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December 23, 2023 - Money Matters Podcast

Bridging the gap between having wealth and feeling free, where to invest an inheritance, and questions about Social Security and Roth conversions.

On this week’s Money Matters, Scott and Pat explain why having all the money in the world may not lessen your worry about it. A Pennsylvania teacher who just retired wants to know where she should invest inherited money. An Arizona caller asks whether she can claim her late ex-husband’s Social Security. Finally, a woman who called in the day after retiring finds out when she should do Roth conversions.

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

Download and rate our podcast here.


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: Hey, everyone, Scott Hanson here with Allworth's "Money Matters." Hope everyone is having a great Christmas and holiday season. Hey, Pat and I, due to the holidays, are taking this week off. We're having a best of, hope you enjoy it, but we want to offer our best wishes for everybody for the season and for the end of the year. Appreciate you being listeners to our podcast. Thanks so much. By the way, if you enjoy our podcast, share it with a friend. Merry Christmas, everybody.

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

Pat: I'm Pat McClain, thanks for joining us.

Scott: Yeah, glad you are here taking some time to be part of our lives. Both myself and my co-host we're practicing financial advisors we spend weekdays helping people like yourself and spend broadcast anywhere in the weekends hopefully helping you. And love taking your calls, answering questions talking about what's going on in the current world, the financial markets. Hopefully being part of the program you could have a little more confidence in your own finances.

This week we had a number of our advisors together over a couple days, had a dinner and just chatting. And I was talking with one of our advisors. He was just...we were talking about how interesting it is that we have no wealthy clients. What I mean by that is very few people consider themselves wealthy. So the person with $2 million says, "Well, clearly I'm not wealthy. I mean, if I had $5 million, I'd be wealthy." And the person with $5 million says, "Well, I'm not wealthy. I mean, if I had $20 million, then I'd be wealthy." But then the guy with $20 million is like, "Well, I don't know, you know how expensive it is to do this and that. I've got this, I got to... If I had $100 million, then I'd be wealthy." And like there's very little correlation between how much you have in net worth and savings and financial confidence.

Pat: How you feel about it.

Scott: And in part, I think it's those that have done a great job saving do so because of concern about the future, looking for finances to provide some security. And there's always this portion of it that could be fleeting because there's inflation could eat it up, the stock market can crash, our systems of government, the debt. I mean, if you want to be awake at 2:00 in the morning and think of all the things that can derail your finances, whether you've got $500,000 saved for retirement or $500 million, you can still have a whole list of worries.

Pat: That's confidence.

Scott: Or lack thereof of confidence.

Pat: That's right. Yeah.

Scott: And studies have shown that the people that have a spending plan in place along with an investment plan tend to have more confidence in their finances because then they can remind themselves, "Wait a minute. Even if I'm somebody who charters a private plane or spends, has a huge lifestyle," you can kind of say, "Here's what I'm spending." Whether you're that person or someone who's got modest savings for retirement, model it out and know with a high degree of confidence that you're going to be able to be maintain your standard of living throughout the rest of your life.

Pat: Based upon what you need to live and allow the portfolios to go through cycles.

Scott: Yeah, there's actually... Wall Street Journal had an article this past week. They asked readers to write in about those who aren't planning on retiring. And they probably did 10 different stories of people, here's why I'm not planning to retire and here's why I'm not planning to retire. And you look at the reality people end up retiring because sometimes the workplace doesn't want them anymore for cognitive reasons. Some might say the person in the White House should be in retirement for cognitive reasons. But the key, I think, what we've discovered with people is not necessarily the retirement, being in a position where retirement's an option. So you're going to work not for the paycheck, not for the financial security, you're going to work for some other reasons. And so getting to the point where you are financially confident, financially independent, whether or not you work, that in and of itself can be quite a freeing thing.

Pat: Yes. So we had a bunch of advisors and I had a conversation with a gentleman who has an adult son. And he said his adult son's mother-in-law and father-in-law had passed away and that his wife had come into a large inheritance. And he said it took his own son less than three years to blow through all of it. It was quite large, all of it. And he said...

Scott: Like six figure? Seven figure?

Pat: Seven figures. And he said, you know, the son would ask me questions about what to do, but then never took the advice and went through all of it. And he said, I've got three children and two of them would have never acted like that, but the one that inherited the money was like, "We hit the lotto and we're gonna get rid of it as quickly as possible." And so he made this observation of, they ask questions, but they don't listen. And he said, "At some point in time, I just quit giving him advice because I knew what was gonna happen. And why waste my time on that?" And I thought to myself, isn't it strange that this financial advisor who struggled and built his business and was quite successful, then integrated with us, how his own children could watch this and it made no difference? And I thought nature-nurture, right?

Scott: Yeah, and you always get a kick out of parents, you know, first-time parents with young kids and they're doing all these things because it's all going to work out this. They've got all the whole plan for their kids' lives, right? And if anyone has adult kids, you know that, most of the time, their hopes and dreams for their lives aren't necessarily your hopes and dreams for their lives.

Pat: They're going to go their own direction.

Scott: And so here's this guy who goes into the profession of financial planning in large part for the same reason a lot of psychologists do stuff, right?

Pat: Take care of their own issues.

Scott: Yeah. And here is his son...

Pat: And he was just so troubled by it. He was just really kind of like, it was so hard to watch. And I said, you know, you just got to give it up.

Scott: It's always easier to look at someone else's kids and say, "Why don't you just relax and enjoy the journey."

Pat: I guess that's true. I guess that's true.

Scott: Well, just relax, you have no control. It's all gonna work out. Maybe not the way you like, but it's gonna work out.

Pat: I did point out, I said, you know the good thing is, unless there's mental illness or addiction, no one starves in America. That was my condolences to him. They probably had a good few years. I wish I was their neighbor. Hey, you having a party again Friday night? Oh, I remember.

Scott: What wine are we drinking tonight?

Pat: I remember in high school one of my friends had lost an eye in a BB gun accident when he was 18. He came into all this money from a settlement and...

Scott: Oh, no.

Pat: Oh, yes. We were 18. He was like, "Let's go here." "I don't have any money." He's like, "I got plenty. Let's do this. Let's have a big party."

Scott: Yeah, young people and money is usually a bad combination.

Pat: You want to be very very careful. Well, we've seen it with clients. We've seen it with clients, with their kids, get settlements or inheritances and it derails.

Scott: Yeah, on that by the way, I mean, unless your kids are of an age and a responsibility that they can handle an inheritance, we would recommend you structure your estate plan in such a way that there's some limitations on their ability to spend the dollars. And not all kids. I know a lot of parents, they want to be totally equal. I've never taken that approach in my life. I've got four kids, like they're all different. I'm not going to be equal. They all have different needs, like whatever. It's just reality. And it's structured differently where I've got one that I don't think this one would is ever going to be good with money. So if my wife and I die early, there was some money for there. She can get a little bit of income based on some factors. She's not getting the, the principal of it. I don't know if she'll ever have control of the principal of it, the way it's structured.

Pat: And the others, you don't have it that same way.

Scott: I've got two minors still, so there's...yeah, I've got another adult kid that he...

Pat: Am I still the...

Scott: The one, my son...

Pat: One second, Scott. Years ago you told me that I was the trustee. Am I still?

Scott: You are, for my older two, yes. You want that job?

Pat: I'll be okay.

Scott: Yep, if they want any money to start a business, they've gotta get it from Pat.

Pat: I'm like, perfect. They're...

Scott: I do have a successor listed, Pat.

Pat: Okay, thank you. By the way, if you're named as a trustee of an estate. You do not have to actually take that job, you can actually hire a third-party trustee or you can name the successor trustee.

Scott: Consider Pat and I have been business partners for 30-some years.

Pat: I think I'll be alright.

Scott: All right, let's take some calls here. If you want to be part of our program 833-99-WORTH will get you on Allworth's "Money Matters." 833-99-WORTH. We're in Pennsylvania with Crystal. Crystal, you're with Allworth's "Money Matters"

Crystal: Yes.

Scott: Hi, Crystal.

Crystal: Hello.

Scott: Hello.

Crystal: How are you?

Scott: We're really good.

Pat: What can we do to help or try to help?

Crystal: Okay, well, I am recently retired as an elementary teacher.

Scott: Oh, thank you.

Crystal: I had... Yes.

Scott: Not thank you for retiring. I mean, thank you for being an elementary teacher.

Pat: How many years?

Crystal: Thirty-five.

Pat: In what grade?

Crystal: I actually taught them all from kindergarten to fourth and then a semester and fifth grade.

Pat: That is some hard work. I went on a field trip with my daughter's fifth-grade class last week, 30 kids to a... where did we go? We went to a university, a planetarium in the university. And I gotta tell you, Crystal, I couldn't make it as a teacher for more than a day.

Scott: This last Thursday I drove a carpool with my neighbors. I had six kids in the car, in our suburban, six kids, kindergarten through seventh grade, and I literally remember thinking to myself, I'm being very transparent, "I hate this." Just because their's fighting, the siblings are fighting and the ones angry and the whole thing. I'm like, not a good way to start my day. So God bless you.

Pat: Oh, gosh, 35 years. Thank you, thank you for your service.

Scott: No kidding.

Crystal: I have really enjoyed it. It was a gift of God.

Pat: That's great.

Scott: Wonderful. Good for you.

Crystal: Well, yes. So that's where I am in my income. And I have not done a good job doing a lot of savings, but thank goodness for a pension. And now I have come into an inheritance, just slightly around six-digit inheritance. My father passed away in June of last year.

Scott: Sorry about that.

Crystal: Thank you. And so now, my husband and I are trying to make some decisions about what is the best thing to do with that, roll it over into the 403(k), which is going to be changing when I turn 60...403(b), right?

Pat: That's correct.

Crystal: Okay, or just to put it in there, or whether to go ahead and pay off our mortgage, which in 2011, we had a 30-year mortgage, so we still have about $47,000 left on that.

Pat: What's the interest rate?

Crystal: It's a low interest rate actually and right now we're currently paying about $500 a month.

Pat: So, let's, let's start with this. How old are you?

Crystal: So. I am 59.

Pat: And your spouse?

Crystal: Sixty-three.

Scott: And is he retired?

Crystal: He is our building and grounds supervisor at our church and he has not always worked.

Scott: My guess is it's not a high-paid job.

Crystal: Correct. He has been a stay-at-home dad for our two children for many of the years. We are also trying to figure out, this is a second thing, what option to take in my retirement for the pension. It's a twofold thing, but yes, his income is not very high. We do not have savings. We're lucky to live paycheck by paycheck, but with the Dave Ramsey program, we have no debt.

Pat: Other than the mortgage.

Crystal: The mortgage is debt.

Pat: And by the way, so we have the utmost respect for Dave Ramsey and his...they call 'em baby steps or money steps or all these different programs, which are very thematic. You can follow them if you have the discipline. What will your monthly pension be as a joint and survivor? So you're going to get the highest benefit to him at your death.

Scott: She hasn't made that decision yet.

Pat: I understand, but we're going to start with someone. We're going to start with that because that will tell us what the lowest monthly pension that you will receive.

Crystal: Okay. If I were to go 100% where he would get 100%, it would be about $4,000 a month. If we went with a 50% option, that would be about $4,000 a month. Okay. So, yeah, well, they're close. Well, it's $3,960 to $4,118.

Pat: Okay. And so that's the... So it's $4,000 a month. We're going to go with that. And are you social security eligible?

Crystal: Yes.

Pat: And is your husband?

Crystal: Yes.

Pat: Okay. And no money in savings.

Scott: She's got a 403(b).

Crystal: Yes, and we actually have been putting my our youngest son through college without any debt. So pretty much it's been where our, you know, when he came into working, my husband did, we just pretty much saved that away for college expenses.

Pat: And how much money is in your 403(b)?

Crystal: About $250,000.

Pat: Oh, you've done okay, you've done all right.

Crystal: Oh, okay. That's the pension. I mean, that's not...

Scott: Yeah, yeah, yeah. If you didn't have the pension, you'd be in trouble.

Crystal: Yes. Exactly. Yes.

Scott: Yes, but you would have known that through your career and like would have made some other plans. What was your income just prior to retirement? So your pension is about $48,000 a year. What were you at before?

Crystal: So are you speaking just my income or combined? My income was $77,000.

Scott: And how much have you been saving into your 403(b) the last few years?

Crystal: No, this is just the rollover.

Scott: No, no, but were you saving? When you were working were you saving into your 403(b)?

Crystal: No.

Scott: Okay. So the 250,000 came from years prior?

Crystal: Yes.

Scott: Okay. Yeah, just trying to get an idea of what it cost to run the household.

Pat: And so you's $1million dollars. How much is, did you inherit the?

Crystal: No, no, no, no, no.

Scott: Six figures, not seven.

Crystal: Not seven. And actually, the lowest you can, you know, it's just going to be about $100,000.

Scott: Okay. And your $500 a month mortgage, is that including taxes and insurance or is that just principal and interest?

Crystal: Principal and interest. Oh, no, I think it...actually, I think it is everything. Let's go with everything.

Scott: And what do you have in the bank?

Crystal: Not much.

Scott: I think you just keep these dollars pretty conservative. I wouldn't... First of all, you can't roll them into your 403(b) because that's a tax shelter program. It has to be separate.

Pat: It has to come out of your income in this... And because you're actually retired, there's ways that you do workarounds, but it doesn't work once you're retired.

Scott: If I were in your situation, I would probably take that $100,000 and just put it in some high-interest savings. At the same time, I would take the 403(b) and allocate that a little more aggressively. Just because if you think about over the next decade, I mean, you're going to have social security kicking in at some point in time in the future, which we haven't discussed, but you've got some expenses that come up. You need a new car. You need to replace the roof.

Pat: You wouldn't have her pay off the mortgage. You're going, I've worked with you a long time. You're vacillating on this one.

Scott: Well, that's why I asked is it principal. My guess is 200 bucks a month of it is taxes and insurance.

Pat: Yes.

Scott: Is that right? And what's the interest rate on it?

Crystal: I, you know, my husband does that part. I just know that it was a low one when we got it. So five-ish.

Pat: Probably lower.

Scott: Oh, it's gonna be lower.

Pat: I gotta tell you, Scott...

Crystal: It could even be lower than that. It was in 2011. It was probably 3%.

Scott: You think they should just pay off the mortgage?

Pat: I would just. Look, it isn't the most...

Scott: It's a push.

Pat: Yeah, financially you could make an argument why you should keep it in the bank and not pay off the mortgage. I just think for peace of mind

Crystal: That's what we were leaning towards and I'm going to throw in this too. I am a breast cancer survivor. I worry about going before him. I have been seven years cancer-free right now. But yeah, as I'm thinking, peace of mind possibly.

Scott: Yeah.

Pat: Here's what I would do. I would actually take the full, based on the information you just gave us, I'd take the full joint survivor on the pension.

Scott: Joint 100%.

Pat: Joint 100% on the pension because of what the information you just shared with us, and that he is older. I'd pay off that mortgage. I'd put the rest of it in a high-yield savings account. I'd reallocate that 403(b). I'd roll it into an IRA.

Crystal: Yeah, that is going to happen when I turn 60.

Scott: And with your husband working right now, are you able to manage... Well, you haven't started the pension yet, have you? So we'll see how the time goes cashflow-wise. Because you could always start a little bit, a distribution from that 403(b), but with your husband working, I would try to hold off if you could.

Pat: I would as well.

Crystal: Yeah, he's going to work until he's 65 so that he can can take your social security at 65.

Pat: You can take it at 62.

Scott: If you're not working. Medicare is 65.

Pat: Medicare is 65. But I wouldn't make that decision today. I'd wait until he was 65. I mean, he works at a church. He's a groundskeeper. Does he like the work?

Crystal: Yes. He's very intelligent. It's a long story. We won't go into that one, but yes. He enjoys the work. He enjoys different things.

Pat: You might find you might want to go back to work doing something part time or...right? You worked for 35 years, you've raised a family, you were pretty engaged. You might find that when you sit at home for three weeks, you're going to go crazy.

Crystal: Right, right, right.

Pat: And drive the other people. So take the full joint survivor, pay the mortgage off.

Scott: I like the idea of paying the mortgage off. It's half the inheritance. Then you could say, isn't horrible that my father passed away, but we're able to...he helped us get this mortgage paid off.

Pat: All right, in full disclosure, your inheritance is yours. It's not community property. If you pay off that mortgage, it becomes community property and it is no longer yours. Just throwing it out there, whether that changes...

Scott: So if you're about ready to kick your husband out of the house...

Pat: Don't do it.

Scott: All the other issues aside, let's forget about... A pure financial standpoint, don't get divorced.

Crystal: No go, not planning on it.

Pat: Perfect, perfect, perfect, perfect. You're good, all right.

Scott: Wish you well, Crystal.

Crystal: Okay, thank you so much. Bye-bye.

Pat: Thirty-five years in a classroom.

Scott: I do love...I said that, like, but this carpool this week is...I'm starting to think I don't like this at all.

Pat: Some days are fun. Some days you like it.

Scott: It was a little late, I had trouble getting the seatbelts and I had to get the seatbelt, and then I'm running late, and that's the whole thing.

Pat: I enjoyed it when I drove my kids sometimes in. I'd play Marketplace, the NPR Marketplace on the radio and have the kids listen to it.

Scott: You do remember this is Hanson 2.0. So my wife and I raised two biological kids. And then when our son went off to college. We adopted two girls from the foster system. So it's like, oh. So there are times...I don't ever regret, don't get me wrong, but there are times I'm like, "Oh, my god."

Pat: Well, God bless you.

Scott: Frankly, I am not complaining.

Pat: More blessings than not.

Scott: 100%. 100%.

Pat: More blessings than not.

Scott: Yeah, 100%.

Pat: Your neighbors are never going to let you drive the kids. Actually, you know what? I'll tell you the story.

Scott: They're a wonderful family. I love the neighbors.

Pat: When my kids were little, I drove the kids across the street to school and we went on a field trip and went on the field trip with the kids and the whole thing. Halfway through the field trip, I'm like, meh, I can leave if one of the other parents said, you know, "If you want to go, I could bring your kids home." Well, I forgot to tell them that I was driving the neighbor's kids too. So I go home and my wife's like, how was the field trip? I said, good. I left early. She said, "How did the neighbor's kids get home?" Oh, no. So I had forgotten I was supposed to pick up the neighbors' kids on...

Scott: Was that slightly strategic because your wife stayed home, you had four...well, you've had five kids, right, so your wife stayed home to take care of the kids. And so like you're going to own the calendar of these things.

Pat: It wasn't strategic.

Scott: Like, if you don't know where all the dishes go, "Honey. Where's the casserole dish?"

Pat: But strangely enough, they never asked me to drive. The neighbors never asked me to drive a carpool again. I felt terrible about it. But it wasn't strategic. You know me. Sometimes I get involved in a thought and I completely space out.

Scott: Our neighbors, we had to carpool. They have five kids. That's controlled chaos in their house. And they three times forgot our daughter on pickup. I actually understand because I watched these kids and the whole family, they're a beautiful family. Anyway, let's go back to the calls. We're in Arizona talking with Maha. Maha, you're with Allworth's "Money Matters."

Maha: Hi, how are you?

Scott: Hi, did we get your name right?

Maha: Maha, it's perfect.

Scott: Perfect, oh good. How can we help?

Maha: Yeah, interestingly, well, I... I got divorced from my kids at... I have twins, 20-year-olds, and their father and I divorced in 2021, July. And we were very amicable. Long story short, he was diagnosed with leukemia six months ago and he just passed April 2nd.

Pat: How long were you married to him?

Maha: Twenty-eight years. Yeah. And, you know, we were very amicable and towards the end when he was, you know, sick and going back and forth to the hospital. He was like, let's get married again. He wanted to make sure I was protected and he was, you know, really concerned for the family. I mean, even he worked for the last day of his life. I mean, he, like Friday, he told me, you know, I don't think I could make it Monday and he died that Sunday. So anyway, yeah, yeah. So it's still very fresh. That was the second. And so, you know, I'm getting all these cards, of course, from social security saying, you know, congratulations, you just turned 65. You could retire.

Pat: How old are you?

Maha: I'm going to be 60 this year. But you know, I'm getting his mail too, right? So I'm his executor. I still don't even have a death certificate yet. Pretty much, you know, we put everything in, we tried to put everything in the trust. He didn't really have a chance to put like the beneficiaries in the trust, but the kids are going to inherit, you know, his life insurance policy and his life insurance policy from work. And that's all good. However, I guess my question, I'm kind of concerned. Where he worked, they pretty much... I mean, it's very nice, but they dropped my kid's insurance, like, on the day he died, so they don't have insurance. And second thing too is social security. Someone said to me that even though you were divorced, since you were married for so long,

Scott: Yeah...

Maha: Oh, okay, so you know my question.

Scott: Yeah. Well, on your social security, yeah, because there's a widower's benefit, assuming you're not working.

Pat: So your ex-husband died, you were married 28 years, you're 65 years of age. You have two 20-year-old twins. And they are the beneficiaries of the life insurance. And your question is, are they eligible for social security? Is that what your question is?

Maha: Like for Medicare benefit or Medicaid, you know, medical benefits?

Pat: Nothing.

Maha: And then also, I wasn't sure if there was any benefits for me from his social security, even though we weren't married anymore.

Pat and Scott: Yes.

Scott: I don't know, is it 10 years or 20 years?

Pat: I believe it's 10 years.

Scott: I believe it's if you're married longer than 10 years.

Pat: Are you working now?

Maha: I'm a realtor, so you can define that how you want to define that.

Scott: Well, so you could, at age 60, you could take a widow's benefit based upon your spouse's social security, but you can't work at the same time. So you're limited to, I don't know, it's about $16,000 or $17,000 a year. Maybe it's $18,000 in wages.

Pat: But before you start losing benefit. So it probably doesn't...if you're still working, it probably doesn't... And you make over say $18,000 a year, it probably doesn't make sense for you to start the widower's benefit...the widow's benefit.

Maha: Oh, is that what it would be?

Pat: You lose $1 for every $2 that you earn over that. And then it goes away completely. How much money will they inherit?

Maha: Can I just, before we move on, does that also include medical like for the widow's benefit or it does not?

Pat: No. It does not.

Maha: It does not.

Pat: No, no, no. You're on your own.

Maha: Oh, wow. That's crap. You're on your own.

Pat: Did he ever... So the medical thing is done.

Scott: Well, that means they have to get insurance. They can go on the affordable care.

Pat: Yeah, do they have any income?

Maha: They're both students and one is part-time.

Scott: Affordable care, it's dirt cheap. Yeah, I mean, it's a high deductible, it's insurance.

Maha: Say that again.

Scott: The Affordable Care Act.

Maha: Oh, The Affordable Care Act.

Scott: It's very cheap. Yeah. Not much money at all.

Maha: All right, I could do that. I mean, I thought I did that for myself last year, and somehow or another I got into, I guess... It just was really crappy, all the doctors. But okay, I'll look into it.

Pat: Oh, we didn't say it was good. We didn't say it was good.

Scott: But if you're a healthy 20-year-old.

Pat: Yeah, it doesn't matter.

Scott: I mean, you really only need insurance if you've got something catastrophic happens.

Pat: So how much money did the children inherit?

Maha: Well, he had a $300,000 life insurance policy that is going to be split half, $150,000 each. I'm not really sure how much his job has. They won't give me any information until they have the death certificate. So that hasn't come yet.

Pat: And did he have a pension at his job? Did he accrue pension benefits?

Maha: No, but he had a 401(k) and I inherited that. I'm still the beneficiary of that.

Pat: And how large was that?

Maha: I think it's like $150,000, something like that, maybe more, around that range. That's what it was when I was with him

Pat: Yeah. So because of your age and the financial situation, don't expect anything in terms of social security until you quit working. And when you quit working, you may want to apply against his benefits rather than your own. But that's a decision you'll have to make at that point in time. And in terms of health insurance, that's nonexistent. It's non-existent.

Scott: Now if your kids were under 18, they would qualify for their own Social Security benefit.

Pat and Scott: But they're not.

Maha: Okay. Yeah.

Scott: Yeah.

Maha: Well, actually, I mean, not to get TMI here, but like my son is on the spectrum and, you know, so he gets a lot of, so I was thinking that there would be like an SSI kind of...

Scott: Well, there could be a disability.

Pat: But that has nothing to do with the death of his father. That is completely independent of the death of his father.

Maha: Got it. Right. Got it.

Pat: One of the things you want to have a long conversation with your children about how those dollars are going to be invested and parameters about how to use those monies.

Maha: I know. We wanted to put them in the trust that they weren't going to get it until they were 30. There's also like a CD that he just opened up. He didn't even have a chance to put beneficiaries on it. So hopefully that doesn't go into...

Scott: How much will your kids inherit? Do you know?

Pat: At least $150,000.

Maha: Each, yeah. And then I'm sure each, you know, I have no idea really how much policy he has from work. But, you know, they'll be okay financially. I just would like to...

Pat: Well. That's what we'll worry about.

Maha: Yeah.

Pat: Is them coming into too much money.

Maha: Right, I know that's why...

Scott: Particularly if one's on the spectrum.

Maha: [crosstalk 00:30:54.510] at 30.

Pat: Yeah, that's right. That's right. That's what the concern should be is because there's no parameters around it because it never made it into the trust. So in reality, if things had worked out perfect, you would have named the trust as the beneficiary of all of these dollars and then there'd be parameters around there, but it didn't happen. So you you really need to and they're adults, you can't control it.

Scott: You might be able to persuade.

Maha: You might be able to persuade. They're very reliant on me still. They still live with me. And they're looking, to me, for investment ideas. Like, "What do I do?" They don't need the money now. So they're not going to be. They're not partiers. They're good kids, thank God. And so I think they would be looking for some financial information. And their dad just opened up a $250,000 policy...not policy A CD with...was it Capital?

Scott: So getting that as well. And there's probably there's probably others.

Pat: You may want to hire a financial advisor so that...

Scott: And an estate attorney. And you might wanna get these, particularly the one in the spectrum, you might wanna set up a trust and talk to about it to your kids, like, "We're gonna put this in trust for your benefit."

Pat: Yeah, those are all things that a good financial advisor would walk you through. You've got a lot of things going on.

Scott: Set up some parameters there.

Pat: Lot of things going on.

Maha: Yeah, and I can't do anything without the death certificate. That takes a while.

Pat: Oh, well, the death certificate.

Scott: And boys, I mean, the frontal lobe's not fully developed for a number of years, right? I mean, that's reality.

Maha: Right.

Scott: They don't always make the best choices in their early 20s.

Pat: Yeah, so you want to bring in a third party. And it shouldn't take very long, a week or two, to get the death certificate.

Maha: Okay. All right. Yeah.

Scott: All right, we wish you well.

Maha: Financial advisor then. Okay, well, I appreciate it. Thank you so much.

Scott: Yeah, thanks. And it's funny, Pat, I think having a well-thought-out estate plan...not a perfect one. Because what happens oftentimes is people go to do estate planning, they start discussing every little aspect. Sometimes couples don't agree and they never finish the process. Having an imperfect estate plan is better than no estate plan.

Pat: Exactly.

Scott: And some of the major things like assets going to kids, when should they receive that? Because you put it on a beneficiary of your 401(k) or IRA, that's going to pass automatically.

Pat: It doesn't have any restrictions on it whatsoever.

Scott: And if they're more interested in car catalogs than college catalogs, the money might be going to buy the latest, coolest car.

Pat: Yeah, and it depends on the age of the kids. So I wife and I updated our trust two years ago because the kids became of age and they were in college and graduated from college and we had a confidence about who they are as children and we actually sat down with them and actually explained to them. You know, which was really quite interesting. I have four children, two of them. Scott had mentioned earlier that I had five children. I had a daughter that passed away years and years ago of a health condition. So four surviving living children. When we did the trust and sat down, I had named two of them as trustees that have business backgrounds. And after the conversation, there are now four trustees on the trust. They're all trustees.

Scott: They're all trustees?

Pat: Yes.

Scott: Good luck, kids. You're gonna have to figure it out.

Pat: That's exactly what I thought. They were really upset, the two that weren't named, why aren't we all named? I'm like, I'll be gone. They'll figure it out. As you said, not a perfect plan, but better than nothing.

Scott: Some ways that might be good. They're going to have to.

Pat: And then we put restrictions around it as to what...

Scott: I mean, as a parent, you certainly hope that your kids have loving relationships their entire lives, right?

Pat: With each other.

Scott: With each other. Yes. So, maybe that will.

Pat: Maybe it works and they work together, or not.

Scott: Yeah. All right, let's continue on here. We are in California talking with Kathleen. Kathleen, you're with Allworth's "Money Matters."

Kathleen: Hi, good morning. How are you?

Pat: Hi, Kathleen. We're good. What can we do to help?

Kathleen: Well, typical question, should I claim Social Security at full retirement age, which for me will be March of 2024 or wait if I plan to work less than 20 hours per week after I retire from my full-time job? So is it worth it to claim Social Security and potentially be penalized or have it reduced due to earnings?

Pat: Yes and no. So it kind of depends on what your overall financial situation and how you feel that the Social Security Trust Fund is doing. So tell us about your financial situation. How much money do you have in 401(k)s, IRAs? How much money will you receive in pension?

Scott: Are you married?

Kathleen: Okay. Married. I have a 401(k), but it's not very big. And so I'm going to be reliant on social security and that 401(k). My husband has a pension that he'll be eligible for in June of 2024. We don't have a sticks and bricks home. We're full-time RVers and we have about $25,000 in a mortgage that we're paying down.

Pat: On the RV.

Kathleen: Uh-huh.

Pat: Okay.

Kathleen: And we are residents of South Dakota. Even though we work in California, since we're nomads, we're registered in South Dakota as residents, even though we pay taxes here in California on our income. All right. And so we're going to leave the state. Once we retire, we will have no ties to California.

Pat: Okay.

Scott: And how large will your husband's pension be?

Kathleen: You know, he's been teaching about 17 years, so I don't. I think it's pretty decent. I really don't know.

Scott: In March of 2024, you'll be, how old 66 and a half or somewhere in there? What's the...

Kathleen: Yes, actually three quarters. I'm waiting. I have to go through March so I can get the last matching funds on my 401(k).

Scott: And how's your health?

Kathleen: No medications, no heart or blood pressure.

Scott: I would strongly encourage you to wait till age 70.

Pat: Especially if you're working. Especially if you're working, yes. The more you rely on Social Security, the better it is to actually push it out. Especially if you're able to work. And the idea behind that is if you have a normal life expectancy, if you do a net present value of those dollars, it actually works in your favor. The only time we actually encourage people to take Social Security earlier than full retirement age or age 70... And I don't know why this full retirement age is such...why we pay attention to this.

Scott: Well, because you can keep working and collect benefits, which is what Kathleen's situation is.

Pat: Okay, thank you. But the dollar amount, you know, this 80 to 120.

Scott: Yeah, I mean, I think the concern that we have is, let's assume you start Social Security as soon as you can, right? Your normal retirement age. I mean, theoretically, you can quit working today and claim today, which you've not done. The concern that we have is, let's assume we're now 71, 72, and you can no longer work of any sorts, and you're relying upon Social Security, which would be a much lesser benefit because you claimed it before retirement age as opposed to waiting until age 70. So if you had a bunch of savings, retirement savings, it would be one thing, but the reality is you don't have a ton of savings. You've chosen a certain lifestyle, which obviously is working out for you.

Pat: Which is what my point being was is that normally the only time we encourage people to take it earlier is if they don't need it. If they do not need it and they're not working. And the reason behind that is, at some point in the future, we believe that they're going to start cutting Social Security benefits and they'll take it away from those people that aren't relying on it.

Scott: Well, they will, as soon as the trust fund is in a statutory reduction.

Pat: We don't... They say it's across the board, but we know it's not going to be across the board

Kathleen: Okay.

Scott: Yeah, we think Congress is going to eventually step up and do something. Everyone's afraid to touch it now, but eventually, they're going to be forced to. Well, they did in France.

Pat: That's right.

Scott: They're still protesting.

Pat: They're still protesting.

Scott: And they might throw all the politicians out.

Pat: The French are protesting. No, so you should absolutely wait till age 70. Absolutely wait as long as you possibly can.

Scott: You didn't want to hear that, but that's our advice.

Kathleen: No, I really didn't. But that's okay, because I still think that I could probably suck it up for about 20 hours a week. I just don't want to work 40 hours a week anymore.

Pat: Okay.

Kathleen: Yeah. And I guess if I could find someplace that would still give me benefits for part-time hours.

Pat: You'll get Medicare. Your husband you said is a teacher though.

Kathleen: Yeah.

Pat: Is he in a public school system?

Kathleen: Yes. And aren't you covered under his health care benefits?

Kathleen: I could be if I wasn't working.

Pat: But you'll have Medicare at 65. Yeah, you'll have Medicare as well. And my guess is that your husband's health insurance benefits would actually pay for the Medicare supplement. So you need to look into that. Yeah.

Scott: Yeah.

Scott: All right, Kathleen.

Pat: All right, appreciate the call.

Scott: You know, one of our core values in our organization is honesty. And part of the definition of that for our company is telling people what they need to hear, not necessarily what they want to hear.

Pat: It's not always fun.

Scott: No, because, I can't tell you how often as financial advisors people come in, they plan on retiring next June or whatever the case may be, and we sit down and say, "We highly discourage that. Here's why it's not a good idea for you."

Pat: Yeah. And then sometimes they go find an advisor that tells them, sure, just give me the money to manage.

Scott: I'll never forget, Pat. This was in 1999. And this gentleman had an early retirement offer. He was still in his 50s from the phone company. It was, I don't know, it was about a million bucks or something he had, somewhere in that ballpark. And he came to see me cause one of his friends had said, "You shouldn't. Don't retire and invest these dollars until you talk to Scott Hanson," for whatever reason, must've been a happy client of ours. And I remember talking to this guy and he showed me a printout from some financial...I'm not going to call him an advisor, he must have been some broker of some sort, of a variety of different returns. The lowest return assumption was 12%. It was from 12% to 20%. So this guy showed him a retirement projection based upon 12% to 20%. Now this is 1999, stock market was on fire, and I had this conversation. I looked at him and I said, "You can't. Like, there is no way you should expect those returns going forward." We spent some time looking at historical returns. I'm like, "Look, if you're a good investor and if you can withstand the markets, maybe an 8% long-term return is more a realist exemption for you. Based upon that, like, yeah, take the early retirement offer, but you should probably go back and work for a few years." And we had a long conversation and I'll never forget, he's like, he left and he said, "Scott, I'm really glad we had this conversation. It was hard to hear, but I'm glad we had this conversation." And then a few weeks later, I get a note from him. I forget exactly how the communication was, but it was essentially, yeah, I decided I'm taking that retirement offer and I'm using the broker who I talked to you the first time.

Pat: That talked about the high returns.

Scott: Yeah. And I can only imagine his situation today.

Pat: Well, you know what happened.

Scott: Yes, the money was probably put mostly in the tech stocks that blew up.

Pat: Then he went back to work.

Scott: And then he sold at the bottom and he went back to work.

Pat: I had a client, same thing, Scott, except this story, he sued the broker that actually did all of the whole portfolio and tech stocks, sued them, got the proceeds from, had some sort of recovery and then came back to us and opened an account and invested the proceeds.

Scott: So didn't take our advice the first time.

Pat: Correct.

Scott: Someone blew them up, got a settlement and then came back.

Pat: And then came back and let us manage the money. Oh, well.

Scott: Let's continue on with calls here. We're talking with Carol. Carol, you're with Allworth's "Money Matters."

Carol: Hi, how are you all today?

Scott: We're great, thank you.

Carol: My question kind of revolves around IRA conversion to Roth, whether it is something that would be beneficial for my husband and I.

Scott: Okay.

Carol: And I don't know what information you need from me. I mean, I've got all of our savings and what we have.

Scott: Perfect. How old are you, Carol?

Carol: We're both 65 now.

Pat: And are you working or not working?

Carol: No, I just gave my notice final yesterday and my husband retired six weeks ago.

Pat: Wow. Congrats.

Carol: Yeah, thank you.

Pat: And what will your income for the year 2023 be?

Carol: For 2023 right now, because we're just going to live off savings, I've got about $175,000 in savings for the next year or two, our income will be minus the normal deductible, about $72,000. Okay. So lower.

Pat: Okay. All right. Yeah. And how much money do you have in IRAs, 401(k), that sort of thing?

Carol: So we have about $3.3 million in IRAs. My husband has a Roth IRA with about $134,000. And then we also have a brokerage account with about $850,000 in it. We also own two rental income properties, which are paid in full, so we have about a cash flow of $5,800. Now, it's still being, you know, depreciated and stuff like that.

Scott: Yeah, so you might want to work on keeping the income below a certain level, so you can still depreciate it.

Carol: Yeah, yeah.

Pat: And will you receive pensions?

Carol: No. I mean, my husband got ESOPs along the way and I actually did get a pension, but I rolled it over into my retirement plan.

Scott: And what was your family income for 2022? What have you guys been used to living off of?

Carol: We made about $450,000.

Scott: And have you been in that ballpark income range the last decade?

Carol: Yep, yep. About I mean it's gone up every year.

Scott: And is your home paid for?

Carol: No, we have a loan of 14 more years to go for 360 last and it's a 15-year 1.99. Wow. And that's why I paid it off because the interest rates low.

Pat: Wow. Well, you have a great opportunity for Roth conversion.

Scott: 100%.

Pat: Next couple of years. 100% great opportunity. Like, golden. Like, you know, yes. You want to convert as much as you possibly can in the next couple of years.

Scott: And probably delayed taking social security.

Pat: Yes, and...

Carol: Would you recommend delaying the thing about taking social security next year? And with those in the map, that would raise our income so much.

Pat: Yeah, I actually...

Scott: I mean, I could take some...we can just guess, I'll guess some things, but I mean, you really need to run the numbers here and do a variety of different scenarios.

Pat: But I think that this year you should be looking at Roth conversions. And next year you should be, I would probably defer Social Security next year and do a massive Roth conversion. And then I would decide for the year 2025 whether I was going to do the Roth conversion or take Social Security. But quite frankly, what you have to do is you actually have to do the calculation of what your required minimum distribution is.

Scott: That and what your true household income needs are.

Pat: That's right. Because...

Carol: Yeah, we've... I mean, I'm figuring we need about $17,000 clear a month for all we have. I mean, we have that sum of insurance on our rentals and that's just a whole bucket. We're still helping one daughter through school. She's almost done though.

Pat: When you said the income from your rentals was $5,800, was that annual or monthly?

Scott: Monthly.

Carol: No, that's monthly.

Pat: Yeah, most certainly want to do the Roth-IRA conversions. And next year is pretty simple and the year after that, I don't know. Scott, do you have an opinion here?

Scott: I mean... You're like this is a poster case of working with a good financial advisor and running through...using the calculations with the tax code, all those things, and running some scenarios.

Carol: Mm-hmm.

Scott: That's what you're going to need to do to make these decisions.

Carol: Okay, because I don't want to get us into such a high category where the taxes are just enormous. So like this year, we paid under $100,000.

Scott: That's right. Well, you're used to paying high taxes. What you don't want to do is take a few years and pay such a low tax rate. The way you structure things that suddenly you find yourself in a worse situation down ther road.

Pat: Yeah, which is like all of a sudden these required minimum distributions are causing you to go into a much higher tax rate. There's that balance which is, how much do I do now? How much do I defer? When do I take Social Security? And what happens if my account grows at 7% or 8% my IRA and then the RMDs? You know and then I take the cat the tax rate and then I titrate them for inflation to see what bracket I end up in. I mean, it is, it's not as simple as, "Hey, you should do it." What is obvious is that you should be doing.

Scott: You've got a great planning opportunity is what is obvious.

Pat: That's obvious.

Scott: And look, I think, again, if you didn't have your rental and the income it's providing, you said you needed $17,000 net, I'd probably think it might be a little tight long term. But with that, if you look at a 4% distribution from your overall savings of, let's say, $4 million, that's $160,000 a year, 4%, whether you distribute it or not distribute it. I mean, you should be in a good situation.

Pat: Oh, financially, yeah, and then you kick Social Security in there.

Scott: They might want to take it earlier just based upon what your income is going to be.

Pat: Oh, for Social Security. Yeah.

Carol: To take it earlier?

Pat: Yes, yes. Yes. Because of your, your net worth and your income.

Scott: Yeah, I would. Yes. And this is with the required minimum and the structure of your wealth because that required minimum distribution, that's going to keep growing. And by the time you have to take those distributions, you're going to be's going to be a substantial income flow on your tax return.

Carol: Okay, so should we take social security next year?

Scott: Probably. I'd do the financial planning. Probably. If I were a betting man, you would take it next year. Yes. Hey, appreciate the call, Carol. And unfortunately, we are out of time. This show is not only podcast, but it's broadcast on some radio stations as well, which is why we have a kind of clock we need to live behind, which I guess is true with a handful podcasts. I listen to some podcasts the same way. But anyway, it's all the time we've had. It's been great being with you. This has been Scott Hanson and Pat McClain of Allworth's Financial.

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