Announcer: Would you like an opinion on a financial matter you're dealing with? Whether it's about retirement, investments, taxes, or 401(k)s, Scott Hanson and Pat McClain would like to help you by answering your call. To join Allworth's "Money Matters," call now at 833-99-WORTH. That's 833-99-WORTH.

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

Pat: Pat McClain. Thanks for being with us.

Scott: Yep. Here we are kicking off December. Another program. Glad to have you with us, both myself and my co-host here. We're both financial advisors, certified financial planner, charter financial consultant. We spend our weekdays with people like yourself, broadcast this program on the weekends to be your financial advisors on the air.

Pat: So thanks for joining us

Scott: Yeah, glad to have you part of the program. We've got...one of the things we want to talk about later in the program is I got a note from somebody. I don't know if it's a client or not. I think it was a client questioning why we have no plans on retiring. So I guess that's...

Pat: Personally.

Scott: Yes, that's personally. And so she asked if we can discuss it on the show. So we'll discuss what our thoughts are in that.

Pat: I'm gonna have to spend a couple minutes thinking about it.

Scott: Well, I hope you've had some thoughts on it.

Pat: Ask me on what day. We'll discuss that. We'll discuss that.

Scott: So we'll talk about that, and we'll also, of course, take your calls. And by the way, if you want to get some advice from us before the end of the year, we've got some more tapings of the program lined up, and we would love to take your call. So you can send us an email, questions at moneymatters.com, and we'll get you scheduled, or you can call 833-99-WORTH and set something up as well. But before we go to the calls, both the stock and bond market on fire for the month of November.

Pat: Unbelievable. It boggles the mind. And again, if you've listened to this show any amount of time, they're like, "Oh, these guys just say, stick it out, stick it out, stick it out."

Scott: Yeah.

Pat: Right?

Scott: Okay. Yeah. Yeah.

Pat: Actually, so Charlie Munger died this last week, right?

Scott: I haven't paid attention to what happened to Berkshire. Did you?

Pat: Oh, I haven't. We should look it up. I imagine it didn't move. I did read a couple articles about the age of the board and I thought, well, you know what? It's worked for him so long, maybe sometimes that age and experience actually counts for something, not the hot brand new idea. But if you looked at, you know...

Scott: It was down a tad.

Pat: If you look at Berkshire Hathaway and Warren Buffett and Charlie Munger's kind of business strategy, they stay invested, right, until they accumulate, they do accumulate cash just because the companies they own throw off so much dividend and income that they have places that...and they wait for certain times. But you don't see them up and down lowering their equity exposure in the market that much. It's minimal. And I thought, well, this is a perfect example of...what would Charlie Munger say? By the way, some of the best business quotes I've ever, ever...

Scott: From Charlie Munger.

Pat: From Charlie Munger...ever read. Just I went through like 30 of them. Some of the best business quotes. Like, you know...

Scott: It's funny, I almost clicked a link this morning as I was reading the news. There was a bunch of quotes and I ran out of time.

Pat: Oh, you've got...

Scott: I can go back.

Pat: I've heard some of them, but like I'd seen a list in a row. So if you get a minute and you want some good business quotes...and who doesn't?

Scott: There's nothing like good business quotes to get you going.

Pat: Right? There is. Just so that you can impress your friends with business quotes.

Scott: Yeah, it's just amazing how...I mean, you look how strong the growth was in the third quarter, inflation

Pat: Surprising everybody. The rate of inflation has come down. Inflation itself hasn't come down because that would actually be deflation and that would actually cause more problems than the rate of inflation falling.

Scott: But I mean, it almost feels like the market's on a meltup.

Pat: The movement's so fast.

Scott: Yes, in the last month, five weeks or so.

Pat: Yes.

Scott: Just been on a tear. I mean, it's incredible. We're about to hit new highs.

Pat: And what was it, two months ago, three months ago?

Scott: It was looking really, really bad. And interest rates, the 10-year was above 5% for a period of time. And then that rate went up dramatically quick, which when rates go up, bond prices go down. So it would look, but this, I mean.

Pat: Yeah, it's been, it's been good. It has been good. So again,

Scott: This too shall...

Pat: This too shall pass. This too shall pass. It will not be good forever. There will be a period of turmoil and angst. And that is the cost of excess returns above cash.

Scott: Yeah. Let's go to the calls here. We're in Phoenix talking with Nick. Nick, you're with Allworth's "Money Matters."

Nick: Hey, Pat. Hey, Scott. How are you?

Scott: Hi, Nick.

Nick: Thank you for taking my call. I had a question about after-tax contributions to my 401(k). I just changed jobs this summer and it was my first opportunity to contribute after tax.

Scott: And do they allow you to put a big chunk in there? Some companies do, most do not, but some allow you to do a massive after-tax contribution.

Nick: Yeah, yeah, up to...I think between my pre-tax, my employer contribution, and my after-tax, I think it caps at like $60,000.

Pat: Yeah, okay. Yep. So you work for a relatively large company.

Nick: Yes. Yeah, it's a big company. So I started over the summer. I'm gonna wait until after my December 15th pay to make a conversion because they don't allow the, you know, twice-a-month in-plan conversions I have to do and in-service withdrawal at the end of the year. So I think I'm gonna have right around $20,000 after tax to convert after the 15th. And I don't know a lot about it. I've been trying to read up on it, but I wanted to see if there's anything I needed to be careful about or if there's any risks to doing this.

Scott: So by the way, this is a great strategy for those that work for employers that allow for after-tax contribution above and beyond a normal contribution.

Pat: And you don't see it very often.

Scott: No, it's the minority of companies that do this.

Pat: Yes, yes.

Scott: And so you can take this in service, and this is companies have to allow for this as well, right? You're doing an in-service distribution.

Pat: Yes. Well, he's quitting his job. Did you say you were leaving your job?

Nick: No, no, I started this new job. It hadn't been available to me at my previous job.

Scott: Yeah, so when you convert this to a Roth, it may or may not trigger a taxable event. It depends upon what other IRAs you have.

Pat: Do you have any other IRAs?

Nick: So we each have a Roth IRA that we do a conversion at the beginning of each year, but nothing in a traditional IRA.

Pat: This is like the stars align.

Scott: Yeah, there's no tax consequences.

Pat: You know, this is a great financial planning technique. Quite frankly, you just don't... You know, most employees in the United States work for small companies, not for large companies.

Scott: And even the most large companies don't permit these large after-tax contributions. And a lot don't permit in-service withdrawals.

Pat: But the ones that do, it's a brilliant planning technique. Brilliant.

Nick: Okay, perfect. Yes. I was just gonna roll it into my Roth IRA. Keep it total market just like it was...

Scott: And do it once a year.

Nick: ...in my 401(k).

Scott: Yeah, how old are you?

Nick: Forty-four.

Scott: Okay. And what do you have and how much is in your Roth, ballpark?

Nick: My wife and I each have about $30,000.

Scott: Okay. Yeah, good. Well, then this will give you a chance to...

Pat: I think total market makes a lot of sense, too. Yes.

Nick: Okay. Perfect.

Pat: All right, well nice financial planning there to actually hit on this technique. How did you learn about this?

Nick: Well, when I did my rollover from my previous company to the new 401(k) plan, the person handling the rollover suggested it.

Pat: Good for them. Good for them. Good for them. All right. Appreciate the call.

Scott: Thanks, Nick. Glad you called.

Nick: All right, thank you so much. I appreciate it.

Scott: And let's continue on. We're in North Carolina with Curtis. Curtis, your with Allworth's "Money Matters."

Curtis: Good morning, gentlemen.

Scott: Hello, Curtis.

Curtis: Yeah, I sent a question, through the online portal. Hope y'all are doing... I just started listening to the podcast recently after speaking with some other, personnel at Allworth and figured, you know, I'd put in a question I had and that I share the consensus with some other people.

Pat: All right.

Curtis: So the question was, you know, let's say around 11 grand monthly, what would be a pragmatic savings goal? I'd say expenses at 4k a month. What would be a good savings goal per month for someone making that amount?

Pat: Okay, so you said you're making $132,000 a year is what you said. And your expenses are $48,000. Is that correct? So $11,000 and $4,000 a month, correct? Is that what you said?

Curtis: Yes.

Scott: Well, my guess is when you state your expenses these are like your absolute must-have.

Curtis: Yeah, necessities.

Scott: Yes, mortgage payments, insurance, food, basics before you do anything, before you leave the house, right?

Curtis: Absolutely. So those are the, you know, what's the term they use, EBITDA. And then I take out everything that's absolutely necessary. Shelter, food... Yes

Pat: Okay. So is the $11,000 a month or $132,000 a year, is that a gross number or a net number after taxes?

Curtis: That would be the gross.

Scott: And how old are you, Curtis?

Curtis: Thirty-six.

Scott: And are you married?

Curtis: Will be in 15 days.

Pat: Oh, congratulations. Yeah. Wait, is she aware that you're calling a financial advisor, asking how much money to save for retirement or he or she aware?

Curtis: She is aware of becoming more financially sound and educated on my end. But not of this particular call. She's definitely aware that, you know, I'm looking for other opportunities. Case in point, I did apply with Allworth Financial for an IT position, security architect.

Pat: Oh, good.

Curtis: So hopefully that goes well, but in the standpoint of what we already currently have just, you know, gotta get a goal set and not just falling through the, the lure of consumerism.

Scott: And do you have kids?

Curtis: Three. 10, 7, and soon to be 1 year old. Okay.

Pat: Okay, and what are you doing now to save?

Curtis: Right now I try to keep from buying Roblox for the kids every time they ask.

Pat: Okay. All right.

Curtis: Realistically, yeah. Setting aside 10% for every direct deposit and I don't touch it.

Scott: Where's that going?

Curtis: To a savings account.

Scott: And how much is in the savings account?

Curtis: $2,200 I believe. So very low.

Scott: So when you say you don't touch it...

Pat: You touch it. You try not to touch it, but you touch it.

Scott: Otherwise, there'd be thousands and thousands.

Pat: Yeah. So let's just start at the beginning. Let's just start at the very, very beginning. This person you're marrying, do they have any children?

Curtis: She and I have our one-year-old together.

Pat: All right, so you've got these three children. So if you were sitting down With a good financial advisor, before they started talking about how to save for retirement, they would make sure that the risk portion of your life is covered. So your spouse how much money do they make?

Curtis: $65,000.

Pat: Okay, so between the two, you make about $200,000. You need term life insurance first thing. So before we start saving, before we get into the sexy stuff, we're going to build a foundation. And the foundation says term life insurance is where you need to go. You need to buy a 10 or 15 year level term. You each probably need....you need at least $500,000 and your spouse probably needs $300,000 to $500,000, if not more. I could make an argument that you need $1 million dollars.

Scott: Yeah, for sure. You're 36 years old. Unless you have major health issues, it's...

Pat: It's not that expensive. So we go with $1 million for you and a $0.5 million-plus for your wife. That's the first thing to do. And then the second is, you know, does your employer and your spouse's employer have a 401(k) that's available to you?

Curtis: Hopefully. I know she does. But I'm looking for new employment. I'm sure they will.

Pat: So you want to do up to the match.

Scott: And you saved in the 401(k) in the past?

Curtis: I was saving, but I have to track it down because they had [inaudible 00:14:04.177] and things got transferred. So I have to track that down to see what's there.

Scott: Okay, okay. Look, we are huge proponents of company savings plans, 401(k)s, for one reason. Well, a couple reasons, but one main reason. The money is yanked out of your paycheck and set aside for your future before you have a chance to spend it. Before the kids say, "Oh, we need to get new shoes. We need to take a family vacation. We need soccer dues. We need..." All those other things that are endless. Right. And I don't care. Your combined income is about $200,000. Like, I could show you a family that combined income is $80,000 and they have to figure out how to make things work. And I could find, I could show you families that are making $350,000 or $400,000 and they come to me and say, Scott, I'm having trouble savings. So the income, you're at an income level where there's no reason you can't be saving.

Pat: That's correct.

Curtis: True.

Pat: And what you said earlier is that when the kids want something, that's the competition for your savings dollars.

Scott: You want something? Your kids want something? Your spouse wants something?

Pat: That is the competition.

Scott: They're wants, not needs.

Pat: A trip to Disneyland is the competition for your retirement.

Scott: Going out to dinner.

Pat: New pair of Nikes or whatever, you know, fancy shoe for the 13-year-old or 10-year-old at the time. Those are the competition. So the idea of actually using the 401(k) is a minimum up to the match, a minimum up to the match, but ideally 15%. But I wouldn't start there. First thing I'd do is I'd buy life insurance for you and your spouse. We gave you the numbers earlier. The second thing I would do is I'd sign up immediately for the 401(k)s for your spouse and yourself when it becomes available, 10% of income. And then I would actually start putting money into your, what you said, your savings account, which is $2,200. You want to get that number up to $20,000 or $25,000. Once all that is done, once all that is done, then you come back and you actually increase your 401(k) contributions. After that is done, then we talk about Roths and Roth IRAs. So you've got to do it in that order. People want to go to the sexy part first, like...

Scott: Like investing it in...

Pat: Like this is...

Scott: What do you think about this ETF?

Pat: No one at a party where you're hanging out with your friends says, "Let's talk about life insurance." No one has ever... Well, maybe someone has.

Scott: A life insurance salesman.

Pat: Well, and an actuary. If you had a group of actuaries together, they'd probably talk about life insurance. But in casual conversation, the purchase of life insurance doesn't come up. Don't do anything else. Don't save another dollar until you get that covered. Until you get that covered and don't think that it can't happen to you beause it does. It happens to young people all the time because of accidents or disease or whatever, and you've got three children and a spouse that are relying upon you. Life insurance replaces future income. And I'm not saying buy a big cash value policy with all these bells and whistles. Just go buy the least expensive term you can get. I don't even know if he needs 20.

Scott: He's got a one-year-old.

Pat: All right, I'll go with that. I'll go with that.

Scott: Get him to age 56.

Pat: Do it in that order and if you need us to repeat it, go back and listen to the podcast.

Scott: Appreciate the call, Curtis.

Curtis: I'm taking notes.

Scott: All right. We wish you well, sir.

Pat: Yep. Thank you.

Scott: And before we continue on, this last week I dealt with a family situation. An individual passes away unexpectedly with an eight-year-old.

Pat: No signs, just boom.

Scott: Correct. He might have had some signs. They weren't shared with the rest of the family. Passes away. And the family, you know, as a family member, we're all like, well...

Pat: How old kid?

Scott: Eight.

Pat: Sole provider?

Scott: Shared custody with the with an ex who didn't have a much of a career at all and he was helping I think pay the ex's rent and everything else and there's not a lot of assets there and...

Pat: And you buy life insurance when you qualify. So don't think that life insurance is something that, "Oh, if something happens, I'll buy it," because you can't get it when you need it. You can only get it when you want it.

Scott: Right, if suddenly I'm diagnosed with some sort of cancer, I'm gonna have trouble getting life insurance.

Pat: You can't get life insurance when you need it.

Scott: Just like when your house is on fire, no one's gonna sell you fire insurance. A hurricane is bearing in, no one's gonna give you...

Pat: You're like, "Hey, Jake at State Farm, what do we do?" And Jake's like, "Sorry, busy."

Scott: You know, it's really interesting about life insurance, and no one likes talking about life insurance and there's probably some listeners now like, "Oh, for crying out loud, life insurance." If you look at the amount of insurance that's in place today, amount of life insurance in place, it's like half of what it was 30 years ago. People are buying less life insurance.

Pat: Well, we know why that is. Right? There's less salesmen. There's less salesmen and changing in demographics, changing the demographics, and consumers getting married later in life, that would drive that.

Scott: But if you're getting married later in life, presumably you would be a little more stable financially, so then you'd be able to afford life insurance.

Pat: I could argue both sides of that. I don't know. Okay, so the point being is what? That people are underinsured?

Scott: You get homeowners insurance because you have to. Most people have a mortgage when they buy their first house. And then, if you're able to pay your house off, you still keep it because you're like, "I don't want to wake up and..."

Pat: It just makes sense.

Scott: "I'd hate to have to pay X dollars to replace this house." So you kind of have to. But life insurance, you don't have to buy. And the vast majority of the time, just cheap term insurance makes the most sense.

Pat: Yes, and it's not that expensive.

Scott: So, yeah. Before we hit the next call, Pat, I had stated that I was going to answer this. We got an email from, I think it's a client, one of our advisors forwarded on to us. And so I thought, well, normally...I shouldn't say...I don't ignore them. Normally, we don't read emails on the program because it's not that exciting of a program. But anyway.

Pat: Well, if it's a technical question, it's difficult because then you have to make lots of assumptions about the person.

Scott: Now this is just someone who listens to our podcast regularly, Rhonda had sent this in, and her question on that, and I'm not going to say all the good things she said about the podcast, but it is lots of it. Whew, my.

Pat: Okay. No, there really is. It's hilarious. Okay, well I don't want to hear about that part.

Scott: One idea that I think you could take on is a deeper dive on why you personally aren't planning to retire. For those who are unretiring or think about whether and when to retire, we may benefit from your insights.

Pat: Well, let's just start it by saying that we do not work in a manual labor job. It is stressful at times.

Scott: I was a tree trimmer for five years as a young man. Had a little tree-trimming business. And I'm 56 years old...I'm 57 years old. I couldn't do that job today.

Pat: You could supervise.

Scott: Yeah, but I couldn't...

Pat: You don't think you can climb the tree for eight hours?

Scott: I think how many times my shoulders have been injured the last decade and where I've just been limited on use of shoulder stuff that I would probably have trouble holding a chainsaw out and cutting the limb and grabbing the limb with my other arm like I used to do and all that stuff that young men can do and young women could do.

Pat: So we have a job, as many Americans do, that don't require a ton of physical activity. So at that point in time, you're like, well, if you can do the job physically, then why would you retire or why wouldn't you retire?

Scott: And we've both been in this industry for more than three decades. We've literally counseled thousands of people as they move from the workplace to retirement, both personally, as well as through this show that we've been doing for 28 years.

Pat: And I've seen people retire beautifully and I have seen people retire terribly. And quite frankly, I don't know which one I would be.

Scott: And retirement, it takes planning like any good thing in life. If you're going to go on vacation, if you're going to have a good vacation, usually there's some planning involved.

Pat: A minimum, at least a minimum, "We're gonna go here, this is how long we think we're gonna stay at this place."

Scott: Maybe you're one of those that just says, "Hey, let's just wing it and see if we can find a room for the night."

Pat: I'm not.

Scott: I'm not. Because I've been there where you can't get a room for the night.

Pat: I am not.

Scott: And then you're miserable most of it. So the better idea that you have, you can plan for that, you can live through it. And a lot of people just don't take the time to really plan for it. And studies have shown like the more...whatever the level of responsibilities you have prior to retirement is about the same amount of responsibilities you should have during retirement.

Pat: You should have.

Scott: So if you find yourself, if you're one of these really busy people, and you think that the answer to...you're going to be happier suddenly not being busy, it's probably not the case.

Pat: So your reason for not... You're not thinking you're going to retire.

Scott: I'm 57. I've helped people retire younger than me. I've got friends that are retired now or are about to retire. And to be completely transparent, the concept of me retiring, and if I suddenly had no job today, that would be terrifying to me. I'm just speaking personally. Obviously, it's the things that most of us do, our identity's somewhat tied up with what we do. I find meaning in it. I've got personal relationships through work. But I just feel like I'm still relatively young and I still feel like I have a lot to contribute. So let's just say that I was no longer at Allworth, no longer a financial advisor, I didn't have my licenses or CP designation or whatever, somehow it was all stripped for me, I would find something else. to be fully involved in.

Pat: To engage whether that was for income or not because financially you're...I assume you're able to retire.

Scott: Yes, that is correct. It would be something that I would have weekly commitments, daily commitments. It's just knowing myself. But as I state that, I'm also very fortunate, as are you, Pat, that we've been in a position where we've been able to take time off.

Pat: That's right.

Scott: Right. And go on some vacations, spend time with family. And there are some people that work and that have professions that have been so demanding that they've...well, maybe it's also by their choice, they've never really done some of those things. And they say, "When I'm retired, I'm gonna do this. When I'm retired, I'm gonna do that." And I've lived my life like, if I wanna do this or that, I'm gonna do this or that.

Pat: Well, Scott, I have a thesis about retirement, which is most retirees, what they want more than anything that they're looking for is control over their calendars, not necessarily leaving the workforce. They want control over their calendars. I have a client right now, he's 78, couple of them, that left the formal workplace 15 years ago, 20 years ago and have been consulting ever since. And the reason they like to consult...

Scott: Right, they have control.

Pat: They have control over their calendars. They don't necessarily have control over the jobs that are coming to them, but they feel engaged. It gets them out into the world. They socialize. They challenge themselves, but they have control over their calendar.

Scott: Not everyone can do consulting.

Pat: That's right.

Scott: Depending on your profession and frankly how good you are.

Pat: Maybe what we should redefine is the word retirement. And quite frankly...

Scott: So what about you? You're 60.

Pat: Sixty-one.

Scott: Sixty-one? Happy birthday. Did you...

Pat: Last week.

Scott: Oh, happy birthday. I missed it.

Pat: Was it last week?

Scott: I got you...

Pat: No, it was this week.

Scott: What is your birthday?

Pat: It's the 28th. It was Tuesday. I actually...

Scott: It's funny because like my 13-year-old will countdown how many days till her birthday. You know, when you get older, it's not quite the same.

Pat: Oh, yeah. Yeah, actually, I worked out at the gym, went to lunch with some clients, did some work, and I was in bed by 7:30 at night, like every good 61-year-old should be. Actually, the reason...

Scott: The early dinner, dinner at 4:15.

Pat: Well, I actually had a very early morning flight that required me to get out of bed at 3:00 in the morning to catch the flight. Otherwise, I wouldn't be to bed that early. But I thought to myself...when I was doing that, I thought to myself about retirement.

Scott: And then let me quick question. So early flight, was that work related?

Pat: It was work related.

Scott: Okay, so you get up a three-something to get an early flight to go some probably back East somewhere.

Pat: I was meeting with a firm in Billings, Montana, flying from Sacramento.

Scott: On your birthday?

Pat: Day after my birthday. Okay. Day after my birthday.

Scott: So you went to bed early because you had to get up early.

Pat: Yeah, on my birthday. And the reality... So if I'm honest with myself one of the reasons I stepped down as co-CEO of Allworth is because I wasn't really enjoying the job anymore. And I didn't feel I was being as effective as I should have been, that my coworkers deserved. And, you know, we went and found a CEO that had more experience than both you and I. Changing that environment led me to believe that, "Oh, I could do this a lot, lot, lot longer."

Scott: And do this working with clients, doing the education stuff with the program, leading the advisory team, helping design the financial planning that we do.

Pat: Finding my space, finding my space. And sometimes, you know, jobs can grow past either your ability or your desire to do them. And it's okay to actually say I don't want to be that. Like, I want something that better fits where I'm at in this stage of my life. So retirement doesn't, you know, ask me four years from now or five years or six years from now, but there isn't a drop dead date, but you know, we have the unbelievable privilege of actually having a lot of control, but it's got...

Scott: We do. I think it's a little unique.

Pat: I understand. But I think a lot of the large corporations are recognizing that and beginning to accommodate that.

Scott: Well, they've certainly been talking that for a long time. I haven't seen a whole... Every once in a while, you'll...I mean, when was the last time you heard someone said they're now job sharing with somebody? It's kind of hard to do anyway.

Pat: It is.

Scott: If you're a teacher...

Pat: Well, that's exactly who I was thinking when you said your job sharing.

Scott: Other than that...

Pat: It's hard.

Scott: I don't think... No one at Allworth is job sharing. We've had many people retire.

Pat: That's right. Anyway, that's the answer to the question that this person asked. So... And ask me next week.

Scott: Well, oftentimes people retire, something changes.

Pat: That triggers that.

Scott: Look, and we're big on people getting financially prepared for retirement. Like, that is crucial. Whether or not you ever want to retire, there's a good chance that you are not going to be able to work at some point in time.

Pat: Yeah, that's almost a certainty. That's almost a certainty

Scott: Yeah, unless you die in the job, you're gonna get to the point when your cognitive reason is not going to be quite what it was.

Pat: You don't have energy.

Scott: Your energy level is not going to be what it was. Maybe your workplace no longer sees the value in what you're doing.

Pat: All of those things. So the idea is...

Scott: Or you've got a health issue that takes you out.

Pat: ...you prepare for the retirement is the most important thing. How you choose to... By the way, the better you're prepared for retirement, the more flexibility there is to stay in the work.

Scott: Yes.

Pat: Because then it's a... And then you're negotiating from strength or you are confident enough that regardless of what the outcome is. But I retired many a client where the stress had created health issues, the stress created the health issues. And I said to 'em, you either...

Scott: People that have been running hard and suddenly in their mid-50s and, like, doctor kind of like, "Either you do something different or you're gonna..."

Pat: And I say to 'em, look, if you can't figure out how to manage the stress, then maybe it's time to retire.

Scott: Yeah, or do something different.

Pat: That's right.

Scott: And oftentimes it's...people preparing for retirement, maybe they're three years out from retirement, suddenly there's a reorg with their work, new manager...

Pat: We can't talk about ourselves anymore. This is enough.

Scott: I was just answering that we're talking about retirement.

Pat: I understand. I understand.

Scott: You don't like talking about yourself?

Pat: Only to my closest friends. Then they can't get enough.

Scott: Tell me more, Pat. I want to hear more about your situation.

Pat: My old friends from high school, I call them up and talk about myself.

Scott: All right, let's continue back with the calls here. Let's talk to Ellen in Ohio. Ellen, you're with Allworth's "Money Matters."

Ellen: I have a specific question about when you would recommend a person looking at annuities. So I am 64. I'll be 65 in March. My plan had been to stop working when I turned 65. That may or may not happen, but I'll at least go down in hours. So I will be not working as much when I turn 65.

Pat: Okay.

Ellen: And right after the first of the year, I'm going to be getting approximately two years worth of income from a deferred comp plan from my company. And taking that money is what I'm wondering, would it be a good idea to put into an annuity? I haven't thought about annuities for 15 years or so and I had heard at that time, huge fees that the brokers would receive and so I said, no, never going to be interested. Put it to the back of my mind. And now that I have this specific circumstance coming up, I'm wondering. I've heard that annuities have kind of changed over time and maybe it's not the huge fees anymore and maybe it is something that I should be considering.

Scott: What is it you're hoping an annuity would provide for you?

Ellen: Stability of inflow. I'm a very conservative person. I think I have fine enough money and everything. I'm a good saver. You will definitely say that when you hear. Okay. But I'm also very conservative, old fashioned, just want to have that security of knowing that there's money coming in.

Scott: What do you have in savings? 401(k), IRA, what have you saved up?

Ellen: In my retirement account, I have about $1.5 million.

Scott: And how's that invested?

Ellen: Primarily that would probably be, at this point in time, about 75% mutual funds. There's a reason because...you need to know I have about $900,000 in cash and cash equivalents right now. That number's gone up a lot recently. I haven't had that much money in cash, but I have a lot of cash, so I've been starting to put my retirement that shouldn't...I have to touch for quite some time. I've put more of that into mutual funds.

Pat: And you said recently that all of a sudden there's a lot more money in cash. What has happened recently that has caused a spike in your cash holdings?

Ellen: Two things primarily. I'm part owner in a company for a couple of years now. And I moved from Colorado, cost of living and housing prices. A lot higher there than it is in rural Ohio where I currently am. So I got a lot of money out of real estate.

Pat: Okay. And do you own your primary residence now? Yes. And how much money do you think you're going to need to live on?

Ellen: I'm cheap and conservative. I could live on very little, but $50,000 a year, $60,000 a year sounds fine.

Scott: And what's your health like relative to other 64-year-old women?

Ellen: It's decent. It's average. I'd say I have longevity in my family side for females. So I've got good genes. If I could just be a little more active and lose some weight, I'd probably be healthier. But it's probably average, I'd say.

Pat: And single.

Ellen: Yes.

Scott: You might be a good candidate for an immediate annuity. Yeah. In this market. Like a year ago, I mean, rates have been so low for a while, I was just like, it's not a very good time to lock your money in for the rest of your life.

Pat: But how much how much after-tax dollars will come out in 2024?

Ellen: For the differed comp or in total?

Pat: No, no, well, this is...yeah, you were talking about a non-qualified deferred compensation plan, I assume, that's going to spring at the time that you lower your...right?

Ellen: Yeah.

Pat: How much money will come out?

Ellen: After tax, $250,000.

Pat: Yeah, it wouldn't bother me. I could see...

Scott: An immediate annuity.

Pat: An immediate annuity.

Ellen: Which means what exactly?

Scott: You give up control of that dollar in return... It's like buying a monthly pension.

Ellen: Uh-huh.

Pat: It's like taking this non-qualified deferred compensation and converting it to a monthly pension.

Ellen: Okay.

Scott: And a year ago, the rates wouldn't have been attractive. They're much more attractive today.

Ellen: Okay.

Pat: You're only doing it to make yourself feel good though.

Ellen: Yeah. Yeah.

Scott: That's the only reason you're doing it. Don't buy an equity index annuity or you don't need a variable annuity.

Pat: You don't need to do this. I mean, look we could take that 250 grand, you drop it on top of the cash that you have now you're at $1.15 million. We add it up, it's all $2.65 million What was your income last year?

Ellen: Well, my wage is $175,000, but my taxable adjusted gross income is just under $500,000.

Pat: Okay. Yeah, you're doing it to make yourself feel good. Okay. I can make an argument...

Scott: You can be really conservative in parts of your portfolio.

Pat: That's right.

Scott: You might want to do either kind of a, you don't want to be 100% conservative in everything.

Pat: By the way, you kinda got it backwards a little bit here too.

Scott: What's backwards?

Pat: She's got all the equities in her retirement plan and you've got all your taxable stuff outside, and it should be actually the opposite. And the reason is that income that's being derived from your cash... Let's say we put a bond, a conservative bond portfolio, average length, medium length bond, intermediate length bond portfolio in there, that's going to be taxed as ordinary income as it comes off versus if you had reversed it and put that in your IRA and the equities tax managed outside, they're going to receive not only a step-up in basis at death, but you're going to have a capital gains when you go to sell them.

Scott: And very little in the way of taxable distributions.

Pat: And very, very little bid on the...

Scott: And their qualified dividends, even the ones that aren't, so...

Pat: Yeah. So you've, you've kind of got it backwards. Well, not kinda, you got it backwards. And so, you know, quite frankly, have you ever used a qualified advisor before?

Ellen: No.

Scott: You just have a couple of conversations with him.

Pat: Yeah, go pay them for a financial plan and...

Scott: Have a couple of conversations, find someone you like and trust.

Pat: I mean, I've known you for what? How long have we been going there? Four minutes, five minutes, maybe. Right? You look at it and you're like, oh, great saver. You said you were a good saver. I liked the fact that you actually asked about the annuity. Yeah. I could argue for or against it. Economically, it's not going to make a bit of difference. I don't think I... If you were my sister, I'd say that don't bother, but your portfolio needs to be tweaked.

Scott: If your portfolio was much smaller, there actually might be a larger opportunity to use it.

Pat: No question. There's no question. So if you look at how much of your...

Scott: If you didn't have any buffer, but you've got a lot of buffer.

Pat: Yeah. And then your income, you need $50,000 a year to live on. Your social security is going to provide $35,000 of that. Right? So yeah, I mean, I think that you should actually take more income than 50 grand out to live on. I think you should live it up a little bit, buy yourself, you know, whatever you guys buy in Ohio, what is it? Corn? What is it? Chili? You guys eat chili with spaghetti.

Scott: What is that weird chili they have in Ohio?

Pat: Skyline Chili.

Scott: Is that what they call it?

Ellen: Yes, Skyline, yes. Yeah, get yourself some extra Skyline. Get yourself, like Skyline. But that's gonna be...

Scott: Yeah, get yourself some extra Skyline. But that's gonna be contrary to the things she says. She's trying to lose some weight.

Pat: You get them on the spaghetti noodles and then they put the cheese.

Scott: I don't know why they call it chili.

Pat: I don't know either.

Scott: I love local traditions, I must say.

Pat: Yes, but not that one.

Scott: Oh, come on. Anyway, all right. Good luck to you. Pay an advisor or just have a couple of conversations with one.

Pat: Wish you well, Ellen.

Scott: Well, we are nearing the time of...this show will be coming to an end.

Pat: Yeah, but in the last couple of minutes, I did want to talk about the massive amounts of cash in investors' pockets, in brokerage accounts and in high-yields.

Scott: Money markets. I think money markets hit new highs.

Pat: And this came to me. One of my four children, my oldest, his friend has a job, works in Omaha, Nebraska, and he reached out to me and said, you know, "Mr. McClain." I'm like, "You can call me Pat because you're almost 30." But, "I've got this money in my IRA and I've got some money outside of my IRA. I want to talk to you about how to invest it." And he made a comment to me, which I thought was striking. He said, "Well, why would I put money in the stock market?" Essentially he said, when money markets are paying 5%, why do you need stocks? What's the point of stocks? And I thought to myself, this is what many investors are thinking right now, which is why take the risk of stock market ups and downs when I can get 5%, close to 5%?

Scott: You got 5% and inflation's running 3.5% and you've got taxes on top of that, you're not earning anything.

Pat: I went through, look, every investment is based on a timeline. It's not based on, you know, that's what...because the longer the timeline in the stock market, the less risk there is.

Scott: Exactly.

Pat: So I said, if you're saving money for...

Scott: Historically, stocks have done 5 to 6 percentage points above the rate of inflation.

Pat: That's right.

Scott: Over long periods of time.

Pat: That's right.

Scott: Real return.

Pat: It reminded me to talk about this on this show, which is look, money markets are fine for short-term cash, but for long-term retirement, it's a terrible idea. It's an awful idea.

Scott: And if you found yourself moved money out of some more growth assets and it's been sitting in cash and you've just missed this massive run-up, maybe it's time to talk to an advisor and get some help. It'll be worth what you pay. I'm pretty sure of that. Anyway, it's been great having you with us. Join us again next week. This has been Scott Hanson and Pat McClain, Allworth's "Money Matters."

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