat: Okay. Oh, the State of Ohio. Just go to the lost assets and plug in his name. Otherwise, I'd let sleeping dogs lie. Unless you could get your hands on a tax return from 2013, '14, maybe '12 and '11 and to see what he was paying taxes on, that would be one way to identify the assets, and that would find everything but annuities and life insurance...
Scott: I don't know where those tax returns would be.
Pat: And then the other place you would go is you'd go to lost assets, which by the way, just for the rest of the listeners, you have someone die in your family, go to the states in which they lived, and look to see if there was lost assets in their name. So, appreciate the call.
Scott: I wish you well. And I've been the executor of two estates. One, my mother-in-law who died suddenly at 65, did have a will. Did she have a trust? Maybe she had a trust. And then my father passed away unexpectedly with a two, literally two-page will, two-page will, that was about 20 years old that still had his previous wife who had passed away, listed on. Like, you still need to go through that... Whether you got a will or trust, there's a process that you need to go through to see what assets are there, what liabilities need to be paid out, etc. But after seven, eight years, yeah, I think after a number of years, I destroyed all the documents from my mother-in-law. Well, what's the point, I'm gonna keep these things forever in case someone comes back late? I don't need that hassle in my life. Seriously, everyone seemed fine. The siblings all fine. Everything's distributed. It was all reality. After the appropriate number of years, I just destroyed it all. Anyway, enough of that stuff. You can't let these things sit too long. That's kind of bottom.
Anyway, we're pleased for our next guest here because Eric Chetwood, we've got... Allworth has 120 or so financial advisors in different parts of the country. And Eric Chetwood, I think he demonstrates, I think all of our core values. What we would really want in a great financial advisor.
Pat: As most of them do.
Scott: Yes. Well, hopefully, all of them do. But not only a good financial planner, ethical, truly concerned about his clients, a good listener, etc. But that's not what... I'm not here to talk about what a great guy Eric is. But anyway, Eric, thanks for taking a little time to join us today.
Eric: Gentlemen, thanks so much for having me. I really appreciate it.
Scott: And we've got Eric on because he's got a new book out. And this is not your first book, but this book is Retire to the Fullest. What drove you to wanna write a book about retirement?
Eric: Yeah. So, I've been doing this for about 20 years. I know that y'all have been in wealth management and financial planning for a long, long time. And about 10 years into my career, I felt like I was just making rich people richer, which felt really empty to me. And I realized through talking to my wife and some friends, I realized that financial planning is so much more than just financial. And that I wanted to care for clients in every way that money impacted them. So money impacts people financially, it impacts people emotionally, relationally, and humbly I would argue that it even impacts people spiritually.
And at Allworth we say that a little bit differently. We say that we want to help clients live rich and meaningful lives. So we want to help them make money, but our big why is that we want to help them live rich and meaningful lives. And so, that was part of the impetus for the book.
Scott: And it focuses on really, financial peace of mind. Can you give us a little more insight on that?
Pat: And maybe an example or two?
Eric: Yeah. So, the best way to describe it in my mind is if you think about a tabletop that's resting on four legs. I argue in the book, the thesis of the book is that financial peace of mind is the tabletop. And the four legs, the financial leg is important to be healthy, the emotional leg is important to be healthy, the relational leg is important to be healthy, and the spiritual leg is important to be healthy. And the reason that I say that, I have seen a lot of people retire, and I've seen a lot of people retire with a lot of money. I know that you guys have as well. I would argue that I've seen very few people have real financial peace of mind.
And if I can, Scott, I'll give you two examples, real-life examples just to illustrate how important those components are because a lot of times, people think financial peace of mind is just financial. I mean, everyone knows the story of Ebenezer Scrooge who had more money than he knew what to do with, and yet, he had no relational peace of mind. And so, his relationship with money relationally was very unhealthy. I have a few clients, but I'll list one and I'll change her name just because to protect her identity in the book, I call her Debbie. And I know that you guys probably have clients just like this. Debbie is a wonderful lady. She is a delight to be around, lights up the room wherever she goes and has more money... Like, there is statistically no way for her to outspend her money given her spending habits and the goals that she's articulated to us. But anytime we have a day where the Dow is down 300 points or 400 points, Debbie is panicking, and anxious, and scared, and she'll call in in a panic, and we have to soothe her down. So even though financially she has plenty of money, she does not have peace of mind. So in the book, we talk about each of those four dimensions, those four components, and we talk about what health looks like. It talks about some common dysfunctions that we see in clients' lives, that I've seen in my own life in an attempt to help people live rich and meaningful lives.
Pat: And so, how do you calm this Debbie down? In the marketplace, if it happens on an ongoing basis, if it's episodic that happens when big market downturns, completely understand, right? Or do you just rebalance the portfolio or what approach do you take to that?
Eric: Yeah. So, one of the things we like to talk about is, and I'll give you an example. You remember when COVID first came out and the S&P was down 35% in a month because everybody was scared about what that would look like. Debbie is actually... When I was able to say, "Hey, Debbie, let's look at our financial stress test. Let's look at our Monte Carlo simulation." I don't use that word with her, but we could... The financial stress test. And the stress test didn't know that COVID was gonna happen. I didn't know, you didn't know, none of us knew. But it knew that we would have, about one out of every four years, we would have a down year together. It knew that we would have about one out of six years, a bear market where the S&P's down 20%. And even though it, it didn't know that it would be called COVID, we've already baked in to the plan that we're gonna have years where there's a lot of volatility and it's gonna be really scary and you're still gonna be okay. And that was probably one of the most rewarding experiences of my career. Seeing someone like Debbie come in just really terrified, "Hey, let's look at the financial stress test," and to see the fear lift from their eyes and for them to have confidence as they were walking out that they were still on a sustainable path.
So we talk about that a little bit in the plan, we talk about how important it is to make a plan that by failing to plan, you're planning to fail, to use the words of Benjamin Franklin. So we talk about the importance of that planning process and that will help you get through some of those turbulent markets.
Scott: And people talk about... I think people look at retirement like the finish line, right? So I've talked to Bill before, I've six more years. I just have six more years I'm thinking. And then, so I mean, how do you change a bit of a narrative on that?
Pat: Like why is retirement held out there as such the great nirvana? I had the same conversation with a friend of mine. He was telling me, he said, "I'm thinking about retirement, but I'm not sure what I'm gonna do in retirement." And I said, "Well, then maybe you should not be thinking about retirement." And so, you've worked with hundreds of clients, Scott Hanson and myself, I have seen some people do the greatest job ever in retirement. And I have seen people actually fall into a bottle and destroy their lives in retirement.
Eric: Yep. Yeah. Yeah. I think so this is actually Chapter 7 around that emotional dysfunction where we talk about so many people know what they're retiring from. I built this law practice and we have a tendency to buy into the lie that what we do is so integral to who we are. And I believe that that is a lie. That we are so much more than the sum of our accomplishments and what we've built and what we've done and things like that. We were made for more than that. So we talk about it's really important not to just know what you're retiring from, but what are you retiring to?
And we use an illustration. There's a great book called Halftime where he talks about helping clients transition from a life of success to a life of significance. So we'll ask clients, "Hey, when you're done drawing your paycheck from an employer and you're starting to draw your paycheck from your nest egg, what's gonna give you purpose? What's gonna give you significance?" And we sort of frame that retirement date, not as the finish line, but almost as the starting point of getting to do what you want to do when you want to do it, and not have to worry about money. So being able to transition from a life of success to a life of significance and helping clients understand what their purpose is gonna be is really helpful. And calling out the lie that you are not what you do, that you are so much more than that, I think is really helpful when clients are making that transition.
Pat: Yeah, that's right. It's people, purpose, right? Financial peace, which is not the amount of money you have, it's how comfortable you are with the money that you do have, and then health. And if you focus on, you just called it the four legs of a table.
Scott: And so Eric, your book Retire to the Fullest, how can people get that book?
Eric: Yeah. So it's available on Amazon. It's available at barnesandnoble.com. We actually also distribute it through the public library. So if your library has connections with the Hoopla app for the audiobook, or the Libby app, then they can listen to it for free. And one of the things that was really fun for me is they let me record the audiobook. So I know that I have a little bit of a Southern drawl, a little bit of a raspy, some [crosstalk 00:42:42].
Scott: A little bit of folksy sound.
Eric: Yeah, that's right. I've been told more times than I can remember, probably 40 times, that I sound like Bill Clinton. And I think half the people tell me that as a compliment, and the other half tell me [inaudible 00:42:53].
Pat: Well, obviously your heart is in this, so you wouldn't be giving it away. Eric Chetwood, Retire to the Fullest.
Scott: Retire to the Fullest.
Pat: And thank you as always for being part of the Allworth team. We always appreciate the work that you do for our clients and for your times that you come on our show.
Scott: Yeah. Thanks, Eric.
Eric: Thank y'all so much. Really appreciate it.
Scott: All right. Hey, we are gonna take one more call here. We're talking to Bart. Bart, you're with Allworth Money Matters.
Pat: Bart, how can we help?
Bart: Well, unfortunately, this has been kind of a long, drawn-out situation. Wow. It's like 17 years ago, we started a 529 for all 3 of our kids. We have twins and then a single. And he's, I guess, like 15 months older. We did the same thing like one year later with UTMAs.
Scott: With what?
Bart: We got all three done. Both 529s and UTMAs.
Scott: Oh, UTMAs. Okay.
Pat: Uniform Transfer to Minor.
Bart: So weird enough, we were with, I guess, hopefully I can say the RJ Company. And they were with the Franklin Templeton. Everything was fine. Everything was loaded, 529s and UTMAs. Then we decided, okay, we were gonna switch over to the new guy. And that was around like three or four years later. And so, then we moved into... And so, that guy only worked with Hartford. That guy decided, and I don't know what the deal is, but all of a sudden, everything went into 529.
Pat: Okay. That's okay. That's all right. That's fine.
Bart: Well, you know, what we really wanted was what we had.
Pat: When did the 529, I'm sorry, the UTMA accounts go to the 529? Three years ago, right? Four years ago?
Bart: No. Gosh. No. So around 2011, they went from the Franklin and supposedly they should have stayed.
Scott: You must have signed something 12 years ago. So I don't understand what the problem is. Why...
Pat: What's the question?
Scott: Yeah. What...
Bart: Well, we have three kids. We have...
Scott: Okay. We understand, but what is the question for us?
Bart: We wanted the UTMAs to be UTMAs where they were technically, they don't necessarily have to have them in a... That have to spend it on college education.
Pat: Bart, this happened 12 years ago.
Scott: That ship's sailed.
Pat: If there was a mistake made that should have been brought up 12 years ago.
Scott: But I don't understand what the big deal is. Are the kids going to college?
Bart: Two of them will hopefully, yeah, one of them, no.
Pat: Okay. And how much money are in these accounts?
Bart: We got in the 529s, we got about 100... Well, about 250,000 in one of 'em. And then about 175 on the other two.
Pat: You saved a lot.
Scott: Okay. And which one of the kids is not going to college?
Bart: The one, well, and that's the thing. The one of 'em that has the 275 is technically been about 75,000 has been transferred into an ABLE account.
Pat: Okay. Okay.
Bart: And so, now that one we're... And amazingly enough, his UTMA is technically still an UTMA. And so, I think he's actually in okay spot where he is going to be able... From what we've learned or what we thought we knew, the UTMA doesn't necessarily have to be college education.
Pat: No. It doesn't have to be anything at all. It doesn't have to be anything at all, has nothing to do with...
Scott: Until you move the money.
Pat: ...until you've moved it into the 529 in which case the... But it still remained the characteristics of the UTMA inside the 529. Now, this is how I want you to think about these 529s, right? So that UTMA thing is, there's nothing you could do about that. That ship has long sailed. You can move money between 529s. And in fact, you can actually, under the new rules that come out in two years, part of this tax legislation, you could convert 529s that aren't used into Roth IRAs over periods of years for the benefit of the beneficiary. Now, not all of the rules have been written on this yet, but it was, what was the name of that last tax act? The let's Save America Act Tax, whatever it was.
Scott: Save the deficit and inflation at the same time.
Pat: The American Recovery or whatever. So that money that is left in the 529s doesn't necessarily have to pay a 10% penalty to come out. And remember and taxes on that, it can now be converted to a Roth IRA. And by the way, just for a little bit of clarification, when they passed this thing, I thought in my lifetime, I would never see anyone that would need to do it until I got this phone call from you. I thought it was some of the dumbest legislation I have ever heard of, and I still believe that because it affects 0.0000001% of the population.
Scott: That's just slipped in there in the final hour behind closed doors.
Pat: But let's just say that that didn't exist. You can still move these 529s around from child to child and even to grandchildren. You can put your name on them as a beneficiary. So I assume since you have so much money in these plans, that the rest of your financial house is probably pretty well-built. Would that be a fair statement?
Bart: Yeah. We're okay.
Bart: But what we wanted was the UTMAs for to be...
Pat: I know, I know.
Bart: So that they could...
Pat: But you somehow tra-...
Bart: Then maybe the girls could buy a car.
Pat: Nope. That ship has sailed. And they can still... You can pull the money out and you can pay taxes on them. And you could pay a 10% penalty.
Scott: If this happened last year and you say, "Hey, this wasn't..." Or last month and this was inadvertent, "I didn't realize what I was signing," maybe you can get it reversed, but not after this length of time.
Pat: But it's not that big of a deal. It really isn't. It really is not that big of a deal. And look, just leave it in there. If they don't spend it, just leave it in there. When this legislation, when it goes into tax, then hire yourself, by the way, a decent financial advisor.
Scott: Not someone that's selling you product to get commission.
Pat: Not someone that's selling you a product with a commission on it that didn't actually care, it was just the easiest thing... Well, maybe they did care. I don't know, maybe they made a mistake.
Bart: Yeah, that's where I think we were ended up with. It was simple to move it.
Pat: That's right.
Bart: But the weird thing is my son's is still in a...
Pat: I understand. But that was an oversight.
Scott: It is what it is at this point. There's nothing you can do to change how they're currently titled. One thing you can do is a couple strategies like Pat talks about.
Pat: Look, this is a blessing in disguise.
Scott: It is a blessing in disguise that you can actually convert into a Roth IRA.
Pat: So rather than try to fix or be frustrated about what happened years ago, it's...
Scott: Take it in and hire yourself a decent advisor.
Pat: And figure out your best path forward. So appreciate the call, Bart.
Scott: Well, hey, we're about to wrap up here. Just wanted to let everyone know that we've got Social Security virtual workshops April 11th, 13th and 15th, and go to allworthfinancial.com for all the details. Anyway, we'll see you next week. This has been Allworth 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.