Taxes, Direct Indexing in Real Life, and Pensions: Smarter Strategies for Retirement Wealth
On this week’s Money Matters, Scott and Pat explain how direct index investing can be used as a powerful tax strategy, helping you reduce liabilities while gaining more flexibility than traditional index funds. They also take listener calls on pension decisions, including whether to choose a lump sum or annuity, and how required minimum distributions factor into long-term planning. With real-world stories and clear guidance, Scott and Pat show why the right approach to tax planning and direct index investing can protect your retirement income and grow wealth for decades to come.
Join Money Matters: Get your most pressing financial questions answered by Allworth's co-founders Scott Hanson and Pat McClain live on-air! Call 833-99-WORTH. Or ask a question by clicking here. You can also be on the air by emailing Scott and Pat at questions@moneymatters.com.
Scott: Hey, it's Scott Hanson here. We hope you're having a great Labor Day weekend. Pat and I are away, but we've got a great show planned for you. Give it a listen, and don't forget to follow us wherever you get your podcast.
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: Pat McClain. Thanks for joining us.
Scott: Yeah, glad you are taking your time to... This program is about financial matters. Both myself and my co-host, we're both longtime financial advisors, and we've been doing this radio show, podcast for almost 30 years.
Pat: Thirty years.
Scott: Talking about all kinds of things that are going on in the markets.
Pat: Yes. And this, too, good or bad, shall pass. Wherever we're at in the markets, good or bad, it shall pass. Because everything reverts to its mean.
Scott: That's right.
Pat: Everything reverts to its mean. And I just, you know, been doing this, in this industry, for 35 years, and I think of all the jubilant points in time, where clients were so happy they were making so much money, and I'd say, "Don't get too excited," and all the times when the markets were in turmoil and the world's coming to an end, and I..."Don't get too depressed." And the good investor is the one that walks in with a thesis, an investment thesis, which means, typically, an allocation. And if their money outside of...
Scott: A strategy of how they're gonna manage their money.
Pat: Yeah. And then, if it's outside an IRA, a tax program that actually sits on top of that, to make it as tax-efficient as possible, or if you're high net worth, a gifting program. But whatever it is, a strategy, and the markets come and go. And the political environment will change. But you're not reacting...
Scott: Tariffs, no tariffs, all that stuff. Comes and goes.
Pat: Yeah. You're not reacting to outside forces.
Scott: But Pat, it's so tempting to think, "Ah, this is gonna happen." Well, what's... Because you turn on the CNBC, or Fox Business, or whatever else is out there. Does "Money" magazine still exist?
Pat: I actually don't know.
Scott: Or "Market Watch," or whatever it is. They write articles, and they have stories, and packages on the news, for what? What purpose?
Pat: To draw your attention.
Scott: To draw your attention, right? We all understand how it works. So they can sell advertising. That's their product. They gotta deliver eyeballs, so they can sell to their advertisers. So, they're constantly having stories about, you know, how do you...what's the right thing to invest in now?
Pat: What's the next big thing? And this is...
Scott: All stories like that. "How the wealthy are investing now." "Four things you can do..." all that [crosstalk 00:03:04]
Pat: Seven things. Nine things. It's never "28 things you should do to get your financial house in order."
Scott: That's too many. I'd like, like, one.
Pat: One thing. "Seven-minute abs." But, I go back to the creation of the Dow Jones Industrial Average.
Scott: In the late 1800s.
Pat: It was, what was it?
Scott: Eleven stocks.
Pat: Eleven stocks. What were they consisted of? [crosstalk 00:03:27]
Scott: Nine of them were railroads.
Pat: Nine were railroads.
Scott:: What else could there be? Those [inaudible 00:03:32]
Pat: Right?
Scott: What was the most important technology of the time?
Pat: What else was...
Scott: You think how railroads transformed our country...
Pat: Oh, incredible. Right? That was the newest technology. What people fail to understand is that many of the railroads went bankrupt. And many of them did very, very well.
Scott: That's right.
Pat: Right? They did very, very well. And many of them went bankrupt. So, what does that tell you?
Scott: And the average investor in railroad stocks, in the 1860s, 1870s, lost money.
Pat: Yes.
Scott: Because of the amount of bankruptcies.
Pat: Because of the amount of bankruptcies. But if you had a diversified portfolio of railroad companies, and, as new technologies came online, you added them to your portfolio, while keeping your existing, you did well over time. So, the Dow [crosstalk 00:04:28]
Scott: What [inaudible 00:04:29] Was it 100? The index number? The numerical value?
Pat: Oh. Yeah, I believe it was 100. I think it was 100.
Scott: I think it was 100.
Pat: Yes, it was 100.
Scott: And we're at what, 44,000, 45,000?
Pat: And it's not a weighted average either, unlike the S&P 500.
Scott: Today, it's 30 stocks. So, today's is 30. How many railroads are in there?
Scott: I don't know. I haven't looked at the Dow [inaudible 00:04:52] attention to it. I have no idea. Actually, I have no idea what's... I mean, I could make some guesses, [crosstalk 00:04:%6]
Pat: So, but the point being is, don't get too excited about the latest, greatest thing. Just don't.
Scott: Both on the positive and on the negative.
Pat: That's right. Don't feel like you're missing out on this or missing out on that. Look, you know...
Scott: And it's funny, Pat. So, we get tempted sometimes to have more commentary on the current market stuff. And then we're like...
Pat: What's the point?
Scott: How is that gonna be helpful to people? Right?
Pat: Because, look, especially...
Scott: And, there's enough of that out there. You can get...
Pat: ...the closer you get to retirement, the more your interest should be in not being poorer than it is in getting rich.
Scott: Maintaining your standard of living.
Pat: Maintaining your standard of living.
Scott: That's what most people are mostly concerned with.
Pat: Right.
Scott: Get to retirement, you got a couple million dollars saved.
Pat: And...
Scott: Like, boy, it'd be great if it was $10 million, but it's probably not gonna be $10 million. I just wanna make sure it doesn't go back to...
Pat: So, you had clients...
Scott: ...zero.
Pat: ...I had clients, during two market cycles where there was great exuberance. One was in the housing, and the other was in tech. And against our advice, we had clients that permanently ruined their financial well-being, their lifestyle, by putting big bets into those... I still remember, one guy said to me, "You don't get it, Pat."
Scott: "It's different this time."
Pat: "Everyone's gonna move to Florida," bought seven houses in... And the only thing that was left when it was done, he bought seven houses in Florida, condos.
Scott: [inaudible 00:06:39]
Pat: Yes. The only money that was left, after the whole thing was over, was the amount of money that his wife left in an IRA, with our firm. That was the only money left.
Scott: Because he had debt on them all.
Pat: Because he had debt on them all.
Scott: I remember, Pat...
Pat: Or the tech, same thing.
Scott: ...we had... This was in the year 2000. So, 1999, if you're 55 and older, you probably remember it, particularly you had any money saved at that time. If you're younger... Like, the market was on fire the late '90s, and everything was dot com. If your company had a dot com part of the name, you had a tremendous valuation. It was just crazy. And in 1999, the NASDAQ returned, I believe it was 85% that year.
Pat: It was crazy.
Scott: Okay? NASDAQ goes up 85%. I remember two lessons from this. NASDAQ goes up 85%. The S&P was up about 20% that year. I had a client come in, in January, February. Was upset. He says, "Scott, you're obviously not doing a good job and paying attention to this portfolio." And I'm like, "What are you talking about?" And we had about, I think his account was up about 20% or 21%. We had the same return as the S&P 500, even though we had bonds in there. But he says, "Here's what I'm frustrated about. You've had real estate in this portfolio." This was in 2000. "You've got real estate in this portfolio. I don't know why you have real estate in portfolio when the stock market's doing so great." So he fired me. Said, "I'm taking my money elsewhere." I'm like, "Well..." and he says, "because you don't have enough technology in the portfolio." Well, I think we all know what happened after that, right? Tech stocks, how far did they fall, 80-some percent?
Pat: They were down 80-some percent.
Scott: Disaster. And what happened with real estate?
Pat: It went up.
Scott: It had the best eight-year run as ever.
Pat: A tear. It went on a tear. So, before we go to the calls, remember...
Scott: I'm gonna give you a couple more [crosstalk 00:08:31]
Pat: ...this too shall pass.
Scott: Another story on this.
Pat: Good and bad.
Scott: Someone was bragging about, they had a side account they were investing in tech stocks. And they said, "Scott, my account, trading, I made 78% last year. Seventy-eight percent." And I said, "Wow, you did kinda poorly." He's like, looked at me [inaudible 00:08:53] I said, "The index did 85. You did all that work for nothing. It cost you money for all that work. You could have just, should have just bought the index and went out and golfed every day" or whatever.
Pat: You have a bedside manner that's incredible.
Scott: I don't think I quite said it like that.
Pat: It's amazing we have any clients at all.
Scott: All right. We'll go back to [inaudible 00:09:13] So, but, it happens on both ends, on the euphoria... And I remember during the financial crisis...
Pat: And on the downside.
Scott: I remember the financial crisis, this one client... And look, we [inaudible 00:09:24] pretty highly diversified. And when downturns come, one of the things that's helpful is looking at your portfolio, all right, what's actually not in stocks? Like, what's protected? What do we have in conservative bonds, government...? Like, what, in cash, what do we have outside, because...
Pat: And especially if you think you're taking income now, or you believe you're going to be taking income in the next few years.
Scott: So, this is a particular client, had been retired for a few years. And he'd been a client for a number of years before this. Of many years, actually. And he was really nervous about the markets declining. And he called, like, every three weeks. And I'd tell him the same thing. I'll call him Steve. "Steve, like, you gotta stick with, like..." We've got 62% in stocks, whatever the number was, like, "We're gonna ride this thing out. They always come back." I tried to [inaudible 00:10:09] So, he called about every three weeks. And one day, he calls, and didn't wanna speak with me. Talked to someone in our trading team, and did a trade without...
Pat: Yeah, without your input [crosstalk 00:10:23]
Scott: Like, "I'm gonna do what I wanna do anyway." And, of course, he missed out on the recovery. And the Dow... What'd the Dow fall down to? 7000 or something? [crosstalk 00:10:33]
Pat: Your memory...
Scott: 45,000 today.
Pat: Your memory is much better than I. And so, missed a large portion of... They did get back in at some point in time, I'm sure.
Scott: But not to the extent...
Pat: But typically [crosstalk 00:10:44]
Scott: He ended up needing a reverse mortgage to make his monthly nut work.
Pat: Well, but you understand how emotionally hard it is to stay invested.
Scott: I do understand. That's why it's important to be wide-eyed on your portfolio today. Like, what may come in the next... What will come in the next 20 years? If you got 20 years left of life expectancy, have a pretty good idea, like, what's gonna come... We'll have some bear markets. We'll have some nasty downturns. We'll have some recessions again.
Pat: That's right. And we'll have some great times.
Scott: And we'll have some great times.
Pat: This too shall pass.
Scott: All right. Let's...
Pat: If you'd like to join the show, 833-99-WORTH, or 833-999-6784. Or you can email us at questions@moneymatters.com, and we will get you on the air.
Scott: We're in North Carolina, talking with Brian. Brian, you're with Allworth's "Money Matters."
Brian: Guys, greetings. Thanks for taking the call, and...
Scott: Hey, thank you.
Brian: ...as a long-time podcast listener, I really appreciate what you guys do. Thanks for all you do.
Scott: Thank you. How did you find us?
Brian: I listen to another podcast regularly, and you were advertised through that podcast, and so I thought that's a topic I should be more...
Scott: Oh. I didn't know we advertised.
Brian: Yeah. So, it's been a...I've been listening to you for a couple, three years now, so [crosstalk 00:12:01]
Pat: [inaudible 00:12:02] thank you. I did not know we advertised on another podcast.
Scott: Yeah. Me neither.
Pat: Oh.
Scott: Oh, yeah.
Pat: Well, thank you, marketing team.
Scott: Yes.
Brian: So, my question relates to some incremental savings that I've built up, that I wanna deploy better than I've got it deployed right now, I think.
Pat: Okay.
Brian: And so, let me give you sort of some core sort of financial info about me. I'm 44 years old, married, two children, 15 and 12. My wife and I both work. The household income, it's a little bit hard to tell you what that is because it fluctuates a lot, but I'm gonna peg it at $300,000 a year. We have currently about $660,000 in pure retirement savings, across 401(k)s, IRAs. I also have a brokerage account, with a broker. That's got about $140,000 in it. And of course, I pay a fee for him to manage that. And just candidly, I've been pretty underwhelmed with the performance of that account, which has led me to start thinking, okay, as I've built up this incremental cash, which I'll talk about in a minute, how can I deploy it better? So, initially, my goal in saving up cash was to just build a sort of traditional, you know, six-month kind of an emergency fund, which I would say, I would be comfortable at, you know, 60-ish thousand dollars in that account. And I've been keeping that money in a high-yield savings account, which currently gets a yield of about 3.8%. But over time, I've been fortunate to, I max out 401(k)s, so I've done everything I can on those fronts. So, with the extra money I have, I've continued to throw it into this high-yield savings account, that currently has a balance of $275,000 in it. And it's just not, I think it's not doing the work it ought to be doing, but I've had great inertia about how to deploy it better. I've thought, okay, maybe I need to open a Vanguard, a Fidelity. Should I get into index funds? But then I wonder, should I do it in one big chunk? Should I do it over time? I'm just not sure how to start navigating towards those options. Yeah.
Pat: So, Brian... Right. How much term life insurance policy do you have on yourself?
Brian: So, I've got about... Good question. I've got both the max I can get through my employer, and some supplemental, so I've probably got about one and a half million on me, and probably about a half a million on my wife.
Scott: All right. And what do you owe on your house?
Brian: So, I just bought a new house several years ago, when the rates were great. So, I do owe about...here, I'm gonna pull that. I just pulled that before this call. Let's see. I owe, let's call it $390,000.
Scott: And when do you hope to...and I'm sure it's a rate of 3% or ballpark in that range, right?
Brian: 2.875. Yep.
Scott: And, when do you hope to retire? Is that part of your goal? Like, are you saving for retirement? Like, what's the objective here?
Brian: Yeah. So, I mean, I sort of think of this extra money, I say "extra," the stuff sitting in the high-yield, as what I would call retirement or retirement-adjacent, right? Like, if I needed it...
Pat: That's right.
Brian: ...I could reach for it, but it's really for a longer term than a high-yield would [crosstalk 00:15:11]
Scott: And what about your two kids with...
Pat: Yeah, is there money in a 529 plan for them?
Brian: Yes. Across both of them, I've got about $150,000 in 529s.
Pat: You are...
Brian: So that's [inaudible 00:15:24] I'm glad you asked. I was gonna say, you know, should I throw more into those? I mean, that's another thought I've...
Pat: You're a poster child. You're doing a good job. I think you should deploy some of those dollars outside of that cash account, into a...
Scott: Yeah.
Pat: Absolutely. And I...
Scott: Maybe even use, like, a direct indexing strategy.
Pat: Actually would be perfect for you. Would be perfect.
Scott: Which...
Brian: Meaning, just buy some market index funds?
Scott: No.
Pat: No, no, no, no.
Scott: No. Build your own...
Brian: What do you mean?
Pat: Okay. So, let's explain. Well, this is a perfect scenario for direct indexing. And by the way.
Scott: And even at two years ago, you might not have been a good candidate because [crosstalk 00:16:03]
Pat: Because the account balances weren't high enough. So, they're going down... So, let's explain what direct indexing is, Scott. Let's explain why it's relatively new, why most people don't understand how it works, and why it's such a great place for what we call fresh or new cash.
Scott: That are outside of retirement accounts.
Pat: Outside of retirement accounts.
Scott: Because inside a retirement account, the only time we pay taxes is when we take money out. When we have securities that sit outside of a retirement account, the stocks will pay dividends, right? We might have some capital gains we need to incur. So, with an index, an index strategy is just simply saying, instead of trying to... Let's pick the S&P 500 for a second. Instead of trying to figure out which stocks to own or not own, let's just buy the whole index of the 500 largest companies, and let's live with the return that's gonna have, and historically, it's done about 10% a year over a hundred years [crosstalk 00:16:58]
Pat: So, that'd be buying...
Scott: And you can do that...
Pat: And traditionally...
Scott: You could do that. You can buy Fidelity or Vanguard or Schwab. Everyone's got an index fund now.
Pat: So, that's what you actually...
Scott: Super-low cost.
Pat: Brian, that's what you said. "You mean like an index fund?" We said, "Like an index fund, but not an index fund." This is called a direct index.
Scott: And so, not too many years ago, when we bought or sold a security, we would pay a commission, right? So, it was...
Pat: Whether it was Schwab, Fidelity, wherever.
Scott: So, that was a pretty significant cost it would be on our portfolio. Today, there's lots of places you can buy and sell without any sort of commissions at all.
Pat: So, there's no friction in the trading of the security.
Scott: And so, with a direct index strategy, rather than buying a fund or an ETF that owns those securities, you actually buy all those individual securities yourself. You don't personally... Like, the technology behind it buys this. And they don't buy all 500. They could get a 99% confidence level with maybe 300 securities. And then, they're actively managed not just to maintain that index strategy, but they're managed from a tax standpoint.
Pat: So, as an example, let's say you need exposure to the airlines in your index. It may not own Delta, American, United, and Southwest. It might own three out of the four, or two out of the four. But let's say United falls, not saying it will, or did, but let's say it falls by 20%, United. What does the direct index algorithm do, Scott?
Scott: It will sell that and buy something very similar.
Pat: Buy something similar, but not identical.
Scott: Because there's tax loss rules. Wash rules.
Pat: It will wait 31 days for the wash rule to play itself out, and then decide whether to hold that alternative security, or to sell the alternative security and go back to the United shares.
Scott: So, the benefit to you, and the benefit to people who use this strategy, is a couple things. One is there are some tax loss harvesting that occurs throughout the year, so...and you can dial it in how much you want or not want. So, you can, rather than having capital gains, you can literally generate capital losses. And then, second, when it's time to use the money, you can cherry pick which stocks... You might, matter of fact, maybe the $150,000 is not enough to get your kids all the way through school. And you might say, hey, let's take a few dollars of the most highly appreciated securities, as part of my index, and let's transfer them to the kids. They can sell it, and they're not gonna pay any capital gains tax, because their tax rates are so much different than yours.
Pat: Or you might say, I need money, and you actually sell something that doesn't have much gain, or very little gain. And then you take it one step further, and if you're charitably inclined...
Scott: Even if it's a small amount on an annual basis, you can cherry pick the...
Pat: You take that individual stock, you put it into a donor-advised fund, and then you actually...
Scott: You get a tax deduction on the fair market value, and you avoid the capital gains.
Pat: Yeah. And then you get great tax strategy behind it, where you actually maybe just fund the donor-advised fund once every three or four years, so that you actually really dig in. Right? And so there's so many things around it that... By the way, if we sound excited about it, it's unbelievable. I mean, it is all driven by technology, and the fact that there's very little friction in the marketplace to buy and sell these securities. And no one's touching this. It's all algorithmic-run. The only time you're touching...
Scott: [crosstalk 00:20:30] Pat, is, like, I've been pretty bullish on this strategy the last couple years, but the adoption of it is still relatively nascent.
Pat: So, the only people that you're getting involved in is when you actually say, okay, I need money, or I wanna gift, or... Otherwise, the algorithm runs it. The last thing to kind of keep in mind here is, as this technology has been not as widely as adopted, the account values that you can actually do this with has fallen.
Scott: Dramatically.
Pat: Where it used to be...
Scott: Millions.
Pat: ...$500,000 or $2 million or $3 million, [crosstalk 00:21:03] right? Now, it's... I think you can do it, what... Is it down to a $100 grand or...
Scott: The fees are more expensive.
Pat: There's no question. But they're worth it.
Brian: So, thank you for that. I mean, conceptually, I follow what you're saying, and it makes a lot of sense. Tactically, where do you access these things? How does one start?
Pat: Any big brokerage firm.
Scott: Or advisory firm.
Pat: Yeah. And if they say, "What are you talking about?" never talk to them again.
Scott: That's right.
Pat: [crosstalk 00:21:32] it's really... And I would use $200,000 of it.
Scott: I don't know how the rest of the brokerage stuff is allocated.
Pat: Yeah, I don't know how your brokerage looks, but I wouldn't... And if I was worried about the market, maybe I'd go $50,000 now, $50,000 in six months, $50,000 in 18 months, $50,000 in [crosstalk 00:21:50]
Scott: You're 44, though.
Pat: I'd go all in.
Brian: Yeah.
Scott: I mean, you're not gonna touch these dollars for 20 years.
Brian: The one last variable I wanted to throw out, to ask about is, I've still got lingering... I'm an attorney, so I've got law school debt still. I've paid most of it off, but I've got about $10,000 left, at 4% interest.
Pat: Oh, pay...
Brian? My thinking has been my money can do better elsewhere, but should I go ahead and pay that off?
Pat: I would pay it off. I'd get that behind me.
Scott: Just from a psychological standpoint, yeah, I'd pay it off.
Pat: And this administration...
Scott: It's not gonna make any difference in your net worth...
Pat: ...and by the way...
Scott: ...one way or the other.
Pat: It's just, it's behind you. And Brian, this administration is not going to forgive it.
Brian: Oh, no. No chance. I have no thought about that. No. That had nothing to do with my...
Pat: No, I would pay it. I would just pay it off. I mean, economically, what's...
Scott: It's not gonna make any difference.
Pat: ...what's it make? I mean, let's say you could get 5.25 in a high-yield. It's $10 grand, you know. [crosstalk 00:22:48]
Scott: I mean, you got a million bucks saved, and the $10 grand, whether it's paid off or not, it's not gonna make any difference in... But I think, psychologically having to pay would... If it were me, I'd feel good.
Pat: What type of law do you practice?
Brian: Mostly commercial litigation. [crosstalk 00:23:02]
Pat: There we go. Good times.
Brian: Yeah. Yeah.
Pat: Good times.
Brian: Well, guys, thank you. I really appreciate it.
Pat: One other question. Are you self-employed, or are you part of a big law firm?
Brian: Well, the answer is both. I'm part of a big law firm, but I'm an owner, so I'm, technically, [crosstalk 00:23:17] for tax purposes, I'm self-employed.
Pat: Okay. Got it. And you guys don't have a non-qualified deferred compensation plan set up for you guys?
Brian: So, we do, but I've done everything I can in my contributions to those, as I understand it. Maybe I'm not asking the right questions on that.
Pat: It's called a non-qualified deferred compensation plan.
Scott: But you say you're self-employed. So you guys just share the expenses, and then...
Pat: He's a...it's a...
Brian: That's correct. That's correct.
Pat: Wait, wait. So wait, wait. What do you... For tax purposes...
Scott: So, you just share expenses?
Pat: He's a partner.
Brian: That's right. And then we share in the profits. I mean, we're all equal partner, and we...
Pat: Yeah, it's a partner...it's a partnership.
Brian: [crosstalk 00:23:54] it's a partnership.
Scott: Okay, it's...
Pat: You're not self-employed.
Scott: Okay. All right. All right.
Pat: Okay. Listen. Yeah, but great, great, great. Doing a great job. How is the 529s invested?
Brian: So, I'm actually in, for reasons that I can't recall, I'm in the South Dakota 529, across several funds in there, but I couldn't tell you off the top of my head the exact allocation, and I sit down once a year with my broker that I work with, and we just look at the allocations relative to the ages of the children. And frankly, I've wondered, you know, my kids... I went to a private university, and if they wanted to go there, I'm nowhere close to...
Scott: Yeah, that's right.
Pat: That's right.
Brian: [crosstalk 00:24:35] well enough for that. I mean, I'm well enough funded to cover the average in-state tuition, and I've kind of wondered, should I be throwing more in? Should I be... You know, I've struggled to think about that, and know what the "right answer" is.
Pat: Yeah, it wouldn't hurt to fund it some more. And I'd look at the allocations...
Scott: Yeah.
Pat: ...based upon the age...
Brian: Yeah.
Pat: ...to make sure that that was appropriate. So, in that... That's why I said I'd leave at least $75,000 in cash.
Scott: Is the broker you're working with, is he a financial advisor, or just, like, kind of a traditional...
Brian: He is. He's a certified advisor, and a certed CFP, and...
Pat: Okay.
Brian: ...someone I know well personally, and trust, and candidly...
Scott: Okay.
Brian: ...that's what took me to him, but also, when I feel a little underwhelmed by performance, it complicates the relationship a little.
Scott: Well, then I would ask a question, like, trying to understand why the performance... Why you're disappointed? Maybe he hasn't been aggressively invested for you. Like, is this a misallocation?
Brian: And that's [crosstalk 00:25:35] Yeah, we just had that conversation, where, when I first opened the account, it was with the only incremental kinda extra money I had, and so I was pretty risk-averse, and he, several years ago, put me heavy into bonds because he heard that, and that was a terrible time to be in bonds. And so we've readjusted and...
Scott: Thank you.
Brian: ...had conversations to clarify risk, risk appetites and such.
Pat: Yep. Yep. I mean, you understand the dance. You're a civil litigator.
Brian: Yeah.
Scott: And the younger we are, it's like, sometimes it's a bit irrelevant how you feel about things. You just need to suck it up a bit, on the risk side of things, to be a successful investor. Right?
Brian: I mean, I don't wanna pay daily attention to this.
Scott: Yeah, of course.
Brian: I wanna have confidence in the long-term plan...
Pat: That's right.
Brian: ...and set it and forget it. [crosstalk 00:26:21]
Pat: That's right. And you're a poster child for direct index. And then I'd come back and revisit the 529s. And I would look at funding those some more.
Brian: Okay. Well, great, guys.
Pat: I would... Absolutely.
Brian: Thank you very much [crosstalk 00:26:34]
Pat: Well, thank you [inaudible 00:26:34] And share this podcast with the rest of your partners.
Brian: I will do my best.
Pat: Well, probably not this one, because then you'll get all your personal financial information's gonna be out there.
Brian: Three months from now, I'll start praising your name.
Pat: Perfect. Thank you.
Scott: That's funny.
Brian: All right. Thanks a lot, guys.
Scott: I appreciate the call.
Pat: He's never gonna share this with anyone now. In case they're likely to hear.
Scott: All right. Let's now continue on calls. Let's talk with Rashna in California. Rashna, you're with Allworth's "Money Matters."
Rashna: Hi, Scott and Pat.
Scott: Hi.
Rashna: How are you?
Scott: We're wonderful.
Rashna: Good. I have a bunch of questions, but I'll try to limit myself to one.
Pat: You can ask as many as you'd like.
Rashna: Oh, wow. Okay. Well, you might be sorry you said that. I'll start with the one I was originally calling for, and then other things happened in the day and a half. So, the first question is, we're getting ready to retire in the next probably year, probably a year out from it. I'm 58. My husband's 60. And we will have a pension. We also have a pot of money that we're gonna annuitize, and we will get it when we retire. [crosstalk 00:27:51]
Pat: I'm sorry. So, let's stop for a second here.
Rashna: Okay.
Pat: You have a pot of money you're going to annuitize. Tell me what that means. Like, where did it come from, and how and why would you annuitize it?
Rashna: Yes. Good question, because if you have a pension, why do you need an annuity? It is, we're both in the CalSTRS system...
Pat: Okay.
Rashna: ...and I have, in 33 years, never taken a summer off, or not worked anything extra I could work.
Pat: Okay.
Rashna: So, it's that extra money that's been built up over time...
Pat: Okay.
Rashna: ...and you can either take it...
Pat: Yep.
Rashna: ...as lump sum... And it's not an insignificant amount.
Pat: Okay, so, it's your accrued vacation, or sick leave, that you can either decide to stay on payroll, so you declare a retirement date, and then you use this up over the remaining 18 or 24 months, and it helps accrue...
Rashna: No.
Pat: No?
Rashna: No. It's something completely different.
Scott: Okay. Does CalSTRS control that pot of money, or is this in a 403(b)?
Rashna: No. They control it until we retire.
Scott: Got it.
Rashna: And then we can then take that pot of money and either just roll it over into an IRA, or take it out, which we wouldn't do, or we can annuitize it with them. And we did the numbers, and I don't know how they can afford to do this, but it's a really good rate of return.
Scott: Yeah, do...
Rashna: So...
Scott: Yeah. You're gonna wanna do it with STRS, not... Okay.
Rashna: [inaudible 00:29:31] No, we're not going outside of STRS, so...
Pat: Yeah. Okay.
Scott: Yeah, yeah, yeah. No, it makes total sense what you're doing.
Pat: Yeah, but, a pension versus a lump sum. So you choose the annuitization...
Scott: Yeah. Yeah, yeah, yeah.
Pat: ...versus the lump sum.
Rashna: So... Right. And then we have our regular pension, that is totally separate, in the sense that that is the formula that you're all familiar with.
Scott: Yes.
Pat: Okay.
Rashna: So, we have that. So, this pot of money, the question is, it's gonna be about... We do it for a nine-year period, and it'd be $93,000 a year in income. And my question is, we can either take it as income, or we can have it go directly into an IRA, into a tax-deferred account.
Scott: Is that right?
Rashna: My concern is having it go... Yeah.
Pat: You take it as income, or you take the lump sum and put it into an IRA, or you take the...
Scott: $93 grand a year.
Pat: And put it into an IRA.
Rashna: Any and all of the above.
Pat: Okay.
Rashna: So, I can either just take the whole... It's $625,000. I can either take the whole thing and put it in an IRA, or take it. Or, we can take it... We can let them annuitize it, keep it for that amount of time, and then they would pay us $92,000 a year, and then the money's gone after nine years.
Pat: Oh, got it.
Scott: And have you calculated what that rate of return is?
Rashna: Yeah. Hold on. I don't have my spreadsheet up at the moment. And I kept doing it again and again, thinking this could not be right. But it seems right.
Pat: It's about, it's probably about 6.7%, 6.8%?
Rashna: It's... Well, it's more than that, because basically, for... 93... Let me see if I can pull up my spreadsheet. I'm sorry. But the... [inaudible 00:31:17] right here. Too many tabs on the spreadsheet. So, basically, at the end of those nine years, we would end up with... And it's both my husband and I separately, so that [inaudible 00:31:32] together. Yeah, we end up with a $212,000 gain over those nine years.
Pat: Yeah, but that's not the math we're using here.
Scott: I just calculated...
Pat: We just calculated. The return is...
Scott: 6.277%.
Pat: Yeah. So, the return is...
Scott: What did you guess? 6.3?
Pat: I said [inaudible 00:31:49] what'd I say? [inaudible 00:31:49] sub-7, right?
Scott: Yeah, yeah.
Pat: So, what that means is... So, you looked at the gain, but it has to do with the time value of money calculation. So, what Scott did was... He ran a net present value calculation in the stream of income. Essentially said, okay, if I take $625,000 now and put it in an account, and I made payments of that account, over nine years...
Scott: At $93,000...
Pat: ...at $93,000, what is the rate of return I need to get on that money in order to make sense? And the answer comes out to 6.27%.
Rashna: Okay. That's...thank you.
Pat: So, that's what we call the hurdle rate.
Scott: That was a rough, by the way. I didn't calculate the time of the year, or is it monthly or quarterly or...yeah.
Rashna: Whatever. [crosstalk 00:32:35]
Pat: It's somewhere around 6.5%.
Rashna: Close enough.
Pat: Let's just go there.
Rashna: Yeah.
Pat: And my guess was somewhere...
Scott: That's where you were, right there, yeah.
Pat: Yeah, I was close.
Scott: Pat is really sharp with numbers.
Pat: Well, that, and you know what the interest rate and what the pensions are doing behind it. So, the question that I would ask is... Okay, well, that's great. It...6.2%, it depends on what it's invested in. But the question more than that is, do I need that $93,000 a year in income now, or should I roll this $625,000 into an IRA, and defer it even longer?
Scott: Well, she can defer... She can take... What she's telling us, she could take the $93 grand a year, and have a...
Pat: [crosstalk 00:33:13] that's wrong, Scott.
Scott: Yeah, I'd question that... I don't know how that could be.
Pat: That's wrong.
Rashna: [inaudible 00:33:17] I can tell you how I came up with that number. Basically, they have a sheet that, I met with them, to go over everything. And you can...the period certain annuity...
Pat: Yes.
Scott: Yeah.
Rashna: [crosstalk 00:33:29] could be 1 year, it could be 10 years, and they have...
Scott: Yeah, I get that.
Pat: Yes, yes.
Rashna: So, for every $50,000, for the nine-year, $50,000 is $620 a month.
Pat: No, understand that. [crosstalk 00:33:40] understand that.
Scott: No, no, no. I understand the math. What I'm question is, how can you take what is technically a qualified pension plan, you receive an annuity on that...
Pat: And you said that you could put it back into an IRA, on an annual basis.
Rashna: Yes.
Pat: And I've never seen it before.
Scott: Me neither.
Rashna: I don't know if it's an annual basis or a monthly basis. But [crosstalk 00:34:02]
Pat: No, it's neither.
Scott: I don't know how you get it back into retirement account. I don't know how you get $90 grand paid in a pension, and turn around and get it back in a... I don't care what it is.
Pat: I think that there's been some confusion in the description of what this is. So, it's either you take an annuity for a series of years, and you select those years, or you take a lump sum. But what we do know is that the rate of return on that lump sum, on the annuitization, is 6 point...call it 6.5%.
Rashna: Okay.
Pat: So, the question is, how much of the other pension's coming out, and is that enough to live on, and should I take that $625,000 and roll it into an IRA? And I'm 58, and my husband is 60, and I defer that until 68, 69...
Rashna: Seventy-five.
Pat: ...70, 73, 75, whatever the number is, until required minimum distribution. And maybe I convert some of it into a Roth and maybe I don't. Right?
Rashna: So... Okay. So, yes, that's the second part. That's the part of this question, which is, we currently have about $1.56, $1.6 million in tax-deferred accounts. [crosstalk 00:35:17]
Pat: Okay. There we go. You're answering all the questions we were gonna ask. So, you have $1.6 million in 403(b)s, and in IRAs and that sort of thing, correct?
Rashna: Yeah. So, and fully tax-deferred. And so, my concern... And we won't really need those in retirement, because the pension is a little over $200,000, [crosstalk 00:35:34]
Pat: And what is your income today?
Rashna: More. So, it's around three-something, but we put a lot away.
Pat: That's right. And you have no mortgage on the house now, correct?
Rashna: We do. We do.
Pat: How much is the...
Rashna: We have a mortgage of $165,000. We have several houses, so...
Pat: Okay. So, you wanna take this as a lump sum, not as annuity over that nine-year period.
Rashna: Okay.
Pat: How, of that $1.6 million you have in 403(b)s and IRAs, how's that invested?
Scott: And I think, going back to your point, I think the reason behind Pat, why Pat made that recommendation is these aren't dollars that you... You chose a nine-year payout, but it's not that the... You don't need the money in nine years.
Rashna: No. No.
Scott: So you actually have a much longer investment horizon than suddenly, pay these dollars out. Give me one, essentially, one-ninth each year for the next nine years.
Pat: And this is based on the premise that you said to us, you can take those on an annual basis and move it back into an IRA.
Scott: We don't believe this.
Pat: I don't believe that's the case.
Rashna: I appreciate that. No, so, the reason it's 9 years, not 10 years, because the 10-year, they said you cannot put it into a tax-deferred account, but at 9 years, you could have it automatically go into a tax-deferred account, now.
Pat: I'm... That's the case? If you...
Scott: I learn something new every day.
Pat: Yep, yep. If that's the case, then if you wanna [crosstalk 00:37:07]
Scott: And qualifies as a rollover.
Pat: Yes.
Scott: That's what it would technically...a direct transfer of a rollover.
Pat: If that's the case, and the CalSTRS [inaudible 00:37:14] if you're happy with 6.5% return, 6.75% return, then do it that way. If you think that you could do better in the open markets, right?
Rashna: Right.
Pat: Then take it as a lump sum and invest it yourself. That's the only question, which is [crosstalk 00:37:30]
Scott: And if these were dollars that you are gonna spend in the next nine [inaudible 00:37:32]
Pat: I'm gonna go with the fact that you're right, in the nine year thing...
Scott: Yeah.
Pat: ...because your description was pretty exact. News to me how CalSTRS would treat it that way, but, who knows? Why wouldn't you take this $650,000 and invest it, thinking that you're gonna get over 6.5%, net of fees, over the next 10 years?
Scott: Twenty years.
Pat: Ten years. Because remember, Scott, it comes out over nine years.
Scott: Yeah, but she's gonna turn around and reinvest it.
Pat: Yes, part of it. Yeah. It's longer periods of time.
Rashna: Yeah. And, you know, at 75, we're gonna have RMDs. [crosstalk 00:38:10]
Scott: Yeah. Here's the... You know what, I know people, I know we say this often, but you got a lot of moving parts here.
Rashna: Yeah.
Scott: A lot of moving parts. Like, hire yourself a financial planner, and do a good plan, and do a bunch of what-if scenarios. You got millions of dollars here. This is a huge, these are huge decisions.
Rashna: They are, which is why, it was, the question was really, like, can I do better than 6.5%...
Pat: I think so.
Rashna: ...based on the last three years? Yes.
Pat: Well, not, but...
Scott: No, no, no, no, no. [crosstalk 00:38:40]
Pat: No, no, no, no, no, no, no. That's based on the last 50 years.
Rashna: Okay.
Pat: Let's [inaudible 00:38:45] based upon how disciplined of an investor you are, and how aggressive a portfolio [crosstalk 00:38:49] You may or may not.
Scott: You should be able to... And maybe, after they're doing the analysis, she'll choose to take this [crosstalk 00:38:53]
Pat: And maybe you actually say, "You know what? We're gonna actually increase our..."
Scott: Equities in the other piece of the portfolio...
Pat: In the 403(b)s...
Scott: ...and use this as fixed income.
Pat: And use this as fixed income. Which is, actually, I could make an argument for that. Right?
Scott: Yes.
Pat: So, if we opened up your portfolio today, of this $1.6 million, how much would be in equities and how much would be in fixed incomes or bonds?
Rashna: Five percent in bonds, and the rest is in stocks. [crosstalk 00:39:23]
Scott: Five percent?
Rashna: Yeah. It's in a balanced...part of it is in a balanced fund that we've had forever. And then I started listening to you guys, and I was like, "What am I doing? I have a pension. Why do I need bonds?"
Pat: Okay. Well, that balanced fund is about 40% to 50% fixed income.
Rashna: It's a small amount [crosstalk 00:39:41]
Scott: Okay.
Pat: Okay. Okay. So, the point being is, if that's the case, then I could make an argument as that this should be the [crosstalk 00:39:49]
Scott: And then...
Pat: And then I'd make the point, argument, counter that, which is your pension's so big. I, if it were me...
Scott: You'd take the lump sum and move on.
Pat: I'd take the lump sum and move on.
Scott: I know you would.
Rashna: Okay.
Pat: If it were me...
Scott: But...
Rashna: Okay.
Scott: Yeah.
Pat: Your risk tolerance could be pretty high if you're living off those pensions. And you've got time for markets to play themselves out.
Scott? That's right.
Rashna: Yeah. We don't see ourselves needing to touch the 403(b).
Pat: That's right.
Rashna: Because we also have rental income, so...
Pat: You're fine financially.
Scott: Yeah. But, yeah, it comes to, but, then it all, all this is, like, what are we trying to accomplish over the next, the rest of our lives? You're at this... Right? You're at this point. You've worked your entire life. Suddenly, you're looking at retiring.
Pat: You're 58 and 60. You got plenty of money.
Scott: More money than you probably thought you would have, particularly... Right?
Pat: You know what I'd say? Where do you want to go on vacation? And by the way, it's hard to go on vacation when you're retired, because you're not really vacating anything. You're going on trips. So...
Scott: [crosstalk 00:40:40] you've got rental... So, you've got, my guess is you guys have always lived a little bit below what you're making, and probably the first half of your careers, you weren't making that much anyway. And the last decade, things have gone phenomenally well for you financially. This is just my guess. Tell me if I'm way off base.
Rashna: Yeah.
Scott: Right?
Rashna: Hundred percent.
Scott: But you've always lived below your means, and now you've got all these assets, and you're like, "Oh, my gosh. Our pensions. Can you believe how large our pensions alone are gonna be? And now we've got a couple million bucks in retirement accounts, and we have these rentals. Like, holy crap. Like, we've got a lot of money." So, really all of this comes down to, like, what is it you're trying to accomplish. What do you want these dollars to do for you? You have this responsibility now, for these dollars. What do you...what...
Pat: Do you want them to go to your kids?
Scott: You wanna increase your standard of living?
Pat: Relatives? Charities?
Scott: You wanna fund something else? Do you wanna...
Pat: Do you wanna go to a really awesome safari in Africa?
Rashna: No.
Scott: Right? But, I mean...
Pat: In the Okavango Delta?
Scott: It's all those things, and then it's getting clarity on, like, what is it...what do we want these dollars to do? Then we can build the plan on what's the best way to structure the... And based upon what you guys, and you're not gonna come up with the answer overnight either on this, but based upon what you and your spouse decide what's best, that's my dictate, taking the $93,000, I mean, the $625,000, over 15 years, or over 5 years, or whatever. I don't know. But...
Rashna: Yeah.
Scott: That's where I would start.
Rashna: Am I ridiculous...
Pat What's that?
Rashna: Okay. Am I ridiculous to worry about RMDs?
Scott: No.
Pat: No, not at all, but... And not at all, but that's just part of the picture.
Scott: But to your point, you're gonna be in a high tax bracket going forward regardless.
Pat: Yes.
Scott: So...
Rashna: Yes.
Scott: Yeah.
Pat: I mean, you're asking all the right questions, but you don't know what direction you're going.
Rashna: I mean, you asked me what my goal is. I'd like it to grow, and I'd like it to...obviously, legacy for the kids.
Pat: Okay.
Rashna: So, you know, but other than that, I don't have any grand plans because, Scott, you hit it on the head. It's exactly...you described my life.
Pat: Yeah. Well, most people with money, that's how they live.
Scott: And most...I mean, it wasn't... Yes, that's exactly right.
Pat: Yes. So...
Scott: You don't end up with rental houses by spending 100% of your paycheck.
Pat: Yeah. And by the way, so, I would, based upon your investment experience, and your very, very disciplined, I would take the pension lump sum, roll it into an IRA, and I would do 70% to 80% equity portfolio. Based on the little we know about you, with that stated goal that you had.
Rashna: Yeah. The 6.5% was guaranteed, and I was like, we could still turn around and put it in an IRA.
Scott: Then do it, and if in fact you can roll those annual distributions out, and then invest them as they come to you.
Pat: Yeah. You'll get in the same place.
Rashna: Yeah. Okay. So, but you like the idea of just taking a lump sum and moving forward.
Pat: Yeah. Depending upon how disciplined of an investor you are to weather the markets.
Rashna: Okay.
Pat: Right?
Rashna: I mean, yeah. Yeah. [crosstalk 00:44:04]
Pat: I know how I would manage it, but I'm not you.
Scott: Yeah.
Pat: Not nearly as smart.
Rashna: How would you manage it, sir?
Pat: I would go 70% if [crosstalk 00:44:11]
Scott: No, you would...
Pat: Oh, I would [crosstalk 00:44:13]
Scott: ...you would be 100% stock in this situation.
Pat: [crosstalk 00:44:14]
Rashna: Yeah.
Pat: ...100% stock in this because the...
Scott: The pension's all fixed... You're yeah.
Pat: The pension's all fixed [crosstalk 00:44:18]
Scott: And you don't even... Yeah.
Pat: You're like, just go.
Scott: I mean, your time horizon is...
Pat: [inaudible 00:44:21] look at how far your time horizon... Your time horizon before required minimum distributions is 17 years. Fifteen for your husband.
Rashna: Yeah.
Pat: That's a long time.
Rashna: It is. It is. And the market has time to do its job.
Pat: That's right. That is exactly...
Scott: That's exactly right.
Pat: You answered your own question. But appreciate the call.
Scott: And we're in Texas, talking with Hunter. Hunter, with Scott Hanson and Pat McClain.
Hunter: Hi, how are you doing today?
Scott: Good. How you doing, Hunter?
Hunter: Doing well.
Scott: What can we do for you?
Hunter: So, my wife and I are both 64, planning to retire 68 or later. I think my wife is pretty set on retiring at 68.
Scott: Can you afford to...
Hunter: But I may go a little later.
Scott: Can you afford to retire in four years?
Hunter: Yes, I think we can. We've got about a million dollars in investable assets, currently. But my question is, about a year and a half ago, I had a financial advisor sell me some annuities, fixed index annuities, which I think are decent products. I'm just not sure that they were the right product at the time. So, about $700,000 of my net worth is in those three annuities.
Pat: Wait, wait, wait, wait. Wait. He sold you three different annuities all at the same time?
Hunter: Yes.
Pat: Okay.
Hunter: One of them is an IRA in my name, one of them is a Roth IRA in my name, and one of them is an inherited Roth IRA in my wife's name.
Pat: Okay.
Hunter: And each one is in a separate annuity.
Pat: Okay.
Hunter: So...
Scott: And what's the maximum you could earn in any one 12-month period on those?
Hunter: I think the maximum is capped around 10%.
Pat: Okay. So, what's your question for us?
Hunter: My question is, I expect to live into my 90s, based on my family's life expectancy history. And I'm looking at a 30-plus year time horizon for retirement, and I'm just not sure that it was a wise decision to put that much in safe money that early.
Pat: Yes. That's correct. You explained it better than we could. Your analysis of what you did was a better analysis, because it was much more... You can be much more honest with yourself about the decisions you made. Here's the problem. You've got a surrender charge on that annuity.
Hunter: Yes.
Pat: And depending upon the size of the surrender charge...
Scott: How big is the surrender charge? Do you know?
Hunter: I don't have that information in front of me. It goes down every year.
Pat: That's right.
Scott: Did it start, like, at 9% or something?
Hunter: Yeah, something like that.
Scott: Where were the dollars invested beforehand?
Hunter: They were invested in... You know, to be honest, I don't know.
Scott: Okay.
Pat: How'd you come about this annuity salesperson?
Hunter: One of these things on Facebook, where I clicked on an ad and ended up booking a consultation, and...
Scott: And were you nervous about the market at the time?
Hunter: Maybe a little bit.
Pat: All right. So, you gotta dig into this. So, you know what you did, and what you said, right, which was my timeline is so long that I'd be able to weather any of the market conditions. But by the way, it's the same thing that these index annuities. If you tear them open, they use financial derivatives that...
Scott: Well, you're paying for a lot of insurance.
Pat: That's right.
Scott: There's no such thing as a free lunch, so it results in lower returns.
Pat: Correct. That's what it does. And that's what... They package them. And by the way, any advisor could build these same products outside of an annuity. In fact, they do.
Scott: Not any advisor. Not most annuity salespeople.
Pat: Well, they're not advisors. They're annuity salespeople, disguised as advisors. So, you should look at the surrender charge on that and decide whether you should get out of the product. But a large portion of the decision-making will be driven by the surrender charge, and the anniversary date.
Hunter: Right.
Pat: Because if the surrender charge, it moves every year, down, you might be close to a new anniversary date, and that surrender charge difference could be 1% or 2%.
Scott: At a minimum, you could take... There's probably some... They probably allow some sort of penalty-free withdrawal each year, 10% or 15% or something?
Hunter: Yes. Yes, they do.
Pat: Do that. And go hire yourself...
Scott: And put that in another IRA, and just put it 100% stocks.
Pat: And hire yourself... And 100% stocks. Hire yourself a fee-based financial advisor.
Hunter: Uh-huh.
Pat: Fee-based financial advisor, that's going to do a financial plan for you, and say, "You can retire in four years," or, "No, you can retire in three," or "You might have to work six, and this is what your social security..." Part of the overall picture of your financial situation is this income, but you can't go it alone. And you tried to do it, but you didn't get an advisor. You got a salesperson.
Hunter: Right.
Pat: Anyway, sorry that happened to you. Appreciate the call.
Scott: Yeah. We wish you well, Hunter.
Hunter: Okay.
Scott: And I tell you... So, you hear... If you've listened to this program for a while, you hear the two of us talk about the issue with the insurance industry, with the annuity industry. And while I state, on the record, and I'll state it again right now, the world would be a better place if annuities had not been created, these commercial annuities. Having said that, there are times when they are appropriate. We, as a firm, have clients with them.
Pat: And occasionally, we recommend them.
Scott: And there are fee-based annuities now, where you're not locking your money up for several years, and your advisor's not receiving a big commission.
Pat: That's correct.
Scott: But for the life of me, the fact that the regulators still allow these products to get sold the way they're sold, with these huge commissions paid to brokers, and the money's locked up for probably 10, 15 years.
Pat: And the way they're sold is, they're quasi... "You get the best part of the stock market..."
Scott: "You gonna get the stock market gains without the downside."
Pat: But now, you don't get the gains.
Scott: Twenty percent, roughly.
Pat: And he's capped at half of that.
Scott: Well, unfortunately... I [inaudible 00:51:21] say we're out of time, but I guess we could talk as long as we want, but maybe we just get to a point where...
Pat: Maybe we're at the end of the attention span.
Scott: By the way, if you don't get our newsletter, I'd encourage you to sign up for our newsletter.
Pat: We believe there's lots of good information.
Scott: And, on our website, we just did a whole refresh on our website. I'm pretty proud of it. But we got a lot of good educational material there, on lots of different topics, and so I'd encourage you to go to allworthfinancial.com, and check out some of that. I think is, just the same way this podcast, radio program is very educational focused, not sales-ey focused, you'll find the same thing from our website.
Pat: Or better yet, if you want a second opinion, just reach out to us, and we'll set up an appointment [crosstalk 00:52:05]
Scott: Chat with one of our [crosstalk 00:52:06]
Pat: ...to talk to our advisors.
Scott: ...what, 150 or so advisors across the country.
Pat: Yeah.
Scott: Great team, so... Anyway, we certainly appreciate you being part of our "Money Matters" community. See you next week.
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: Pat McClain. Thanks for joining us.
Scott: Yeah, glad you are taking your time to... This program is about financial matters. Both myself and my co-host, we're both longtime financial advisors, and we've been doing this radio show, podcast for almost 30 years.
Pat: Thirty years.
Scott: Talking about all kinds of things that are going on in the markets.
Pat: Yes. And this, too, good or bad, shall pass. Wherever we're at in the markets, good or bad, it shall pass. Because everything reverts to its mean.
Scott: That's right.
Pat: Everything reverts to its mean. And I just, you know, been doing this, in this industry, for 35 years, and I think of all the jubilant points in time, where clients were so happy they were making so much money, and I'd say, "Don't get too excited," and all the times when the markets were in turmoil and the world's coming to an end, and I..."Don't get too depressed." And the good investor is the one that walks in with a thesis, an investment thesis, which means, typically, an allocation. And if their money outside of...
Scott: A strategy of how they're gonna manage their money.
Pat: Yeah. And then, if it's outside an IRA, a tax program that actually sits on top of that, to make it as tax-efficient as possible, or if you're high net worth, a gifting program. But whatever it is, a strategy, and the markets come and go. And the political environment will change. But you're not reacting...
Scott: Tariffs, no tariffs, all that stuff. Comes and goes.
Pat: Yeah. You're not reacting to outside forces.
Scott: But Pat, it's so tempting to think, "Ah, this is gonna happen." Well, what's... Because you turn on the CNBC, or Fox Business, or whatever else is out there. Does "Money" magazine still exist?
Pat: I actually don't know.
Scott: Or "Market Watch," or whatever it is. They write articles, and they have stories, and packages on the news, for what? What purpose?
Pat: To draw your attention.
Scott: To draw your attention, right? We all understand how it works. So they can sell advertising. That's their product. They gotta deliver eyeballs, so they can sell to their advertisers. So, they're constantly having stories about, you know, how do you...what's the right thing to invest in now?
Pat: What's the next big thing? And this is...
Scott: All stories like that. "How the wealthy are investing now." "Four things you can do..." all that [crosstalk 00:03:04]
Pat: Seven things. Nine things. It's never "28 things you should do to get your financial house in order."
Scott: That's too many. I'd like, like, one.
Pat: One thing. "Seven-minute abs." But, I go back to the creation of the Dow Jones Industrial Average.
Scott: In the late 1800s.
Pat: It was, what was it?
Scott: Eleven stocks.
Pat: Eleven stocks. What were they consisted of? [crosstalk 00:03:27]
Scott: Nine of them were railroads.
Pat: Nine were railroads.
Scott:: What else could there be? Those [inaudible 00:03:32]
Pat: Right?
Scott: What was the most important technology of the time?
Pat: What else was...
Scott: You think how railroads transformed our country...
Pat: Oh, incredible. Right? That was the newest technology. What people fail to understand is that many of the railroads went bankrupt. And many of them did very, very well.
Scott: That's right.
Pat: Right? They did very, very well. And many of them went bankrupt. So, what does that tell you?
Scott: And the average investor in railroad stocks, in the 1860s, 1870s, lost money.
Pat: Yes.
Scott: Because of the amount of bankruptcies.
Pat: Because of the amount of bankruptcies. But if you had a diversified portfolio of railroad companies, and, as new technologies came online, you added them to your portfolio, while keeping your existing, you did well over time. So, the Dow [crosstalk 00:04:28]
Scott: What [inaudible 00:04:29] Was it 100? The index number? The numerical value?
Pat: Oh. Yeah, I believe it was 100. I think it was 100.
Scott: I think it was 100.
Pat: Yes, it was 100.
Scott: And we're at what, 44,000, 45,000?
Pat: And it's not a weighted average either, unlike the S&P 500.
Scott: Today, it's 30 stocks. So, today's is 30. How many railroads are in there?
Scott: I don't know. I haven't looked at the Dow [inaudible 00:04:52] attention to it. I have no idea. Actually, I have no idea what's... I mean, I could make some guesses, [crosstalk 00:04:%6]
Pat: So, but the point being is, don't get too excited about the latest, greatest thing. Just don't.
Scott: Both on the positive and on the negative.
Pat: That's right. Don't feel like you're missing out on this or missing out on that. Look, you know...
Scott: And it's funny, Pat. So, we get tempted sometimes to have more commentary on the current market stuff. And then we're like...
Pat: What's the point?
Scott: How is that gonna be helpful to people? Right?
Pat: Because, look, especially...
Scott: And, there's enough of that out there. You can get...
Pat: ...the closer you get to retirement, the more your interest should be in not being poorer than it is in getting rich.
Scott: Maintaining your standard of living.
Pat: Maintaining your standard of living.
Scott: That's what most people are mostly concerned with.
Pat: Right.
Scott: Get to retirement, you got a couple million dollars saved.
Pat: And...
Scott: Like, boy, it'd be great if it was $10 million, but it's probably not gonna be $10 million. I just wanna make sure it doesn't go back to...
Pat: So, you had clients...
Scott: ...zero.
Pat: ...I had clients, during two market cycles where there was great exuberance. One was in the housing, and the other was in tech. And against our advice, we had clients that permanently ruined their financial well-being, their lifestyle, by putting big bets into those... I still remember, one guy said to me, "You don't get it, Pat."
Scott: "It's different this time."
Pat: "Everyone's gonna move to Florida," bought seven houses in... And the only thing that was left when it was done, he bought seven houses in Florida, condos.
Scott: [inaudible 00:06:39]
Pat: Yes. The only money that was left, after the whole thing was over, was the amount of money that his wife left in an IRA, with our firm. That was the only money left.
Scott: Because he had debt on them all.
Pat: Because he had debt on them all.
Scott: I remember, Pat...
Pat: Or the tech, same thing.
Scott: ...we had... This was in the year 2000. So, 1999, if you're 55 and older, you probably remember it, particularly you had any money saved at that time. If you're younger... Like, the market was on fire the late '90s, and everything was dot com. If your company had a dot com part of the name, you had a tremendous valuation. It was just crazy. And in 1999, the NASDAQ returned, I believe it was 85% that year.
Pat: It was crazy.
Scott: Okay? NASDAQ goes up 85%. I remember two lessons from this. NASDAQ goes up 85%. The S&P was up about 20% that year. I had a client come in, in January, February. Was upset. He says, "Scott, you're obviously not doing a good job and paying attention to this portfolio." And I'm like, "What are you talking about?" And we had about, I think his account was up about 20% or 21%. We had the same return as the S&P 500, even though we had bonds in there. But he says, "Here's what I'm frustrated about. You've had real estate in this portfolio." This was in 2000. "You've got real estate in this portfolio. I don't know why you have real estate in portfolio when the stock market's doing so great." So he fired me. Said, "I'm taking my money elsewhere." I'm like, "Well..." and he says, "because you don't have enough technology in the portfolio." Well, I think we all know what happened after that, right? Tech stocks, how far did they fall, 80-some percent?
Pat: They were down 80-some percent.
Scott: Disaster. And what happened with real estate?
Pat: It went up.
Scott: It had the best eight-year run as ever.
Pat: A tear. It went on a tear. So, before we go to the calls, remember...
Scott: I'm gonna give you a couple more [crosstalk 00:08:31]
Pat: ...this too shall pass.
Scott: Another story on this.
Pat: Good and bad.
Scott: Someone was bragging about, they had a side account they were investing in tech stocks. And they said, "Scott, my account, trading, I made 78% last year. Seventy-eight percent." And I said, "Wow, you did kinda poorly." He's like, looked at me [inaudible 00:08:53] I said, "The index did 85. You did all that work for nothing. It cost you money for all that work. You could have just, should have just bought the index and went out and golfed every day" or whatever.
Pat: You have a bedside manner that's incredible.
Scott: I don't think I quite said it like that.
Pat: It's amazing we have any clients at all.
Scott: All right. We'll go back to [inaudible 00:09:13] So, but, it happens on both ends, on the euphoria... And I remember during the financial crisis...
Pat: And on the downside.
Scott: I remember the financial crisis, this one client... And look, we [inaudible 00:09:24] pretty highly diversified. And when downturns come, one of the things that's helpful is looking at your portfolio, all right, what's actually not in stocks? Like, what's protected? What do we have in conservative bonds, government...? Like, what, in cash, what do we have outside, because...
Pat: And especially if you think you're taking income now, or you believe you're going to be taking income in the next few years.
Scott: So, this is a particular client, had been retired for a few years. And he'd been a client for a number of years before this. Of many years, actually. And he was really nervous about the markets declining. And he called, like, every three weeks. And I'd tell him the same thing. I'll call him Steve. "Steve, like, you gotta stick with, like..." We've got 62% in stocks, whatever the number was, like, "We're gonna ride this thing out. They always come back." I tried to [inaudible 00:10:09] So, he called about every three weeks. And one day, he calls, and didn't wanna speak with me. Talked to someone in our trading team, and did a trade without...
Pat: Yeah, without your input [crosstalk 00:10:23]
Scott: Like, "I'm gonna do what I wanna do anyway." And, of course, he missed out on the recovery. And the Dow... What'd the Dow fall down to? 7000 or something? [crosstalk 00:10:33]
Pat: Your memory...
Scott: 45,000 today.
Pat: Your memory is much better than I. And so, missed a large portion of... They did get back in at some point in time, I'm sure.
Scott: But not to the extent...
Pat: But typically [crosstalk 00:10:44]
Scott: He ended up needing a reverse mortgage to make his monthly nut work.
Pat: Well, but you understand how emotionally hard it is to stay invested.
Scott: I do understand. That's why it's important to be wide-eyed on your portfolio today. Like, what may come in the next... What will come in the next 20 years? If you got 20 years left of life expectancy, have a pretty good idea, like, what's gonna come... We'll have some bear markets. We'll have some nasty downturns. We'll have some recessions again.
Pat: That's right. And we'll have some great times.
Scott: And we'll have some great times.
Pat: This too shall pass.
Scott: All right. Let's...
Pat: If you'd like to join the show, 833-99-WORTH, or 833-999-6784. Or you can email us at questions@moneymatters.com, and we will get you on the air.
Scott: We're in North Carolina, talking with Brian. Brian, you're with Allworth's "Money Matters."
Brian: Guys, greetings. Thanks for taking the call, and...
Scott: Hey, thank you.
Brian: ...as a long-time podcast listener, I really appreciate what you guys do. Thanks for all you do.
Scott: Thank you. How did you find us?
Brian: I listen to another podcast regularly, and you were advertised through that podcast, and so I thought that's a topic I should be more...
Scott: Oh. I didn't know we advertised.
Brian: Yeah. So, it's been a...I've been listening to you for a couple, three years now, so [crosstalk 00:12:01]
Pat: [inaudible 00:12:02] thank you. I did not know we advertised on another podcast.
Scott: Yeah. Me neither.
Pat: Oh.
Scott: Oh, yeah.
Pat: Well, thank you, marketing team.
Scott: Yes.
Brian: So, my question relates to some incremental savings that I've built up, that I wanna deploy better than I've got it deployed right now, I think.
Pat: Okay.
Brian: And so, let me give you sort of some core sort of financial info about me. I'm 44 years old, married, two children, 15 and 12. My wife and I both work. The household income, it's a little bit hard to tell you what that is because it fluctuates a lot, but I'm gonna peg it at $300,000 a year. We have currently about $660,000 in pure retirement savings, across 401(k)s, IRAs. I also have a brokerage account, with a broker. That's got about $140,000 in it. And of course, I pay a fee for him to manage that. And just candidly, I've been pretty underwhelmed with the performance of that account, which has led me to start thinking, okay, as I've built up this incremental cash, which I'll talk about in a minute, how can I deploy it better? So, initially, my goal in saving up cash was to just build a sort of traditional, you know, six-month kind of an emergency fund, which I would say, I would be comfortable at, you know, 60-ish thousand dollars in that account. And I've been keeping that money in a high-yield savings account, which currently gets a yield of about 3.8%. But over time, I've been fortunate to, I max out 401(k)s, so I've done everything I can on those fronts. So, with the extra money I have, I've continued to throw it into this high-yield savings account, that currently has a balance of $275,000 in it. And it's just not, I think it's not doing the work it ought to be doing, but I've had great inertia about how to deploy it better. I've thought, okay, maybe I need to open a Vanguard, a Fidelity. Should I get into index funds? But then I wonder, should I do it in one big chunk? Should I do it over time? I'm just not sure how to start navigating towards those options. Yeah.
Pat: So, Brian... Right. How much term life insurance policy do you have on yourself?
Brian: So, I've got about... Good question. I've got both the max I can get through my employer, and some supplemental, so I've probably got about one and a half million on me, and probably about a half a million on my wife.
Scott: All right. And what do you owe on your house?
Brian: So, I just bought a new house several years ago, when the rates were great. So, I do owe about...here, I'm gonna pull that. I just pulled that before this call. Let's see. I owe, let's call it $390,000.
Scott: And when do you hope to...and I'm sure it's a rate of 3% or ballpark in that range, right?
Brian: 2.875. Yep.
Scott: And, when do you hope to retire? Is that part of your goal? Like, are you saving for retirement? Like, what's the objective here?
Brian: Yeah. So, I mean, I sort of think of this extra money, I say "extra," the stuff sitting in the high-yield, as what I would call retirement or retirement-adjacent, right? Like, if I needed it...
Pat: That's right.
Brian: ...I could reach for it, but it's really for a longer term than a high-yield would [crosstalk 00:15:11]
Scott: And what about your two kids with...
Pat: Yeah, is there money in a 529 plan for them?
Brian: Yes. Across both of them, I've got about $150,000 in 529s.
Pat: You are...
Brian: So that's [inaudible 00:15:24] I'm glad you asked. I was gonna say, you know, should I throw more into those? I mean, that's another thought I've...
Pat: You're a poster child. You're doing a good job. I think you should deploy some of those dollars outside of that cash account, into a...
Scott: Yeah.
Pat: Absolutely. And I...
Scott: Maybe even use, like, a direct indexing strategy.
Pat: Actually would be perfect for you. Would be perfect.
Scott: Which...
Brian: Meaning, just buy some market index funds?
Scott: No.
Pat: No, no, no, no.
Scott: No. Build your own...
Brian: What do you mean?
Pat: Okay. So, let's explain. Well, this is a perfect scenario for direct indexing. And by the way.
Scott: And even at two years ago, you might not have been a good candidate because [crosstalk 00:16:03]
Pat: Because the account balances weren't high enough. So, they're going down... So, let's explain what direct indexing is, Scott. Let's explain why it's relatively new, why most people don't understand how it works, and why it's such a great place for what we call fresh or new cash.
Scott: That are outside of retirement accounts.
Pat: Outside of retirement accounts.
Scott: Because inside a retirement account, the only time we pay taxes is when we take money out. When we have securities that sit outside of a retirement account, the stocks will pay dividends, right? We might have some capital gains we need to incur. So, with an index, an index strategy is just simply saying, instead of trying to... Let's pick the S&P 500 for a second. Instead of trying to figure out which stocks to own or not own, let's just buy the whole index of the 500 largest companies, and let's live with the return that's gonna have, and historically, it's done about 10% a year over a hundred years [crosstalk 00:16:58]
Pat: So, that'd be buying...
Scott: And you can do that...
Pat: And traditionally...
Scott: You could do that. You can buy Fidelity or Vanguard or Schwab. Everyone's got an index fund now.
Pat: So, that's what you actually...
Scott: Super-low cost.
Pat: Brian, that's what you said. "You mean like an index fund?" We said, "Like an index fund, but not an index fund." This is called a direct index.
Scott: And so, not too many years ago, when we bought or sold a security, we would pay a commission, right? So, it was...
Pat: Whether it was Schwab, Fidelity, wherever.
Scott: So, that was a pretty significant cost it would be on our portfolio. Today, there's lots of places you can buy and sell without any sort of commissions at all.
Pat: So, there's no friction in the trading of the security.
Scott: And so, with a direct index strategy, rather than buying a fund or an ETF that owns those securities, you actually buy all those individual securities yourself. You don't personally... Like, the technology behind it buys this. And they don't buy all 500. They could get a 99% confidence level with maybe 300 securities. And then, they're actively managed not just to maintain that index strategy, but they're managed from a tax standpoint.
Pat: So, as an example, let's say you need exposure to the airlines in your index. It may not own Delta, American, United, and Southwest. It might own three out of the four, or two out of the four. But let's say United falls, not saying it will, or did, but let's say it falls by 20%, United. What does the direct index algorithm do, Scott?
Scott: It will sell that and buy something very similar.
Pat: Buy something similar, but not identical.
Scott: Because there's tax loss rules. Wash rules.
Pat: It will wait 31 days for the wash rule to play itself out, and then decide whether to hold that alternative security, or to sell the alternative security and go back to the United shares.
Scott: So, the benefit to you, and the benefit to people who use this strategy, is a couple things. One is there are some tax loss harvesting that occurs throughout the year, so...and you can dial it in how much you want or not want. So, you can, rather than having capital gains, you can literally generate capital losses. And then, second, when it's time to use the money, you can cherry pick which stocks... You might, matter of fact, maybe the $150,000 is not enough to get your kids all the way through school. And you might say, hey, let's take a few dollars of the most highly appreciated securities, as part of my index, and let's transfer them to the kids. They can sell it, and they're not gonna pay any capital gains tax, because their tax rates are so much different than yours.
Pat: Or you might say, I need money, and you actually sell something that doesn't have much gain, or very little gain. And then you take it one step further, and if you're charitably inclined...
Scott: Even if it's a small amount on an annual basis, you can cherry pick the...
Pat: You take that individual stock, you put it into a donor-advised fund, and then you actually...
Scott: You get a tax deduction on the fair market value, and you avoid the capital gains.
Pat: Yeah. And then you get great tax strategy behind it, where you actually maybe just fund the donor-advised fund once every three or four years, so that you actually really dig in. Right? And so there's so many things around it that... By the way, if we sound excited about it, it's unbelievable. I mean, it is all driven by technology, and the fact that there's very little friction in the marketplace to buy and sell these securities. And no one's touching this. It's all algorithmic-run. The only time you're touching...
Scott: [crosstalk 00:20:30] Pat, is, like, I've been pretty bullish on this strategy the last couple years, but the adoption of it is still relatively nascent.
Pat: So, the only people that you're getting involved in is when you actually say, okay, I need money, or I wanna gift, or... Otherwise, the algorithm runs it. The last thing to kind of keep in mind here is, as this technology has been not as widely as adopted, the account values that you can actually do this with has fallen.
Scott: Dramatically.
Pat: Where it used to be...
Scott: Millions.
Pat: ...$500,000 or $2 million or $3 million, [crosstalk 00:21:03] right? Now, it's... I think you can do it, what... Is it down to a $100 grand or...
Scott: The fees are more expensive.
Pat: There's no question. But they're worth it.
Brian: So, thank you for that. I mean, conceptually, I follow what you're saying, and it makes a lot of sense. Tactically, where do you access these things? How does one start?
Pat: Any big brokerage firm.
Scott: Or advisory firm.
Pat: Yeah. And if they say, "What are you talking about?" never talk to them again.
Scott: That's right.
Pat: [crosstalk 00:21:32] it's really... And I would use $200,000 of it.
Scott: I don't know how the rest of the brokerage stuff is allocated.
Pat: Yeah, I don't know how your brokerage looks, but I wouldn't... And if I was worried about the market, maybe I'd go $50,000 now, $50,000 in six months, $50,000 in 18 months, $50,000 in [crosstalk 00:21:50]
Scott: You're 44, though.
Pat: I'd go all in.
Brian: Yeah.
Scott: I mean, you're not gonna touch these dollars for 20 years.
Brian: The one last variable I wanted to throw out, to ask about is, I've still got lingering... I'm an attorney, so I've got law school debt still. I've paid most of it off, but I've got about $10,000 left, at 4% interest.
Pat: Oh, pay...
Brian? My thinking has been my money can do better elsewhere, but should I go ahead and pay that off?
Pat: I would pay it off. I'd get that behind me.
Scott: Just from a psychological standpoint, yeah, I'd pay it off.
Pat: And this administration...
Scott: It's not gonna make any difference in your net worth...
Pat: ...and by the way...
Scott: ...one way or the other.
Pat: It's just, it's behind you. And Brian, this administration is not going to forgive it.
Brian: Oh, no. No chance. I have no thought about that. No. That had nothing to do with my...
Pat: No, I would pay it. I would just pay it off. I mean, economically, what's...
Scott: It's not gonna make any difference.
Pat: ...what's it make? I mean, let's say you could get 5.25 in a high-yield. It's $10 grand, you know. [crosstalk 00:22:48]
Scott: I mean, you got a million bucks saved, and the $10 grand, whether it's paid off or not, it's not gonna make any difference in... But I think, psychologically having to pay would... If it were me, I'd feel good.
Pat: What type of law do you practice?
Brian: Mostly commercial litigation. [crosstalk 00:23:02]
Pat: There we go. Good times.
Brian: Yeah. Yeah.
Pat: Good times.
Brian: Well, guys, thank you. I really appreciate it.
Pat: One other question. Are you self-employed, or are you part of a big law firm?
Brian: Well, the answer is both. I'm part of a big law firm, but I'm an owner, so I'm, technically, [crosstalk 00:23:17] for tax purposes, I'm self-employed.
Pat: Okay. Got it. And you guys don't have a non-qualified deferred compensation plan set up for you guys?
Brian: So, we do, but I've done everything I can in my contributions to those, as I understand it. Maybe I'm not asking the right questions on that.
Pat: It's called a non-qualified deferred compensation plan.
Scott: But you say you're self-employed. So you guys just share the expenses, and then...
Pat: He's a...it's a...
Brian: That's correct. That's correct.
Pat: Wait, wait. So wait, wait. What do you... For tax purposes...
Scott: So, you just share expenses?
Pat: He's a partner.
Brian: That's right. And then we share in the profits. I mean, we're all equal partner, and we...
Pat: Yeah, it's a partner...it's a partnership.
Brian: [crosstalk 00:23:54] it's a partnership.
Scott: Okay, it's...
Pat: You're not self-employed.
Scott: Okay. All right. All right.
Pat: Okay. Listen. Yeah, but great, great, great. Doing a great job. How is the 529s invested?
Brian: So, I'm actually in, for reasons that I can't recall, I'm in the South Dakota 529, across several funds in there, but I couldn't tell you off the top of my head the exact allocation, and I sit down once a year with my broker that I work with, and we just look at the allocations relative to the ages of the children. And frankly, I've wondered, you know, my kids... I went to a private university, and if they wanted to go there, I'm nowhere close to...
Scott: Yeah, that's right.
Pat: That's right.
Brian: [crosstalk 00:24:35] well enough for that. I mean, I'm well enough funded to cover the average in-state tuition, and I've kind of wondered, should I be throwing more in? Should I be... You know, I've struggled to think about that, and know what the "right answer" is.
Pat: Yeah, it wouldn't hurt to fund it some more. And I'd look at the allocations...
Scott: Yeah.
Pat: ...based upon the age...
Brian: Yeah.
Pat: ...to make sure that that was appropriate. So, in that... That's why I said I'd leave at least $75,000 in cash.
Scott: Is the broker you're working with, is he a financial advisor, or just, like, kind of a traditional...
Brian: He is. He's a certified advisor, and a certed CFP, and...
Pat: Okay.
Brian: ...someone I know well personally, and trust, and candidly...
Scott: Okay.
Brian: ...that's what took me to him, but also, when I feel a little underwhelmed by performance, it complicates the relationship a little.
Scott: Well, then I would ask a question, like, trying to understand why the performance... Why you're disappointed? Maybe he hasn't been aggressively invested for you. Like, is this a misallocation?
Brian: And that's [crosstalk 00:25:35] Yeah, we just had that conversation, where, when I first opened the account, it was with the only incremental kinda extra money I had, and so I was pretty risk-averse, and he, several years ago, put me heavy into bonds because he heard that, and that was a terrible time to be in bonds. And so we've readjusted and...
Scott: Thank you.
Brian: ...had conversations to clarify risk, risk appetites and such.
Pat: Yep. Yep. I mean, you understand the dance. You're a civil litigator.
Brian: Yeah.
Scott: And the younger we are, it's like, sometimes it's a bit irrelevant how you feel about things. You just need to suck it up a bit, on the risk side of things, to be a successful investor. Right?
Brian: I mean, I don't wanna pay daily attention to this.
Scott: Yeah, of course.
Brian: I wanna have confidence in the long-term plan...
Pat: That's right.
Brian: ...and set it and forget it. [crosstalk 00:26:21]
Pat: That's right. And you're a poster child for direct index. And then I'd come back and revisit the 529s. And I would look at funding those some more.
Brian: Okay. Well, great, guys.
Pat: I would... Absolutely.
Brian: Thank you very much [crosstalk 00:26:34]
Pat: Well, thank you [inaudible 00:26:34] And share this podcast with the rest of your partners.
Brian: I will do my best.
Pat: Well, probably not this one, because then you'll get all your personal financial information's gonna be out there.
Brian: Three months from now, I'll start praising your name.
Pat: Perfect. Thank you.
Scott: That's funny.
Brian: All right. Thanks a lot, guys.
Scott: I appreciate the call.
Pat: He's never gonna share this with anyone now. In case they're likely to hear.
Scott: All right. Let's now continue on calls. Let's talk with Rashna in California. Rashna, you're with Allworth's "Money Matters."
Rashna: Hi, Scott and Pat.
Scott: Hi.
Rashna: How are you?
Scott: We're wonderful.
Rashna: Good. I have a bunch of questions, but I'll try to limit myself to one.
Pat: You can ask as many as you'd like.
Rashna: Oh, wow. Okay. Well, you might be sorry you said that. I'll start with the one I was originally calling for, and then other things happened in the day and a half. So, the first question is, we're getting ready to retire in the next probably year, probably a year out from it. I'm 58. My husband's 60. And we will have a pension. We also have a pot of money that we're gonna annuitize, and we will get it when we retire. [crosstalk 00:27:51]
Pat: I'm sorry. So, let's stop for a second here.
Rashna: Okay.
Pat: You have a pot of money you're going to annuitize. Tell me what that means. Like, where did it come from, and how and why would you annuitize it?
Rashna: Yes. Good question, because if you have a pension, why do you need an annuity? It is, we're both in the CalSTRS system...
Pat: Okay.
Rashna: ...and I have, in 33 years, never taken a summer off, or not worked anything extra I could work.
Pat: Okay.
Rashna: So, it's that extra money that's been built up over time...
Pat: Okay.
Rashna: ...and you can either take it...
Pat: Yep.
Rashna: ...as lump sum... And it's not an insignificant amount.
Pat: Okay, so, it's your accrued vacation, or sick leave, that you can either decide to stay on payroll, so you declare a retirement date, and then you use this up over the remaining 18 or 24 months, and it helps accrue...
Rashna: No.
Pat: No?
Rashna: No. It's something completely different.
Scott: Okay. Does CalSTRS control that pot of money, or is this in a 403(b)?
Rashna: No. They control it until we retire.
Scott: Got it.
Rashna: And then we can then take that pot of money and either just roll it over into an IRA, or take it out, which we wouldn't do, or we can annuitize it with them. And we did the numbers, and I don't know how they can afford to do this, but it's a really good rate of return.
Scott: Yeah, do...
Rashna: So...
Scott: Yeah. You're gonna wanna do it with STRS, not... Okay.
Rashna: [inaudible 00:29:31] No, we're not going outside of STRS, so...
Pat: Yeah. Okay.
Scott: Yeah, yeah, yeah. No, it makes total sense what you're doing.
Pat: Yeah, but, a pension versus a lump sum. So you choose the annuitization...
Scott: Yeah. Yeah, yeah, yeah.
Pat: ...versus the lump sum.
Rashna: So... Right. And then we have our regular pension, that is totally separate, in the sense that that is the formula that you're all familiar with.
Scott: Yes.
Pat: Okay.
Rashna: So, we have that. So, this pot of money, the question is, it's gonna be about... We do it for a nine-year period, and it'd be $93,000 a year in income. And my question is, we can either take it as income, or we can have it go directly into an IRA, into a tax-deferred account.
Scott: Is that right?
Rashna: My concern is having it go... Yeah.
Pat: You take it as income, or you take the lump sum and put it into an IRA, or you take the...
Scott: $93 grand a year.
Pat: And put it into an IRA.
Rashna: Any and all of the above.
Pat: Okay.
Rashna: So, I can either just take the whole... It's $625,000. I can either take the whole thing and put it in an IRA, or take it. Or, we can take it... We can let them annuitize it, keep it for that amount of time, and then they would pay us $92,000 a year, and then the money's gone after nine years.
Pat: Oh, got it.
Scott: And have you calculated what that rate of return is?
Rashna: Yeah. Hold on. I don't have my spreadsheet up at the moment. And I kept doing it again and again, thinking this could not be right. But it seems right.
Pat: It's about, it's probably about 6.7%, 6.8%?
Rashna: It's... Well, it's more than that, because basically, for... 93... Let me see if I can pull up my spreadsheet. I'm sorry. But the... [inaudible 00:31:17] right here. Too many tabs on the spreadsheet. So, basically, at the end of those nine years, we would end up with... And it's both my husband and I separately, so that [inaudible 00:31:32] together. Yeah, we end up with a $212,000 gain over those nine years.
Pat: Yeah, but that's not the math we're using here.
Scott: I just calculated...
Pat: We just calculated. The return is...
Scott: 6.277%.
Pat: Yeah. So, the return is...
Scott: What did you guess? 6.3?
Pat: I said [inaudible 00:31:49] what'd I say? [inaudible 00:31:49] sub-7, right?
Scott: Yeah, yeah.
Pat: So, what that means is... So, you looked at the gain, but it has to do with the time value of money calculation. So, what Scott did was... He ran a net present value calculation in the stream of income. Essentially said, okay, if I take $625,000 now and put it in an account, and I made payments of that account, over nine years...
Scott: At $93,000...
Pat: ...at $93,000, what is the rate of return I need to get on that money in order to make sense? And the answer comes out to 6.27%.
Rashna: Okay. That's...thank you.
Pat: So, that's what we call the hurdle rate.
Scott: That was a rough, by the way. I didn't calculate the time of the year, or is it monthly or quarterly or...yeah.
Rashna: Whatever. [crosstalk 00:32:35]
Pat: It's somewhere around 6.5%.
Rashna: Close enough.
Pat: Let's just go there.
Rashna: Yeah.
Pat: And my guess was somewhere...
Scott: That's where you were, right there, yeah.
Pat: Yeah, I was close.
Scott: Pat is really sharp with numbers.
Pat: Well, that, and you know what the interest rate and what the pensions are doing behind it. So, the question that I would ask is... Okay, well, that's great. It...6.2%, it depends on what it's invested in. But the question more than that is, do I need that $93,000 a year in income now, or should I roll this $625,000 into an IRA, and defer it even longer?
Scott: Well, she can defer... She can take... What she's telling us, she could take the $93 grand a year, and have a...
Pat: [crosstalk 00:33:13] that's wrong, Scott.
Scott: Yeah, I'd question that... I don't know how that could be.
Pat: That's wrong.
Rashna: [inaudible 00:33:17] I can tell you how I came up with that number. Basically, they have a sheet that, I met with them, to go over everything. And you can...the period certain annuity...
Pat: Yes.
Scott: Yeah.
Rashna: [crosstalk 00:33:29] could be 1 year, it could be 10 years, and they have...
Scott: Yeah, I get that.
Pat: Yes, yes.
Rashna: So, for every $50,000, for the nine-year, $50,000 is $620 a month.
Pat: No, understand that. [crosstalk 00:33:40] understand that.
Scott: No, no, no. I understand the math. What I'm question is, how can you take what is technically a qualified pension plan, you receive an annuity on that...
Pat: And you said that you could put it back into an IRA, on an annual basis.
Rashna: Yes.
Pat: And I've never seen it before.
Scott: Me neither.
Rashna: I don't know if it's an annual basis or a monthly basis. But [crosstalk 00:34:02]
Pat: No, it's neither.
Scott: I don't know how you get it back into retirement account. I don't know how you get $90 grand paid in a pension, and turn around and get it back in a... I don't care what it is.
Pat: I think that there's been some confusion in the description of what this is. So, it's either you take an annuity for a series of years, and you select those years, or you take a lump sum. But what we do know is that the rate of return on that lump sum, on the annuitization, is 6 point...call it 6.5%.
Rashna: Okay.
Pat: So, the question is, how much of the other pension's coming out, and is that enough to live on, and should I take that $625,000 and roll it into an IRA? And I'm 58, and my husband is 60, and I defer that until 68, 69...
Rashna: Seventy-five.
Pat: ...70, 73, 75, whatever the number is, until required minimum distribution. And maybe I convert some of it into a Roth and maybe I don't. Right?
Rashna: So... Okay. So, yes, that's the second part. That's the part of this question, which is, we currently have about $1.56, $1.6 million in tax-deferred accounts. [crosstalk 00:35:17]
Pat: Okay. There we go. You're answering all the questions we were gonna ask. So, you have $1.6 million in 403(b)s, and in IRAs and that sort of thing, correct?
Rashna: Yeah. So, and fully tax-deferred. And so, my concern... And we won't really need those in retirement, because the pension is a little over $200,000, [crosstalk 00:35:34]
Pat: And what is your income today?
Rashna: More. So, it's around three-something, but we put a lot away.
Pat: That's right. And you have no mortgage on the house now, correct?
Rashna: We do. We do.
Pat: How much is the...
Rashna: We have a mortgage of $165,000. We have several houses, so...
Pat: Okay. So, you wanna take this as a lump sum, not as annuity over that nine-year period.
Rashna: Okay.
Pat: How, of that $1.6 million you have in 403(b)s and IRAs, how's that invested?
Scott: And I think, going back to your point, I think the reason behind Pat, why Pat made that recommendation is these aren't dollars that you... You chose a nine-year payout, but it's not that the... You don't need the money in nine years.
Rashna: No. No.
Scott: So you actually have a much longer investment horizon than suddenly, pay these dollars out. Give me one, essentially, one-ninth each year for the next nine years.
Pat: And this is based on the premise that you said to us, you can take those on an annual basis and move it back into an IRA.
Scott: We don't believe this.
Pat: I don't believe that's the case.
Rashna: I appreciate that. No, so, the reason it's 9 years, not 10 years, because the 10-year, they said you cannot put it into a tax-deferred account, but at 9 years, you could have it automatically go into a tax-deferred account, now.
Pat: I'm... That's the case? If you...
Scott: I learn something new every day.
Pat: Yep, yep. If that's the case, then if you wanna [crosstalk 00:37:07]
Scott: And qualifies as a rollover.
Pat: Yes.
Scott: That's what it would technically...a direct transfer of a rollover.
Pat: If that's the case, and the CalSTRS [inaudible 00:37:14] if you're happy with 6.5% return, 6.75% return, then do it that way. If you think that you could do better in the open markets, right?
Rashna: Right.
Pat: Then take it as a lump sum and invest it yourself. That's the only question, which is [crosstalk 00:37:30]
Scott: And if these were dollars that you are gonna spend in the next nine [inaudible 00:37:32]
Pat: I'm gonna go with the fact that you're right, in the nine year thing...
Scott: Yeah.
Pat: ...because your description was pretty exact. News to me how CalSTRS would treat it that way, but, who knows? Why wouldn't you take this $650,000 and invest it, thinking that you're gonna get over 6.5%, net of fees, over the next 10 years?
Scott: Twenty years.
Pat: Ten years. Because remember, Scott, it comes out over nine years.
Scott: Yeah, but she's gonna turn around and reinvest it.
Pat: Yes, part of it. Yeah. It's longer periods of time.
Rashna: Yeah. And, you know, at 75, we're gonna have RMDs. [crosstalk 00:38:10]
Scott: Yeah. Here's the... You know what, I know people, I know we say this often, but you got a lot of moving parts here.
Rashna: Yeah.
Scott: A lot of moving parts. Like, hire yourself a financial planner, and do a good plan, and do a bunch of what-if scenarios. You got millions of dollars here. This is a huge, these are huge decisions.
Rashna: They are, which is why, it was, the question was really, like, can I do better than 6.5%...
Pat: I think so.
Rashna: ...based on the last three years? Yes.
Pat: Well, not, but...
Scott: No, no, no, no, no. [crosstalk 00:38:40]
Pat: No, no, no, no, no, no, no. That's based on the last 50 years.
Rashna: Okay.
Pat: Let's [inaudible 00:38:45] based upon how disciplined of an investor you are, and how aggressive a portfolio [crosstalk 00:38:49] You may or may not.
Scott: You should be able to... And maybe, after they're doing the analysis, she'll choose to take this [crosstalk 00:38:53]
Pat: And maybe you actually say, "You know what? We're gonna actually increase our..."
Scott: Equities in the other piece of the portfolio...
Pat: In the 403(b)s...
Scott: ...and use this as fixed income.
Pat: And use this as fixed income. Which is, actually, I could make an argument for that. Right?
Scott: Yes.
Pat: So, if we opened up your portfolio today, of this $1.6 million, how much would be in equities and how much would be in fixed incomes or bonds?
Rashna: Five percent in bonds, and the rest is in stocks. [crosstalk 00:39:23]
Scott: Five percent?
Rashna: Yeah. It's in a balanced...part of it is in a balanced fund that we've had forever. And then I started listening to you guys, and I was like, "What am I doing? I have a pension. Why do I need bonds?"
Pat: Okay. Well, that balanced fund is about 40% to 50% fixed income.
Rashna: It's a small amount [crosstalk 00:39:41]
Scott: Okay.
Pat: Okay. Okay. So, the point being is, if that's the case, then I could make an argument as that this should be the [crosstalk 00:39:49]
Scott: And then...
Pat: And then I'd make the point, argument, counter that, which is your pension's so big. I, if it were me...
Scott: You'd take the lump sum and move on.
Pat: I'd take the lump sum and move on.
Scott: I know you would.
Rashna: Okay.
Pat: If it were me...
Scott: But...
Rashna: Okay.
Scott: Yeah.
Pat: Your risk tolerance could be pretty high if you're living off those pensions. And you've got time for markets to play themselves out.
Scott? That's right.
Rashna: Yeah. We don't see ourselves needing to touch the 403(b).
Pat: That's right.
Rashna: Because we also have rental income, so...
Pat: You're fine financially.
Scott: Yeah. But, yeah, it comes to, but, then it all, all this is, like, what are we trying to accomplish over the next, the rest of our lives? You're at this... Right? You're at this point. You've worked your entire life. Suddenly, you're looking at retiring.
Pat: You're 58 and 60. You got plenty of money.
Scott: More money than you probably thought you would have, particularly... Right?
Pat: You know what I'd say? Where do you want to go on vacation? And by the way, it's hard to go on vacation when you're retired, because you're not really vacating anything. You're going on trips. So...
Scott: [crosstalk 00:40:40] you've got rental... So, you've got, my guess is you guys have always lived a little bit below what you're making, and probably the first half of your careers, you weren't making that much anyway. And the last decade, things have gone phenomenally well for you financially. This is just my guess. Tell me if I'm way off base.
Rashna: Yeah.
Scott: Right?
Rashna: Hundred percent.
Scott: But you've always lived below your means, and now you've got all these assets, and you're like, "Oh, my gosh. Our pensions. Can you believe how large our pensions alone are gonna be? And now we've got a couple million bucks in retirement accounts, and we have these rentals. Like, holy crap. Like, we've got a lot of money." So, really all of this comes down to, like, what is it you're trying to accomplish. What do you want these dollars to do for you? You have this responsibility now, for these dollars. What do you...what...
Pat: Do you want them to go to your kids?
Scott: You wanna increase your standard of living?
Pat: Relatives? Charities?
Scott: You wanna fund something else? Do you wanna...
Pat: Do you wanna go to a really awesome safari in Africa?
Rashna: No.
Scott: Right? But, I mean...
Pat: In the Okavango Delta?
Scott: It's all those things, and then it's getting clarity on, like, what is it...what do we want these dollars to do? Then we can build the plan on what's the best way to structure the... And based upon what you guys, and you're not gonna come up with the answer overnight either on this, but based upon what you and your spouse decide what's best, that's my dictate, taking the $93,000, I mean, the $625,000, over 15 years, or over 5 years, or whatever. I don't know. But...
Rashna: Yeah.
Scott: That's where I would start.
Rashna: Am I ridiculous...
Pat What's that?
Rashna: Okay. Am I ridiculous to worry about RMDs?
Scott: No.
Pat: No, not at all, but... And not at all, but that's just part of the picture.
Scott: But to your point, you're gonna be in a high tax bracket going forward regardless.
Pat: Yes.
Scott: So...
Rashna: Yes.
Scott: Yeah.
Pat: I mean, you're asking all the right questions, but you don't know what direction you're going.
Rashna: I mean, you asked me what my goal is. I'd like it to grow, and I'd like it to...obviously, legacy for the kids.
Pat: Okay.
Rashna: So, you know, but other than that, I don't have any grand plans because, Scott, you hit it on the head. It's exactly...you described my life.
Pat: Yeah. Well, most people with money, that's how they live.
Scott: And most...I mean, it wasn't... Yes, that's exactly right.
Pat: Yes. So...
Scott: You don't end up with rental houses by spending 100% of your paycheck.
Pat: Yeah. And by the way, so, I would, based upon your investment experience, and your very, very disciplined, I would take the pension lump sum, roll it into an IRA, and I would do 70% to 80% equity portfolio. Based on the little we know about you, with that stated goal that you had.
Rashna: Yeah. The 6.5% was guaranteed, and I was like, we could still turn around and put it in an IRA.
Scott: Then do it, and if in fact you can roll those annual distributions out, and then invest them as they come to you.
Pat: Yeah. You'll get in the same place.
Rashna: Yeah. Okay. So, but you like the idea of just taking a lump sum and moving forward.
Pat: Yeah. Depending upon how disciplined of an investor you are to weather the markets.
Rashna: Okay.
Pat: Right?
Rashna: I mean, yeah. Yeah. [crosstalk 00:44:04]
Pat: I know how I would manage it, but I'm not you.
Scott: Yeah.
Pat: Not nearly as smart.
Rashna: How would you manage it, sir?
Pat: I would go 70% if [crosstalk 00:44:11]
Scott: No, you would...
Pat: Oh, I would [crosstalk 00:44:13]
Scott: ...you would be 100% stock in this situation.
Pat: [crosstalk 00:44:14]
Rashna: Yeah.
Pat: ...100% stock in this because the...
Scott: The pension's all fixed... You're yeah.
Pat: The pension's all fixed [crosstalk 00:44:18]
Scott: And you don't even... Yeah.
Pat: You're like, just go.
Scott: I mean, your time horizon is...
Pat: [inaudible 00:44:21] look at how far your time horizon... Your time horizon before required minimum distributions is 17 years. Fifteen for your husband.
Rashna: Yeah.
Pat: That's a long time.
Rashna: It is. It is. And the market has time to do its job.
Pat: That's right. That is exactly...
Scott: That's exactly right.
Pat: You answered your own question. But appreciate the call.
Scott: And we're in Texas, talking with Hunter. Hunter, with Scott Hanson and Pat McClain.
Hunter: Hi, how are you doing today?
Scott: Good. How you doing, Hunter?
Hunter: Doing well.
Scott: What can we do for you?
Hunter: So, my wife and I are both 64, planning to retire 68 or later. I think my wife is pretty set on retiring at 68.
Scott: Can you afford to...
Hunter: But I may go a little later.
Scott: Can you afford to retire in four years?
Hunter: Yes, I think we can. We've got about a million dollars in investable assets, currently. But my question is, about a year and a half ago, I had a financial advisor sell me some annuities, fixed index annuities, which I think are decent products. I'm just not sure that they were the right product at the time. So, about $700,000 of my net worth is in those three annuities.
Pat: Wait, wait, wait, wait. Wait. He sold you three different annuities all at the same time?
Hunter: Yes.
Pat: Okay.
Hunter: One of them is an IRA in my name, one of them is a Roth IRA in my name, and one of them is an inherited Roth IRA in my wife's name.
Pat: Okay.
Hunter: And each one is in a separate annuity.
Pat: Okay.
Hunter: So...
Scott: And what's the maximum you could earn in any one 12-month period on those?
Hunter: I think the maximum is capped around 10%.
Pat: Okay. So, what's your question for us?
Hunter: My question is, I expect to live into my 90s, based on my family's life expectancy history. And I'm looking at a 30-plus year time horizon for retirement, and I'm just not sure that it was a wise decision to put that much in safe money that early.
Pat: Yes. That's correct. You explained it better than we could. Your analysis of what you did was a better analysis, because it was much more... You can be much more honest with yourself about the decisions you made. Here's the problem. You've got a surrender charge on that annuity.
Hunter: Yes.
Pat: And depending upon the size of the surrender charge...
Scott: How big is the surrender charge? Do you know?
Hunter: I don't have that information in front of me. It goes down every year.
Pat: That's right.
Scott: Did it start, like, at 9% or something?
Hunter: Yeah, something like that.
Scott: Where were the dollars invested beforehand?
Hunter: They were invested in... You know, to be honest, I don't know.
Scott: Okay.
Pat: How'd you come about this annuity salesperson?
Hunter: One of these things on Facebook, where I clicked on an ad and ended up booking a consultation, and...
Scott: And were you nervous about the market at the time?
Hunter: Maybe a little bit.
Pat: All right. So, you gotta dig into this. So, you know what you did, and what you said, right, which was my timeline is so long that I'd be able to weather any of the market conditions. But by the way, it's the same thing that these index annuities. If you tear them open, they use financial derivatives that...
Scott: Well, you're paying for a lot of insurance.
Pat: That's right.
Scott: There's no such thing as a free lunch, so it results in lower returns.
Pat: Correct. That's what it does. And that's what... They package them. And by the way, any advisor could build these same products outside of an annuity. In fact, they do.
Scott: Not any advisor. Not most annuity salespeople.
Pat: Well, they're not advisors. They're annuity salespeople, disguised as advisors. So, you should look at the surrender charge on that and decide whether you should get out of the product. But a large portion of the decision-making will be driven by the surrender charge, and the anniversary date.
Hunter: Right.
Pat: Because if the surrender charge, it moves every year, down, you might be close to a new anniversary date, and that surrender charge difference could be 1% or 2%.
Scott: At a minimum, you could take... There's probably some... They probably allow some sort of penalty-free withdrawal each year, 10% or 15% or something?
Hunter: Yes. Yes, they do.
Pat: Do that. And go hire yourself...
Scott: And put that in another IRA, and just put it 100% stocks.
Pat: And hire yourself... And 100% stocks. Hire yourself a fee-based financial advisor.
Hunter: Uh-huh.
Pat: Fee-based financial advisor, that's going to do a financial plan for you, and say, "You can retire in four years," or, "No, you can retire in three," or "You might have to work six, and this is what your social security..." Part of the overall picture of your financial situation is this income, but you can't go it alone. And you tried to do it, but you didn't get an advisor. You got a salesperson.
Hunter: Right.
Pat: Anyway, sorry that happened to you. Appreciate the call.
Scott: Yeah. We wish you well, Hunter.
Hunter: Okay.
Scott: And I tell you... So, you hear... If you've listened to this program for a while, you hear the two of us talk about the issue with the insurance industry, with the annuity industry. And while I state, on the record, and I'll state it again right now, the world would be a better place if annuities had not been created, these commercial annuities. Having said that, there are times when they are appropriate. We, as a firm, have clients with them.
Pat: And occasionally, we recommend them.
Scott: And there are fee-based annuities now, where you're not locking your money up for several years, and your advisor's not receiving a big commission.
Pat: That's correct.
Scott: But for the life of me, the fact that the regulators still allow these products to get sold the way they're sold, with these huge commissions paid to brokers, and the money's locked up for probably 10, 15 years.
Pat: And the way they're sold is, they're quasi... "You get the best part of the stock market..."
Scott: "You gonna get the stock market gains without the downside."
Pat: But now, you don't get the gains.
Scott: Twenty percent, roughly.
Pat: And he's capped at half of that.
Scott: Well, unfortunately... I [inaudible 00:51:21] say we're out of time, but I guess we could talk as long as we want, but maybe we just get to a point where...
Pat: Maybe we're at the end of the attention span.
Scott: By the way, if you don't get our newsletter, I'd encourage you to sign up for our newsletter.
Pat: We believe there's lots of good information.
Scott: And, on our website, we just did a whole refresh on our website. I'm pretty proud of it. But we got a lot of good educational material there, on lots of different topics, and so I'd encourage you to go to allworthfinancial.com, and check out some of that. I think is, just the same way this podcast, radio program is very educational focused, not sales-ey focused, you'll find the same thing from our website.
Pat: Or better yet, if you want a second opinion, just reach out to us, and we'll set up an appointment [crosstalk 00:52:05]
Scott: Chat with one of our [crosstalk 00:52:06]
Pat: ...to talk to our advisors.
Scott: ...what, 150 or so advisors across the country.
Pat: Yeah.
Scott: Great team, so... Anyway, we certainly appreciate you being part of our "Money Matters" community. See you next week.