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

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

Pat: And Pat McClain.

Scott: Glad you are joining us today as we talk about financial matters. Myself and my co-host here, we're both practicing advisors. Our objective with people is to help them get to a point where they have some financial independence, meaning that work is an option and not an obligation, retirement is a possibility if that's something they want, making sure things are structured in such a manner to maximize what's important to them in their lives. And money is a funny thing because, I mean, you go to the kind of...there's some people that think money is kind of a bad thing. Money is the root of all evil, right? There's people that are like, "Well, money is bad and the accumulation of money, therefore, must be bad," right? There's some that take a vow of poverty.

Pat: Yes.

Scott: And then there's some that are so...the money to them as about power and control and ego. But if you're kind of in the middle, there is that, "It's a necessary tool."

Pat: Yes.

Scott: Right? Because without money, you can't eat, you can't have a roof over your head.

Pat: It's what you use to exchange for goods and services. It's what it is. I always like to say it is a form of a store of labor for most people.

Scott: And being able to diligently save over a lifetime is so important to be able to get to a point where you've got some financial independence, which is important so that whether or not you want to retire, you're in a position that if a health issue takes you out or...it just gives you more freedom and more options in life.

Pat: Yes.

Scott: Where the lack of resources obviously gives you a lot less choices.

Pat: Yeah.

Scott: Yeah. I read an article recently on student debts and how it was a problem for some people going into ministries where they have vows of poverty. And so, they're figuring out creative ways to help people get their debt paid down.

Pat: It was about a gentleman that was joining the Jesuits. They take a vow of poverty, and he had $70,000...

Scott: What's it mean to be impoverished? How poor is that?

Pat: By the way, Scott, and I'm by no mean a Catholic scholar or even an expert on this. But I have friends that are priests that are in orders that take a vow of poverty and I have priests that are in orders that don't take a vow of poverty. So, not all Catholic orders take a vow of poverty, right? But typically, what ends up happening is the order itself...

Scott: So, you're reliant upon...you're relying upon the church or a charity or something.

Pat: A group of people for your means of support.

Scott: And if that's how you want to face retirement, then go for it.

Pat: Yeah. Yeah, yes. But then there's orders that the individuals take the vow of poverty but the order itself is quite wealthy. You know, quite wealthy. But what they were doing was to take the vow of poverty is they were asking...they were doing GoFundMe pages to pay off the student loans.

Scott: Not a bad gig for a year or two. Your student loans are wiped out, you had your vow of poverty, and then you come out and [inaudible 00:04:02]. Well, poverty sounds like...being in debt is even more impoverished, isn't it? Having 70,000 of debt and no means to pay?

Pat: And I see you have...

Scott: Actually, the student loans, the payment is based upon your income anyway. If your income is below...maybe there's still a minimum. I don't know if there is a minimum.

Pat: I don't know.

Scott: But that would be the ultimate of, like, how much debt can you take on before you take your vow of poverty?

Pat: I don't think those people at the student loan administration thought of that, did they? Look, my daughter is...

Scott: Money is a funny thing.

Pat: My daughter's a teacher in a low-income school. They don't make enough money to really pay back any substantial amount of student loans.

Scott: Who? The teachers?

Pat: Yeah, at least in certain districts.

Scott: Well, they are paid based upon the kind of education she provides to her students? Or is it based upon how many years of service she has or what college credit she has and what sort of certification?

Pat: That's right. That's right. Anyway, let's go on. If you want to join the show, 833-99-WORTH, 833-999-6784.

Scott: It could be a question about your retirement,t like, do you have enough saved for retirement? It could be a question about which income sources should you be pulling from. Do you look at pulling from your brokerage account first? It could be a question on what do you do with a mutual fund or stock that you've held for years that has high gains in it, but it's not a big piece of your portfolio. It could be with how do you figure out the best way to get your mortgage paid down for retirement? Those questions and more, you call this number, we scheduled the time...we come in the studio and record the calls.

Pat: During the week.

Scott: So, 833-99-WORTH will get you onto our program.

Pat: Podcast listeners, just call, leave a message, talk to someone, we'll get back to you. 833-999-6784. All right, we're going to talk with Martha in California. Martha, thanks for joining Allworth's "Money Matters."

Martha: Good afternoon, Scott and Pat.

Pat: Hi, Martha.

Martha: I listen to you, I love your podcast very much, been listening for a very long time.

Scott: Well, thank you.

Martha: And my question is back in early-mid '70s, my husband and I purchased, oddly enough as a hedge against inflation, a lot of silver and gold coins. And my question is, is this an ideal time to dispose of these? And if it is, what's the best way to do it?

Pat: How much is a percentage of your portfolio are these gold coins? Is that 1%? Ten percent? Twenty percent?

Scott: All of your life savings?

Pat: Yeah, what percentage of money is tied up in these gold and silver coins?

Martha: Oh, I would say probably less than 1%.

Pat: What do you think you should do?

Martha: I have no idea.

Scott: Well, you've had them since, I mean, the early '70s. It's only been 50 years and now you're...how old are you, Martha?

Martha: Seventy-five.

Scott: And do you have grandkids? Kids and grandkids?

Martha: Yes, two grandkids.

Scott: So, if you are my older sister, I would probably say why don't you just keep those and figure out the value, maybe you want to give it to your grandkids or give it to your kids and grandkids? Like, it's a small percentage of the portfolio. If you sold them, then what do you do with the money? You're gonna have to reinvest it somewhere, right? Unless you tell me you got something you want to spend it on?

Martha: No, not particularly, I probably would just use it for living expenses rather than drawing from my portfolios.

Scott: Would you splurge on something you might not otherwise?

Martha: Probably not.

Pat: Oh, because I just had a client that had plenty of money, plenty of money, had a bunch of silver at home, kind of the same thing. They'd owned it for 40 years. She called me up and said, "Hey, I've got all the silver," I'm like, "What's it worth?" She said, "Probably about $60,000-$70,000." I go, "Is there anything you really have been looking at and just haven't been able to buy that you're just uncomfortable?" And she said, "Yeah, a new car," and I said, "Sell the silver and buy a car." It's not going to affect you over the long term financially. More than enough...I assume that you have more than enough money to live comfortably, Martha, is this a fair assumption?

Martha: Yes.

Pat: Normally when people who are in their 20s are buying gold and silver and putting them in their house somewhere, they're pretty good savers. I'm just gonna go with that. That's right, when they're young.

Scott: When they're young.

Pat: So, I imagined that there was lots of discussion around the family about saving money and investing appropriately. I'm gonna go with Scott. If you want something, sell it and buy it. If there's nothing that you desire, just hang on to it, it's not gonna change your...

Scott: If it was a big percentage of your portfolio, 10% or something, it may be a different story. But you got the big capital gains on it as well.

Pat: Yeah, but if you hold it until...

Scott: It's a higher rate too. Isn't it 25% for...

Pat: Precious metals.

Scott: I could be wrong.

Pat: I don't recall that.

Scott: I could be wrong. Don't quote me on that.

Pat: So, unless you need the money, just hang on to it. It's not gonna make a difference one way or the other, it's a small percentage of your portfolio.

Scott: I have them put in a safety deposit box or a really good safe.

Pat: Yeah.

Martha: Yes, they are in a really good safe.

Scott: Okay.

Martha: So, if I do decide to dispose of them, what's the best way to do it?

Pat: You want to go to a local reputable dealer and sell them directly. Don't go online, don't go to any of these commercials. There's local reputable dealers. There's two or three, and if you want, you can bring them to two of them and see who's going to give you the highest pricing. They should be almost identical on price.

Martha: Okay, got it?

Pat: All right.

Martha: Great.

Pat: What you don't want to do...

Martha: Thank you so much.

Pat: Martha, what you don't want to do is...I'm gonna share a quick story. When I was a waiter in college, there was a busboy that worked with me and he came to work...what are you laughing about?

Scott: Where is this going? It's hilarious.

Pat: And he came to work and he was distraught, absolutely distraught, and I asked him, "What's wrong?" And his parents were...his dad was a doctor and they had done well enough, well enough that they would have actually been buying gold coins, wrapping them in butcher paper, and putting it in the freezer in their garage so that no one would steal it. So, Mom and Dad go on vacation, freezer breaks, he comes home from work, all the meats rotten...the kid does, Mom and Dad are on vacation prior to cell phones, throws it all in the trash, not knowing that there's gold coins wrapped up there, he thinks it's all spoiled meat. And so, he was distraught because he had thrown out $20,000 or $30,000 worth of gold coins in the early '80s. Don't put it in your freezer.

Scott: That's the moral of that story.

Pat: That's the moral of that story.

Scott: Don't put it in the freezer.

Pat: Don't put it in the freezer, Martha. We appreciate your call.

Scott: Thanks, Martha. I'm sure he wasn't nearly as distraught as his parents were. You were like 20...what year was that?

Pat: That was in the '80s, it was '83, '84.

Scott: They probably have just bought...didn't gold hit a high, like, in '81, and then it didn't hit another high for 20?

Pat: Probably.

Scott: That was in the height....so, remember this because sometimes you'll be like, "Well, it's inflation, what I'm gonna do?" Gold, it spiked, it hit a high, and it ran up dramatically from the '70s through the early 80s. We had the oil embargo, we had all kinds of crazy things, and we had shortly gone off the gold standard. Nixon pulled us off the gold standard. So, there's lots of factors at play. Gold rallied like crazy, people said, "Oh, it's a great hedge for inflation," hot investment for a while, but then it just didn't...dismal, and it took about 20 years before it hit a new high again.

Pat: Kind of like the NASDAQ.

Scott: Kind of like the NASDAQ. Yeah, it's different this time.

Pat: It's never different. Remember that? It's never different. Markets go through cycles. You know what I was...the other night, I couldn't sleep, I was looking up the price-to-earnings ratio...

Scott: I know the night you can't sleep, I get emails from you at, like, 4:00 in the morning. Yeah. "Oh, Pat can't sleep."

Pat: I was looking at the price-to-earnings ratio of Tesla compared to, like, Toyota or Volkswagen or other auto companies.

Scott: If you took out the credits that they received, call it offset credits or whatever...

Pat: There'd be no earnings at all.

Scott: There probably not.

Pat: Yeah, but the price-to-earnings was like over 2000 for Tesla and it was like 13 for Ford. I thought, "This is the craziest, how much hype is around this?" And then I read this morning, this Elon Musk, he pretends like he's Mr. Technical. This guy is the most savvy marketing person I think I've ever seen. He came up this morning and said that he was thinking of setting up his own social network.

Scott: What's that mean?

Pat: I think he was getting tired of Twitter telling him not to do things. And if you own your own network..you know? But think about Tesla's stock relative to other transportation stocks.

Scott: There's a number of these that don't...

Pat: He announces he's gonna split the stock, "I'm gonna do a stock split," and then the price soars. I'm like, "Do you guys know what a stock split is? Does anyone know what this means?"

Scott: I think that stock, it hit about $1200 bucks a share, then it fell down to seven-something and then it rally back...

Pat: Again. But again, people say it's different this time. It's never different. Just telling you. This too shall pass.

Scott: I think the troubling thing...you think of some other tech companies that have...whether it's Google....of course, there were lots of search engines back in the day. Whatever happened in Netscape? Yeah, lots of them. But some that, you can say, "All right, this company would have to grow 50-fold to fit its price," but they actually had a business plan for that. I struggle thinking that Tesla is going to be able to sell 50 times as many cars on an annual basis as they're doing today.

Pat: Yeah, the market isn't that large.

Scott: And there's so many competitors.

Pat: Yes, that's right. That's right. And it will happen, but not in the next 10 years. Not in the next 20 years. Anyway...

Scott: If you want to own Tesla's stock, good for you, just have it a small percentage of your portfolio.

Pat: That's right.

Scott: Don't bet your retirement on it, particularly your retirement. The closer you are to retirement, the smaller the piece of your portfolio it should be. We're talking with Linda. Linda, you're with Allworth's "Money Matters."

Linda: Hi, there. Thanks for taking my call. I'm a longtime listener and a huge fan of your show.

Scott: Thank you. We like people like you.

Linda: I have a question for you. I think I've been listening for over 20 years, so I thank you for providing your service and educating listeners like myself.

Scott: Well, thank you. All right, keep going.

Pat: Wow.

Scott: Don't forget about myself. Tell me more about me. Okay, how about you, Linda? This is about you. So, what's going on?

Linda: Well, okay, so I want your thoughts about maybe giving an early inheritance to an adult child, primarily to purchase her first house in California.

Scott: How many kids do you have?

Linda: I have two.

Scott: Okay.

Linda: And I'll give you a little bit of our financial situation.

Scott: Thank you.

Linda: My husband is semi-retired, and he's collecting a pension of around 150,000. Also, he's gone back to work as a retired annuitant and he's working part-time and his pay last year was around 93,000.

Scott: Okay.

Linda: And he plans to do this until he's maybe 70.

Scott: And what is he now?

Linda: So, he's 62.

Scott: Okay.

Linda: So, neither one of us is collecting Social Security at this time, we have no mortgage on our house, and we both have long-term care policies.

Scott: And do you work outside of the home, Linda?

Linda: No.

Scott: Okay.

Linda: We have financial assets of...excluding our house, of around 4.1 million. So, we're thinking about giving our oldest child maybe half a million. Is that something that we should even do?

Scott: Okay, let's talk about this for a second. And how old are you?

Linda: I'm 63.

Scott: And what's the value of the home?

Linda: Around 1.4.

Scott: And do you owe anything on it?

Linda: Nothing.

Scott: Okay, that's what I assume.

Pat: And my guess is you're not...maybe I'm wrong, but my guess is you're not spending all the income that's coming in right now.

Scott: Yeah, because right now, you've got income of 240 coming in approximately. Are you living on all of that? Are you spending all of that?

Linda: No.

Scott: Okay. Of this 4.1 million, how much money is outside of IRAs?

Linda: Outside of IRAs?

Pat: Yeah, 401(k)s.

Linda: 2.6.

Pat: Okay, it's outside. And how much of that is invested in cash bonds and/or stocks? So, tell me how much is in the cash or bond portion?

Linda: Okay, in the equities portion, it's around 70%. And in cash and bonds, it's around 30%.

Pat: Okay, so we've got about 850 grand. Is this something both you and your husband want to do? Is this something that one of you wants to do?

Linda: It's something that I think I would like to do more because I think that why should they wait until we're gone to help them out that we can do now, especially in purchasing a house?

Pat: Tell me about the second child.

Linda: The second child, they're both...okay, both of our kids make good livings. The daughter, she probably makes a little bit over 150, and my son, he will be making a good living but he plans to maybe marry soon. And between him and his future wife, they'll be making a great living. So, he won't need the full inheritance.

Pat: I know that...so does your daughter married?

Linda: No.

Pat: Okay. All right, so here is...

Scott: And this would be for your daughter buying a house, or your son?

Pat: Her daughter, the oldest, not married. Okay, so...

Scott: And how old is she?

Linda: She is 30.

Pat: I liked the idea.

Scott: [inaudible 00:19:38] that either

Pat: I liked the idea. Here's the one thing I will caution you, only because I've seen it and I know Scott has seen it multiple times. You give the cheque to your daughter and you don't give the check to your son right away at the same time, you're going to create animosity between either the two of them or your son and you. I don't care if your son has all the money in the world, it is a degree of fairness in their minds.

Scott: Not always. It can be but I don't think that's always the case, not in my experience. Even my own kids, like, Christmas, I never care if it's...it's not always even...

Pat: You're not talking about half a million dollars, though.

Scott: Okay, that's true. I'm talking about a $50 gift.

Pat: I mean, even...look, Scott, even when...you know, we'll get personal here, even when I sat down with my kids this last December and we went through our estate plan and we said, "Here's who we think should be the trustees on this estate plan if Mr. Hanson can't do it," and there was a dispute over, "Why aren't all four listed as trustees, why are only one or two?" Regardless of the fact that I said the trustee doesn't have any special powers, it was just seen as a degree of fairness. So in these numbers here, I mean, you could give it to your son and your daughter at the same time.

Scott: Or, I mean, you could also gift a lesser amount to each, help your daughter get that house, and giving an annual gift after that to help pay down the mortgage.

Pat: Which is an even better idea.

Scott: Because she's got...it sounds like she's got the cash flow to help make a mortgage payment. So, what if you gave...

Pat: $200,000 and then...

Scott: Each year.

Pat: Yeah.

Scott: Yeah, each year you give a check of $30 grand to one of them.

Linda: I would probably do that except I think, you know, in California, the houses are so expensive. And just to even get to that...I don't want her to have an impound account. I want her to have a healthy...

Pat: You want to get it hooked for the 20%?

Linda: Yeah.

Scott: Look, I don't know what would go wrong in your life where you would need...my odds are if you don't do this, 10 years for now, that 4 million is gonna be worth 8 million.

Pat: Yeah.

Linda: Yeah.

Pat: No, I like the idea. I like the idea. Just recognize the relationship between you, your daughter, and your son, and how this would affect it if you don't treat them equally or appear to be treating them equally. And you don't have to give it to your son right now, you could say to your son, "Look, we set aside $500,000 in an account, we'll give it to you whenever you want. You could get $500,000 plus whatever more when we die, you can do whatever you want."

Scott: I actually like that idea, Pat. Set up a separate account, 500, have it invested, and say, "I've got an account set up for you."

Pat: You can copy them on it.

Scott: Does he own a house yet?

Linda: Pardon? No, he doesn't own a house yet.

Pat: And there's a little difference...remember, it's a separate property for any one of your children, which makes it leaving a little bit more difficult, which means...and that's why I ask if your daughter married.

Linda: Is it only separate property before they're married?

Pat: No, it's always separate property, anything I bring into the marriage, unless they decide to commingle it.

Linda: Okay.

Pat: Right? Whatever you bring into the marriage is considered separate property unless it is commingled. And anything that is gifted or inherited to that individual is separate property.

Scott: Unless it's commingled.

Pat: Unless it's commingled.

Scott: And where you see it happen often is a home that's got a mortgage...let's say there's a couple 100 grand in equity but a couple of hundred thousand dollars mortgage or whatever, the couples live in that for 20 some odd years, they get divorced, and one says, "No, I have the house before," and the other is like, "Are you kidding me? I've been working and helping pay the mortgage for these 20 years."

Pat: Which is why, like, when you mentioned your son and his fiancee, you know, like, "I can give my son a half a million dollars and then he can buy a house," and then the next thing you know, his wife is like, "Oh," and he's like, "No, honey, I'll pay the mortgage, you pay for the...you know, you pay the Netflix bill." Because of the commingle, and that's completely different and we could do a two-hour radio show on that. But better yet, we'd make it a podcast.

Linda: So, can I ask you one extra question?

Pat: Sure.

Linda: Okay, so with this gift, would there be any tax implications with it? Or can I use our lifetime...?

Pat: Yes, you can use part of your lifetime exemptions, currently about $11 million each. That could change in the future. If it's sometime in the future, it would drop back to $1 million dollars or something, then we don't know how they would address it at that point in time. But you definitely could go ahead and do it, just let your tax people know. They have to file a form showing that you use a portion of that.

Scott: [inaudible 00:24:55]

Pat: Yeah. Part of the exemption.

Linda: Okay.

Pat: I like the idea, just be aware of the relationship between you and your children in doing so.

Scott: And your husband.

Linda: No, my son will ultimately get the same amount.

Pat: Adjusted for inflation or not adjusted for inflation?

Linda: No, no. No, no, no. They will get...they will be both treated very equally.

Pat: Thank you. Thank you. Appreciate the call. Thanks for listening.

Scott: Yeah, we like it. You know, it's a nice position to be in.

Pat: Yeah.

Scott: And frankly, you see enough situations where people struggle and their parents are loaded and they've never given a dime and...

Pat: Yeah, and then when mom and dad go, whoo, whoo.

Scott: Nice. I hope they're not partying. All right. Yeah, we're gonna take a quick break. We'll come back, we will take some more calls, I'd love to hear from you. 833-99-WORTH is the number. This is Allworth's "Money Matters," we'll be right back.

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

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

Pat: Pat McClain.

Scott: [inaudible 00:26:40] this last call talking about being fair, and my daughter's clearly gotten more finances from me than my son has.

Pat: What do you mean? Oh, you mean money? Like financial support?

Scott: Yes.

Pat: Okay.

Scott: So, my oldest coaches a couple high school lacrosse team. She calculated how much it's going to cost her to be a coach because she commutes back and forth. She says just the gas alone is more than the stipend she gets for...

Pat: For being a lacrosse coach.

Scott: Yeah. So, I helped pay her rent in a nice place in downtown Denver because she's my little girl and I can and I...

Pat: But your son doesn't...but they're not comparing.

Scott: Well, my son, he looks like he's almost homeless.

Pat: Almost homeless. Your son is a nice kid.

Scott: Oh, he's a fantastic kid.

Pat: Yeah. Don't you wish you had a little bit more of that in you? So, I always was...

Scott: Not my son. Oh, we're gonna take a call.

Pat: He's got some chill going on.

Scott: So, he's been a paragliding instructor for the last couple of years, right? Teaching people how to paragliding, living in Santa Barbara.

Pat: He got some chill going on.

Scott: His office is essentially a hill overlooking the ocean. Not a bad gig. And then this summer, he's going to take eight weeks to lead a bicycling trip across the United States with a dozen high schoolers.

Pat: Wow.

Scott: He and somebody else.

Pat: But you support them a little bit differently.

Scott: He doesn't even take any support. His income...his lifestyle needs are so low.

Pat: But they're not comparing. But the last call...

Scott: He barely made any money last year and save several thousand dollars.

Pat: But that's not your daughter?

Scott: No. No.

Pat: My kids have said that, "Jessica Hanson has quite the nice life compared..." Well, according to Instagram.

Scott: Well, everyone has a good life in Instagram.

Pat: I don't have Instagram. So, maybe I should get Instagram.

Scott: I think you should. It'll change your life, Pat.

Pat: I'm not getting any Instagram.

Scott: That's the one thing you're missing. That and Tiktok.

Pat: Anyway, but...

Scott: Back to the call before the break with this whole concept of fairness. I think every child is different, every family is different. But to your point, understanding...and just having good conversations with them and how they feel about things.

Pat: Yeah, Scott, there's life support and then there's someone getting a half-a-million-dollar check.

Scott: That's true.

Pat: And someone not.

Scott: Fair enough.

Pat: Right?

Scott: A few hundred bucks to help out with rent.

Pat: Yeah, no one is measuring that on a day to day. But if one child, if Jessica showed up in a Maserati, a bright red Maserati, and said, "Thanks, dad."

Scott: "Daddy," it better be "Daddy" if I gave her a Maserati.

Pat: Your son might be saying, "Dad, Ford F-150 maybe?" Or maybe he wouldn't.

Scott: Oh, I'm sure he would if I bought her a brand new car.

Pat: Right? Because everything is...

Scott: All right, let's go back there. This is a...let's go back to calls.

Pat: All righty.

Scott: 833-99-WORTH.

Pat: By the way, Scott Hanson would never buy his daughter a Maserati.

Scott: I can assure you of that.

Pat: That is an example, nor is...

Scott: I did buy her a Subaru because she was driving back and forth to Portland for school in the wintertime and I wanted a car that...because of the low pass.

Pat: You didn't buy her a Subaru. You bought a Subaru so that you would have peace of mind.

Scott: That's exactly right, because she had a car that wasn't quite so safe and it was a bad snowstorm and she got turned around because even though she had a four-wheel drive, she didn't have the chains and I just...

Pat: So, you bought the Subaru for you and allowed her to use it, it is for your peace of mind. She didn't care. Let's go to the calls. 833-99-WORTH.

Scott: We're in Texas talking with Mark. Mark, you're with Allworth's "Money Matters."

Mark: Hello, gentlemen, how are you today?

Scott: Fantastic.

Pat: What can we do for you?

Mark: Good deal. Yes, I wanted to get your opinion on something here. I am wanting to know if I should be doing more of a traditional contribution to my 401(k) or a Roth contribution to my 401(k), I have the option to do both.

Pat: Or a combination.

Mark: Or a combination of both, yes, and that's kind of currently what I'm doing. I have been doing mostly traditional up until I turned 50 this past year, and then I did my catch-up into the...

Scott: I was gonna guess you were like 27.

Pat: I was gonna guess, like, you've just started saving.

Scott: You've got a very young voice.

Mark: Oh, do I?

Scott: Yes.

Mark: Well, you should see me, you should see my picture. You know, they looked fit too.

Pat: Tell us about yourself. Are you married?

Mark: Yes, yes, married.

Pat: And how many kids?

Mark: Two grown children, so I have no one.

Pat: Okay. What's the family income between you and your spouse?

Mark: About 330, 340.

Pat: What was it last year?

Mark: 325. It's been above 300 over the last three years or so.

Pat: How much money do you have saved for retirement?

Mark: In my 401(k), I got about 515 and my wife's about 220. And we have two Roth IRAs with backdooring, about 60 grand in those, and about 60 in a brokerage account, and some cash in the bank. I wish I would have started investing a lot earlier.

Scott: My guess is you weren't making 300,000, though, a lot earlier.

Mark: That is correct. That just happened here in the last three years and...

Scott: So, what was your family income five years ago?

Mark: 150. Well, probably more than that. Yeah, 150, 200, but, you know, we had debt, we were...

Scott: And your kids are grown, are they through college or through whatever they're going to do? Are they self-supportive?

Mark: Yeah.

Pat: How old did you see you were?

Mark: Fifty, 50.

Pat: I did the deductible.

Mark: And the reason why I ask, guys, is it really kills me not getting that tax break.

Pat: I know. So, you know what I would do?

Mark: But I also like the Roth side.

Pat: And do you have the ability to save more money towards retirement?

Scott: I'm assuming you're gonna stay in Texas and my guess is your kids aren't moving to California or New York, and that you're gonna follow them?

Mark: No, no. Yeah, I'm staying in Texas.

Pat: Do you have an HSA...?

Mark: No, no, everybody is here.

Pat: Do you have an HSA at work?

Mark: We have that option, yes. I'm currently doing an HRA because my son has just turned 26 and he was on our insurance, but he will be...he's off this year, so HSA starts next year. And yeah, we know what we do, the only debt we have is our home, getting back to your question.

Pat: How much do you owe?

Mark: 375.

Pat: How much longer are you gonna work?

Mark: Oh, I want to work till 65 so I can [crosstalk 00:33:25].

Pat: All right, so here's what I would do. Let's just go beginning to end, flat out financial, start amortizing your mortgage over a 15-year period and figure out what the payment is so it's retired at age 65. Maximize your HSA and don't spend any of that money, invest it.

Mark: Okay.

Pat: Right? And so, you might have an investment with HealthEquity, it's a company that we use, which allows you to actually direct those dollars and you're going to pay for all your deductibles out of pocket. Do the backdoor Roth like you are continuing to do and...

Scott: When you say backdoor Roth, are you referring to you contributing a non-deductible 401(k) deposit and at the end of the year taking that 20-some grand and put it into the Roth? Or are you referring to funding a non-deductible IRA and then flipping that into a Roth?

Mark: The latter.

Scott: Okay.

Pat: How big is your employer? How big is your employer? Like thousands and thousands of people?

Mark: Oh, yeah, it's 10,000 employees. Now, here's the kicker, guys. I don't know if...fifteen percent defined contribution from the company, so it's all traditional. So, do the math on that.

Pat: They're putting 15% of your pay into the 401(k)?

Mark: Yes.

Pat: They are?

Mark: They are.

Pat: Are you an airline pilot?

Mark: Yes, I am.

Pat: Okay. I'm kidding. What other industry does that? You know, we knew that. We actually have a division of our company that specializes with airline pilots.

Scott: And we've got about 3,000 pilots as clients.

Pat: So, we have thousands of airline pilots as clients.

Mark: Yeah, so I know all that money, just so that you know. And let me tell you something. Contractually, they have to do 15%.

Pat: That's right.

Mark: So, when I hit the 415 fee limits, they give me a check.

Pat: Yep. Got it, got it, got it. Okay, I like everything you're doing. I would do the deductible.

Scott: I might split it down the middle.

Pat: The only way we're going to know is if we can project in the future what the income tax rates are gonna be. It's anyone's guess.

Mark: I know, I heard you guys talk about that.

Pat: Like, conventional wisdom would say, "Always take the tax deduction," right?

Mark: Yep.

Pat: I mean, if you got at retirement time at age 65, you got $1 million in a Roth IRA versus a million dollars in a traditional taxable form, the Roth is worth a heck of a lot more money to you.

Scott: Well, let me ask you a question, Mark. Were you flying for a smaller carrier and then moved to a larger carrier in order to get these benefits?

Mark: Yes, that's the case. So, at my previous carrier, I was only getting a 9% match and now I get [crosstalk 00:36:05] contribution.

Pat: And your pay went up, so you were probably flying for a regional, and then you went to a major, right?

Mark: Correct. Yes.

Pat: It's almost like we know this industry.

Mark: Yeah, I was gonna you guys have a lot of friends who are airline pilots, huh?

Scott: We have thousands of clients.

Pat: We have an office in...we have offices in Dallas where one of our divisions is called RAA, and it works primarily with pilots from most of the big carriers. And so, we understand the pension plans and the health benefits very, very well. And when we say, "We," collectively, Scott and I know enough to be dangerous.

Mark: Yeah, [inaudible 00:36:43].

Pat: Yeah. So, as it's called, RAA, and they could actually give you direction in the 401(k), and Scott, they could do an analysis while running the numbers. Look, if the tax rates are exactly the same in the future, it doesn't matter, assuming you save the tax deduction, right? So, when you contribute to a traditional, you're limited, right? You get that tax deduction. If the tax should be the same, it would assume that you then take that savings, the tax deduction you just got, and save it for the future in a tax-advantaged way, which you're not going to do exactly. If I were in your position...

Mark: Yeah, but I do contribute to a brokerage account on both of our...on both of our behalfs every month too because we have excess money.

Pat: If I were in your position, I would do...I'd split it down the middle. I'd go with that. We don't know in the future.

Scott: Yeah, we don't know.

Pat: And you're not going to hurt yourself splitting it down the middle. That way, you're right, there's probably...

Scott: You probably split it down the middle anyway.

Mark: I am doing a little bit, I'm doing the catch-up, so the 7,000 this year. But, you know, everything that the company gives me is gonna be traditional, so I'm thinking, "Heck, if I could take some of my portion and put it into 401(k) and have them both grow and then do the backdoor." I mean, that's kind of my plan but I don't see that tax deduction of that 195 or 25 this year, and it was 20.5 this year...

Pat: Now, listen, no one's crying for you. You know?

Mark: I know.

Pat: You pay the taxes now or pay the taxes later, but you're gonna pay the taxes.

Mark: Yeah, that's true.

Pat: So, if the tax rate stays the same, it doesn't matter. Whether you paid it at the beginning of the cycle or at the end of the cycle, the dollar...

Mark: It's just that I see the taxable income now and I'm not going to see it later.

Pat: That's right. That's right. That's right.

Mark: Okay.

Pat: Anyway, but go to RAA...what's our website for...?

Scott: raa.com.

Pat: Go to raa.com...

Scott: I think. I don't know.

Pat: I think, or Allworth, but like I said...

Scott: There's tools there too.

Pat: We have tools for pilots and we've worked with...Allworth RAA has worked with thousands and thousands of pilots. It's raa.com.

Scott: We can outro on it.

Pat: Thank you. So, visit our website there and tell your pilot friends too and we specialize in that.

Mark: So, one quick question, my wife just did a great resignation, self-employed now, so she should do the same thing with her self 401(k)? Should she do a Roth or the traditional or split?

Pat: Okay, so she's self-employed?

Mark: Correct.

Pat: Is she going to earn any money?

Mark: Oh, yeah. Oh, yeah.

Pat: That's subjective, I think.

Mark: Why else would you work? No, I'm just kidding.

Pat: You would do the same. Do the same.

Mark: Okay, that's what I thought. We're on the same page, just do the same thing. Okay.

Pat: Exactly. All right, appreciate the call.

Scott: Yeah, wish you well there, Mark.

Mark: Thank you, gentlemen. I appreciate it. Thank you.

Scott: Oh, by the way, you were talking about...I was thinking about if his wife wasn't working before, his income would preclude him from doing a spousal IRA, couldn't do a back...

Pat: Yeah, he could.

Scott: You can't do a spousal IRA if your spouse doesn't work. If your income is over 190 grand...

Pat: Oh, got it, got it, got it. You can't if your income is low enough.

Scott: Yeah, his income is not low enough. So, if his wife had not worked in the past, he would not have been able to...

Pat: But she was working. She is now self-employed but she's still working. Even if you're self-employed, you're still working.

Scott: That is correct.

Pat: So, I like where you were going through and checking yourself on the recommendations you were giving.

Scott: That's exactly what I was doing.

Pat: Which is...

Scott: Because it's not uncommon when you see someone who's got a high wage that has a spouse that has no wage because that's not uncommon at all.

Pat: Yeah. I mean, it's just a good practice, actually, people that give good advice, check that advice that they're handing because they're giving it and then sometimes later...

Scott: That's probably the smartest thing to do.

Pat: Yes, and sometimes later, like, "Oh, crap, I should have told them that." It's an interesting...doing this radio show over the last 28...

Scott: Six, seven years.

Pat: It's been interesting because we give lots of advice and we always wonder, "Hey, did they take the advice?

Scott: It's not official financial planning advice, by the way. Just as a disclaimer, these are just ideas. We encourage everyone to consult their own financial advisor.

Pat: Yeah, obviously, it's a short format...

Scott: It's another way to say this is not, in fact, a legal client engagement.

Pat: A three-minute or five-minute or six-minute conversation doesn't replace a two or three-hour meeting where we'd collect all kinds of data and then crunch the numbers. So, we had a gentleman, Jason Scott who is our producer that has joined us recently, and we were sharing this idea of like, "Whatever happens? Did people take our calls?" And Jason says, "You know what? I'll call a couple of them up that were on the show and why don't we just ask them?" And so, we decided to do this. So, this is a new segment. If it works, we'll do it again. If it doesn't, you will never hear from it. So, anyway, we talked to this gentleman back in July of 2021 and his name is Tony.

Scott: Tony is not a client of Allworth. He's just a...like most of you, just a listener of the radio program.

Pat: And Tony, thanks for being on there. We're gonna share the...you're there, Tony?

Tony: Yeah, I'm here.

Pat: Okay, we're gonna play the portion of the meat of the advice that we gave you back in 2021, and then we're gonna follow up with a couple of questions to see if our advice was even worth the time to listen to. So, play the clip, please.

Tony: Right now, it's 140,000, 148,000.

Pat: How old are you?

Tony: I'm 60.

Pat: What's the interest rate on the mortgage?

Tony: 2.9.

Pat: And how much do you have in your 401(k) and 457s?

Tony: My 401 today, I'd say 680. In my 457 in the 401, it is 397.

Pat: And your wife, how much does she have?

Tony: That's combined.

Pat: Okay. So, you've got 1,000,080?

Tony: Yeah.

Pat: Approximately.

Scott: What if you did this? What if you took 148,000...or maybe even a tad bit more than that, from your 401(k) and moved it into a separate IRA, invest a little more conservatively, then have that IRA...whatever that mortgage amount is, have it just send you that check for that amount each month to make the mortgage payments?

Tony: So, let's say 50,000 and move it into an IRA and have it pay me back that amount of the mortgage is what you're saying?

Scott: That's a psychological game that we're playing here.

Pat: Yes.

Scott: How much money do you have in the bank?

Tony: You guys are...again, you guys are gentlemen, so you're gonna get mad at me. I have about 157,000...

Pat: Oh, this is easy. Oh, God, you're killing me. Tony, Tony, you answer the question for us. What do you do?

Tony: But I don't want to deplete that...

Pat: No one care. Stop, stop, stop. You have almost $1.1 million in liquid cash. It sits in a 403(b) and 457. Don't worry about depleting that. Absolutely, don't worry about it. If you're worried about liquidity, you've got plenty...how much your pension is between the two of you?

Tony: You mean what's our, like, monthly or yearly?

Pat: Monthly, yes.

Tony: Monthly? About 16,000.

Pat: Okay, and have you touched any of the 457 or 401(k) since you or your wife retired?

Tony: No.

Pat: Okay. Okay. Look, you go down to the bank where you bank and there's a picture of you and your wife back there. And every day, they walk by and they give you a little nod and say, "Thank you," because you lent them at half a percent and then you borrowed it back at almost three. I don't want you to talk about it. I don't want you to think about it. I don't have a dog in this fight. You gotta go down, pay that thing off immediately. Write the check.

Tony: Okay. But, you know...

Scott: You know what's interesting? Tony, you started this call and you said, "I wish I had the problems of the previous caller with his 4.1 million," and we said, "Maybe it's realistic to take $160,000 a year out." You've got a pension...you and your wife's pensions are 192,000 and you have a guaranteed cost of living, you're much wealthier than the previous caller.

Pat: You have much, much more money than the previous caller. If I did what's called a net present value...

Scott: If someone said the options that Door 1 is the previous caller and Door 2 is you, I would take Door 2.

Pat: That's right. But yours is viewed differently because you don't view it as a lump sum but if I did what's called a net present value calculation based on your life expectancy and your wife's life expectancy, and put a cost of living adjustment in there...

Scott: You can do whatever you want.

Pat: Yeah, but you called me...

Tony: Yeah. Well, you guys kind of make me feel good now but I still feel...you know, it just makes me nervous.

Pat: No one cares how you feel. You're gonna do the right thing. This isn't a hard decision. How about this? How about I pay off your mortgage and you write me a check every month that pays 2.9% interest for someone that has stellar credit and will never default on this thing? How do you feel about that?

Tony: Well, write me the check.

Pat: All right. I would do it. I would do it. I would do it.

Scott: You want to loan him money?

Pat: I'm gonna collateralize his home. The home is worth more than $140,000.

Scott: I'm pretty confident he's gonna make the payments. He's got pensions of almost $200 grand a year.

Pat: Yeah, there's plenty to go after there. So, Tony, thank you. That was, what, how many months ago was that? Eight months?

Scott: Last July.

Pat: Last July.

Tony: Eight months ago, yeah.

Pat: Eight months ago. So, Tony, tell us what you did.

Tony: Well, I took your advice to a degree.

Pat: Okay.

Tony: Well, I like to say that you push me in the right direction. You know, it was sound advice, and really, what I said then is what held true even through the process. I paid off my mortgage but I did it in increments so that it wouldn't seem so daunting at one time. So, I ended up taking some cash. I mean, I took about half cash, and then did what you suggested as far as 401(k). But I started thinking, "Well, why not, you know, just do it all at once?" And so, eventually, that's what I did and it's paid off my mortgage. I had to take a little hit on the taxes, but it was worthwhile not to have...

Pat: You took some money out of the IRA so you keep some money in the bank, correct?

Tony: Exactly.

Pat: Yeah. And my guess is you took $30,000 or $40,000 out of the IRA, so you keep some money in the bank. Am I close?

Tony: Thirty thousand, yeah.

Pat: Okay. So, you know what's interesting about this, is this is where behavioral finance actually comes in.

Scott: I love the situation just because we're all human and we all have our own biases and fears and dreams, and it drives all of our decisions, right?

Tony: Yeah, yeah.

Scott: In every area of our lives and particularly our finances.

Tony: You're exactly right. I mean, you know, there's a comfort zone that everybody has, I guess...

Scott: Not everybody, that you have.

Tony: Yeah.

Scott: If you talk to someone who's 65 and never saved a dime, I'll tell you, they have very different comfort levels.

Pat: So, you went through this process. At the end of it, you feel all right.

Tony: It feels strange. You know, of course, I still have to pay taxes and that's unavoidable, you know, property taxes. But nonetheless, I mean, it just feels...I mean, not having a house payment is just...I don't know, it feels good not to have a mortgage for the first time ever. I don't know if you...I live in Wilton, California, and I don't know if you know the area.

Pat: I do, I do. So, Tony, the interesting thing about this, right? The interesting thing about it, your net spendable income every month has gone up because of the fact that that money is not going out to the mortgage. And it is...you know, we see it all the time where there's a psychological that you have to have a mortgage. You don't have to have a mortgage. And by the way, you should make sure that your portfolio, that $1,080,000 that you have in your IRAs is well diversified so that you can get some peace of mind as that goes through these markets' ups and downs.

Tony: Yeah, it hasn't been...I mean, yeah, obviously. I mean, a little bit of a hit in the last few months but it hasn't been...I mean, I've been through...you know, having it so long as I've had this happen in the past, but, you know, it's all...you know, it's not about panicking or doing anything crazy. I'm not doing too bad.

Pat: Yeah, I think you're doing great. I think you're doing great.

Tony: Yeah, I mean, as far as my investment. So, you know, I'm not too nervous about that. You know, you guys, I've been listening to both for a long time and, you know, I've always wanted to call in and, you know, sometimes you need a little push, you know, to say, "Well, if they say it's okay and they live it every day, you know, maybe I'm being too conservative."

Pat: You know, Tony, with that advice that you just said, I'm gonna have my wife actually start listening to this show. Because we talk about behavioral finance today, my wife and I had a discussion about something around finances, and we both had different views of it, right? And so, I could anchor my views 100% in logic because this is what I do and I tried to remove the emotion from it, but it doesn't move my point. So, we appreciate you listening to the show and congrats on having the paid-off mortgage.

Scott: Yeah, thanks for calling.

Tony: Yeah, well, thanks, both of you. Thank you.

Scott: Oh, shoot, we only have about a minute left in the program, which is a shame, but I kind of liked that callback thing. We should try to do that again.

Pat: I enjoyed it. We are working on it. And if we don't have enough during the terrestrial radio programs that we do, we will start doing them on podcast too. You know, I used to love the ones Click and Clack did years and years ago, that's what...

Scott: Do they still broadcast that? Because one of the guys died and they kept broadcasting it for years.

Pat: I haven't heard it for years. I haven't heard it for years.

Scott: I'm not much of a car person, so I couldn't quite...

Pat: Yeah.

Scott: If there's any sound that my car is making, it's immediately in the shop. My car was smelling of gasoline so bad that the handyman was over and called me...like, he opened the garage door and he's like, "I think your car..."

Pat: Well, what's wrong with it?

Scott: Something. They fixed it. I don't know. There's something and the fuel line didn't work or something, it had a leak...it smelled like gas. Anyway, we're out of time. So, we'll see you next week. This has been Allworth's "Money Matters."

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