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August 6, 2022

Risk tolerance, advice on life insurance, and why tax time should be all the time.

On this week’s Money Matters, Scott and Pat help a man align his risk tolerance with current market volatility.  They give honest advice to a caller who thinks his friend should move some money from bonds to cash.  A retired member of the military wants to know what kind of universal life insurance policy to buy.  A Georgia woman wonders where to transfer her old HSA.  And Scott and Pat explain why tax time should be all the time.

Join Money Matters:  Get your most pressing financial questions answered by Allworth's CEOs Scott Hanson and Pat McClain live on-air! Call 833-99-WORTH. Or ask a question by clicking here.  You can also be on the air by emailing Scott and Pat at

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

Pat: I'm Pat McClain.

Scott: Glad you are with us on the program today as we talk about financial matters. Both myself, my co-host, Pat here, we're both practicing advisors, spend our weeks with people like yourself and broadcasting the weekend, being your financial advisors on the air. And we cover all things financial and answer questions and talk about what's happening in the markets and all that kind of stuff. And it's what we do. It is what we do.

Pat: It is what we do.

Scott: And if you want to join the program, 833-99-WORTH is the number. And we can schedule time for you to record with us, 833-99-WORTH. And we're going to hop right into calls. We're at California to talk with Ron. Ron, you're with Allworth's "Money Matters."

Ron: Hi, gentlemen. Thank you very much for taking my call. I'm 76 and my wife and I are both retired. At the beginning of the year, we had approximately 1.5 million in our IRA, which consists of the traditional IRA and Roth. We have a retirement account income of about $4,000 a month, social security of about $3,500 a month between us, we own five homes that are paid for. And my question is this. I consider myself fairly conservative in terms of how we orchestrate the allocation and the amount we put into equities. But in today's world, with the significant drop that occurred, that I'm frankly not used to, as I said, we started the year with 1.5 million. We're now down to 1.357 million, which is about a 9.5% loss. I guess one question that I have is, is there a way to give me a gauge as to whether or not just that percentage of loss puts me in a higher risk than I should be or not? And then the second part is the allocation that I have, are they such that it's reasonable and appropriate?

Scott: Let's start with the second, the allocation.

Ron: Okay. The allocation?

Scott: Yeah, how are these dollars allocated?

Ron: Okay. The allocations are, we currently have 24% in equities. I have it in all Vanguard funds, 24,000 balance, 33,000 prime caps, 64,000 total stock, 20,000 U.S. growth, 118 Wellington, 83 inflation-protected securities, 23 dividend growth, and 250,000 in target income. That's how it's allocated. The remainder is between 25 in bonds and 50% in cash.

Scott: Oh, so you've had 50% in cash this year?

Ron: Correct. Correct.

Scott: So your portfolio, your investments...

Ron: It's pretty consistent by the way.

Scott: Okay. So you're in... Because at first, I'm thinking a nine and 0.5% decline on a $1.55 million portfolio.

Pat: Wait. It wasn't...

Scott: He said half his money's been in cash.

Pat: Okay. And bonds...

Scott: So your portfolio was really down 19%. Your investments are down 19% for the year.

Ron: Right. But I've been calculating it based upon the total, though I suppose that question is one of the issues that I was raising in terms of how that allocation is distributed there between the equity.

Pat: Well, so... Oh God, I gotta, gotta... You've got quite a bit in that target income.

Scott: Which I don't know what that is.

Ron: [inaudible 00:04:18.387]

Pat: And $250,000. So if that was a longer bond, I mean, that got beat up. I mean, that...

Scott: The challenge this market cycle, Ron, is not only have stocks fallen, almost everything's fallen, right? So this has been the worst year for bonds. I think worse than '94, right? And '94 was a bad year.

Pat: I'm trying to remember.

Scott: Anyway, you got to go back 30 years almost before we had a bad start like we've had in the bond market this year mainly because of inflation. I mean, at first blush, it doesn't sound... I mean, it is not that big of a downturn. Are you spending any money out of this?

Ron: I'm sorry.

Scott: Are you spending any money out of this? You're taking out...

Ron: We are. We have the required minimum distributions to take, which we would be taking.

Scott: And are you spending that?

Ron: And I take that out of the cash side.

Scott: Are you spending that money?

Ron: We used it to, for example, like we had a vacation place at Tahoe. We have the houses here in the Carmichael area. And I used it to...usually when I took it out, would pay...used it for paying off the property.

Pat: Got it. And are the properties all paid off?

Ron: They are.

Pat: Okay. So here's my overall view of the world for you. Look, the reason you've got that big of a drop on the portfolio is because my guess is that target income fund was...

Scott: On the longer term.

Pat: ...was the longer term, which had more market volatility. And most certainly, the equities got hit. You're not going to spend this money in your lifetime. It's not going to get spent. So you should change the way you think about investing. Do you have children?

Ron: Adult children, yes, which we are thinking in terms of how they're going to inherit. That's primarily the mission, to ensure that they have it distributed. We have three children. Adults.

Pat: So you should manage this IRA primarily for them, their timeline, not yours.

Ron: Well, that's kind of why I had them in the funds that I had.

Pat: You don't have enough equities in these funds.

Ron: [crosstalk 00:06:49.834] of that, and that we could...the 600,000, 700,000 approximately that's in the cash reserves is what I can be spending, and that should last just at least another 10 to 12 years or so.

Pat: Understand, but you've got more than enough in cash reserves. You don't have enough equities in this fund. You should be asking me about inflation right now and how this portfolio will stand up.

Ron: But even though I'm 76?

Pat: Yes, of course. Because you're not going to spend it. It's not for you. It's for your children. You couldn't spend this money if you wanted to. You don't have it in you. You and your wife don't have it in you to spend this money, and that's a good thing, right? You should be managing it for the highest rate of return for the children themselves inheriting the money. That's the reality.

Ron: So what would you recommend I change?

Pat: Fifty-percent equities. Fifty-percent equities.

Scott: It's a great time to be buying.

Pat: Fifty-percent equities. And then I would actually pump... I would look at the bond portion of the portfolio, and there's something better than cash. I mean, you're better off in treasuries than you are in cash. And you most certainly shouldn't have this $250,000 in this target income if we don't know what the average maturity is. So you can buy...

Ron: Should I take that now?

Pat: Oh, yeah.

Ron: Is now an appropriate time to take it out?

Pat: Well, it depends what you're going to do with it. If you're going to go to cash with it, don't take it out. But if you're going to go to equities, take it out. What you probably really need, Ron, is to pay an advisor for advice, which is going to be more expensive than using a discount brokerage and swinging in the wind. But like right now, you look at this situation and you're like, "There's some..." You know, are you gifting to the kids now? Does it make sense? There's value in your home. You've got four rental properties, you said. So you start adding this stuff up and you're like, "Well, my guess is that Ron and his spouse are worth somewhere north of, I don't know, four to five million dollars, probably."

Ron: About 3.8 as what I calculate.

Pat: There we go. I was guessing. I'm just guessing here. It's not my first day. You're not going to spend it all and that we should be managing this money. And I got to tell you, I, personally, have a client that we have two different accounts for him. One, his kids are going to inherit, and we invest that aggressively because he doesn't worry about it. And the other account, he looks at it.

Scott: Look, if you go back to history since even before the Great Depression, there's never been a 15-year period of time where stocks have not outperformed bonds. Over a long period of time, these market cycles come and go but over a long period of time, you're at a much higher probability of having a better return by being equities. And based upon what you just told us, most of these dollars are not going to be spent in your lifetime.

Ron: What I'm hearing you say is that, of the funds that I identified to you, the one that you would throw out, if you will, would be that target income fund.

Scott: I just don't know anything about it.

Ron: And then disperse... I'm sorry.

Scott: I don't know anything about it.

Pat: Keep going. Keep going. Yes.

Ron: Okay.

Pat: I would throw that out.

Ron: Okay.

Pat: But I wouldn't throw it out and buy cash with it.

Ron: I am divided between the others I have.

Scott: Well, yeah, it's not how we put those portfolios. I mean...

Pat: Yeah. If you threw that out, it's what would you do with the money? If you're not going to put it in equities, then keep it where it's at.

Ron: Okay.

Pat: Right? But the reality is, you don't have enough equities. You're worried about your account from the beginning of this year to right now.

Scott: And you don't worry about your real estate because no one sends you a value... Well, you can look it up on Zillow, but it's really, kind of meaningless. But the odds are there's going to be a season when your real estate's going to fall 9.5%.

Pat: And would you sell it?

Ron: No. No, intention right now, certainly.

Pat: If it felt by...

Ron: Actually, the way we have it kind of set up is one of the kids will...each one gets one. And then I figured that the other one point...which is what I always try to maintain, at least the 1.5 million because they'll be getting about 500,000 each when we're no longer here.

Pat: That's all psychological in your head, how you're constructing it, in order for you to live with it, which is fine.

Scott: We're just talking about doing the same thing with your 1.5 million.

Pat: And I'm talking about doing the same thing with the 1.5, which is I don't really worry about the value up and down because I know it's for them over the long term. So just got to view the world a little bit differently. But the answer to the question, I would make some changes in the portfolio. Yeah.

Scott: Appreciate the call, Ron. Let's talk now with Ruth. Ruth, you're with Allworth's "Money Matters."

Ruth: Hi.

Scott: Hi, Ruth.

Pat: Hi, Ruth.

Ruth. Hi. You probably answered some of my questions as I listened to others because I was kind of in a panic mostly because all of our...other than our home and cars that are all paid for, everything else is pretty much in the market, and it's close to between different things, you know. My husband's IRA is a little bit over a million. And then I have a brokerage account that's right now at 350. That's today, right? And then there's another 30,000, 35,000 in little IRA accounts that we started along the way, didn't keep up with. I have a 403(b) that's at three and a half. And then my husband, he's already had to take withdrawals from his IRA when...he's over 72. He's just been piling it in the bank.

Pat: Oh, so you're not spending it?

Ruth: Anyway.

Pat: And do you know, when you say it's in the market, do you know what that... Like is it 50% stocks or 50% bonds?

Scott: How much are in stocks?

Pat: How much are in stocks? Now, bonds have done poorly this year, but not nearly as poorly as stocks.

Ruth: So that 350K is all stocks, and it's all pretty much in more growth, more aggressive. And we are retired. I'm now over 65, but I've been retired for 10 years. Years ago, I called you and so I bought airtime. I was teaching.

Pat: Oh, good.

Scott: And how about the million-dollar retirement account? How is that allocated?

Ruth: So I think they pulled that maybe about 20% of it into something else because he doesn't get quite the ups and downs that I do, but they haven't. It's not a 50/50 by any means.

Scott: Do you think it's more conservative than that?

Ruth: Huh?

Scott: Do you think it's more conservative than 50/50?

Ruth: No, no. I think it's less conservative than that. I would say it's at least 80, 70 to 80 in stock. And the argument is we don't need all the money tomorrow, right?

Pat: Yeah. And overall, I could tell you that your portfolio may be more aggressive than it might need to be, but if you're not spending the money and you don't need to take the income, even taking the required minimum distributions, your husband's not spending the money. You said he just puts it in the bank. An aggressive portfolio may be 100% appropriate if you're managing it for your heirs, especially if they're your children because that's what is going to do the best over a long period of time, is...

Ruth: Yeah. I kind of look at that. I mean, this was inheritance from 20-plus years ago that was, by no means, what it is now. And that's despite the fact that, you know, I treated myself to a luxury car out there, and things like that.

Scott: So you've seen it grow over 20 years, right? You've watched it grow?

Ruth: Oh, yeah. I mean, I... Oh yeah.

Scott: So this is the...

Ruth: So that's why I'm willing to...even with this, just to kind of, like, ride it out.

Pat: That's right.

Scott: I think you should. That's right.

Ruth: But then I'll hear something like... Okay. Because I'll hear something like... Rob, somebody was talking to that Robert [inaudible 00:15:47.189] or whatever, and then I'm like, "Oh my God, maybe it's all going to crash and maybe...

Pat: What if he wants you to buy?

Ruth: ...I should [crosstalk 00:15:52.974]"

Scott: His books.

Pat: What did he want you to buy?

Ruth: Oh, he didn't want...he was talking about... He didn't say go buy anything.

Pat: He said go ahead...

Ruth: He was talking on Mike Rowe's podcast.

Pat: I know, but he... Look, we all have our opinions. I have an opinion. He has an opinion. Scott has an opinion.

Scott: Our opinion's much more mainstream. I'll tell you that.

Pat: That is right. And he was hyping the heck out of real estate before it all blew up and we weren't hyping it. All investments are based on timelines. All investments. Well, investments, scams like cryptocurrency, Ponzi schemes, timelines don't matter with those, right? All investments are based on timelines. And your timeline is long. So the more volatility that you're willing to put up with, the higher the risk premium that you will get on the investment. Keep it, leave it alone. Leave it alone. Leave it alone.

Scott: Yeah. You've already lived through the cycles. Ruth, I know how they work.

Pat: And I did call cryptocurrency a Ponzi scheme.

Scott: I saw that. You called it a scam.

Pat: It is a 100% scam.

Scott: I almost told you it may or may not be a scam, but I don't know.

Pat: What is it?

Scott: I don't know. I kind of know.

Pat: You understand how it works.

Scott: I understand how it works. I don't understand the appeal. Do not understand the appeal.

Pat: I had a conversation with a guy the other day. He was telling me, he goes, "Well the good thing about Bitcoin is they can only produce so many." And I said, "How do you know?"

Scott: That's what he's been told.

Pat: He said, "Because it's on the blockchain." I said, "So you have 100% visibility of all blockchain transactions, and somehow you know that there is no way that people could sneak more stuff onto this blockchain."

Scott: And it's highly regulated. So in the event somebody does, you're going to can be confident that the crypto police will regulate it.

Pat: Yeah. And some crypto exchanges want it to be regulated.

Scott: And some don't.

Pat: And some don't. So, Scott, before we go back to the calls, I wanted to take a minute and talk about the retirement planning. We just put this up on our website, in our Retirement Resources tab, the retirement planning checklist. So this is just the basic list of things. Look, whether you're using a financial advisor, whether you use us, whether you use someone else, these are things that you should... The basics, just...

Scott: Well, maybe a little more than basics.

Pat: Okay. I guess. Okay, well.

Scott: I wouldn't call them...they're necessities.

Pat: Okay. All right. I'm going to...

Scott: I stand corrected.

Pat: So, the first, regardless of your age, try to get some retirement goals, right? What do you... What age, what amount of money, what kind of income? Look at your current financial situation. What's your debt? What's your assets like? What's your asset allocation mix? Determine your retirement income needs, how much you're going to need in retirement. Estate planning. In fact, I got an email from a friend just this week. I had lunch with him six months ago and he said, "I've never done a trust." And I'm like, "Call these three attorneys." And he sent me an email and said, "Hey, thanks for the reminder. We did it. We're happy we finally went through it." You need to know whether you're saving enough. Just go to our website,, and then click on the tab on the Retirement Resources and you can download it for free.

Scott: And with that, let's go to Southern California and talk with Roger. Roger, you're with Allworth's "Money Matters."

Roger: Hi. How are you doing?

Pat: Great.

Scott: What can we do for you today?

Roger: I have a friend who had 1.8 million in his retirement account. He retired this year. He's now down to 1.4 million and he is just worried sick. And so his portfolio is exactly 60/40 stocks, bonds. And both of them have gone down. He's got a mortgage on his house that is 5500 a month and a car loan that is 500 a month. So it's about 6,000 every month that is going to be coming out. And I'm suggesting that he take some of the 40% of his bonds.

Scott: Can we back up? What relationship is this friend to you that you're his advisor?

Roger: I've known him for a dozen years. I've known him for a dozen years. I have never worked for a financial company, but I'm a certified financial planner. I don't sell any products, I just get some...

Pat: Got it. Got it. Got it.

Scott: Okay. Thank you. That gives a little more...

Pat: That gives us some context. Thank you. And is the money in IRAs or outside of IRAs?

Roger: It is. Yes, it's all [crosstalk 00:21:02.964] IRAs.

Pat: It's all IRAs?

Roger: Yes.

Pat: Does he have any money outside of IRAs?

Roger: He doesn't really have any money outside of IRAs.

Pat: And what's the mortgage balance?

Roger: 1.1 million.

Pat: Is what he owes on the mortgage?

Roger: Yeah.

Pat: How old is he?

Roger: 65.

Pat: And what was your idea?

Roger: My idea was to take the 40% he has in bonds, take 20% of it, and put it into cash so that he'll be able to make his payments on his mortgage without affecting his... The stocks are going to be going up and down, that way he'll be able...

Scott: With the portfolio being down 22% overall, which is exact as the date of this call anyway, is almost exactly what the S&P was down. So was he more heavily weighted in some of these tech companies or...? Because the bond portion, or was he really long on the bonds?

Roger: He has a broker who is handling this for him. I don't know if I can say the name, but it's...

Scott: That's irrelevant. No, that's irrelevant.

Roger: Okay. And they're putting in... They have 35 different mutual funds in the FTs. And when I talked to them, they said that pretty much they've been doing this for 20 years, and this is the best course to put him into 25 different mutual funds. And I'm thinking, he is better off just going into about five or six different index funds, not paying the fee because he is paying $1,500 a month in fees to these guys. And he has actually no...

Pat: So he was at 1.1% at 1.8 million. So a little bit high on this size of an account.

Scott: Well, why would you go to cash at this point as opposed to with rates higher and...

Roger: Because he needs to come up with $6,000 a month.

Pat: Understand.

Roger: [00:23:14.654] withdraw that amount every month.

Pat: So putting 20% of the $1.4 million in cash, what you're doing is you're putting a psychological Band-Aid on it for a short period of time.

Roger: Putting it in a bucket. Yeah, putting a bucket so he doesn't have to worry about...

Scott: How long has he worked with this advisor?

Roger: Two years?

Scott: I mean, here's the challenge...and, like, I'll just be really transparent. One of the challenges you're going to put him in is now he's going to go back to his advisor and say, "I want you to do it this way instead of that way." And the advisor's going to look at him like, "We can't do it both. I mean, you hire me for my opinion." And so you would be advising that he moves away from this advisor and just follow your advice on the allocations?

Roger: That's right. And I looked at what his advisor has done at the portfolio he has, and I've compared it to just a market index, the Fidelity ZERO Cost Index. It puts it into 15% international, and 20% total market, and 15% growth stocks, and 20% bond fund, short-term treasury bond fund. Then he would've only lost about 100,000. I mean, it would [crosstalk 00:24:33.722].

Pat: Yeah. Well, obviously, it's hard to understand how he was down so much when he was at 60/40 portfolio unless he was heavily weighted. The tech side of the equities, aggressive...

Scott: But you can still assume he'd be down 15, 16.

Pat: Yeah, but then unless he went really long on the bond. So my recommendation to you is either get him to get a new advisor...

Scott: Or you're it.

Pat: ...or you're it.

Roger: Yeah. And what do you think about putting 10% in cash so that he doesn't have to worry about this?

Pat: Oh, that'd be fine.

Scott: That's not what we do.

Pat: If that's what you want to do if you're it. But going back to the existing advisor and saying, "I'm going to take your opinion," but not really, you're going to get in between these two people constantly. So either have him get a new advisor, you be the new advisor. That's where I'd go with this.

Scott: Yeah. So I appreciate the call, Roger. Taking a quick break. We'll be right back. This is Scott Hanson and Pat McClain.

Scott: Welcome back to Allworth's "Money Matters." Scott Hanson and Pat McClean. The financial planning process, Pat. I think sometimes when people think about a financial advisor, they think of someone who's selling investments or whatever, right?

Pat: Like, what kind of investments do you do, right? Or what kind do you want? We have ESG, environmental, social, governance.

Scott: Oh, you wanted a high rate of return.

Pat: And low risk.

Scott: Yeah. You should have told me that earlier. Anyway, the tax component of financial planning is huge, right? Because our tax rate can be anywhere from zero to almost 40% federal plus state, if your state taxes you.

Pat: And what you do with a particular asset, right? If you gifted to charity or... I remember early in my career, they were in their mid-80s, they were parents of existing clients. So mine came in and they had, oh, I don't know, $600,000, $700,000, and half of it was in Ralston Purina stock. Half of it. And they said, "Is this too much in Ralston Purina stock?" And I said, "Would you buy $350,000 in Ralston Purina today?" And they said, "No, we would not." And I said, "But we're not going to sell it." And they said, "Why?" And I said, "Well, your cost basis, the tax you would incur is huge. And by the way, the reality is if one of you passes away, all that gain goes away and we will sell it the day after." And I thought to myself that's a tough conversation to tell someone is that [crosstalk 00:27:23.456]...

Scott: We're gonna wait till you're dead.

Pat: ...till your dead. And then we'll get the perfect portfolio, right?

Scott: That is good.

Pat: You know? So you enter it lightly but we're going to build a portfolio that's around what you already have. And now it's even easier. This was 20 years ago, but with direct indexing and that sort of thing. But that is where, you know, if you were only viewing it through the prism of the investments or the financial planning, you would've sold the Ralston Purina stock, right?

Scott: That's correct.

Pat: And if they were in the 50s or 60s or 70s, I would've put together a multi-year plan in order to reduce their exposure there, right? But that's, you know, a perfect example. Well, I think it's perfect because it was an example I gave of how tax planning, investment planning, and actually financial planning all fit together.

Scott: Yes. Which is... So, today, we're going to have Michael Muriski join us. Michael Muriski heads up our tax division at Allworth where we do not only tax returns for the clients that would like that, but we's the tax planning that we do with them.

Pat: So a financial advisor will often involve someone on Allworth tax in the financial planning process for more, let's just say, complicated tax situation in a financial plan.

Scott: Yeah. So Michael, welcome to Allworth's "Money Matters."

Michael: Thank you. Good to be here.

Scott: Yeah. First, how significant have the tax changes been in the last three, four years?

Michael: I mean, they're always changing. So I mean, I would say significant. You know, whether it's just federal or many states don't follow federal and they do their own thing, right? So it makes it even more challenging sometimes depending on which state you're in. You may have significant differences from the federal rules.

Scott: And it seems like, you know, Pat and I were just talking before we brought you on why the tax planning is so integral to overall financial planning, but it seems like it's overlooked most of the time. Why is that? Why do you think that is? Being a tax professional.

Michael: Well, yeah, I mean, I would say, I think there's a number of people out there that prepare their own tax returns. You know, they may even be managing their own investments, right? And so you kind of only know what you know. If you don't live and breathe the tax rules, you a CPA, I've got to do 40 hours of continuing education every year. So, you know, we're always staying up with the rule changes. And I think, again, if you don't really do this kind of full-time, there's just so many things that you could miss. And if you haven't been trained on it, there's so many differences with the character of income, whether it's considered ordinary and you've got capital gains, but then which tax rate comes first? Is it ordinary? Is it capital gains? I mean, there's ordering rules. And so, you know, the list goes on and on of what you really need to know.

Scott: It's funny, I remember back in undergrad, I had a tax class. It was for financial planning, I think though, but it was a tax, maybe it was was an income tax class. And our final was an income tax return, a fairly complex income tax return. And the professor said, "There will be no two tax returns that look the same." And he said, "There will be a handful of you that you're going to get As and some other..." I'm like, and that's on the... I just remember thinking, "This is our tax code. It's so complicated that we spend a whole semester learning it, and you can't get two students to come up with the same tax return."

Michael: I think it's the same way today. I mean, even with the advances in the tax software, you could have 5 or 10, whether they're CPAs, enrolled agents, any tax preparers, you could have 10 of them work on a simple but somewhat complex tax return, and you'd come out with 10 different results.

Pat: That's amazing.

Michael: It's crazy.

Pat: And then the ultimate arbitrary of this is if you go into audit, the IRS gets to decide whether you did it right or not.

Scott: That individual auditor actually, I suppose.

Pat: That's right. That individual auditor, not the IRS, just that person. So when the auditor calls you, well, they'll send you a letter first, first of all, bring representation when you go into an audit, regardless of how small. And be very, very nice to the auditor.

Michael: Yeah, we always recommend that, you know. It's one thing to maybe self-prepare your own tax return or use Turbo Tax, which kind of helps guide you through it, but it's another thing to understand the rules and try to challenge or argue with an IRS agent. Yeah, you should get help.

Scott: And Michael, you often state that it's important for investors to always have in the back of mind taxes throughout the year. Why is that?

Michael: Well, you know, when you prepare your tax return, that's kind of something that happened a year ago. You're working on your tax return in March. Well, it's a reaction to what happened the year before. And so you're now in the current year, and if you don't think about things that are happening, whether it's market-related, whether there's a tax law change that happened you're not aware of, there's a life event, you're retiring, looking at taking social security, what does that now mean for your income. There's just so many things that go into taxes and your tax return that if you're really not thinking about it all the time, you can miss something and you can make a mistake. And that's kind of why we kind of push tax plan year-round, right? Prepare a plan, revisit it later in the year. You just don't want a big negative surprise, you know, the following year.

Pat: So when you do someone's tax return, basically, you're looking to see, did they follow the tax plan that they instituted the year before?

Scott: Tax preparation.

Pat: If they have any plan.

Michael: Yep.

Pat: With our clients, there's a difference between tax preparation and tax planning.

Michael: Yes.

Scott: So, with the markets being very volatile this year and things quite...most investments are underwater for the year. It could be a good opportunity for people to take advantage of some tax-lost harvesting. Can you explain how that works and how people need to be careful when they do some tax-lost harvesting?

Michael: Yeah, absolutely. So it's kind of done in the context of rebalancing your portfolio, but basically, you look at investments that might be in a loss position, and if you want to sell those investments and kind of capture that loss, if you ended up with only losses from your sales, you're limited to $3,000 a year on an income tax return. But those losses could first be offset by other capital gains. And so when you're kind of looking at rebalancing the portfolio, they call it tax-lost harvesting, you might sell some investments that are down, but then also look for some that, you know, still have gains. Maybe you've held onto an investment for a long time, you've got a really low basis, might be a perfect opportunity to capture some of those gains and offset it with the losses, and then kind of rebalance your portfolio. And the one kind of gotcha that you have to look out for is what's called the wash-sale rule. You're not supposed to buy the same investment or something very similar within 30 days before or after you sell that investment. So there are ways to kind of get around that and buy something similar, but you have to be very careful, and it's another... Go ahead.

Pat: But Michael, it's somewhat similar?

Michael: Yes.

Pat: Right. Not very similar. It can't be the same. It can be, you know...and what that number is...

Scott: But you could sell Bitcoin right now for example and buy another digital coin.

Pat: Yeah. That's a terrible example, Scott.

Scott: Well, I'm just thinking of something that's down a great deal right now.

Pat: Yes. But the reason is, if you sold the Bitcoin, you should probably just take the loss, not buy something to offset the position, but you can... What is the correlation? So you can buy something that's like 90% correlated, or does anyone even know that? Like, if I sold the S&P 500, could I buy the S&P 450 and that would be acceptable?

Michael: I think it depends on which auditor [crosstalk 00:36:06.196]

Scott: All right. So you don't want to sell State Trades S&P 500 and turn around and buy Schwabs S&P 500?

Michael: That's correct.

Scott: Probably not gonna work.

Pat: But I could sell the S&P 500 and by the total market, which is a large component of the S&P 500 is in the total market. And that would be would be allowed by the IRS, right? So it's very similar, but not the same.

Scott: Well, hey, Michael, we appreciate you coming on, and I think the tax-lost harvesting is something that people need to be looking at, so appreciate it. I appreciate all you do for Allworth and our clients.

Michael: Thank you.

Scott: All right.

Together: Thanks, Michael.

Scott: Yeah, it's so nice having a team of CPAs to work with our advisors on an ongoing basis. I don't know how firms can do it with... I mean, really how do they do the right kind of planning with their clients?

Pat: Yeah, especially the more complex it gets.

Scott: Anyway, let's take the phones here. Let's go to Colorado and talk with Robert. Robert, you're with Allworth's "Money Matters."

Robert: Hi, Scott and Pat, appreciate you both taking my question. Wanted to know what you think about a fixed income, universal life insurance, if that's a good tool to have in a retirement portfolio. And if so, what kind of pitfall should we look for?

Scott: Are you talking about buying an existing policy that's on someone else's life for an investment or are you talking about taking out a life insurance policy on yourself for the purpose of saving for retirement?

Robert: It's the second one, life insurance policy on myself or working with a financial company on the particulars.

Scott: And how old are you?

Robert: I'm 57.

Scott: And do you have any children or are you supporting anyone financially?

Robert: Nope. My wife and I are retired. I'm 57, she's 58. Our sons are both grown adults. We have a monthly income of 9,200. That's a pension, so that's on me. And we do not have any survivors' benefits.

Scott: Okay. I keep thinking, where is...I'm like...

Pat: Where are we going with this?

Scott: Oh yeah.

Pat: So tell us about the other assets of the family. So what other assets? Do you own a home?

Robert: Yes, we have no debt and the mortgage is paid off.

Pat: And what is the value of the home?

Robert: 900,000.

Pat: Do you have any money in 401Ks or IRAs?

Robert: Yeah, about 1.4 million in investments.

Pat: And any other life insurance out there?

Robert: I do have a one million in term life insurance that goes away when I turn 70.

Pat: And are you going back to work?

Robert: Not planning on it.

Pat: And why did you take a single life-only pension option?

Robert: Well, at the time when I retired from the military...

Scott: Okay, that's fine.

Robert: We thought we could invest the money instead of having the pension reduced, we thought we could invest the money and make better returns.

Scott: And did you? Well, you're still alive.

Robert: Yeah.

Scott: So that would've changed if you had... I mean, that's what... So think of that as pure life insurance, right? When someone goes to retire with a pension, they have the option of taking it just on their life or a reduced amount, which is taking some monthly income to replace that pension or to continue that pension when someone passes away.

Pat: And you said that you have a million dollars of term life insurance that's guaranteed till age 70?

Robert: Correct. When I turn 70, I think I can renew it, but I think [crosstalk 00:39:53.260] expensive.

Scott: Oh, yeah, that will cost you a fortune. So what you're really looking at here is using this life insurance to protect your pension.

Pat: Will your spouse receive a pension?

Robert: No, she doesn't have a pension, and so it would only be social security and then obviously, the investments. And so just trying to look at a way that, if I were to die the next couple of years, the one million would go pretty fast, and then social security is not enough. And then, so the question is our retirement money enough? And so just the different scenarios that were run by the financial person, it really isn't, especially if she lives into her 80s.

Scott: Yep. I totally agree. And it is funny because I think if you've listened to this program for the last five years, you could count on one hand the number of times we've recommended permanent life insurance. But this is a situation, whether it's a guaranteed universal life or a guaranteed whole life. And it might be that you do a combination of, maybe you plan on keeping your term until age 70, because the older you get, the less life insurance you're going to need.

Pat: Because what you're trying to do is to just have enough to get to the very end, you know.

Scott: You're going to die eventually and your wife's going to die eventually.

Pat: Yeah. So the idea is to buy as little as you possibly need. So my guess is that you're going to need some... Would I buy universal, what'd you call it? UIL?

Robert: It's a fixed index universal life insurance.

Pat: I wouldn't be buying an index universal policy. I'd be probably buying a variable universal life policy without any sort of guarantees in it. And the reason behind that is because that index, it's indexed to a underlying index and then has some downside protection in it. But you don't really care about the downside protection, you're buying it for the face value. And overall, you know, because you can get to 80 or 90 and you can start reducing the face value on it. You need life insurance. I don't know if I would... I would do a lot of exploration about what type of life insurance, and quite frankly, I would buy... I know what I would buy. I'd buy a variable universal life, and I'd actually probably in my portfolio, that you have that $1.4 million in investments, I would take some of that and lumpsum it over or take some distributions from the IRO over periods of years and put it inside that life insurance contract in order to fund it.

Robert: Yeah, that's basically what they're recommending is five years of premium outlays for 1.2 million. So we'd pay it... This year, we'd pay it with other monies but then next year when my wife turns 59 and a half, we would start taking from her traditional...

Scott: I think we like everything about it except for the... Pat's opinion is, rather than having this index, equity index, forget that garbage, that's just the insurance company doing some of their own things in the background where you're going to pay a cost by using some hedging techniques. Pat says why don't you just buy a variable universal life where you actually own securities as opposed to just giving the insurance company the money?

Pat: Taking on some of the risk yourself.

Scott: But you're already...

Pat: Yeah. And quite frankly, that sounds like too much life insurance to me because you've already got a million dollars a term. So I'd keep that million dollars in term, in place, and I'd probably buy... Are you going to receive social security yourself or just your spouse?

Robert: We both will get social security.

Scott: But I'd also look at what the cost of that term is versus what it's going to be on the universal life.

Pat: After age 70, it's going to... How much are you paying for the term insurance? You know what, Scott and I can argue about this all day long. [crosstalk 00:44:13.774] If you were sitting down in an office with myself or one of our advisors, my guess is you'd end up...the recommendation would be a low-cost variable universal life where probably, my guess is anywhere between one and $1.5 million of face value on it. I wouldn't be chunking it over as fast as they recommended it, 59 and a half just because of how it's going to drive you into a higher marginal tax rate because when the money comes out of the IRA, you have to pay taxes on it and then it goes into the life insurance policy. You can't put that life insurance policy in the IRA.

Robert: Right. No, I understand.

Pat: Okay. So you've got...

Robert: Yeah, we pay about 2,500 a year now for the term.

Pat: See, that's dirt cheap. That's dirt cheap.

Scott: Particularly, when you're 68, 69, right?

Pat: Yeah, yeah. Don't cancel that term... Did they recommend canceling the term policy?

Robert: No. No. No. They did not recommend that.

Scott: It sounds like you're doing all the right things. I think we're kind of... My guess, if you talk to 10 different advisors, you're going to get 10 slightly different thoughts.

Pat: But he's talking to us. Look at the variable universal life in a face value of 1.5 million.

Scott: All right. But appreciate the call, but pretend like Robert's your brother. How old are you? You're just gonna say 20...

Pat: I'm 59. He's my younger brother.

Scott: He's your younger brother. Robert, he comes to you and says, "This is what I'm doing. I've worked with this advisor. This is what they're helping me out with." You would probably say, "Here's kind of how I would do it." But you're probably just fine going with the program you're going, would you not?

Pat: I wouldn't buy the universal index life insurance.

Scott: Okay.

Pat: I would absolutely go to the variable life insurance policy. But everything else, I'd say, "Yeah, you're probably right." It just sounds like way too much life insurance, they're going to junk out this whole $1.4 million to buy it? Come on, Scott. I think that they just looked at that thing and they go, "He's got $1.4 million of investments, we should get it all over there." I'm saying don't use all of it.

Scott: All right. Fair, fair, fair.

Pat: Don't use all of it. Yeah. All right. I'm glad to see...

Scott: Because he might not need it this whole life. His wife might predecease him and he no longer has the need for it.

Pat: Yeah. And he's got term until age 70, but we have beat that life insurance horse till it is dead, dead, dead.

Scott: And we're in Georgia talking to Mylene. Mylene, you're with Allworth.

Mylene: Hi, Pat and Scott. You know, I'm thrilled to be able to talk with you today and really happy to hear a lot of women calling with questions on the show today. My question relates to health savings account. You know, this is something that I kind of participated in the more recent years, and it has accumulated a little bit, I guess. And I presently have actually kind of recently moved to organizations. You know how a lot of people changed jobs during the Covid pandemic? And so with my last employer, you know, I had an HSA, and then now with my new employer, I also have one. And so my question is, because you know, and you talk about rollovers of 401Ks and things like that. The question for me is, I'm relatively younger, still have many working years. The question is, you know, just trying to manage all of your accounts and things like that. Is there a benefit to rolling over the HSA to your new employer? And what are the considerations that we should take into account?

Pat: Are you investing it?

Mylene: I thought I could ask you.

Pat: Are you investing it?

Mylene: Yeah, it's mostly index funds, and there's been an accumulation, it hasn't been that long, but it's about 40K.

Pat: And you're paying for your deductibles or medical expenses out of pocket and you're allowing the HSA to roll forward, I assume?

Mylene: Yes.

Scott: Okay, perfect. That's what I've been doing. That's what I've done for years.

Pat: And I finally convinced my wife that we should do this. It took me... I've only been married for 36 years.

Scott: I'm amazed how much I've got in my account at this point because I've just saved it all over the years. And so, I think your thought process is 100% accurate, just take the plan from your previous employer, roll it into the new HSA because... Now, if you said your current employer doesn't offer investment options, then I'd say go use some third party because almost all the large investment companies offer an HSA and it's not like an IRA where you've got more... Well, there's still some limitations on it, but it's simple.

Pat: Yeah, it is simple. It's really, it's easy. And actually, there's been a consolidation in some of those investment firms that do the HSA investments on the back end too. So you could just leave it where you're at if you want, or you could roll it into the new one. The reason you'd roll it into the new one is it's just easier to track, especially if something were to happen to you personally.

Mylene: Okay. So then it probably... And can I just clarify too, is it actually rolling it over or just transferring it?

Scott: Just transferring. You're just transferring it. It's just a transfer.

Mylene: Okay.

Scott: And the irony is, my own employer offers the HSA, which I participate in, but there's no investment options in our own...

Pat: No, there is.

Scott: In the HSA?

Pat: Yeah, we came out with a new plan like six months ago. We didn't use to.

Scott: I haven't looked at it.

Pat: We didn't use to.

Scott: [crosstalk 00:50:05.977].

Pat: It's actually the same one that you use. It's the same one you use. You recommended it to me and then we came out with a...

Scott: We went and talked to somebody.

Pat: No, no, no. I didn't talk to anyone at HR. They came out with a new plan and I looked at the new plan, I'm like, "Oh, this is exactly the one Scott recommended." So you probably didn't enroll through the new plan, but it's the same identical one, Scott.

Scott: So historically, what I've done is as the balance would build up after a few years, I would transfer it to get it invested. And I'm behind on my transfer and you wouldn't...this call reminded me that cobbler's kids go barefoot at times.

Pat: Anyway, we're trying to be here for the callers and not the employee benefits at Allworth. So did you have any more questions for us, Mylene?

Mylene: No, that's really it. And I thank you so much for your advice.

Scott: Thank you, Mylene. And Pat, my point there was there are other listeners that might be in the same position where their employer may be currently offers investment options, but they're unaware.

Pat: Yes, exactly.

Scott: But if they don't offer investment options, there are third-party companies you can transfer that balance to.

Pat: And you could transfer it once or twice a year and you can invest it any way you wish. Yeah. But Scott, you did... I've been...finally, my wife's like, "Hey." And then when it came out as part of the employer plan that you can invest, she goes, "Oh, this makes sense."

Scott: So she pays attention to the benefits?

Pat: Yes.

Scott: That's all the time we have. This has been Scott Hanson and Pat McClain, Allworth's "Money Matters." See you later.

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