Bitcoin Business Pivots, Millionaire Anxiety, New 529 Rules, and Insurance Pitfalls
On this week’s Money Matters, Scott and Pat explore one of the summer’s hottest—and most questionable—investment trends: small companies pivoting to crypto. Is this strategy bold innovation or a looming disaster? Later, they take compelling listener calls, including one from a government employee with millions saved who’s still worried about the sequence of returns in retirement. Plus, they unpack indexed universal life insurance (IULs) and other so-called “tax-free” strategies—what’s hype, what’s real, and what to avoid.
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.
Automated Voice: 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: With myself, my co-host here, both longtime financial advisors. Is that the right term for us anymore?
Pat: I don't know. Wealth managers, I guess, is the latest term.
Scott: Is that right?
Pat: They do call us wealth managers.
Scott: Yeah, yeah, we're all wealth managers now.
Pat: Well, no, in our industry, I still call myself a financial advisor. I advise people on their finances, and some of them don't have a lot of money. So, I don't know where the wealth comes...
Scott: The wealth is all very relative, Pat.
Pat: It is. It is.
Scott: Ye, it's all very relative.
Pat: But relative wealth manager.
Scott: You have some wealthy clients. It's very relative. Anyway, we're glad to be part of the program and you can care less what we call ourselves.
Pat: Call ourselves. All right, so Scott, before we go in.
Scott: I'm just glad that you are here.
Pat: Before we go in.
Scott: We're going in. What do you mean before we go in? Take calls. Take calls.
Pat: I wanted to talk about a couple things. One is this little crypto thing that's going on with these companies buying the shares and this isn't an indictment of crypto, although I still.
Scott: I saw someone the other day, their prediction in 2030 was $1.3 million.
Pat: It was for Bitcoin.
Scott: Bitcoin. It's a...
Pat: It might be, maybe.
Pat: Maybe it's 10,000. Maybe it's...
Scott: Who knows?
Pat: No idea, right?
Scott: It's the strangest thing.
Pat: It's a speculative answer.
Scott: It's funny because early on, the argument was it was all about the blockchain. And I remember people would argue, well, the blockchain, the blockchain. And I'm like... Well, I shouldn't say I understand the blockchain. I have a vague understanding of the... I understand the benefits of the blockchain and the business applications for them, which are many. Yes. Having a coin, a digital coin is one of many. And early on, it was the argument was the blockchain, the blockchain, the blockchain. You don't hear that so much anymore because blockchain can be used in many different things.
Pat: Yeah, yeah. But the amount of crypto coins that still get issued all the time on a regular basis, on a weekly basis, and the hijinks that go on behind the scenes with many of these are quite incredible. Some of them are just purely pump and dump.
Scott: Oh, so there's some outright scams where it happen.
Pat: Yes, yes. Where you're seeing actually people go to prison for it.
Scott: That's right. Total scams.
Pat: In Bitcoin, you could actually see where out of all the coins out there that can either...
Scott: You're not going to get scammed.
Pat: It's got a history. It might be speculative. It's volatile. That out of them, it might be narrowed down to that there might be only a half dozen that just happen to be around that people actually will trust. But that wasn't my point. The hottest business strategy, this comes from a Wall Street Journal article. The hottest business strategy this summer is buying crypto. And they're not talking about individual, small companies are raising...
Scott: I saw this article and I'm like, it can't be serious.
Pat: Small companies are buying billions of dollars of Bitcoin and other more obscure cryptocurrencies. What could possibly go wrong? And so, what they're doing is, these companies are raising money and then buying the coins directly. And that's their business model.
Scott: I mean, there's some companies out there.
Pat: Yes. Or they're doing large percentages of their business. They're reshaping. You might have, what was it, a dress manufacturer, or they built curtains or something that all of a sudden wanted to actually just buy these. Part of it is if a pension plan or an endowment or foundation's investment policy statement only lets you trade in publicly secured debt and/or...
Scott: Equity.
Pat: ...equities, the way you get to the cryptocurrencies is you buy companies that just do cryptocurrencies.
Scott: Or companies that you have some other, or had some other legitimate business. An example here, Volcon, it's an electric bike maker in Austin, Texas, electric bike maker.
Pat: Not familiar with their product, but keep going.
Scott: Electric bike maker. My guess is electric bike sales are down from where they were a couple years ago. Haven't looked into the business, know nothing about it. It's my speculation. They raised $500 million in seven days to initiate its Bitcoin treasury strategy, according to their co-CEO. Shares of Volcon jumped from $9.22 to more than $44 on the day of its announcement as speculators rushed to snap up the stocks. As the time of this writing of this article, its shares had fallen every day since that time and closed a week ago at $13.40.
Pat: Why would you think the stock price was going to go up because they were buying Bitcoin? That's my question. How much did they raise?
Scott: $500 million.
Pat: So, if I raised $500 million and I turned around and bought $500 million worth of...
Scott: Shouldn't change anything.
Pat: ...treasuries....
Scott: Shouldn't change anything. Shouldn't change anything.
Pat: ...it shouldn't change anything, right? The stock is...
Scott: Same thing no matter what you buy.
Pat: That's right. Unless it was some competitor in your business and you're going to have some strategic advantage there where you can squeeze some cocks or amplify your sales or something. But when you're just buying a financial asset, nothing should change.
Scott: Yes. This is the hottest business strategy.
Pat: So, I'm glad that it fell back to earth.
Scott: Well, yeah, but it's the kind of classic pump and dump. So, there's speculators out there to see this happening. They're buying. Who knows what...?
Pat: Well, it's a different world. The reason is because you can amplify. The all pump and dumps were based in the fact that they get people on the phone. So, the amplifier wasn't very big. The amplifier on the internet is quite large with Reddit and other threads that you can actually subscribe to that are meme stocks. That's back in the news.
Scott: But here's an example.
Pat: Remember, there's a difference between speculation and investing.
Scott: Here's a toy and souvenir manufacturer in Florida, SRM Entertainment.
Pat: Not familiar with their work?
Scott: On June 16th, their market value was $25 million.
Pat: It's a publicly traded company?
Scott: Tiny little company.
Pat: It's traded. It's worth $25 million.
Scott: It's probably in the pink sheets or something. They still call it the pink sheets?
Pat: I don't know what they call it now. We're just old.
Scott: It's not one of the major exchanges over the counter. But they announced plans to spend $100 million on a cryptocurrency called TRON. The token purchase part of a reverse merger between them and a crypto entrepreneur company, also called TRON. SRM stock traded between 28 cents and a buck 45 all year. But it just shot up. Once they announced this, it shot up to $9. So, the 25 valuation just went up, what, sixfold, sevenfold.
Pat: Wow. Be careful.
Scott: Right? Here the market cap goes to $25 million.
Pat: Someone made a lot of money. The one that underwrote this, the people that underwrote this and manufactured it, they made a lot of money.
Scott: Some of this feels like the latter days of the .com boom.
Pat: Where they were just rushing things to market in any form or fashion.
Scott: It was a transfer of wealth from savers in Kansas City to these Silicon Valley spectators. And that feels like the same.
Pat: But now, you're moving your money to crypto bros.
Scott: Correct.
Pat: I think I called me bro the other day. He goes, "Hey, bro." I'm like, "Okay, I'm 62 years old."
Scott: My daughter's friend called me bra.
Pat: Really?
Scott: Yeah. She's 13. She said, "Okay, bra." And I stopped, I looked at her and said, "Did you just call me bra?" "Yeah." I said, "Well, I'm not bra to you. I could either be Mr. Hanson, Mr. Scott." Scott's even okay, but not bra.
Pat: That's funny. I thought I was a little high. And I'm going to talk about later on a little bit about the high yield muni markets because there's nothing more exciting than that. If that isn't a tease to wait. Anyway, but speak about your children's friend. I mentioned this a couple of weeks ago, how many weddings I've been going?
Scott: Yes, I think we talked about that anyway.
Pat: Gosh, I got to go to another one this weekend.
Scott: Okay, let's go. By the way, if you want to join us, questions at moneymatters.com is the best way to send your question. We'll set up a time when we're in the studio to take your call. Let's talk with William in California. William with Allworth's "Money Matters".
William: Good morning.
Scott: Hi, William.
William: Hi.
Scott: How can we be of help?
William: Well, I've been on Telegram for a long time because I followed this one group, but I've been getting quite a few invitations unsolicited to join these crypto contract groups to make money. And they're all run by analysts. And you have to put money into some Bitcoin wallet. And then I see these huge profits these people are posting. I'm just curious how real these are. Are they all scams?
Scott: What do you think? What do you think?
William: Well, I went online and I asked Google whether these were real or not, and they said no. But I keep seeing all these profits that people are making. And, you know, I would like to participate, but I was looking for some guidance.
Pat: So, William?
William: Yes.
Pat: You would actually be better off to any dollar that you would put into these wallets in order to trade crypto, is to save those physical dollars. And in the middle of winter when the house is cold, to put them in your fireplace and light them on fire, and they will generate, at least, a little bit of heat for the house.
William: Is that fair, ha?
Pat: Because that will be more beneficial to you than putting a single penny, a single penny. In fact...
Scott: In one of these companies.
Pat: ...I feel bad that you actually consumed...
Scott: But you can't state that emphatically, because...
Pat: Yeah, I certainly can. I certainly can, emphatically. Yes, I can state it any way I want whether it's 100% correct or not, Scott.
Scott: Fair, okay.
Pat: It's something completely different.
Scott: He could put money in Bitcoin and it could be worth a whole lot more.
Pat: But they're asking them in Telegram or Reddit to join a group and then to get sucked into this culture of we're going to get rich quick. "Oh, by the way, just put some money in this wallet and the wallet may or may not..." There is certainly a wallet, whether you actually have control of that, 100% control of that wallet, I have no idea. There are legitimate crypto exchanges.
Scott: That's right.
Pat: Legitimate crypto exchanges.
Scott: And then there's the wild, wild west, and then there's lots of fraudsters out there right now, too.
Pat: Yes. And so, the question-
William: So, I gather you're saying no.
Scott: That's correct.
Pat: Have you ever owned crypto?
William: No, I wanted to get into it now that crypto is over 110,000, I should...
Pat: You know what? Bitcoin's over 110,000.
William: Right, Bitcoin's over 110,000, correct.
Pat: Yeah, but that's not crypto. There are thousands of crypto coins out there, thousands and thousands. How old are you?
William: 71.
Pat: And what investable assets, ballpark?
William: Oh, shoot, over a million.
Pat: And you're living comfortably?
William: Yes, I am.
Scott: I wouldn't put more than 10 grand. Scott, here's what this... You know, I had this conversation with a friend of mine about a month ago and I said, "I don't get this crypto stuff." And he said to me, he said, "I look at it sometimes and I think, should I do it? Should I not? And then I realized, I've lived a great life without ever involving crypto in it. And so, why would I start now?" And that guy was you, Scott.
Scott: Yeah, I know.
Pat: You said it to me.
Scott: I don't own any crypto.
Pat: I don't own any crypto. I have no intention of owning crypto.
Scott: And we appreciate the call. But you know what's interesting, though, Pat, it's this fear of missing out right now that's going on. Because William's life, he's not going to...he wouldn't invest enough to actually change it. Well, he could have got scammed to people.
Pat: He could have.
Scott: That happens. But let's assume he's rational human being.
Pat: Well, let's just say it was 10 grand, but it was 10 years ago and happened to be Bitcoin and the dollar share.
Scott: He would have been super wealthy. He'd be mocking us today. Because he'd be worth 500 million or whatever the number would be, it'd be. He'd be worth a fortune.
Pat: But he didn't do that.
Scott: He didn't do that, correct. Nor did most Americans.
Pat: That's right.
Scott: And so, what's happening now, it's this fear of missing out.
Pat: It looks like easy money. When you hear you have friends that talk about how much money they've made in it. I saw a LinkedIn post the other day from a guy I've known in the financial services industry, and then he went into the crypto side. And he was bragging that he was telling people when crypto was a buck 50 or 250 a coin to buy it. And now, where it's at today, maybe it was 25, whatever the number was, it was when it was much cheaper than it is today. And so, he's bragging about that. So, you get all these signals that you've been missing out, but it's not too late because Bitcoin is going to go to a million or $2 million or trillion per coin. And so, that's why it feels like the late '90s of this transfer of wealth from average people who've worked hard and saved well, taking some of their life savings, and it's going to end up getting transferred to somebody else.
Pat: It happens a lot. It was the .com. It was the homes and the mortgage crisis.
Scott: Why is it that financial assets, it's the one type of in asset that people want to buy more of when the price goes up?
Pat: I don't know. And the price goes up relative to the underlying earnings. It's not the price going up. It's the price going up relative to the earnings. It's when the particular asset moves much higher than the earnings. And the weird thing about cryptocurrencies is they have no earnings. There's nothing. They have no earnings. The only thing that props up the price, it is like the .com without even...
Scott: The website.
Pat: ...the talking puppets, or the website, or the .coms. It's like the .com boom without the dot com.
Scott: It's strange.
Pat: It's strange. And there are people that's like, "Scott, Pat, you, guys just don't get it."
Scott: I get that. I hear that all the time.
Pat: "You don't understand."
Scott: Is it different now?
Pat: And it could go on. Scott, it may be different this time. I guess it won't be, right? I guess it won't be. There was a time in the United States where every bank issued its own currency, every bank issued its own currency. So, I went back and did a little bit of research. And then you're like, "This didn't end well." This is why the government actually started issuing currencies in the Federal Reserve, is because there wasn't anything backing. And when there was a run on the banks...
Scott: suddenly the currency was worthless.
Pat: Yes. As is going to be the issue with stable coin, which is part of the big, beautiful bill.
Scott: I mean, it's a bit like the tulip craze. And if you've never heard of that, look it up. The tulip craze. It was at 1600 and something.
Pat: Yes, in Amsterdam.
Scott: Yeah. Tulips became the most valuable commodity on the planet.
Pat: That's right.
Scott: And the prices shot up thousands of percent.
Pat: The bulbs themselves, not the tulips.
Scott: Thank you. The bulbs, the tulip bulbs.
Pat: Correct.
Scott: Yes, the tulip has a pretty short life. The bulb can live a little longer. Yeah, but it was ridiculous. And it was this mania that people ended up... Like, prices kept going higher and higher. And so, the average person finally said, "I better own some. I better own some because it keeps going up." And that's what it feels like here.
Pat: A little bit.
Scott: And look, maybe we're wrong. If you've done a good job saving, you've got plenty of assets, you're financially secure, you're not going to want to bet your life savings on this.
Pat: If you want to play in it a little bit, play in it.
Scott: Not going to either way. If it blows up to goes to zero, it's not going to make any difference.
Pat: You want to play in it, play in it. If you don't want to play in it, don't play in it.
Scott: Then don't play in it. Feel good about it not playing in it.
Pat: Don't bet the house on it.
Scott: For sure, not bet the house on it.
Pat: Do bet the college kids, your education fund for your son or daughter.
Scott: Before we go...
Pat: And the reason is, they don't go to school. They'll be fine. I'm joking. I am joking.
Scott: I have a 17 year old.
Pat: But speaking of 529 plans now, right, what you can use in part of the big, beautiful bill.
Scott: One Big Beautiful Bill Act.
Pat: Is that the use of 529s has been broadened to include more than just...
Scott: Trade schools and whatnot.
Pat: Yes.
Scott: Yes, it's quite loose actually on what you can use the money for. Which is probably makes sense to me. It should be for... I like the concept of it. These are dollars set aside for your kids, your grandkids, or your nieces and nephews, whatever, to help them move forward in life. For some traditional education university, I don't even know how traditional is the university... A hundred years ago, what percentage of people went to university?
Pat: Not a lot.
Scott: It was a bit of a luxury if you're going to study liberal arts. Probably came from a wealthy family.
Pat: Right before you...
Scott: Or if you're going to go into the ministry of some sort, you went to theology school. Or a very specific trade that required advanced degree.
Pat: That was pretty much it.
Scott: Now, it's all these weird humanities, all kinds of...
Pat: Okay, keep moving before we touch the rail. We won't touch a third rail.
Scott: That's why I'm like, I better not mention something because it's going to tick somebody right now.
Pat: That's right. Before we touch the third rail of podcasting.
Scott: Well, clearly a lot of people are looking at like, "I want to help my kid get further on in life." Right now, there's a lot of people talking, like, you can go and get a psychology major and not get a job and be a barista when you graduate, or you can go to welding school.
Pat: I have a brother that's a heavy diesel mechanic. It's a great job. It's hard on his body, but it's a good paying job.
Scott: So, the 529s can work from that.
Pat: Yes.
Scott: I was going to mention...
Pat: By the way, the provisions of the big, beautiful bill, you and I are slowly leaking them out on this podcast.
Scott: Because there's so many and what's the point?
Pat: Some of these is just so much, right? We go through a list of them.
Scott: It's funny. Yeah, it came out. Actually, I was thinking, Pat, should we have a show dedicated to them? Like, there's so much little stuff. I couldn't do it. It's not. Look, if you want to, you can go do your research. You're going to get our opinion periodically on some sort of... And the one I want to talk about now before we go back to the calls is the Trump accounts.
Pat: Oh, this thousand dollars.
Scott: For kids, yes. They are called Trump accounts, apparently. I guess, Senator Roth got Roth IRAs named after him and, I guess, Trump wants these. But it's 1,000 bucks for every kid born. I would imagine they need to be born in the U.S. There might be some of the requirements. But this is expected to roll out in 2026. The Treasury Department would see the accounts with $1,000 for children born between January 1st, '25 and December 31st, '28. So, it's a three year thing.
Pat: '25 or '26?
Scott: It says 2025.
Pat: Okay.
Scott: And they have to have a Social Security number and be a U.S. citizen, and that's it, only thing to qualify. The program slated to cost the Treasury $15 billion through 2034.
Pat: That's not a real number. The administration alone will cost, well, a lot.
Scott: What are the investment options? Investment must be in low cost mutual funds or exchange traded funds that are made up of mostly U.S. equities. What?
Pat: What could go wrong? What could go wrong? And then, I'll just tell you what's going to happen, over the years, there's going to be provisions that are going to be put into this to allow the people to access these dollars if certain needs arise.
Scott: Of course.
Pat: Much like it has been with IRAs, 401(k)s, Roth IRAs, 529s that you can now convert to a Roth IRA, there will be provisions that will allow people to get to this money. If the government somehow generated their own income. Let's say the government was actually pretty good about making money and had excess money. Not a bad idea. Why don't we spread that excess money? Or if we're Norway and have this tremendous amount of oil reserves. Saudi Arabia treated it a little bit differently how they put their systems.
Scott: Well, CORAC.
Pat: Let's talk about...
Scott: CORAC, CORAC.
Paul: Saudi Arabia spreads it...
Scott: But people always like to point to... Well, Sweden and Norway, they've got excess.
Pat: Yes, Saudi Arabia does spread the money, but just to a relatively few people.
Scott: A handful of people. If that was the case, I would say, okay, sounds like a good idea.
Pat: That's not the case.
Scott: But the government doesn't... First of all, we don't have any more money.
Pat: We have no money.
Scott: And we're borrowing money now to make our expenses.
Pat: What is the deficit? The deficit there is expected to be $2 trillion.
Scott: $2 trillion.
Pat: $2 trillion. That's not the debt. That's a deficit. That means that that's how much more they spent than they brought in.
Scott: It's more than 20% of our expenditures are from borrowed money, I believe it is, somewhere in there.
Pat: So, that's the service debt.
Scott: Yeah, I understand.
Pat: Yes. Which becomes part of the deficit. So, why in the world we should give $1,000 to everyone, because administratively, that will be easy to do. All right, said, I can't do this anymore.
Scott: I don't like the concept, of we're going to take money from that individual over there and give it to this other individual's kid.
Pat: Well, this has no qualifiers on it.
Scott: Warren, the only way the government gets money is through the taxation.
Pat: Bill Gates' daughter has a kid. They get the $1,000?
Scott: There's no qualifiers, everybody. The Trump accounts. And Bill Gates... So, we can remember Trump well into the future.
Pat: And Barron starts procreating. Barron Trump starts procreating and all this money. Okay. All right, I would move on. Let's move on.
Scott: Yeah, yeah. There's the rail. You're touching the rail. We don't want to continue any further down. All right, let's talk with Sue. Sue, you're with All Worth "Money Matters".
Sue: Hi.
Pat: Hi, Sue.
Scott: Hi, Sue.
Sue: How's it going?
Scott: It's going great. Thank you.
Pat: Oh, fantastic. Thank you.
Sue: Oh, that's good. Hey, listen, I plan to retire in a few months. Could you tell me the best way to go ahead and mitigate sequence of returns risk? And also, if you could give me a speedball on the different withdrawal strategies in retirement?
Pat: Yeah, we can give a broad overview of these things. Every situation is quite unique. And I think what you're speaking to, Sue, is sequence of returns. So, you're retiring now, this year.
Sue: In a few months, yeah.
Pat: Okay, in a few months, let's assume. And right now, at least, as we're speaking today, the stock market is at an all-time high.
Sue: Yeah. Tell me about it. Oh, my God, scary.
Pat: And if you look at valuation stamp, for most measurements of valuation, it's at the high-end of things. In some cases, it's at the most extreme high end, as far as it's trading at a price relative to the amount of earnings that these companies have.
Scott: And it doesn't mean that that won't continue or stay stable, right? Because we don't know. But...
Pat: But for those who retired, let's say, on January 1st of 2000, right before the whole .com thing fell apart, it was more challenging for them. Those who retired just before the financial crisis is more challenging for them. Those that retired in the middle of the financial crisis, phenomenal, benefited.
Scott: At the bottom, right?
Pat: That's secrets of return of money.
Scott: Assuming they had the guts to invest.
Pat: So, where are the proceeds of the dollars that you're worried about coming from? Is it a pension lump sum? Is it money in the bank? Is it an inheritance? Or is it a 401(k) or IRA?
Sue: Let's see. It's pre-tax money from the 401(a) plan and the 457 plan. Because you know how there's a division between the determined CVS plan, there's a 401(k) plan for the private sector, a 43(b) plan for non-profits, and then 457 plan for government sector.
Pat: And so, you...
Sue: I work with the government sector.
Pat: And what will your pension be when you retire?
Sue: My pension will be $93,000.
Pat: A year. And so, I assume you work for... I don't know what's...
Sue: The government agency.
Pat: Yeah. So, you have both a 457 and a 401(k)?
Sue: 401(a). Because a 401(k) plan is for the private sector employers.
Scott: Okay, yes. Thank you.
Sue: But the 401(a), the money purchase plan, is allowed for the government sector.
Scott: That's correct. That's correct. So, do you work in the pension department?
Sue: I work with retirement services.
Scott: Okay. I'm thinking, wow.
Pat: Wow, this is...
Scott: Yeah, you're really good, I'm thinking.
Pat: You're getting into it. So, what is your salary? How much do you earn now?
Sue: Salary is $146,000 a year.
Pat: Okay. And how much money is in the 401(a)?
Sue: 401(a) plan is half a million dollars.
Pat: And how is it invested today?
Sue: It's invested, I would say, 60% equities and 40% bonds.
Pat: Okay. And why are you worried about the sequence of return events?
Scott: Let me ask a couple more questions.
Sue: Because I don't want to leave a lot of money for my heirs.
Scott: Let me ask a couple more questions. So, how old are you, Sue?
Sue: 64.
Scott: And are you eligible for Social Security as well?
Sue: I could. But the thing is, I'm reading about so many stuff about Social Security. They said it would benefit me to go ahead and wait until I'm 67, at least, 70.
Scott: You know, this is a...
Sue: And there's some Roth conversion. Do you agree?
Scott: What's interesting is the windfall elimination provision, that was changed through the One Big Beautiful Bill Act.
Sue: Yeah, July 4th.
Scott: So, your Social Security should be fairly significant because of the change in the windfall elimination provision.
Pat: So, let's deal with the sequence of returns thing first. What do you expect your Social Security to be if you...?
Sue: It's $33,600 if I retire today a year.
Pat: So, right now... And you're contributing to your 457 plan today?
Sue: Yes, but not as much because what happened was, I saw that I received too much money. And I'm thinking in terms of, where would I leave this money? I might as well just put in just the minimum. And my minimum is like $600 a month, I mean, let's see, no, $1,200 a month.
Pat: So, $14,000 a year.
Sue: Yeah. It's actually $24,000 because I also have the 401(a) plan.
Scott: Okay. So, you're $146,000 you take off that $24,000, you're really at $122,000, number one. Number two, you're paying FICA taxes on all this, right? Social Security and Medicaid tax.
Sue: Yes, I am. Yes, it's like 10%.
Scott: So, your retirement income is going to be greater than your income today.
Pat: If you start Social Security immediately.
Sue: That's very true, yeah.
Scott: Then why are you worried about sequence of return retirement? It doesn't impact you. It's completely irrelevant for you.
Sue: Because I'm thinking about taking out money from my...
Scott: To spend.
Sue: ...$3.2 million.
Scott: You said you had $500. Even that. You're not going to triple your lifestyle.
Pat: Where did this $3.2 million come from?
Scott: I don't know.
Sue: From my Roth IRA, from my pre-tax accounts, from the 457, 401(a) plan, the regular account of $1.3 million and I have a cash of, like, $270,000.
Pat: Okay. So, what is your concern?
Sue: The sequence of returns risk.
Pat: Okay. Well, first of all, these are invested. The one you told us about the 401(a) with the $500,000, right?
Sue: Yes.
Pat: You had 60% equities, 40% bonds in cash. Wouldn't you just move it into an IRA and keep it at 60% equities, 40% bonds in cash?
Sue: That's what I was thinking about doing because once I leave the company, the person who has the institutional knowledge would be gone. There's nobody else who would take over my place. I'm thinking about doing a rollover to multiple companies. My issue about multiple companies is because of the data security breaches. It's something very, very common right now. It's common as mass shooting.
Pat: That's right.
Sue: And I'm thinking that if I put 100% of my money with Vanguard, I have like a million dollars with Vanguard right now. And I'm thinking that if that's hacked, where would that leave me?
Pat: Okay. As if someone will steal that money from you? Is that what your concern is?
Sue: Yeah. That's also my concern.
Scott: But these are different concerns.
Pat: Okay. Let's address the sequence of returns. Here's the risk. Here's where this applies to. Somebody retires, and to replace their wage is reliant upon their savings and investments to produce a monthly income. So, maybe they take a lump sum from a pension. Maybe they have no pension. They've just been saving. And they're like, "Okay, I now have $2 million," whatever the number is. "I've got I've hit the number I need. I'm going to start taking my withdrawal." And then the first couple of years are horrible returns, and they're like, "Oh, crud." Because now, my withdrawal rate went much higher. I'm not sure this is maintainable long term. That's the sequence of return risk. You're in a position where your guaranteed retirement income, not counting your portfolio, is greater than your current pay income.
Sue: Yeah. That's very true. But the thing is, I'm thinking in terms of from 65 to 70, you remember the go years, low go years and no go years.
Pat: Yeah.
Scott: What happens?
Sue: I'm thinking that I'll be spending a lot more from 65 to 70. And I'd like to take out as much money as I could, maybe.
Pat: Okay, how much?
Sue: Like, 4% or 5%.
Pat: Okay. And you said there's $3.1 million there, right?
Sue: Yes.
Pat: Okay. So, let's say...
Scott: Are you going to suddenly spend $250 a year.
Pat: Wait, so, yeah, let's just go back. I know exactly. Sue, I am 62 years of age. You're 64. You're my older sister. You trust me. You trust. I don't have a dog in this fight, right? You may or may not become a client. I don't care. But I'm just talking to you as your younger brother who's been doing this for a long time. I'm like, okay, Sue, there's $3.1 million here. You don't care. Like, you say to me, "Pat, the day I die, I want my last check to bounce," right?
Sue: Okay, yeah.
Pat: That's what I heard from you, is that you don't want to leave a lot of money to your heirs.
Sue: No, I don't. Especially, I have already planned for my funeral.
Pat: Yes. Sue, I know you plan for your funeral because...
Sue: Yes, risk reduction.
Pat: ...without even... I knew that because you're my older sister. So, I would say to you, "Look, Sue, we've got $3.1 million in here. Your home's paid for. You have no expenses. You got this great pension.
Sue: My house is not paid for, FYI. Because you know what?
Pat: Interest rates.
Sue: I asked my financial planner, I said...
Pat: What's the interest rates.
Sue: "Is there a payoff for this one?" He said that, "You know what? A 2% is free money for you."
Pat: Yes, correct.
Sue: It doesn't make sense to... You want to get the pay off.
Pat: What do you owe on it?
Sue: I think $315,000.
Pat: So, then what we would do is we would actually we'd match maturities on that, so we wouldn't have to worry about it. Which means I'd actually take $315,000. I'd set it up in its own account. It would generate enough income.
Scott: You put it in fixed income, put it probably treasuries.
Pat: And it would generate enough income to make the mortgage payments. Now, and I'd say to "Sue, theoretically, your mortgage is not paid for, but we've already set aside the money. You know it's there. It's going to pay the mortgage." I'd actually have that distribution go directly to the mortgage company every month to pay the bill. That's how I would do it with Sue. Then I would say, "Okay, Sue, now, we've got $2.8 million and we're going to start Social Security and we have income of $126,000." That's what I would say. And we're going to start Social Security income now. The reason we're going to do it now, Sue, is because you told me that you wanted to spend as much money as you possibly could while you actually have the ability to.
Then I now have this $2.8 million of investable assets and I've got income of $126,000. I start up 3% distribution on this investable assets and it will generate $84,000 a year in income on $2.8 million, 3% will generate $84,000. Now, I add this to my $126,000, and now, we're at $220,000 income. And then I say to Sue, "You never fly coach again. You fly first class. Sue, you stay in not the most luxury suite on the cruise, but the third most luxury suite on the cruise." But Sue accumulated these dollars because Sue does not fly first class and she does not stay in the luxury suite on the cruise.
Scott: That is correct.
Pat: Right, Sue? I've not met you, but I've just...
Scott: Yes. Yes.
Pat: You've worked for the government and you've managed to accumulate a few million dollars. You are a good savings.
Sue: Yes.
Pat: So, I say, "Sue, this is what we're going to do." And by the way, we don't have any sequence of return events to worry about because most of your portfolio is actually already invested in equities. Oh, and by the way, if the market's down, we will sell off bonds at that particular time in order to generate income. If the markets are up, we will sell equities in order to generate income so that we try to keep a constant balance in the portfolio based on our investment thesis. And then I say, as your advisor, "Sue, try not to worry about this." And you, Sue, will continue to worry about this forever. Because if you show me someone that doesn't worry about money, I'll show you someone that doesn't have any. This is... And Sue, I had a conversation with a client this morning that has $15 million with me, 79 years of age.
Scott: 79?
Sue: Oh, wow.
Pat: Worried about running out of money.
Sue: That's impressive.
Scott: You're impressive. Pat was just saying the point. It doesn't matter. You can put a zero to this, you would still have the same concerns.
Pat: You still have the same concerns. So, look, we're worried about the wrong thing. Do we do Roth conversions?
Scott: Maybe.
Pat: Yeah, we probably, we probably would look at it.
Scott: Maybe, maybe not.
Pat: They'd be minimal. But then any of the money outside of an IBRS that we manage as tax efficiently as possible. So, you're fine. You would be well served by a high quality advisor.
Scott: I think one of the concerns, Sue, is your knowledge is such that it could actually start to...
Sue: Paralyze me.
Pat: Yes, because you know where all the risk could lie. And you're somehow thinking that they're all going to hit you at once. And the data breaches that you brought up earlier, they happen, but they're not stealing your money in those data breaches. They're stealing monies, like the guy earlier, that asked us whether it's okay to put some money in a crypto wallet of unknown origin.
Sue: Oh, my God.
Pat: The data breaches, they happen. It happens in every organization. There are huge organizations that are built around that. You're insured against a theft from a custodian.
Sue: Really?
Pat: Yes.
Sue: I didn't know that.
Pat: Yes. Yes, yes.
Scott: And there's government rules oftentimes that they have to safeguard. And if they don't, they're responsible.
Pat: Yes. You're okay there, right?
Sue: Yeah. Because one of the, one of the rollovers that I wanted to do was Fidelity.
Scott: That's right.
Sue: I was telling them that I'm going to have $800,000 rollover to them. And I asked, "In the last three years that you have been employed over there, have you had any security breaches?"
Scott: Every company has.
Sue: The employee stated, yes, they had one, I think, three years ago.
Pat: They've had more than five. Okay, well, if they had one, that is an incredible record, just telling you, yes.
Scott: For the size of Fidelity and all the different business lines there?
Pat: For the size of Fidelity, if they had one. But you're worried about the wrong thing. They're answering your questions, right? You want an advisor that wants to tell you, look, ask you questions, and then give you direction. And tell you the things to worry about and what not to worry about.
Scott: Not to worry about.
Sue: Okay. So, I have nothing to worry about.
Scott: Because you have... As far as financial security, Sue, I am not exaggerating, I would put you in the 0.2% of Americans.
Pat: Oh, absolutely.
Sue: Oh, my God. That is wonderful.
Scott: Oh, I kid you not. And I didn't say you're the wealthiest, but when you look at financial security... And I don't even know your situation, but you worked for the government. You've had a good wage, but not screaming good, and you saved these dollars, because you've lived beneath your means...
Pat: All these years.
Scott: ...a long time. And the hardest part for...
Sue: You know why?
Scott: Why?
Sue: Do you know how I did this?
Scott: Yeah, you're fearful of the future.
Sue: I'm usually very frugal, and on top of my budget is savings, it's investments.
Scott: That's right. That's right.
Sue: And I would go ahead and put 50% of my income.
Pat: Of course, you did. But Sue, you talk about changing how you're going to spend money. It is a process. The person I talked about earlier, I send him money every month. And...
Pat: Your biggest hurdle, Sue, is not these risks that you're worried about. It's how are you going to steward these dollars the rest of your life?
Scott: And you may want to start giving some of these dollars to your children.
Sue: I don't have any. That's why I don't want to go ahead and leave a lot of money for my sibling.
Pat: Who's maybe...
Scott: Or some organization that you care about.
Sue: Yeah. Yes.
Scott: And you might find greater value on that than flying first class.
Sue: Okay, I agree with you.
Pat: But you could do both.
Scott: Yeah, but I mean, I was just picking out one kind of very obvious example.
Pat: All right, Sue, go. You've done well. Get yourself a quality advisor. I'd start social security immediately.
Scott: Yes. Assuming you're not going to go back to work at all.
Sue: No, I'm not going to go back to work.
Scott: Well, we'll see.
Sue: No.
Scott: She's going to be worried about run out of money. We'll see.
Sue: I'm going to develop some hobbies.
Scott: What you've got going for you financially in the addition to the fact that you're frugal and you've accumulated millions of dollars is this nice, fat pension. Your guaranteed retirement income is greater than your current salary.
Pat: That is correct.
Sue: That's true. Yeah, especially my burn right now is only $55,000 a year.
Scott: That's right, which is what you told me you wanted to change, but we're going to have a hard time doing it. The problem that you're going to be in your retirement is that you're there. It's the same problem I have when I go on vacation. I'm on vacation with me and I don't really relax.
Pat: You got to take yourself with you.
Scott: I have to take myself wherever I go, which is both good and bad. And my guess is you're going to have a hard time...
Sue: Spending the money.
Scott: ...spending money.
Pat: That's right. That's right.
Sue: Okay. Isn't that so?
Scott: It doesn't bring you value.
Pat: There's not joy in there.
Scott: It doesn't bring you value. If it brought you value, you would have less money saved and you would spend more. And you think, "Oh, I really enjoy shopping. I'm so glad I got this luxury handbag because I feel so good about myself now."
Sue: Louis Vuitton.
Scott: But there are people out there that do value that. And I'm not putting any judgment on either one. That's just reality. And if you could afford those things, then who cares? It's your money. Your values can change some of life, but I don't think they're going to change that much, particularly when it comes to your finances. I don't think you're suddenly going to say, "Oh, it's so nice. Give me the reserve wine list, would you please," when you're out to dinner?
Pat: That's right. Could you see?
Scott: "Do you have any more French wines than this? These wines are too fresh. What do you mean it's only $200 a bottle? Go deep in the cellar, please. I can't drink this swill."
Pat: Can you see her saying that?
Scott: No, of course not.
Pat: That would be awesome. But you can do that.
Scott: You're going to take the saltines and stick them in your purse. There's two extra rolls. You're going to put them in the napkin and put them in your coat pocket on the way out.
Sue: That's so thrilling, Scott.
Scott: All you need buffet doesn't mean it's all you can take.
Pat: All right, appreciate the call.
Sue: Thank you so much.
Scott: But you know, I think, Sue, you're worrying about a lot of external things. You don't need to be worried about those. And you don't need to feel bad about being frugal and your value system when it comes to your finances. Just because you have the assets doesn't mean you need to have a bigger lifestyle. It does mean that you're going to have to... It's the responsibility of what's going to happen to these dollars. Either way, you can decide where you're alive or when you die.
Pat: Or let the government decide how it's going to go down.
Sue: Oh, no. Your asset planning.
Pat: Asset planning.
Scott: And my guess is, with this time, if you found some cause that was true and dear to your heart, where you can invest some of your time and some of your treasure here, you will probably find more satisfaction in that than spending more money.
Pat: And by the way, it doesn't mean that you have to give it to them while you're alive. That would be difficult for you as well, but you can name them as a beneficiary of your will or trust. Anyway, congrats.
Sue: Thank you.
Pat: Great work. Great work.
Sue: Oh, my God, I feel so good about myself.
Scott: Oh, you should.
Pat: Oh, good. Thanks, Sue. We're calling this...
Scott: And she worked in the Pension Department or something, right?
Pat: Probably so she can learn more about the retirements to be prepared for the stage in life. Or probably because it was a job.
Scott: But isn't it funny...
Pat: But she probably saw some great like, "Wow, that's incredible. I get that much money a month," or, "There's no way I can live on that." I bet she saw both.
Scott: I mean, it's interesting. And for every sue, there are 50 people with no money every time, right? Or whatever the number is, there's a lot. Like, a lot of people just have trouble saving, and they don't have the financial resources to go out and spend on luxury goods. And they do anyway, or whatever the case is, or the reserve one, whatever the stuff we can all waste money on. And granted, we understand that there's a large chunk of people that they've never got their career to a point where they make enough money to even make a lot of these decisions.
And you read these stories about someone who lived so modestly, lived in the same apartment their whole life, and then leave $7 million to the local museum or whatever, right? And it's these people that they value accumulating the dollars for some security reasons or for whatever reasons they are. They find no value in spending the dollars. But they can't let go of those dollars while they're living for whatever reason.
Pat: Good for the charities.
Scott: I want to let everyone know about a webinar that we've got coming up. Actually, it's pretty cool because it's a case study, a real client case study in advanced portfolio optimization. And Benjamin Abraham out of our, St. Louis office? Indianapolis office. One of our partner advisors, really clever guy. But what you're going to learn here is you're going to get a behind the scenes breakdown of how our in-house experts and some of the industry leading tools. We've talked here in the program, Pat, about the technology, even in the last couple of years.
Pat: Direct indexing, highly concentrated position.
Scott: You're going to see some cool tools that have helped high net worth. This helped a particular high net worth couple do several things. In this particular case study, you're going to look at, it's going to show how they eliminate the costly capital gains taxes with tax smart restructuring. So, if we look at your whole portfolio, how can we reduce some capital gains by taking advantage of some other things within your portfolio? You're going to look at how they were able to build confidence through a retirement income modeling strategy. So, they got this modeled out and felt they felt good about things. We've talked about probability of outcomes in the past. That's kind of what this looks at. And also, they looked at this couple, how they refine their portfolio to unlock some long-term flexibility, give them greater flexibility. So, it's really kind of a rare look on when you see all things coming together. And that's what... Some pieces of this will, obviously, be fictional to protect the identity of the couple. But the financial stuff is going to be...
Pat: It's real.
Scott: ...real. And maybe we might change the name of a company stock or something just to kind of protect. But otherwise, it's a real thing you're going to be looking at to be part of this webinar. There's three times it's going to be ran. One, Wednesday, August 20th, at 10 a.m. Pacific, Thursday, August 21st, at noon Pacific, Saturday, August 23rd, at 9 a.m. Pacific. And to register and learn more information, go to allworthfinancial.com/workshops. And if you've saved a few bucks and your portfolio has become a little complicated, I think you'll find this helpful.
And we're talking now with Carla. Carla, you're with All Worth's "Money Matters".
Carla: Hi, guys. I love your show.
Pat: Thank you.
Carla: Listen to it every Saturday.
Pat: Awesome.
Carla: So, my question is... Actually, I'm speaking on behalf of my husband. It's regarding IULs and what do you guys think about them? Good, bad?
Scott: What's an IUL?
Pat: Indexed Universal Life Stock.
Carla: Indexed Universal, yeah.
Pat: Well, like an IA is an Index Annuity, this is an IUL.
Scott: I've never recommended them. I don't own one.
Pat: I would not purchase one.
Carla: You would not purchase one.
Pat: No.
Scott: No.
Carla: And what would the reason? Like, what are what are the reasons why you would say?
Scott: I think they're gimmicky.
Pat: First of all, the first question you should ask yourself is, do you need permanent insurance or not permanent insurance? Let's not let's not even talk about whether it's IUL or UL or whole life or variable universal life, VUL. We'll leave that all behind. Let's just say it was the greatest product. It was a permanent product. It was the greatest product in the world. The first question you ask is, do I need permanent life insurance. Which means, do I need life insurance for my whole entire life? Do I need it for 20 years, 30 years, 40 years? You need that? So, what are you trying to ensure against? Do you have children at home?
Carla: No, they're all adults.
Pat: Okay. And so, are you retired or close to retirement age?
Carla: My husband just retired from his main job and he's working on, like, a part-time job now. So, one of our friends or family friend was talking to him about maybe thinking about doing an IUL just for saving on taxes when he starts to withdraw some money.
Pat: Okay. And so, here's the pitch behind this is this IUL...
Scott: Let me back up. So, what ends up happening, there's a lot of people... It doesn't take much to get an insurance license at all. You could do a week class, Carla, and you go down and you take the test and you're an insurance license, and now, you can go out and go to your friends and say, "Hey, I've got this great product. Let me tell you all the wonderful things it's going to do," which they believe. But what they don't know are the other 99 other products that exist out there that maybe are even better because they haven't really been trained on it.
Pat: Like the alternatives, right?
Scott: Like a Roth IRA first.
Pat: Or a S&P 500 fund. So, that's why you start with the premise of do you need insurance at all? And if you do need insurance, how long do you need it for? So, in your situation, the kids are out of the house. Your husband's retired. Did he retire with a pension?
Carla: Yes.
Pat: Okay. Is there other survivor benefits on the pension?
Carla: Yes.
Pat: So that if he passes away, some money goes to you.
Scott: If you said, no, then we're like, whoa.
Carla: I'm sorry. He actually took a lump sum and invested and has rolled it over into an IRA.
Pat: There you go.
Carla: So, he's a beneficiary on the IRA.
Pat: There you go. So, that all that money has been earned. He didn't invest with the friends who sell them the equity Index Annuity.
Carla: No, no, but their pitch is that he can withdraw that money tax free...
Pat: Tax free.
Carla: ...if he puts it in the IUL by way of rolling it on.
Pat: But you got to pay tax to get it out of the IRA.
Scott: Yeah, yeah, you would never use money from an IRA and put it into a...
Pat: You can't. I guess you could. You could pull it all out, pay taxes on it, and put it in there. But that would just be...
Scott: Idiotic.
Pat: Worse, maybe worse than that.
Scott: Yeah, malpractice or...
Pat: Yeah. So, there is no conceivable world that I live in financially where you would even try to make that argument. And I could see the time when a variable life insurance might make some sense or a fixed life insurance, but the index makes no sense to me. Well, that's because of...
Scott: I understand the mathematics. I understand how it all works behind the curtain.
Pat: The market cycles and the whole bit. So, what they're selling, Carla, to you, is how life insurance policies are structured, which is they go in FIFO and they come out FIFO, which is first in, first out, which means that you put your deposits in, you draw those out, then any amount remaining there, you can borrow against the policy contract. As long as the contract's in place on the day to death, then it's magic.
Scott: All tax free.
Pat: It's all tax free. How about the cost of insurance...
Scott: Along the way.
Pat: That's what... If you've lived in a world without cost, right, then...
Carla: It would make sense.
Pat: Then it would make... Much like it would make sense for us all to fly travel private jet if it wasn't for the cost. Is that a bad analogy?
Scott: Yes, I think it is.
Pat: Okay.
Carla: I get it, though. I get the point.
Pat: Yeah. You have no need for this.
Scott: Not only is most people not flown private, most people don't know anyone who flies private unless they have a little Cessna or something.
Pat: I watch it in...
Scott: They're watching too much Netflix.
Pat: I watch the...
Scott: You watch "Billionaires"?
Pat: Showtime's "Billions". And you would never use the money in the IRA, never ever.
Carla: Okay. That makes sense.
Pat: So, your husband's portfolio should probably be 60% equities, 40% bonds and cash, and then a monthly distribution set up so you can retire comfortably. That's all you need to know.
Carla: Perfect.
Pat: All righty.
Carla: Thank you.
Pat: All right, Carla.
Carla: That was my question.
Scott: All right. Thanks, Carla.
Pat: Glad you called. Take care.
Scott: You know, it's funny, Pat, I was thinking this... Was there an order earlier today? I don't know why I'm thinking about these silly products, the insurance company comes up, insurance industry. In this situation, if having an index on the securities market works so well, why wouldn't the insurance company do that with their own portfolio? You think they're taking any of their portfolio and say, "We're going to spend this on options in case the markets do well?" No. Because long-term, you're not going to make money that way.
Pat: That's an excellent point. And it ignores dividends that are paid in the underlying index.
Scott: Well, the way they're structured, they'll return to...
Pat: Well, actually, the fact that they create their own indexes now, which is really amazing.
Scott: But I'm just thinking, if that strategy... I understand how they go and invest for that pool, but if it works so well, why wouldn't they do it in their own...?
Pat: In their own pool?
Scott: Yeah.
Pat: It's the risk.
Scott: Right. I understand all that.
Pat: Yeah. Well, you do, but I think you're doing that for the benefit of the listeners. But just how that was pitched that you take your money out of an IRA, pay taxes, and put it into an index universal life just shows...what it shows is lack of experience, or the person trying to sell the product.
Scott: I remember as a college student, I went to A. L. Williams.
Pat: Did you? The coach?
Scott: Yeah. It was multi-level marketing. It was my pastor from our church. Somehow, he left the church and it became a multi-level marketing guy with A. L. Williams. And I went and they said, basically, how you can be a part-time financial advisor. And I think it was a gardener was sitting next to me and somebody else. And they were pitching me on being a financial planner.
Pat: You decided to finish college instead?
Scott: Yeah, yeah. I think, yeah. And it was all on a part-time basis. But I remember my pastor looked at me and he's trying to get us all pumped up. And he said, "Hey, Scott, if you could drive any kind of car, what kind of car would you drive?" And I remember looking at him and I thought, "You're my pastor. You're supposed to help me to stop thinking about those things. Those come naturally." Like, come on, buddy. The rest of the eyes of vital life and all that stuff. I don't need help with that. I was born with that. That's my first thought.
Pat: So, I'm guessing, you didn't sign up.
Scott: No, I didn't sign up, no. Anyway, it's been good being here with you. Scott Hanson and Pat McClain of Allworth's "Money Matters". We'll see you next week.
Automated Voice: 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 a state-planning attorney to conduct your own due diligence.
Scott: Welcome to Allworth's "Money Matters", Scott Hanson.
Pat: Pat McClain. Thanks for joining us.
Scott: With myself, my co-host here, both longtime financial advisors. Is that the right term for us anymore?
Pat: I don't know. Wealth managers, I guess, is the latest term.
Scott: Is that right?
Pat: They do call us wealth managers.
Scott: Yeah, yeah, we're all wealth managers now.
Pat: Well, no, in our industry, I still call myself a financial advisor. I advise people on their finances, and some of them don't have a lot of money. So, I don't know where the wealth comes...
Scott: The wealth is all very relative, Pat.
Pat: It is. It is.
Scott: Ye, it's all very relative.
Pat: But relative wealth manager.
Scott: You have some wealthy clients. It's very relative. Anyway, we're glad to be part of the program and you can care less what we call ourselves.
Pat: Call ourselves. All right, so Scott, before we go in.
Scott: I'm just glad that you are here.
Pat: Before we go in.
Scott: We're going in. What do you mean before we go in? Take calls. Take calls.
Pat: I wanted to talk about a couple things. One is this little crypto thing that's going on with these companies buying the shares and this isn't an indictment of crypto, although I still.
Scott: I saw someone the other day, their prediction in 2030 was $1.3 million.
Pat: It was for Bitcoin.
Scott: Bitcoin. It's a...
Pat: It might be, maybe.
Pat: Maybe it's 10,000. Maybe it's...
Scott: Who knows?
Pat: No idea, right?
Scott: It's the strangest thing.
Pat: It's a speculative answer.
Scott: It's funny because early on, the argument was it was all about the blockchain. And I remember people would argue, well, the blockchain, the blockchain. And I'm like... Well, I shouldn't say I understand the blockchain. I have a vague understanding of the... I understand the benefits of the blockchain and the business applications for them, which are many. Yes. Having a coin, a digital coin is one of many. And early on, it was the argument was the blockchain, the blockchain, the blockchain. You don't hear that so much anymore because blockchain can be used in many different things.
Pat: Yeah, yeah. But the amount of crypto coins that still get issued all the time on a regular basis, on a weekly basis, and the hijinks that go on behind the scenes with many of these are quite incredible. Some of them are just purely pump and dump.
Scott: Oh, so there's some outright scams where it happen.
Pat: Yes, yes. Where you're seeing actually people go to prison for it.
Scott: That's right. Total scams.
Pat: In Bitcoin, you could actually see where out of all the coins out there that can either...
Scott: You're not going to get scammed.
Pat: It's got a history. It might be speculative. It's volatile. That out of them, it might be narrowed down to that there might be only a half dozen that just happen to be around that people actually will trust. But that wasn't my point. The hottest business strategy, this comes from a Wall Street Journal article. The hottest business strategy this summer is buying crypto. And they're not talking about individual, small companies are raising...
Scott: I saw this article and I'm like, it can't be serious.
Pat: Small companies are buying billions of dollars of Bitcoin and other more obscure cryptocurrencies. What could possibly go wrong? And so, what they're doing is, these companies are raising money and then buying the coins directly. And that's their business model.
Scott: I mean, there's some companies out there.
Pat: Yes. Or they're doing large percentages of their business. They're reshaping. You might have, what was it, a dress manufacturer, or they built curtains or something that all of a sudden wanted to actually just buy these. Part of it is if a pension plan or an endowment or foundation's investment policy statement only lets you trade in publicly secured debt and/or...
Scott: Equity.
Pat: ...equities, the way you get to the cryptocurrencies is you buy companies that just do cryptocurrencies.
Scott: Or companies that you have some other, or had some other legitimate business. An example here, Volcon, it's an electric bike maker in Austin, Texas, electric bike maker.
Pat: Not familiar with their product, but keep going.
Scott: Electric bike maker. My guess is electric bike sales are down from where they were a couple years ago. Haven't looked into the business, know nothing about it. It's my speculation. They raised $500 million in seven days to initiate its Bitcoin treasury strategy, according to their co-CEO. Shares of Volcon jumped from $9.22 to more than $44 on the day of its announcement as speculators rushed to snap up the stocks. As the time of this writing of this article, its shares had fallen every day since that time and closed a week ago at $13.40.
Pat: Why would you think the stock price was going to go up because they were buying Bitcoin? That's my question. How much did they raise?
Scott: $500 million.
Pat: So, if I raised $500 million and I turned around and bought $500 million worth of...
Scott: Shouldn't change anything.
Pat: ...treasuries....
Scott: Shouldn't change anything. Shouldn't change anything.
Pat: ...it shouldn't change anything, right? The stock is...
Scott: Same thing no matter what you buy.
Pat: That's right. Unless it was some competitor in your business and you're going to have some strategic advantage there where you can squeeze some cocks or amplify your sales or something. But when you're just buying a financial asset, nothing should change.
Scott: Yes. This is the hottest business strategy.
Pat: So, I'm glad that it fell back to earth.
Scott: Well, yeah, but it's the kind of classic pump and dump. So, there's speculators out there to see this happening. They're buying. Who knows what...?
Pat: Well, it's a different world. The reason is because you can amplify. The all pump and dumps were based in the fact that they get people on the phone. So, the amplifier wasn't very big. The amplifier on the internet is quite large with Reddit and other threads that you can actually subscribe to that are meme stocks. That's back in the news.
Scott: But here's an example.
Pat: Remember, there's a difference between speculation and investing.
Scott: Here's a toy and souvenir manufacturer in Florida, SRM Entertainment.
Pat: Not familiar with their work?
Scott: On June 16th, their market value was $25 million.
Pat: It's a publicly traded company?
Scott: Tiny little company.
Pat: It's traded. It's worth $25 million.
Scott: It's probably in the pink sheets or something. They still call it the pink sheets?
Pat: I don't know what they call it now. We're just old.
Scott: It's not one of the major exchanges over the counter. But they announced plans to spend $100 million on a cryptocurrency called TRON. The token purchase part of a reverse merger between them and a crypto entrepreneur company, also called TRON. SRM stock traded between 28 cents and a buck 45 all year. But it just shot up. Once they announced this, it shot up to $9. So, the 25 valuation just went up, what, sixfold, sevenfold.
Pat: Wow. Be careful.
Scott: Right? Here the market cap goes to $25 million.
Pat: Someone made a lot of money. The one that underwrote this, the people that underwrote this and manufactured it, they made a lot of money.
Scott: Some of this feels like the latter days of the .com boom.
Pat: Where they were just rushing things to market in any form or fashion.
Scott: It was a transfer of wealth from savers in Kansas City to these Silicon Valley spectators. And that feels like the same.
Pat: But now, you're moving your money to crypto bros.
Scott: Correct.
Pat: I think I called me bro the other day. He goes, "Hey, bro." I'm like, "Okay, I'm 62 years old."
Scott: My daughter's friend called me bra.
Pat: Really?
Scott: Yeah. She's 13. She said, "Okay, bra." And I stopped, I looked at her and said, "Did you just call me bra?" "Yeah." I said, "Well, I'm not bra to you. I could either be Mr. Hanson, Mr. Scott." Scott's even okay, but not bra.
Pat: That's funny. I thought I was a little high. And I'm going to talk about later on a little bit about the high yield muni markets because there's nothing more exciting than that. If that isn't a tease to wait. Anyway, but speak about your children's friend. I mentioned this a couple of weeks ago, how many weddings I've been going?
Scott: Yes, I think we talked about that anyway.
Pat: Gosh, I got to go to another one this weekend.
Scott: Okay, let's go. By the way, if you want to join us, questions at moneymatters.com is the best way to send your question. We'll set up a time when we're in the studio to take your call. Let's talk with William in California. William with Allworth's "Money Matters".
William: Good morning.
Scott: Hi, William.
William: Hi.
Scott: How can we be of help?
William: Well, I've been on Telegram for a long time because I followed this one group, but I've been getting quite a few invitations unsolicited to join these crypto contract groups to make money. And they're all run by analysts. And you have to put money into some Bitcoin wallet. And then I see these huge profits these people are posting. I'm just curious how real these are. Are they all scams?
Scott: What do you think? What do you think?
William: Well, I went online and I asked Google whether these were real or not, and they said no. But I keep seeing all these profits that people are making. And, you know, I would like to participate, but I was looking for some guidance.
Pat: So, William?
William: Yes.
Pat: You would actually be better off to any dollar that you would put into these wallets in order to trade crypto, is to save those physical dollars. And in the middle of winter when the house is cold, to put them in your fireplace and light them on fire, and they will generate, at least, a little bit of heat for the house.
William: Is that fair, ha?
Pat: Because that will be more beneficial to you than putting a single penny, a single penny. In fact...
Scott: In one of these companies.
Pat: ...I feel bad that you actually consumed...
Scott: But you can't state that emphatically, because...
Pat: Yeah, I certainly can. I certainly can, emphatically. Yes, I can state it any way I want whether it's 100% correct or not, Scott.
Scott: Fair, okay.
Pat: It's something completely different.
Scott: He could put money in Bitcoin and it could be worth a whole lot more.
Pat: But they're asking them in Telegram or Reddit to join a group and then to get sucked into this culture of we're going to get rich quick. "Oh, by the way, just put some money in this wallet and the wallet may or may not..." There is certainly a wallet, whether you actually have control of that, 100% control of that wallet, I have no idea. There are legitimate crypto exchanges.
Scott: That's right.
Pat: Legitimate crypto exchanges.
Scott: And then there's the wild, wild west, and then there's lots of fraudsters out there right now, too.
Pat: Yes. And so, the question-
William: So, I gather you're saying no.
Scott: That's correct.
Pat: Have you ever owned crypto?
William: No, I wanted to get into it now that crypto is over 110,000, I should...
Pat: You know what? Bitcoin's over 110,000.
William: Right, Bitcoin's over 110,000, correct.
Pat: Yeah, but that's not crypto. There are thousands of crypto coins out there, thousands and thousands. How old are you?
William: 71.
Pat: And what investable assets, ballpark?
William: Oh, shoot, over a million.
Pat: And you're living comfortably?
William: Yes, I am.
Scott: I wouldn't put more than 10 grand. Scott, here's what this... You know, I had this conversation with a friend of mine about a month ago and I said, "I don't get this crypto stuff." And he said to me, he said, "I look at it sometimes and I think, should I do it? Should I not? And then I realized, I've lived a great life without ever involving crypto in it. And so, why would I start now?" And that guy was you, Scott.
Scott: Yeah, I know.
Pat: You said it to me.
Scott: I don't own any crypto.
Pat: I don't own any crypto. I have no intention of owning crypto.
Scott: And we appreciate the call. But you know what's interesting, though, Pat, it's this fear of missing out right now that's going on. Because William's life, he's not going to...he wouldn't invest enough to actually change it. Well, he could have got scammed to people.
Pat: He could have.
Scott: That happens. But let's assume he's rational human being.
Pat: Well, let's just say it was 10 grand, but it was 10 years ago and happened to be Bitcoin and the dollar share.
Scott: He would have been super wealthy. He'd be mocking us today. Because he'd be worth 500 million or whatever the number would be, it'd be. He'd be worth a fortune.
Pat: But he didn't do that.
Scott: He didn't do that, correct. Nor did most Americans.
Pat: That's right.
Scott: And so, what's happening now, it's this fear of missing out.
Pat: It looks like easy money. When you hear you have friends that talk about how much money they've made in it. I saw a LinkedIn post the other day from a guy I've known in the financial services industry, and then he went into the crypto side. And he was bragging that he was telling people when crypto was a buck 50 or 250 a coin to buy it. And now, where it's at today, maybe it was 25, whatever the number was, it was when it was much cheaper than it is today. And so, he's bragging about that. So, you get all these signals that you've been missing out, but it's not too late because Bitcoin is going to go to a million or $2 million or trillion per coin. And so, that's why it feels like the late '90s of this transfer of wealth from average people who've worked hard and saved well, taking some of their life savings, and it's going to end up getting transferred to somebody else.
Pat: It happens a lot. It was the .com. It was the homes and the mortgage crisis.
Scott: Why is it that financial assets, it's the one type of in asset that people want to buy more of when the price goes up?
Pat: I don't know. And the price goes up relative to the underlying earnings. It's not the price going up. It's the price going up relative to the earnings. It's when the particular asset moves much higher than the earnings. And the weird thing about cryptocurrencies is they have no earnings. There's nothing. They have no earnings. The only thing that props up the price, it is like the .com without even...
Scott: The website.
Pat: ...the talking puppets, or the website, or the .coms. It's like the .com boom without the dot com.
Scott: It's strange.
Pat: It's strange. And there are people that's like, "Scott, Pat, you, guys just don't get it."
Scott: I get that. I hear that all the time.
Pat: "You don't understand."
Scott: Is it different now?
Pat: And it could go on. Scott, it may be different this time. I guess it won't be, right? I guess it won't be. There was a time in the United States where every bank issued its own currency, every bank issued its own currency. So, I went back and did a little bit of research. And then you're like, "This didn't end well." This is why the government actually started issuing currencies in the Federal Reserve, is because there wasn't anything backing. And when there was a run on the banks...
Scott: suddenly the currency was worthless.
Pat: Yes. As is going to be the issue with stable coin, which is part of the big, beautiful bill.
Scott: I mean, it's a bit like the tulip craze. And if you've never heard of that, look it up. The tulip craze. It was at 1600 and something.
Pat: Yes, in Amsterdam.
Scott: Yeah. Tulips became the most valuable commodity on the planet.
Pat: That's right.
Scott: And the prices shot up thousands of percent.
Pat: The bulbs themselves, not the tulips.
Scott: Thank you. The bulbs, the tulip bulbs.
Pat: Correct.
Scott: Yes, the tulip has a pretty short life. The bulb can live a little longer. Yeah, but it was ridiculous. And it was this mania that people ended up... Like, prices kept going higher and higher. And so, the average person finally said, "I better own some. I better own some because it keeps going up." And that's what it feels like here.
Pat: A little bit.
Scott: And look, maybe we're wrong. If you've done a good job saving, you've got plenty of assets, you're financially secure, you're not going to want to bet your life savings on this.
Pat: If you want to play in it a little bit, play in it.
Scott: Not going to either way. If it blows up to goes to zero, it's not going to make any difference.
Pat: You want to play in it, play in it. If you don't want to play in it, don't play in it.
Scott: Then don't play in it. Feel good about it not playing in it.
Pat: Don't bet the house on it.
Scott: For sure, not bet the house on it.
Pat: Do bet the college kids, your education fund for your son or daughter.
Scott: Before we go...
Pat: And the reason is, they don't go to school. They'll be fine. I'm joking. I am joking.
Scott: I have a 17 year old.
Pat: But speaking of 529 plans now, right, what you can use in part of the big, beautiful bill.
Scott: One Big Beautiful Bill Act.
Pat: Is that the use of 529s has been broadened to include more than just...
Scott: Trade schools and whatnot.
Pat: Yes.
Scott: Yes, it's quite loose actually on what you can use the money for. Which is probably makes sense to me. It should be for... I like the concept of it. These are dollars set aside for your kids, your grandkids, or your nieces and nephews, whatever, to help them move forward in life. For some traditional education university, I don't even know how traditional is the university... A hundred years ago, what percentage of people went to university?
Pat: Not a lot.
Scott: It was a bit of a luxury if you're going to study liberal arts. Probably came from a wealthy family.
Pat: Right before you...
Scott: Or if you're going to go into the ministry of some sort, you went to theology school. Or a very specific trade that required advanced degree.
Pat: That was pretty much it.
Scott: Now, it's all these weird humanities, all kinds of...
Pat: Okay, keep moving before we touch the rail. We won't touch a third rail.
Scott: That's why I'm like, I better not mention something because it's going to tick somebody right now.
Pat: That's right. Before we touch the third rail of podcasting.
Scott: Well, clearly a lot of people are looking at like, "I want to help my kid get further on in life." Right now, there's a lot of people talking, like, you can go and get a psychology major and not get a job and be a barista when you graduate, or you can go to welding school.
Pat: I have a brother that's a heavy diesel mechanic. It's a great job. It's hard on his body, but it's a good paying job.
Scott: So, the 529s can work from that.
Pat: Yes.
Scott: I was going to mention...
Pat: By the way, the provisions of the big, beautiful bill, you and I are slowly leaking them out on this podcast.
Scott: Because there's so many and what's the point?
Pat: Some of these is just so much, right? We go through a list of them.
Scott: It's funny. Yeah, it came out. Actually, I was thinking, Pat, should we have a show dedicated to them? Like, there's so much little stuff. I couldn't do it. It's not. Look, if you want to, you can go do your research. You're going to get our opinion periodically on some sort of... And the one I want to talk about now before we go back to the calls is the Trump accounts.
Pat: Oh, this thousand dollars.
Scott: For kids, yes. They are called Trump accounts, apparently. I guess, Senator Roth got Roth IRAs named after him and, I guess, Trump wants these. But it's 1,000 bucks for every kid born. I would imagine they need to be born in the U.S. There might be some of the requirements. But this is expected to roll out in 2026. The Treasury Department would see the accounts with $1,000 for children born between January 1st, '25 and December 31st, '28. So, it's a three year thing.
Pat: '25 or '26?
Scott: It says 2025.
Pat: Okay.
Scott: And they have to have a Social Security number and be a U.S. citizen, and that's it, only thing to qualify. The program slated to cost the Treasury $15 billion through 2034.
Pat: That's not a real number. The administration alone will cost, well, a lot.
Scott: What are the investment options? Investment must be in low cost mutual funds or exchange traded funds that are made up of mostly U.S. equities. What?
Pat: What could go wrong? What could go wrong? And then, I'll just tell you what's going to happen, over the years, there's going to be provisions that are going to be put into this to allow the people to access these dollars if certain needs arise.
Scott: Of course.
Pat: Much like it has been with IRAs, 401(k)s, Roth IRAs, 529s that you can now convert to a Roth IRA, there will be provisions that will allow people to get to this money. If the government somehow generated their own income. Let's say the government was actually pretty good about making money and had excess money. Not a bad idea. Why don't we spread that excess money? Or if we're Norway and have this tremendous amount of oil reserves. Saudi Arabia treated it a little bit differently how they put their systems.
Scott: Well, CORAC.
Pat: Let's talk about...
Scott: CORAC, CORAC.
Paul: Saudi Arabia spreads it...
Scott: But people always like to point to... Well, Sweden and Norway, they've got excess.
Pat: Yes, Saudi Arabia does spread the money, but just to a relatively few people.
Scott: A handful of people. If that was the case, I would say, okay, sounds like a good idea.
Pat: That's not the case.
Scott: But the government doesn't... First of all, we don't have any more money.
Pat: We have no money.
Scott: And we're borrowing money now to make our expenses.
Pat: What is the deficit? The deficit there is expected to be $2 trillion.
Scott: $2 trillion.
Pat: $2 trillion. That's not the debt. That's a deficit. That means that that's how much more they spent than they brought in.
Scott: It's more than 20% of our expenditures are from borrowed money, I believe it is, somewhere in there.
Pat: So, that's the service debt.
Scott: Yeah, I understand.
Pat: Yes. Which becomes part of the deficit. So, why in the world we should give $1,000 to everyone, because administratively, that will be easy to do. All right, said, I can't do this anymore.
Scott: I don't like the concept, of we're going to take money from that individual over there and give it to this other individual's kid.
Pat: Well, this has no qualifiers on it.
Scott: Warren, the only way the government gets money is through the taxation.
Pat: Bill Gates' daughter has a kid. They get the $1,000?
Scott: There's no qualifiers, everybody. The Trump accounts. And Bill Gates... So, we can remember Trump well into the future.
Pat: And Barron starts procreating. Barron Trump starts procreating and all this money. Okay. All right, I would move on. Let's move on.
Scott: Yeah, yeah. There's the rail. You're touching the rail. We don't want to continue any further down. All right, let's talk with Sue. Sue, you're with All Worth "Money Matters".
Sue: Hi.
Pat: Hi, Sue.
Scott: Hi, Sue.
Sue: How's it going?
Scott: It's going great. Thank you.
Pat: Oh, fantastic. Thank you.
Sue: Oh, that's good. Hey, listen, I plan to retire in a few months. Could you tell me the best way to go ahead and mitigate sequence of returns risk? And also, if you could give me a speedball on the different withdrawal strategies in retirement?
Pat: Yeah, we can give a broad overview of these things. Every situation is quite unique. And I think what you're speaking to, Sue, is sequence of returns. So, you're retiring now, this year.
Sue: In a few months, yeah.
Pat: Okay, in a few months, let's assume. And right now, at least, as we're speaking today, the stock market is at an all-time high.
Sue: Yeah. Tell me about it. Oh, my God, scary.
Pat: And if you look at valuation stamp, for most measurements of valuation, it's at the high-end of things. In some cases, it's at the most extreme high end, as far as it's trading at a price relative to the amount of earnings that these companies have.
Scott: And it doesn't mean that that won't continue or stay stable, right? Because we don't know. But...
Pat: But for those who retired, let's say, on January 1st of 2000, right before the whole .com thing fell apart, it was more challenging for them. Those who retired just before the financial crisis is more challenging for them. Those that retired in the middle of the financial crisis, phenomenal, benefited.
Scott: At the bottom, right?
Pat: That's secrets of return of money.
Scott: Assuming they had the guts to invest.
Pat: So, where are the proceeds of the dollars that you're worried about coming from? Is it a pension lump sum? Is it money in the bank? Is it an inheritance? Or is it a 401(k) or IRA?
Sue: Let's see. It's pre-tax money from the 401(a) plan and the 457 plan. Because you know how there's a division between the determined CVS plan, there's a 401(k) plan for the private sector, a 43(b) plan for non-profits, and then 457 plan for government sector.
Pat: And so, you...
Sue: I work with the government sector.
Pat: And what will your pension be when you retire?
Sue: My pension will be $93,000.
Pat: A year. And so, I assume you work for... I don't know what's...
Sue: The government agency.
Pat: Yeah. So, you have both a 457 and a 401(k)?
Sue: 401(a). Because a 401(k) plan is for the private sector employers.
Scott: Okay, yes. Thank you.
Sue: But the 401(a), the money purchase plan, is allowed for the government sector.
Scott: That's correct. That's correct. So, do you work in the pension department?
Sue: I work with retirement services.
Scott: Okay. I'm thinking, wow.
Pat: Wow, this is...
Scott: Yeah, you're really good, I'm thinking.
Pat: You're getting into it. So, what is your salary? How much do you earn now?
Sue: Salary is $146,000 a year.
Pat: Okay. And how much money is in the 401(a)?
Sue: 401(a) plan is half a million dollars.
Pat: And how is it invested today?
Sue: It's invested, I would say, 60% equities and 40% bonds.
Pat: Okay. And why are you worried about the sequence of return events?
Scott: Let me ask a couple more questions.
Sue: Because I don't want to leave a lot of money for my heirs.
Scott: Let me ask a couple more questions. So, how old are you, Sue?
Sue: 64.
Scott: And are you eligible for Social Security as well?
Sue: I could. But the thing is, I'm reading about so many stuff about Social Security. They said it would benefit me to go ahead and wait until I'm 67, at least, 70.
Scott: You know, this is a...
Sue: And there's some Roth conversion. Do you agree?
Scott: What's interesting is the windfall elimination provision, that was changed through the One Big Beautiful Bill Act.
Sue: Yeah, July 4th.
Scott: So, your Social Security should be fairly significant because of the change in the windfall elimination provision.
Pat: So, let's deal with the sequence of returns thing first. What do you expect your Social Security to be if you...?
Sue: It's $33,600 if I retire today a year.
Pat: So, right now... And you're contributing to your 457 plan today?
Sue: Yes, but not as much because what happened was, I saw that I received too much money. And I'm thinking in terms of, where would I leave this money? I might as well just put in just the minimum. And my minimum is like $600 a month, I mean, let's see, no, $1,200 a month.
Pat: So, $14,000 a year.
Sue: Yeah. It's actually $24,000 because I also have the 401(a) plan.
Scott: Okay. So, you're $146,000 you take off that $24,000, you're really at $122,000, number one. Number two, you're paying FICA taxes on all this, right? Social Security and Medicaid tax.
Sue: Yes, I am. Yes, it's like 10%.
Scott: So, your retirement income is going to be greater than your income today.
Pat: If you start Social Security immediately.
Sue: That's very true, yeah.
Scott: Then why are you worried about sequence of return retirement? It doesn't impact you. It's completely irrelevant for you.
Sue: Because I'm thinking about taking out money from my...
Scott: To spend.
Sue: ...$3.2 million.
Scott: You said you had $500. Even that. You're not going to triple your lifestyle.
Pat: Where did this $3.2 million come from?
Scott: I don't know.
Sue: From my Roth IRA, from my pre-tax accounts, from the 457, 401(a) plan, the regular account of $1.3 million and I have a cash of, like, $270,000.
Pat: Okay. So, what is your concern?
Sue: The sequence of returns risk.
Pat: Okay. Well, first of all, these are invested. The one you told us about the 401(a) with the $500,000, right?
Sue: Yes.
Pat: You had 60% equities, 40% bonds in cash. Wouldn't you just move it into an IRA and keep it at 60% equities, 40% bonds in cash?
Sue: That's what I was thinking about doing because once I leave the company, the person who has the institutional knowledge would be gone. There's nobody else who would take over my place. I'm thinking about doing a rollover to multiple companies. My issue about multiple companies is because of the data security breaches. It's something very, very common right now. It's common as mass shooting.
Pat: That's right.
Sue: And I'm thinking that if I put 100% of my money with Vanguard, I have like a million dollars with Vanguard right now. And I'm thinking that if that's hacked, where would that leave me?
Pat: Okay. As if someone will steal that money from you? Is that what your concern is?
Sue: Yeah. That's also my concern.
Scott: But these are different concerns.
Pat: Okay. Let's address the sequence of returns. Here's the risk. Here's where this applies to. Somebody retires, and to replace their wage is reliant upon their savings and investments to produce a monthly income. So, maybe they take a lump sum from a pension. Maybe they have no pension. They've just been saving. And they're like, "Okay, I now have $2 million," whatever the number is. "I've got I've hit the number I need. I'm going to start taking my withdrawal." And then the first couple of years are horrible returns, and they're like, "Oh, crud." Because now, my withdrawal rate went much higher. I'm not sure this is maintainable long term. That's the sequence of return risk. You're in a position where your guaranteed retirement income, not counting your portfolio, is greater than your current pay income.
Sue: Yeah. That's very true. But the thing is, I'm thinking in terms of from 65 to 70, you remember the go years, low go years and no go years.
Pat: Yeah.
Scott: What happens?
Sue: I'm thinking that I'll be spending a lot more from 65 to 70. And I'd like to take out as much money as I could, maybe.
Pat: Okay, how much?
Sue: Like, 4% or 5%.
Pat: Okay. And you said there's $3.1 million there, right?
Sue: Yes.
Pat: Okay. So, let's say...
Scott: Are you going to suddenly spend $250 a year.
Pat: Wait, so, yeah, let's just go back. I know exactly. Sue, I am 62 years of age. You're 64. You're my older sister. You trust me. You trust. I don't have a dog in this fight, right? You may or may not become a client. I don't care. But I'm just talking to you as your younger brother who's been doing this for a long time. I'm like, okay, Sue, there's $3.1 million here. You don't care. Like, you say to me, "Pat, the day I die, I want my last check to bounce," right?
Sue: Okay, yeah.
Pat: That's what I heard from you, is that you don't want to leave a lot of money to your heirs.
Sue: No, I don't. Especially, I have already planned for my funeral.
Pat: Yes. Sue, I know you plan for your funeral because...
Sue: Yes, risk reduction.
Pat: ...without even... I knew that because you're my older sister. So, I would say to you, "Look, Sue, we've got $3.1 million in here. Your home's paid for. You have no expenses. You got this great pension.
Sue: My house is not paid for, FYI. Because you know what?
Pat: Interest rates.
Sue: I asked my financial planner, I said...
Pat: What's the interest rates.
Sue: "Is there a payoff for this one?" He said that, "You know what? A 2% is free money for you."
Pat: Yes, correct.
Sue: It doesn't make sense to... You want to get the pay off.
Pat: What do you owe on it?
Sue: I think $315,000.
Pat: So, then what we would do is we would actually we'd match maturities on that, so we wouldn't have to worry about it. Which means I'd actually take $315,000. I'd set it up in its own account. It would generate enough income.
Scott: You put it in fixed income, put it probably treasuries.
Pat: And it would generate enough income to make the mortgage payments. Now, and I'd say to "Sue, theoretically, your mortgage is not paid for, but we've already set aside the money. You know it's there. It's going to pay the mortgage." I'd actually have that distribution go directly to the mortgage company every month to pay the bill. That's how I would do it with Sue. Then I would say, "Okay, Sue, now, we've got $2.8 million and we're going to start Social Security and we have income of $126,000." That's what I would say. And we're going to start Social Security income now. The reason we're going to do it now, Sue, is because you told me that you wanted to spend as much money as you possibly could while you actually have the ability to.
Then I now have this $2.8 million of investable assets and I've got income of $126,000. I start up 3% distribution on this investable assets and it will generate $84,000 a year in income on $2.8 million, 3% will generate $84,000. Now, I add this to my $126,000, and now, we're at $220,000 income. And then I say to Sue, "You never fly coach again. You fly first class. Sue, you stay in not the most luxury suite on the cruise, but the third most luxury suite on the cruise." But Sue accumulated these dollars because Sue does not fly first class and she does not stay in the luxury suite on the cruise.
Scott: That is correct.
Pat: Right, Sue? I've not met you, but I've just...
Scott: Yes. Yes.
Pat: You've worked for the government and you've managed to accumulate a few million dollars. You are a good savings.
Sue: Yes.
Pat: So, I say, "Sue, this is what we're going to do." And by the way, we don't have any sequence of return events to worry about because most of your portfolio is actually already invested in equities. Oh, and by the way, if the market's down, we will sell off bonds at that particular time in order to generate income. If the markets are up, we will sell equities in order to generate income so that we try to keep a constant balance in the portfolio based on our investment thesis. And then I say, as your advisor, "Sue, try not to worry about this." And you, Sue, will continue to worry about this forever. Because if you show me someone that doesn't worry about money, I'll show you someone that doesn't have any. This is... And Sue, I had a conversation with a client this morning that has $15 million with me, 79 years of age.
Scott: 79?
Sue: Oh, wow.
Pat: Worried about running out of money.
Sue: That's impressive.
Scott: You're impressive. Pat was just saying the point. It doesn't matter. You can put a zero to this, you would still have the same concerns.
Pat: You still have the same concerns. So, look, we're worried about the wrong thing. Do we do Roth conversions?
Scott: Maybe.
Pat: Yeah, we probably, we probably would look at it.
Scott: Maybe, maybe not.
Pat: They'd be minimal. But then any of the money outside of an IBRS that we manage as tax efficiently as possible. So, you're fine. You would be well served by a high quality advisor.
Scott: I think one of the concerns, Sue, is your knowledge is such that it could actually start to...
Sue: Paralyze me.
Pat: Yes, because you know where all the risk could lie. And you're somehow thinking that they're all going to hit you at once. And the data breaches that you brought up earlier, they happen, but they're not stealing your money in those data breaches. They're stealing monies, like the guy earlier, that asked us whether it's okay to put some money in a crypto wallet of unknown origin.
Sue: Oh, my God.
Pat: The data breaches, they happen. It happens in every organization. There are huge organizations that are built around that. You're insured against a theft from a custodian.
Sue: Really?
Pat: Yes.
Sue: I didn't know that.
Pat: Yes. Yes, yes.
Scott: And there's government rules oftentimes that they have to safeguard. And if they don't, they're responsible.
Pat: Yes. You're okay there, right?
Sue: Yeah. Because one of the, one of the rollovers that I wanted to do was Fidelity.
Scott: That's right.
Sue: I was telling them that I'm going to have $800,000 rollover to them. And I asked, "In the last three years that you have been employed over there, have you had any security breaches?"
Scott: Every company has.
Sue: The employee stated, yes, they had one, I think, three years ago.
Pat: They've had more than five. Okay, well, if they had one, that is an incredible record, just telling you, yes.
Scott: For the size of Fidelity and all the different business lines there?
Pat: For the size of Fidelity, if they had one. But you're worried about the wrong thing. They're answering your questions, right? You want an advisor that wants to tell you, look, ask you questions, and then give you direction. And tell you the things to worry about and what not to worry about.
Scott: Not to worry about.
Sue: Okay. So, I have nothing to worry about.
Scott: Because you have... As far as financial security, Sue, I am not exaggerating, I would put you in the 0.2% of Americans.
Pat: Oh, absolutely.
Sue: Oh, my God. That is wonderful.
Scott: Oh, I kid you not. And I didn't say you're the wealthiest, but when you look at financial security... And I don't even know your situation, but you worked for the government. You've had a good wage, but not screaming good, and you saved these dollars, because you've lived beneath your means...
Pat: All these years.
Scott: ...a long time. And the hardest part for...
Sue: You know why?
Scott: Why?
Sue: Do you know how I did this?
Scott: Yeah, you're fearful of the future.
Sue: I'm usually very frugal, and on top of my budget is savings, it's investments.
Scott: That's right. That's right.
Sue: And I would go ahead and put 50% of my income.
Pat: Of course, you did. But Sue, you talk about changing how you're going to spend money. It is a process. The person I talked about earlier, I send him money every month. And...
Pat: Your biggest hurdle, Sue, is not these risks that you're worried about. It's how are you going to steward these dollars the rest of your life?
Scott: And you may want to start giving some of these dollars to your children.
Sue: I don't have any. That's why I don't want to go ahead and leave a lot of money for my sibling.
Pat: Who's maybe...
Scott: Or some organization that you care about.
Sue: Yeah. Yes.
Scott: And you might find greater value on that than flying first class.
Sue: Okay, I agree with you.
Pat: But you could do both.
Scott: Yeah, but I mean, I was just picking out one kind of very obvious example.
Pat: All right, Sue, go. You've done well. Get yourself a quality advisor. I'd start social security immediately.
Scott: Yes. Assuming you're not going to go back to work at all.
Sue: No, I'm not going to go back to work.
Scott: Well, we'll see.
Sue: No.
Scott: She's going to be worried about run out of money. We'll see.
Sue: I'm going to develop some hobbies.
Scott: What you've got going for you financially in the addition to the fact that you're frugal and you've accumulated millions of dollars is this nice, fat pension. Your guaranteed retirement income is greater than your current salary.
Pat: That is correct.
Sue: That's true. Yeah, especially my burn right now is only $55,000 a year.
Scott: That's right, which is what you told me you wanted to change, but we're going to have a hard time doing it. The problem that you're going to be in your retirement is that you're there. It's the same problem I have when I go on vacation. I'm on vacation with me and I don't really relax.
Pat: You got to take yourself with you.
Scott: I have to take myself wherever I go, which is both good and bad. And my guess is you're going to have a hard time...
Sue: Spending the money.
Scott: ...spending money.
Pat: That's right. That's right.
Sue: Okay. Isn't that so?
Scott: It doesn't bring you value.
Pat: There's not joy in there.
Scott: It doesn't bring you value. If it brought you value, you would have less money saved and you would spend more. And you think, "Oh, I really enjoy shopping. I'm so glad I got this luxury handbag because I feel so good about myself now."
Sue: Louis Vuitton.
Scott: But there are people out there that do value that. And I'm not putting any judgment on either one. That's just reality. And if you could afford those things, then who cares? It's your money. Your values can change some of life, but I don't think they're going to change that much, particularly when it comes to your finances. I don't think you're suddenly going to say, "Oh, it's so nice. Give me the reserve wine list, would you please," when you're out to dinner?
Pat: That's right. Could you see?
Scott: "Do you have any more French wines than this? These wines are too fresh. What do you mean it's only $200 a bottle? Go deep in the cellar, please. I can't drink this swill."
Pat: Can you see her saying that?
Scott: No, of course not.
Pat: That would be awesome. But you can do that.
Scott: You're going to take the saltines and stick them in your purse. There's two extra rolls. You're going to put them in the napkin and put them in your coat pocket on the way out.
Sue: That's so thrilling, Scott.
Scott: All you need buffet doesn't mean it's all you can take.
Pat: All right, appreciate the call.
Sue: Thank you so much.
Scott: But you know, I think, Sue, you're worrying about a lot of external things. You don't need to be worried about those. And you don't need to feel bad about being frugal and your value system when it comes to your finances. Just because you have the assets doesn't mean you need to have a bigger lifestyle. It does mean that you're going to have to... It's the responsibility of what's going to happen to these dollars. Either way, you can decide where you're alive or when you die.
Pat: Or let the government decide how it's going to go down.
Sue: Oh, no. Your asset planning.
Pat: Asset planning.
Scott: And my guess is, with this time, if you found some cause that was true and dear to your heart, where you can invest some of your time and some of your treasure here, you will probably find more satisfaction in that than spending more money.
Pat: And by the way, it doesn't mean that you have to give it to them while you're alive. That would be difficult for you as well, but you can name them as a beneficiary of your will or trust. Anyway, congrats.
Sue: Thank you.
Pat: Great work. Great work.
Sue: Oh, my God, I feel so good about myself.
Scott: Oh, you should.
Pat: Oh, good. Thanks, Sue. We're calling this...
Scott: And she worked in the Pension Department or something, right?
Pat: Probably so she can learn more about the retirements to be prepared for the stage in life. Or probably because it was a job.
Scott: But isn't it funny...
Pat: But she probably saw some great like, "Wow, that's incredible. I get that much money a month," or, "There's no way I can live on that." I bet she saw both.
Scott: I mean, it's interesting. And for every sue, there are 50 people with no money every time, right? Or whatever the number is, there's a lot. Like, a lot of people just have trouble saving, and they don't have the financial resources to go out and spend on luxury goods. And they do anyway, or whatever the case is, or the reserve one, whatever the stuff we can all waste money on. And granted, we understand that there's a large chunk of people that they've never got their career to a point where they make enough money to even make a lot of these decisions.
And you read these stories about someone who lived so modestly, lived in the same apartment their whole life, and then leave $7 million to the local museum or whatever, right? And it's these people that they value accumulating the dollars for some security reasons or for whatever reasons they are. They find no value in spending the dollars. But they can't let go of those dollars while they're living for whatever reason.
Pat: Good for the charities.
Scott: I want to let everyone know about a webinar that we've got coming up. Actually, it's pretty cool because it's a case study, a real client case study in advanced portfolio optimization. And Benjamin Abraham out of our, St. Louis office? Indianapolis office. One of our partner advisors, really clever guy. But what you're going to learn here is you're going to get a behind the scenes breakdown of how our in-house experts and some of the industry leading tools. We've talked here in the program, Pat, about the technology, even in the last couple of years.
Pat: Direct indexing, highly concentrated position.
Scott: You're going to see some cool tools that have helped high net worth. This helped a particular high net worth couple do several things. In this particular case study, you're going to look at, it's going to show how they eliminate the costly capital gains taxes with tax smart restructuring. So, if we look at your whole portfolio, how can we reduce some capital gains by taking advantage of some other things within your portfolio? You're going to look at how they were able to build confidence through a retirement income modeling strategy. So, they got this modeled out and felt they felt good about things. We've talked about probability of outcomes in the past. That's kind of what this looks at. And also, they looked at this couple, how they refine their portfolio to unlock some long-term flexibility, give them greater flexibility. So, it's really kind of a rare look on when you see all things coming together. And that's what... Some pieces of this will, obviously, be fictional to protect the identity of the couple. But the financial stuff is going to be...
Pat: It's real.
Scott: ...real. And maybe we might change the name of a company stock or something just to kind of protect. But otherwise, it's a real thing you're going to be looking at to be part of this webinar. There's three times it's going to be ran. One, Wednesday, August 20th, at 10 a.m. Pacific, Thursday, August 21st, at noon Pacific, Saturday, August 23rd, at 9 a.m. Pacific. And to register and learn more information, go to allworthfinancial.com/workshops. And if you've saved a few bucks and your portfolio has become a little complicated, I think you'll find this helpful.
And we're talking now with Carla. Carla, you're with All Worth's "Money Matters".
Carla: Hi, guys. I love your show.
Pat: Thank you.
Carla: Listen to it every Saturday.
Pat: Awesome.
Carla: So, my question is... Actually, I'm speaking on behalf of my husband. It's regarding IULs and what do you guys think about them? Good, bad?
Scott: What's an IUL?
Pat: Indexed Universal Life Stock.
Carla: Indexed Universal, yeah.
Pat: Well, like an IA is an Index Annuity, this is an IUL.
Scott: I've never recommended them. I don't own one.
Pat: I would not purchase one.
Carla: You would not purchase one.
Pat: No.
Scott: No.
Carla: And what would the reason? Like, what are what are the reasons why you would say?
Scott: I think they're gimmicky.
Pat: First of all, the first question you should ask yourself is, do you need permanent insurance or not permanent insurance? Let's not let's not even talk about whether it's IUL or UL or whole life or variable universal life, VUL. We'll leave that all behind. Let's just say it was the greatest product. It was a permanent product. It was the greatest product in the world. The first question you ask is, do I need permanent life insurance. Which means, do I need life insurance for my whole entire life? Do I need it for 20 years, 30 years, 40 years? You need that? So, what are you trying to ensure against? Do you have children at home?
Carla: No, they're all adults.
Pat: Okay. And so, are you retired or close to retirement age?
Carla: My husband just retired from his main job and he's working on, like, a part-time job now. So, one of our friends or family friend was talking to him about maybe thinking about doing an IUL just for saving on taxes when he starts to withdraw some money.
Pat: Okay. And so, here's the pitch behind this is this IUL...
Scott: Let me back up. So, what ends up happening, there's a lot of people... It doesn't take much to get an insurance license at all. You could do a week class, Carla, and you go down and you take the test and you're an insurance license, and now, you can go out and go to your friends and say, "Hey, I've got this great product. Let me tell you all the wonderful things it's going to do," which they believe. But what they don't know are the other 99 other products that exist out there that maybe are even better because they haven't really been trained on it.
Pat: Like the alternatives, right?
Scott: Like a Roth IRA first.
Pat: Or a S&P 500 fund. So, that's why you start with the premise of do you need insurance at all? And if you do need insurance, how long do you need it for? So, in your situation, the kids are out of the house. Your husband's retired. Did he retire with a pension?
Carla: Yes.
Pat: Okay. Is there other survivor benefits on the pension?
Carla: Yes.
Pat: So that if he passes away, some money goes to you.
Scott: If you said, no, then we're like, whoa.
Carla: I'm sorry. He actually took a lump sum and invested and has rolled it over into an IRA.
Pat: There you go.
Carla: So, he's a beneficiary on the IRA.
Pat: There you go. So, that all that money has been earned. He didn't invest with the friends who sell them the equity Index Annuity.
Carla: No, no, but their pitch is that he can withdraw that money tax free...
Pat: Tax free.
Carla: ...if he puts it in the IUL by way of rolling it on.
Pat: But you got to pay tax to get it out of the IRA.
Scott: Yeah, yeah, you would never use money from an IRA and put it into a...
Pat: You can't. I guess you could. You could pull it all out, pay taxes on it, and put it in there. But that would just be...
Scott: Idiotic.
Pat: Worse, maybe worse than that.
Scott: Yeah, malpractice or...
Pat: Yeah. So, there is no conceivable world that I live in financially where you would even try to make that argument. And I could see the time when a variable life insurance might make some sense or a fixed life insurance, but the index makes no sense to me. Well, that's because of...
Scott: I understand the mathematics. I understand how it all works behind the curtain.
Pat: The market cycles and the whole bit. So, what they're selling, Carla, to you, is how life insurance policies are structured, which is they go in FIFO and they come out FIFO, which is first in, first out, which means that you put your deposits in, you draw those out, then any amount remaining there, you can borrow against the policy contract. As long as the contract's in place on the day to death, then it's magic.
Scott: All tax free.
Pat: It's all tax free. How about the cost of insurance...
Scott: Along the way.
Pat: That's what... If you've lived in a world without cost, right, then...
Carla: It would make sense.
Pat: Then it would make... Much like it would make sense for us all to fly travel private jet if it wasn't for the cost. Is that a bad analogy?
Scott: Yes, I think it is.
Pat: Okay.
Carla: I get it, though. I get the point.
Pat: Yeah. You have no need for this.
Scott: Not only is most people not flown private, most people don't know anyone who flies private unless they have a little Cessna or something.
Pat: I watch it in...
Scott: They're watching too much Netflix.
Pat: I watch the...
Scott: You watch "Billionaires"?
Pat: Showtime's "Billions". And you would never use the money in the IRA, never ever.
Carla: Okay. That makes sense.
Pat: So, your husband's portfolio should probably be 60% equities, 40% bonds and cash, and then a monthly distribution set up so you can retire comfortably. That's all you need to know.
Carla: Perfect.
Pat: All righty.
Carla: Thank you.
Pat: All right, Carla.
Carla: That was my question.
Scott: All right. Thanks, Carla.
Pat: Glad you called. Take care.
Scott: You know, it's funny, Pat, I was thinking this... Was there an order earlier today? I don't know why I'm thinking about these silly products, the insurance company comes up, insurance industry. In this situation, if having an index on the securities market works so well, why wouldn't the insurance company do that with their own portfolio? You think they're taking any of their portfolio and say, "We're going to spend this on options in case the markets do well?" No. Because long-term, you're not going to make money that way.
Pat: That's an excellent point. And it ignores dividends that are paid in the underlying index.
Scott: Well, the way they're structured, they'll return to...
Pat: Well, actually, the fact that they create their own indexes now, which is really amazing.
Scott: But I'm just thinking, if that strategy... I understand how they go and invest for that pool, but if it works so well, why wouldn't they do it in their own...?
Pat: In their own pool?
Scott: Yeah.
Pat: It's the risk.
Scott: Right. I understand all that.
Pat: Yeah. Well, you do, but I think you're doing that for the benefit of the listeners. But just how that was pitched that you take your money out of an IRA, pay taxes, and put it into an index universal life just shows...what it shows is lack of experience, or the person trying to sell the product.
Scott: I remember as a college student, I went to A. L. Williams.
Pat: Did you? The coach?
Scott: Yeah. It was multi-level marketing. It was my pastor from our church. Somehow, he left the church and it became a multi-level marketing guy with A. L. Williams. And I went and they said, basically, how you can be a part-time financial advisor. And I think it was a gardener was sitting next to me and somebody else. And they were pitching me on being a financial planner.
Pat: You decided to finish college instead?
Scott: Yeah, yeah. I think, yeah. And it was all on a part-time basis. But I remember my pastor looked at me and he's trying to get us all pumped up. And he said, "Hey, Scott, if you could drive any kind of car, what kind of car would you drive?" And I remember looking at him and I thought, "You're my pastor. You're supposed to help me to stop thinking about those things. Those come naturally." Like, come on, buddy. The rest of the eyes of vital life and all that stuff. I don't need help with that. I was born with that. That's my first thought.
Pat: So, I'm guessing, you didn't sign up.
Scott: No, I didn't sign up, no. Anyway, it's been good being here with you. Scott Hanson and Pat McClain of Allworth's "Money Matters". We'll see you next week.
Automated Voice: 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 a state-planning attorney to conduct your own due diligence.