Announcer: Would you like an opinion on a financial matter you're dealing with? Whether it's about retirement, investments, taxes, or 401(k)s, Scott Hanson and Pat McClain would like to help you by answering your call. To join Allworth's Money Matters, call now at 833-99-WORTH. That's 833-99-W-O-R-T-H.

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

Pat: I'm Pat McClain.

Scott: Glad you are with us today as we talk about financial matters. Myself and my co-host here, we're both practicing financial advisors. We got a great program line up today.

Pat: I hope so. Lots of calls.

Scott: Yeah, we're going to take a few calls and talk about what's happening in the world of the markets. Big shock. This story, I think we talked about this a couple weeks ago, that remote workers were losing out on promotions. But now, this is a big shock, remote workers are more likely to be laid off than non-remote workers.

Pat: Imagine that. Just imagine that. Imagine that, that personal connection does matter.

Scott: I remember this was years ago. A friend of mine was talking about they were doing a downsize network, and he was a little manager there, and he had to kind of, you know, all those RIF things. This was a long time ago. He was trying to figure out, like, who. So there was one remote worker. He said he asked, like, three people, like, "What's this person doing?" And three people all said, "I'm not quite sure what she does, but I heard she does really good work." And he said for the third time, no one can say what she did. She was on the list.

Pat: Yes. But the remote work, there are some positions where it works beautifully. I mean, that is true. It works like it's probably the most efficient way to do it from some positions, right? Having, a company with, I don't know how many employees we have, 400 and some odd, right? We have some remote employees.

Scott: We have, and it works perfectly for some. It doesn't work so well if you're an advisor or work directly with clients.

Pat: Or client service or there's a lot of collaboration needed. My guess is that we will start to see this thing, I don't think we'll ever go back to a five day a week in office, like 1960s-style, but.

Scott: Most of that was built on kind of the industrial age. And it's been... I mean, for history, it's been you work when you're awake, find food, protect the family. Then with the modern industrial age, it used to be seven days a week, then six days a week for a long time. Then it became five days a week. Now there's those that want...pushing for four days a week.

Pat: If it works.

Scott: There's this whole concept of this technology is supposed to be that we work less. And there's these people that were 40 years ago saying how little we'd be working today. But then the studies show that actually most Americans are working more today than they were historically.

Pat: I don't know.

Scott: The beautiful thing is we all have a lot of say in our own life.

Pat: Yes, we write our own stories. And listen, if you have the ability to work and you want to work, then there is no better place than a capitalistic society if you want to put the energy in. Just flat out.

Scott: Obviously.

Pat: Yeah. If you want to put the energy in. And, and, and, and.

Scott: And financial stability is possible.

Pat: Yes. To most people that listen to this show actually would probably agree with that.

Scott: Yeah. Anyway, why don't we take some calls? Questions at moneymatters.com. We'll get you lined up to join the show.

Pat: So if you call in or email, we will schedule a time where we, when we record the show that we can answer your questions.

Scott: Yeah. All right. We're starting off in California, talking with Laura. Laura, you're with Allworth's Money Matters.

Laura: Hello, gentlemen. Nice to talk to you again.

Scott: Likewise.

Laura: And the topic that you were just on is just giant. I mean, it's something that my acquaintances have lots and lots of discussions about. We're just glad when people actually show up to work at this point. Just, you know, whether it's in bunny slippers or whatever it is, because I don't know what the pandemic did overall, but it sure did make people disappear. Anyway.

Scott: It's interesting. You kind of wonder where some of them went.

Laura: I do every day. We're in the house. Excuse me.

Scott: That's all right. It's strange.

Laura: Where'd they go?

Pat: Yeah, I don't know. Well, anyway.

Laura: I think there's a lot of basements that are being utilized that were previously not being utilized, I'm just saying.

Pat: But for mental illness and addiction, no one starves in America.

Laura: Okay. And I've heard you say that before. And again, this is a huge conversation. I'd love to just get into it. I have a question.

Pat: On another show.

Laura: Okay, so I have a question that you guys touch on all the time as far as 401(k)s versus IRAs. And you kind of have a...everyone has a different flavor of it, and I'm never in a position to write stuff down when I'm listening to you. So I'm sitting here with a pen in hand, and I want to talk to you about my specific situation. I have a 401(k). What?

Pat: How old are you?

Laura: Sixty-three.

Pat: Okay.

Laura: I'm retired-ish. I'm working at a job that I've worked harder than I've ever worked in my life, but it's not a high-paying job. I actually separated from my company in 2022, and I have a 401(k) from that.

Scott: Are you working with that same company or doing something different entirely?

Laura: Entirely different.

Scott: Got it.

Laura: Yeah. And there's $347,000 in that, and it's making 16.83 rate of return.

Pat: It made 16.83.

Laura: Yes, it, yes, last when I wrote this down. I have one IRA at 499,000. That's when I wrote it down with 16.3. And a second one at 267,000, 13.82%.

Pat: And that's it. And the second one, the 267 is in an IRA as well?

Laura: Yes, yes. The two IRAs and a 401(k). And when I separated in 2022, a very notable year because the IRAs were actually pretty much stinking up the room because of the bond funds that were in there because they were well-balanced sectors, right? And the 401(k) had a stable value fund in it, which was doing its job, you know, but the difference in return was significant. And so the agreement was that I was going to wait until everything stabilized, the bond market stabilized, and then make the 401(k) into an IRA. And I've been told that it's better to have an IRA because there's more investment options. And now that the bond market's better...

Scott: What's the stable value fund paying there?

Laura: I couldn't tell you right off the top of my head. But it's going to not probably change much. And so...

Scott: My guess is paying less. I mean, if you said a stable value fund that's paying 5.5%, we would say keep the 401(k). If you said the stable value fund's paying 2.5%, we'd say why bother with the 401(k)?

Pat: Laura, are you married?

Laura: Yes.

Pat: And when we talk about these assets, does this include your spouse's?

Laura: They're all ours.

Pat: Okay, perfect, perfect, perfect. And is your spouse retired?

Laura: Yes.

Pat: And what income do you have coming in now?

Laura: Oh, so he has about 90,000 with his pension, my pension, I got a tiny little one. He has a larger one from PERS and then his what do you call it, Social Security. And then I have the job, the job I have pays $25 an hour. So it's probably going to be $30,000 a year when, when I do a full year of it, which I haven't up to this point.

Pat: Okay. How old is he?

Laura: Seventy-seven.

Pat: And are you taking any income off of any of these?

Laura: No.

Scott: And if he were to pass away, is there a survivor benefit on the pension?

Laura: Yes.

Scott: And is that 50% of his amount or the same amount?

Laura: I think it's 75.

Scott: Okay.

Pat: And so your argument before to keep the 401(k)...

Scott: What's your main question for us?

Pat: Yes.

Laura: The argument is, well, that I'm happy to move the 401 into an IRA, but tell me why I should do that. I understand, and here's the thing, in the back of my head, I keep remembering something about when you put it into an IRA, then the interest grows tax-free or something.

Scott: It's that from a tax standpoint, it's essentially the same.

Pat: The only reason you'd move it in, and I agree, the only reason you'd move it in is for simplicity of life. That's the... There's no reason in the world to have three of these accounts. There's none. I can't make...

Scott: That's right. Because you could have under one IRA, you could have anywhere from certificates of deposit to penny stocks to anything in between.

Pat: Is one of these IRAs your husband's?

Laura: No.

Pat: Oh.

Laura: Okay. Well, the second part of my statement or the second thing I was going to tell you, you're kind of making my point. I have two different fiduciaries, and I know that that is not efficient. And I just had a perfect opportunity to identify why that's not good. At the beginning of last year, that would be the beginning of 2023.

Scott: We both looked at each other like, wow, we're interested in this comment. Yes. Go ahead.

Laura: Yeah, at the beginning of 2023. Now, that's a long time ago, right? And I had actually forgotten that this happened. I had taken a fund, a MassMutual annuity thing that my husband had, and we put it into one of our managed accounts, $178,000, and we took a $38,000 tax liability for it. We knew we were going to have to pay taxes on that $38,000. We had reasons for doing it. Don't ask me what they are right now. They were very good, and I think they still are.

Pat: They are. They are. They are.

Laura: Okay, yeah. And so 2023 passes. I mean, a million things go through my head, and then we get to the end of 2023, and it's like, hey, we should do some Roth conversions. I ask my tax guy, a third person, and I say, "What kind of money do I have that I could do Roth conversions before I go up to the next tax, 24%?" And he said $90,000. And I'm like, okay, well, luckily, I was being a little bit standoffish about the whole thing, and I only did 70.

Pat: And really, the only reason you actually didn't have nearly that much room because of that, you took an annuity and you had it paid out and that's where the 38,000. And by the way, you may have...a good advisor may have suggested different ways to take that annuity payout. You could have annuitized it over a 10-year period or a 5-year period based upon what that...

Scott: Or even, yeah, a couple of years.

Pat: Yeah, what that contract was. Did your advisors actually dig into that MassMutual annuity and say, look, this really doesn't make sense because at the death of your husband, it's going to get paid as taxes, and at that point in time, you're going to annuitize maybe or take it as a lump sum? Did anyone have the discussion about how to take the income out of the annuity other than as a lump sum?

Laura: No.

Pat: All right. That was a mistake.

Laura: Well, and it's partially, you know, what I end up having to do is I have a question. I have to ask both of my advisors and then figure out which is the better answer.

Scott: Don't do that.

Pat: You're making it way too much. And by the way, you don't trust either one of them.

Scott: I know, otherwise you wouldn't be calling us.

Pat: You wouldn't be calling us. And you wouldn't ask both of them either. You don't trust either one of them.

Scott: And I don't know if that's because you don't have great advisors or if that's an issue that you've got.

Laura: It's probably me, I'm just going to say. Okay. Because I don't understand it well enough. And again, what I really want to do is I want to be intelligent enough and informed enough to be able to do this myself, but have somebody else do it because I don't want to have to think about it. It's not my favorite thing. But I want to know.

Pat: And a good advisor will actually dig as deep as you want to go, right? As deep as you want. So I have an advisor, a quick side story because I'm 61 and that's what I'm supposed to do now. I have an advisor who can talk to...at a fifth-grade level. And at the same time, he could talk at a Ph.D. level. And so I asked him about that. I said, "How do you decide how to interact with the clients?" And he said, "Normally I start in the middle and then I judge how it's going from there about whether they're comprehending or whether they're interested." And I said, "Give me an example." He said, "I had a professor that he said, all I knew was the guy was a professor." And he came in for a meeting, couple of meetings, and he realized this guy was a statistics professor in college. And he said, "Okay, let me just go deep with this. Let me explain to you why we do exact things in the statistics behind why we're doing it."

Scott: I like your thought process. Like, I want to know enough to know I'm making the right decisions, but then I want to hand it off and not think about it and go live my life.

Pat: Yeah, and a good advisor would probably say to you, "Look, Laura, here's the three choices I thought about. And let me tell you why we landed on number two, because these were the three routes we could take. But I believe that over the long term, number two is the best for you." So you're making your life much more complicated than it really needs to be. And, and a good advisor, I had a client come in. He was, we were sharing, we were sharing a client with another advisor and he came in with stacks of paper. He said, "My other advisor told me I should read this." And I said, "Why?" And he said, "So that I understood what was going on with the money." And I said, "How much do you want to understand?" He said, "I just want to know why I'm making decisions." I said, "Well, then why are you reading that crap? Why doesn't the advisor?" And I said to him, "I will be your new advisor," right? He was interviewing advisors. "And I will tell you exactly why we're making decisions and what the benefit and downfall is. There's pros and cons to every one of them."

Scott: That's right.

Pat: Right? So you hit on the right thing. You said this MassMutual thing, you converted it into this annuity. And quite frankly, you should have explored taking a payout because he could have annuitized it and spread that tax over multiple years. It wasn't like you were doing a 1031 exchange into another product. And so you took this big hit...

Scott: What might have been, which could have been another alternative, a low-cost annuity.

Pat: And depending upon what would happen at her pension.

Scott: And left it.

Pat: That could have been. That actually could have been.

Scott: Continued to grow.

Pat: Anyway, so there's no reason in the world that these IRAs don't sit together. And by the way, land with one of the advisors or the other or go find a third.

Scott: And have him or her do a financial plan for you.

Laura: And that has happened and, God, no, I'm not going to find a third. I actually like them both, and they both bring different things to the table. I'm in love with two men.

Scott: My guess is they don't... Like, so I don't have many clients anymore, but for years I did. Over my career, there was a handful of times where someone would have some of their assets with me and someone...and I always hated it because what ends up happening, it becomes a horse race. And if you're an advisor, like for most people, like I'm fairly competitive, right? So to me, it's like, I want to win. Like if Laura's got an account elsewhere, I want to win, dang it. And what you wanted to make sure is that your advisor's interests are always fully aligned with yours and not wanting to win by trying to outperform this other account because it's not, it's, this is your life savings that need to be managed well for the rest of your life, not based upon what it's going to do on any particular quarterly basis.

Pat: Now, in saying all that, take that 401(k) and move it to one of these IRAs. And the reason that one did 13% has nothing to do with other than the asset allocation on it was more conservative than the other ones. It has nothing to do with other than the fact that the asset allocation. But I'd move that 401(k) into one of those IRAs today.

Laura: Okay.

Scott: Today. All right, Laura.

Laura: Well, thank you so much. I really appreciate it.

Pat: You have a question, but you said you're in love with two men, but you left your husband completely out of the equation, which was perplexing to me, you forgot about him altogether.

Laura: It confuses him a lot, too.

Scott: "Where are you off to, honey?" "I got to go see the financial advisor again. He's good-looking." "Weren't you busy with the financial advisor yesterday?" "Well, yes, another day." Glad you called, Laura. I appreciate it.

Pat: That's funny. Laura likes to be involved.

Scott: And to most people, Pat, it's prudent and wise to educate yourself enough so that you know you're making a good decision. Because otherwise you don't know what's good from bad. Not that you're going to understand all the nuances, but yeah. I remember years ago, he was a business leader. I forget, large company. He was an executive type guy and client. I thought, man, this guy's going to be a bit of a work because he drilled me on every little question, went deep. And after the first few meetings, I'm thinking, I don't know if it's going to be. And then never again. He just wanted to make sure. Never again. And now we've been a client for years. We'd get together. We'd talk about all kinds of, we'd spend five minutes on his financial stuff.

Pat: And he just needed to get to the confidence level.

Scott: To the point where he's like, "I trust that guy." Let's talk with Michael. Michael, you're with All Worth's Money Matters.

Michael: Hi, Scott and Pat. Michael here. I had some questions for you guys about a plan for retirement. And so I'm 32. One thing that has been recently proposed to me by my father-in-law. So he is a insurance agent, sales insurance agent. Oh, no.

Scott: No, I just, he wants to, your father-in-law wants to sell you something?

Michael: So he already did.

Pat: How much do you love your wife?

Scott: That's exactly right. This is getting really...we haven't even gotten deep and it's already complicated.

Michael: Yeah, so he felt right now I'm putting money into an IUL and he's really, really aggressive about...

Scott: Are you indexed?

Pat: Universal Life for the rest of the listeners. Index Universal Life. So he's aggressive how?

Michael: So I, I have other, you know, retirement plans, you know, I do have a 457 with the state and, you know, I, I put money on the side and also invest in like, you know, just CDs and money. Some of my funds are in a money market so he wants me to try to be as aggressive as I can with my IUL because he kind of thinks that, hey, you know, 457, 401(k)s and things like that, they're not as good. So I should kind of be throwing all of my money into the IUL.

Scott: Is he, does he, is he licensed in other areas of financial advice? Is he a certified financial planner?

Michael: I'm not too sure. But, you know, whenever I do bring anything else up, like maybe just putting funds into a Roth IRA and just kind of managing it myself, he says that it's not a good idea because you know how the IULs, they have a floor.

Pat: That's right. Michael, let's just step back for a minute. Let's forget he's your father-in-law. Let me ask you a couple of questions. Do you have any children?

Michael: I have one.

Pat: Okay. And how old is your child?

Michael: She's turning two this year.

Pat: Okay. And how much money do you have saved already in everything but the IUL?

Michael: All together, I have about 100,000.

Pat: Okay.

Michael: Somewhere around there, yeah.

Pat: Okay. So here's what happens is in these IULs, they're indexed universal life and they have a floor, which is a return.

Scott: A really complicated product.

Pat: And they have a cap as well and they don't pay dividends on the underlying index as well. So let's just...and by the way, each one of the indexed universal life will actually have its own index that it's actually measured against. It doesn't have to be the S&P 500. Many of them actually have a combination of different indexes that they measure themselves against. What they're designed for is for those people that want to have some stock market exposure and want some downside protection. But the reality is the cost associated with that...

Scott: I think they're designed for those that don't want to take the time to go through the education process to really understand how financial markets work. And two, that for whatever reason can't get to the point where they're comfortable seeing things fluctuate in value.

Pat: Thank you, Scott. And either which way, but they're looking for a...

Scott: I don't view it like insurance, like homeowner's insurance, like your house burns down.

Pat: I love insurance. I love certain types of insurance. I love umbrella insurance. I like auto insurance. I like homeowner's insurance. I like disability insurance. I like life insurance. I don't like pet insurance. I've never insured anything, an appliance or a stereo, or anything that Amazon offers me. Never, never, right? I don't take insurance when I'm playing blackjack, 21, don't like that type of insurance either.

Scott: How often do you play blackjack?

Pat: That's a joke. So you don't need this.

Scott: It is life insurance.

Pat: You need a million dollars to...

Scott: And this is his father-in-law.

Pat: That's right. But just say to your father-in-law, first of all, it's unfair for your father-in-law, quite frankly, to suggest this to you. It's just flat...

Scott: It's relevant. It is.

Pat: It's unfair.

Scott: I know, but it is. We all have families.

Pat: But just look, I would just say, if someone was trying to sell me something, I would just, if my brother sold aluminum siding, I would say, "I think that's awesome."

Scott: It's year 2024. I don't know if people are still using aluminum siding.

Pat: My brother from, what was that movie? "Tin Man." "Tin Man." If my brother was selling aluminum siding, I would say, "I'm glad you found a career that you love. I don't want any, I don't need it. I don't think I need it." Understand, you don't need to buy anymore.

Scott: It just doesn't work for me. And by the way, you're much better off doing a Roth before you buy more of those.

Pat: That's right. So you need a million-dollar term life insurance policy. What do you make a year?

Michael: Close to 100,000.

Pat: You probably need six, seven hundred thousand.

Scott: A million bucks. How much is this UL for?

Michael: For 500.

Pat: And how much are you putting in on in it?

Michael: Right now I'm putting in monthly $750.

Scott: 750 bucks a month?

Michael: Yes, 750 a month, yes. And so, he also added on there too, for long-term care. So I did, you know, take a look at it because it is now at about a year and a half-ish. So I did kind of take a look at the statement to see what the breakdown and everything was. And yeah, after looking at it, it's kind of ridiculous, you know, how much I'm paying.

Pat: Yeah, because the long-term care only covers the premiums to keep the insurance in force if you become disabled.

Scott: Most people don't need life insurance their whole life. They need life insurance when they have people dependent upon them. Typically, for the vast majority of Americans, it's when kids are at home or still in the middle of college.

Pat: Does your spouse work?

Michael: Yes, she does.

Pat: And what does she make?

Michael: She's about the same thing as me.

Scott: Does she also have one of these IULs?

Michael: Yeah, so her dad's been doing it for a while. So she's been putting funds into it for a while.

Pat: You have 10% of your income going into an IUL. Do you realize that, 9%?

Scott: You're putting $18,000 a year. Your father-in-law is a very, is a fringe advisor, right? So if you go out and looked at the universe of financial advisors in the United States, what his recommendations, that was the very fringe-edge.

Pat: So don't buy any more of this stuff. Scott, say it.

Scott: Well, if I look and I've got, I've got a father. Well, that's, I mean, I, I would, if I were in your situation, I'd, I'd probably say, "Hey Bill, at this stage in life, I think it would be cleaner and easier if I had a financial advisor outside of the family. It's just too uncomfortable for me. And I hope you respect me as a man. I love your daughter. I'm going to do the best to take care of her the best I can. I just think it would be healthier for me if I had a financial advisor that was not family. The same way a surgeon would not want to operate on their son-in-law, I just would feel more comfortable having someone completely independent."

Pat: I got to agree with you, Scott. You're not, and you wouldn't call our show if you thought this was the right thing, Michael.

Michael: Yeah. And so, I mean, the next step for me would be to, you know, because there's a surrender value or surrender charge on it. Just pay that out and get out?

Scott: I would start with that.

Pat: See where that leads and look, you you you've got it you've got it you said you work for the state of California, correct?

Michael: Yes.

Pat: Does your spouse work at the state?

Michael: Yes, she does as well.

Pat: Okay, so you've got great pensions already. You have access to 401(k), 457, right? You can buy term life insurance through your employer, every, almost everything you need.

Scott: I would argue to have term of life insurance on the outside should at some point in time you separate service.

Pat: Almost everything you need.

Scott: Is a term life insurance for next to nothing.

Pat: And then set up a 529 for the kid. You've got $18,000 a year going to this garbage. So I agree with Scott.

Scott: If it was a variable universal life or variable whole life, I would like it a lot more than this indexed for a 32-year-old.

Pat: That's right. But yes, but you have all these...

Scott: And by the way, I own a variable life policy that I've had for 20-some-odd years.

Pat: I own a variable universal life.

Scott: And while it looks like it did great, if I run the numbers, had I just bought a pure index fund over that period of time, I would have done it.

Pat: You did have life insurance for a period of time when you really needed it.

Scott: Yeah, I still own some term life insurance. I have kids at home.

Pat: So I agree with Scott. You need to have the conversation.

Scott: And I wouldn't, I would not talk about anything about insurance. It doesn't, it's all irrelevant. Products are relevant. It has nothing to do with the product. It's just, you would feel better having someone that's not family, and that way when you're together, we don't have to have any financial discussions. We can just enjoy one another as family.

Michael: Right.

Pat: You shouldn't own this. You should not own it. But that's the way to start. And listen, you know, if he fights back, he's probably not going to disown you. I mean, you've got that grandchild. Right?

Michael: Yeah, and it's his only grandchild.

Pat: Okay, there we go. There's leverage. That's all we needed.

Michael: Hey, if you guys have time, I had another question.

Scott: Sure, briefly, yeah.

Pat: So, since I do work, you know, for the state, I do have a pension when I retire. So I don't know how aggressive I should be with investing.

Pat: The amount or the allocation?

Michael: Just the amount.

Pat: Well, look, that's kind of...you should probably be saving. First of all, you've got $18,000 a year that you're going to be able to put in there. And quite frankly...

Scott: You took $750 a month. You'd pay $50 a month for a good $1 million term life policy.

Pat: Yes, you've got plenty of room there. You should be putting at least, I'd say, 12% to 15% of your pay in. And it should be all equities, not a dime otherwise.

Scott: And maybe some of that should be Roth. I'm not sure I'd have money going to a Roth 401(k), invested 100% stocks, then buying an indexed UL.

Pat: So I have a 28-year-old son. If he worked for the state of California and was married, I would sit down and I would go through these, and had a kid, I'd go through this. First of all, you need a simple will or trust, nothing super complicated. Either go to an attorney or do it online, but get one in place. You need some term life insurance. If they sell disability insurance through your employer, you should purchase it. You should start funding a 529 for the kid. And we should probably put at least 10% to 12% into the 401(k). I'd probably go half Roth, half deductible. And that's where I'd start. And then I'd increase my 401(k) by 1% every year until it was the maximum. And if you didn't catch all that, you're going to have to go back and listen to the tape of this show. But that's, Scott?

Scott: Yeah, totally agree.

Pat: I mean, that's the list I would go through.

Michael: Okay.

Pat: If I had a 32-year-old son with a grandchild, and then, by the way, if I had a...

Scott: I'm just hoping your father-in-law is going to say, "Hey, no problem whatsoever."

Pat: Yes.

Michael: Yeah. Okay, great.

Pat: Okay. Great. I appreciate it. Thank you guys. It's just not, that's not fair.

Michael: Thank you, guys.

Scott: Well, the father-in-law thinks he's doing the right thing.

Pat: All right. Well, the father-in-law should give back the commission then.

Scott: Maybe he is. I don't know.

Pat: Maybe. Michael didn't mention it. Maybe he does think he's doing the right thing.

Scott: I'm sure he does think he's doing the right thing. Look, we both started at insurance companies.

Pat: Certainly did.

Scott: 1989 and 1990, lasted a couple years there. When you work for an insurance company, they teach you why that insurance product is good in every situation.

Pat: If all you have is a hammer, everything looks like a nail. And so all we had when we first started was...

Scott: And my guess is Michael's father is not securities licensed. I mentioned a variable universal life. My guess is he doesn't have the license to sell that. Doesn't have a license to help people set up stock accounts or buy index funds.

Pat: Well, actually, the life insurance company we work for, you and I got securities licenses almost immediately.

Scott: Correct, and we didn't last there because we didn't...there's a place for some permanent life. I'm not a big fan of index annuity, index universal life but anyway and for the rest of you out there before you get engaged, find out the profession of your in-law and make sure they don't try to dictate your life.

Pat: I tell my kids to ask on the first date, "What is your father doing? Is he going to sell me anything?"

Scott: I don't have any, my kids aren't married yet. I don't know what that journey is going to be like. I already know with adult kids how many times I bite my lip because I'm thinking I want to tell them my opinion here. But I mean, I can help the relationship. So I just keep my mouth shut.

Pat: if you want them to continue to talk to you. If you want the otherwise, say whatever you want.

Scott: Well, I love my kids. All right. Let's continue here talking with Lisa. Lisa, you're with Allworth's Money Matters.

Lisa: Hi, Scott and Pat. Thank you for taking my call. Pat, I think you, well, I know you coached my son on the Martian soccer team way back in 2002.

Pat: Oh, the Martians. That was a long time ago.

Scott: That must have been a great coach. You still have enough respect for him to be calling this program 22 years later.

Lisa: Pat coached with all the seriousness that a five-year-old soccer team demands.

Pat: That is, I remembered at every, I tied ribbons around their left shoestring to teach kids to use their non-dominant, so left or right. And then we used to play duck, duck, goose at the end of every practice, which was what the kids just showed up for. They were like, "Who cares about soccer? Duck, duck, goose." Anyway, that was a long time ago. How can we help today?

Lisa: I have a question about my dad's finances. My mother has been diagnosed about three years ago with vascular dementia. She's in the severe phase, rapidly declining, needs to be placed in a memory care nursing home. He's unable to take care of her. She's pretty difficult.

Pat: Yes, awful. Yes, yes, yes.

Lisa: So he is an Oklahoma farm boy, saved hard, worked hard his whole life, thought he had it all figured out until they told him it would be about 95 to 100K a year to help for him to pay for my mom's care.

Pat: And how old is he?

Lisa: He's 86.

Pat: Okay. And do they live here in, I'm assuming you live in California?

Lisa: Yes, they're in California. They live in the Central Valley Farm area.

Scott: Okay. Came out from Oklahoma about the same time my stepfather came out from Oklahoma. Migrant farm workers came out for work.

Lisa: Migrant farm workers, yes.

Pat: Also known as the Okies.

Lisa: Yep.

Pat: From the book, if you read "The Grapes of Wrath", it's the story.

Lisa: He is the story. He is. That's my stepfather. So he's...was really not sure how to handle that. He has, you know, they make their income is about $4,000 a month, which is fine and great. He has assets. He has Medicare, AARP, thought everything was fine, but neither of those cover long-term.

Scott: What do they have as far as savings in the bank, stock accounts, 401(k)s?

Lisa: The only thing they have, well, my mom has a retirement pension, which is about $1,500 a month.

Pat: And that's part of that $4,000.

Lisa: Yes.

Pat: Okay.

Lisa: And then they have their Social Security, which combined is about 2100.

Pat: Okay.

Lisa: Then they have a New York Life rollover IRA, which is only about 500 between the two of them.

Pat: 500,000 or 500 in income?

Lisa: No, 500 a month. So they're right about $4,000 a month, but he does have quite a bit of cash. Well, what he considers quite a bit of cash, which is about 350,000.

Pat: And anything, do they own a home?

Lisa: They do own a home.

Pat: And what's the value of the home?

Lisa: About 750,000. It's like say in the Central Valley farmland, 10 acres.

Pat: And anything else, stocks, bonds, anything like that?

Lisa: Nope, I had 300,000 of his money in CDs, but the problem is, well, it's not a problem. I had gone to a workshop on elder care planning and as of January 2 this year, Medicare stops looking at assets or Medi-Cal, sorry. Medi-Cal stopped looking at assets. So, he's eligible to apply to Medi-Cal, not looking at his assets and help there is only determined by your income but he is about 500 a month over in income for it to be, I guess to be qualified.

Scott: And if he's semi-qualified, is that the facility he's going to want to put his wife?

Lisa: There are three of them in Porterville, yes. Yes. That would be where it would work out, yes.

Pat: And that would be a pro rata reduction in the cost.

Scott: Yeah. It's funny you mention Porterville. That's where my stepfather lived for years too. Tarabella, Springville, Porterville.

Lisa: Yes, yes.

Scott: Lot of Okies there.

Pat: So this $4,000, so the $3,500 would actually qualify, but their income was qualifying for Medi-Cal. But it wouldn't pay 100%. It would pay on a pro rata basis.

Lisa: Right.

Pat: So what's your question for us?

Scott: You could probably stop the distributions from the, I don't know how the New York Life thing is structured.

Pat: That's an IRA, though. That New York Life is an IRA? You said it was an IRA, right?

Lisa: Yeah. Yeah.

Scott: Are they just taking withdrawals or was this annuitized? Turned into like a pension.

Lisa: Yeah. Yeah.

Pat: It's annuitized. Okay.

Scott: Yeah. But it's probably not all taxable. It's an IRA.

Pat: It's all taxable. Okay. And what's your question for us?

Lisa: My question is the elder care planning gentleman that I spoke to said it would be better... Well, so the CDs I pulled, his money came up mature. All that cash is in the bank. And my dad wanted to invest it back in. And the elder care advisor said, don't do that because now you're going to bring up his income again. Because he was making like, you know, 10K on it every year.

Pat: And what did they want you to do with it?

Scott: Buy an annuity.

Lisa: Yes, he suggested deferred income annuities or zero coupon bonds, saving bonds. So my question is, is that a smarter way to go?

Pat: I like the fact that he mentioned zeroes.

Scott: Yeah. I mean, I don't know exactly how the, I'm not an expert in the Medi-Cal planning.

Pat: I, you know, I'd have to dig into that. How long do you think your mom will survive?

Lisa: The average lifespan is eight years, but she is in perfect health except for, of course, her dementia. So probably another five years is our best guess.

Pat: And Lisa, so he mentioned a deferred income annuity, zero coupons, and what was the third thing?

Scott: Savings bonds.

Pat: And savings bonds.

Lisa: Savings bonds.

Pat: I'd be okay with the second and third.

Scott: Yeah.

Pat: I'd be okay with the second and third.

Scott: And maybe the first as well. The challenge is there's so many annuities out there that are just garbage and they have huge surrender penalties.

Pat: But you could buy a low cost annuity. And how's the elder care consultant charging you?

Lisa: He is not charging me unless I have him apply for Medi-Cal for me. And then he does a flat fee.

Pat: And what's he charge?

Lisa: Six thousand.

Pat: Oh.

Scott: And does he get commissions on selling product?

Lisa: No, no.

Scott: I like this.

Lisa: He doesn't do any financial and he says that right up front.

Scott: I like this.

Pat: Yeah, because you can buy a deferred income annuity without any surrender charges.

Scott: Well, he doesn't sell product. I love it. So many of these elder planning folks, they sell product that's...

Pat: We were waiting for you to say that this elder care person was going to recommend...

Scott: Everything in an annuity.

Lisa: I felt that. I felt like you were waiting for me.

Scott: That's right. Because we see it all the time.

Pat: That's what you see. I like this. I think, I think that they're worth the $6,000 and I don't know what you don't know. And if you could find, you know, at that point in time, it all comes down to yield on that because what you're trying to do is artificially impoverish...

Scott: Get the income down.

Pat: His income down. I don't know if that's the right word, but it's how the rules are written. Yes, good, yes.

Lisa: Okay.

Pat: Is that the question?

Lisa: Yeah, I was just, I wanted to make sure that that was, that made sense as opposed to, you know, putting it back in a CD. And he just, you know, he wants to be investing the money, but again, he doesn't want to be creating more.

Scott: Well, you got to see what the cost...yeah, because if it pushes you into these higher limits, it could be a multiplier effect.

Pat: Yeah, so and the zeros and the savings bonds would be...the zeros would be the easiest thing to buy.

Scott: U.S. Treasury, zero coupon U.S. Treasury bonds.

Pat: And they would cost you almost nothing. I would go that direction. If you said make a decision right now, I'd buy the zeros.

Lisa: Okay.

Scott: Because they're super easy. But I don't know if that's going to help because for income tax purposes, you still have to determine that imputed interest and report it on a tax return. So that's where... That's why it's helpful to have a Medi-Cal expert here helping you to navigate the rules because their income form is different than your 1040.

Pat: How do they do now if this wasn't there? Were they able to live comfortably on that $4,000 a month?

Lisa: Yes.

Scott: Have you been to Porterville? I'm sorry. I'm just kidding.

Pat: How many siblings are in the family?

Lisa: Two.

Pat: All right. And you both do equally well, one better than the other financially?

Lisa: Yes, one quite, I do quite a bit better than my sister does.

Pat: One of the things, if they do need more income beyond that, right, you can actually give them money and not recognize that income and just actually put a claim on the home and compute interest internally. I've done that for clients in the past where mom and dad need more money, and it's basically an internal reverse mortgage. And as long as your sibling understands it, it's fine.

Scott: I'd go down, I'd push as hard as you can, though, to get some Medi-Cal support.

Pat: That's right. I would pay the $6,000 happily. And I have a question for you, Lisa. Did the son that I coached in soccer, did they go on to achieve any sort of fame in the...

Lisa: You know what, Pat? He went on to be on the national team and he played soccer at Berkeley and he attributes it to the Martians again.

Scott: I don't know if she's even BS'ing about the Berkeley thing or not.

Pat: You reek of sarcasm. Did he go on to play soccer at all?

Lisa: No, he did. Both those things are true.

Pat: Oh, really? I don't think he attributed it to the Martians, though.

Lisa: No, but he does remember you.

Scott: And still plays duck, duck, goose after every game.

Lisa: I'm hoping that duck, duck, goose is not a thing now but yeah.

Pat: Oh, I appreciate that. That's awesome.

Scott: Thanks, Lisa. Sorry you're going through this. This is a...

Pat: Yeah, that's tough.

Scott: Yeah, let's continue on here talking with Karen.

Pat: Well, that, wait one second, that just made my day. I'm just kidding. Somehow I'm going to be able to take credit for it.

Scott: Oh, yeah, top D1 athlete.

Pat: Oh, yeah, yeah. Martians, back then when he was five.

Scott: Hi, Karen.

Karen: Hi, hello, how are you?

Scott: Wonderful.

Karen: Good, good. So I'm calling on behalf of my mom. I actually just left. We were together, but this is calling in regard for my mom. So she recently just took out $10,000 out of the bank because they changed the terms of the account where if she wasn't putting in money, you know, it would then be withdrawn. And so she took out the $10,000. It was 20 actually, 10 for my son who was 20 and another 10 for my niece, her other grandchild. She wants to know what advice, where should she now put this 10,000? She wants it to maybe to grow some interest. And we just don't know what to do with this. And so she was looking for advice.

Scott: So she's got two grandkids. Is that correct? And she took $20,000 out of the bank, and she wants to have $10,000. Does she want to maintain control, or does she want to have her...is this for her grandkids' future?

Karen: It's for her grandchildren's future. So one for my son and then one for my sister's daughter. So she has two grandchildren each, right? So that was her little bit of money that she had. In case she passes away, she leaves something on for her, you know, grandchildren.

Scott: Did your son work last year and this year?

Karen: Yes. My son is 20. He didn't want to go away to school, so he did get a job working. He's going to be going to school this year, but he did work for the... He had two good jobs, actually, for the past year.

Scott: So if this were my 20-year-old, I would say we're going to put the money into a Roth IRA. We're going to allocate $5,000 for 2023, $5,000 for 2024. And we're going to earmark these dollars for a down payment on a house sometime in the future. But we're going to utilize the Roth because when it's time to make the down payment, we'll just take out what that original $10,000. And all that interest that accumulated over those years is going to be for retirement.

Pat: And I'd put it in a high-yield money market account because the idea, the idea would...

Karen: In a high-yielding?

Pat: Yeah, high-yield money market account. And remember, this is really important. It's the vehicle, the Roth, is the tax vehicle it lives in. The high-yield money market goes inside of it.

Scott: You're assuming he's going to be buying a house in five years.

Pat: I don't know.

Scott: Actually, I would probably have it more aggressively invested.

Pat: Like 50-50?

Scott: Or maybe even on the equities market, maybe he finds money elsewhere for a house.

Pat: That was my original idea.

Scott: You think what $10,000 could be worth by the time he hits retirement.

Pat: And just say, don't worry about it. And like, we're just going to put it in the total market. It'll be worth a ton of money down the road. And I wouldn't even tell him. Well, you were the one that brought up the house. I would have put it in the total market. Why would you tell him, why would you encourage him to use it to buy a purchase of home?

Scott: I was just thinking of different options, but you're correct. I would agree with you on this. I wouldn't think about it for a home purchase.

Pat: And by the way, so both of them for both you and your son and your niece, Roth IRA, 5,000 for 2023, 5,000 for 2024, right? Total market. You can go to Vanguard and buy it, it's the VTI. It's an exchange-traded fund at Vanguard. VTI is the symbol it trades under. And make the contribution 5,000 for 2023.

Scott: You do it all at once, yeah.

Pat: For 2024, call it a day, both you, both your son. How old is your niece?

Karen: I think she's 28.

Pat: Okay, perfect. Perfect, perfect. That's what I do. Does that help?

Karen: Okay, so if I may just repeat this one more time because I wrote it down, I stopped driving.

Scott: I'll tell you what, when it airs, you can just listen to it two or three, four or five times, many times.

Karen: Okay. All right.

Scott: Appreciate the call. Appreciate the call. I think it'll be of greater benefit than you trying to drive and write something down or dictate something to your phone or something while you're driving. VTI. Or it could actually be the, it might, VTI, you have to have a brokerage account and then buy, do a trade to buy the security as opposed to the mutual fund.

Pat: That's what my kids use, we've been using in my kids' Roths is VTI. Small amounts, easy to manage, not super complicated. Too small for an advisor to want to take on as a client.

Scott: You do realize Allworth has lots of clients' children as clients. They have clients' children. And with portfolios that are designed for clients' children. Clients' children. You know what I'm saying? Anyway.

Pat: Yes.

Scott: It's been great having you with us. We are here every week at the same time. And, of course, podcasts are the same thing. If you've enjoyed this, give us a review and forward it to a friend.

Pat: Please.

Scott: See you next week. This has been Scott Hanson and Pat McClain of 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 estate planning attorney to conduct your own due diligence.