February 18, 2023
- Where are the regulators? 01:43
- Should I invest $75,000 in a CD or in a Treasury bill instead? 10:25
- I need help with permanent disability benefits 16:30
- Tech layoffs – why now? 22:50
- Money Matters “House Call” 28:36
The government’s response to the crypto crisis, where to invest $75,000, and advice on buying a home.
On this week’s Money Matters, Scott and Pat examine the government’s response to the crisis in the crypto industry. A caller from Chicago asks whether he should invest $75,000 in a CD or in a Treasury bill instead. A California man needs help with his wife’s permanent disability benefits. Finally, Scott and Pat make a “house call” to a great saver in Florida who wanted to know back in 2021 whether he should buy a home. Hear if he took our advice.
Join Money Matters: Get your most pressing financial questions answered by Allworth's CEOs Scott Hanson and Pat McClain live on-air! Call 833-99-WORTH. Or ask a question by clicking here. You can also be on the air by emailing Scott and Pat at firstname.lastname@example.org.
Announcer: Would you like an opinion on a financial matter you're dealing with? Whether it's about retirement, investments, taxes, or 401Ks, Scott Hanson and Pat McClain would like to help you by answering your call. To join "Allworth's Money Matters," call now at 833-99-WORTH. That's 833-99-W-O-R-T-H.
Scott: Welcome to "Allworth's Money Matters." Scott Hanson.
Pat: And Pat McLean. Thanks for joining us.
Scott: Yeah. We are glad to be here, of course, myself and my co-host, both financial advisors. We spend our weekdays with people like yourself and we broadcast on the weekends being your financial advisors on the air.
Pat: We do. Yeah.
Scott: Here we are. In the middle of February.
Pat: On the air, on your device, anywhere you wanna consume it. It is there.
Scott: Yeah. We started out the first January was a huge year in the markets. First week of February went not so well, and then we had some volatility this week, inflation is still there. We still have some of the same.
Pat: Worries about China, not just things floating over a country, but the economy as a whole.
Scott: That's the strangest thing. One more flying object. Like, they must've been out there for years, right?
Pat: I don't know. I don't know. We're not talking about that, but it's very interesting.
Scott: What is the story here? What is the real story? I'm not... Anyway, maybe we'll find out.
Pat: But we answer your financial questions and hopefully set you on the path to where you're comfortable with your financial lifestyle. That's the objective.
Scott: Yeah. And we talk about a lot of things that are going on in current markets. So, this week, Pat, past week, the Securities and Exchange Commission filed suit against one of the big crypto. And we've talked about this for a while.
Pat: Yeah. Binance?
Scott: Binance. And so these companies would issue their own coins. That's how they raised capital. So, think about this from a capital markets perspective. Pat and I start a new business manufacturing widgets and we need more capital, and so we borrow some money for a while, but now we need some substantial capital. So, we decided to issue shares in our widget company. Right? So, we issue shares. When we do that, there's a lot of regulations that are already on the books, after decades our government's been monitoring financial markets.
Pat: Mostly because people back in the day would just issue shares and shares and shares and resell the same shares and same shares and same. Very similar to how Ponzi schemes work.
Scott: Back in the day.
Pat: Back in the day.
Scott: Now it's like, look, if you're gonna bring in outside investors, first of all, if you're gonna limit it to a limited number of people, that's fine, but you have to still go through these guidelines, accredited investors, etc. If you're gonna open up to the broad public, now you've gotta go through a completely different kind of process.
Pat: To make sure that they're rigorous. Yes.
Scott: All kinds of filings to make sure you're not scamming people. Well, these crypto companies, they didn't issue shares, very something similar. It's like, "Hey, let's create our own little online exchange with crypto. We'll let people come in and trade different kinds of coins, digital coins.
Pat: But we don't need to issue shares. We're just gonna issue our own currency, which by the way...
Scott: Or our own coin.
Pat: ...looks a lot like a share.
Scott: Yeah. So, they said, yeah, rather than buying a share, you buy a coin, a token, one of our tokens. And that's why there's proliferation of all these different tokens have taken up is these companies...
Pat: And then they use those tokens to support, so they lend them out and borrow them from each other and buy their own tokens to prop up the value.
Scott: Which is what FDX did, right?
Pat: Right. But they're not the only ones that are doing it. I was...
Scott: By the way, on the Super Bowl, not one crypto, like, a completely different commercial.
Pat: I went for a bike ride with a friend of mine the Sunday morning, Sunday before the Super Bowl, and I said, "There's two things that are really interesting to me." He brought up crypto. I said, "People forget that prior to bank regulations in, what was it? Through 1928 through '31, there was, like, 3000 banks that went bankrupt, that you went down there to get your money out and there was no money left."
Scott: That's a problem.
Pat: I said the crypto thing is no different. These people were actually opening their own banks. There's no regulation. They lend to whoever, they lend to themselves. Even under the... Look at the savings and loan crisis in the United States under regulations what happened there? So, that was on the way.
Scott: Yeah. That was when you regulate half of the balance sheet and not the other.
Pat: That's right.
Scott: So, you tell a bank, "Oh, by the way, all your deposits are gonna be federally insured. Oh, and with your investment, your deposits, do whatever you'd like. Yes. If you wanna buy..."
Pat: Go buy resorts.
Scott: Yeah. Charge yourself. Build the Phoenician.
Pat: Oh, the Phoenician in Arizona. Oh. If you wanna...
Scott: I think we're agent ourselves.
Pat: If you wanna get a resort that you wanna see that the government bought, oh, it's beautiful. There was one. And then I said, "I think that there should be an index that any company that is less than five years that buys a television ad on the Super Bowl, that we can track them in the subsequent three to four years to see where they end." And I said, "Just off..."
Scott: That's pretty interesting.
Pat: Right? I said, I wonder if someone has done a study on that because this would be a good case for a business school student.
Pat: He said to me, "Pat, get to work."
Scott: I don't have the patience to do that kind of research.
Pat: So, I said just off the top of my head.
Scott: That would be interesting.
Pat: Monster.com, which was the cables, you know, 20 years ago that wired your machines. They were gold-plated cables. And then pets.com and then crypto. And so any company that bought an ad that is less than five years old, where they end up...
Scott: That would really be interesting to see...even though...
Pat: Well, because it shows you...
Scott: I like the less than five... Can you take out the Budweiser?
Pat: That's right.
Scott: The General Motors.
Pat: The ones that actually have the ability to pay for them because they have cash flow versus the ones that are just betting that they're gonna do well and attract attention to themselves. So, anyway, don't we have a bunch of interns that work here?
Scott: Yeah, they have jobs.
Pat: Okay. Can't we assign?
Scott: We'll see how young and hungry someone is because this is actually gonna be in the next test, Pat.
Pat: I know.
Scott: First of all, we've got 350 or so associates at Allworth. We try to encourage everyone to listen to the radio show. And by the way, this morning I was running with a group and there's a young woman who's running in that group and made some mention of our show last week.
Pat: Oh, wow.
Scott: Good for Erica listening to our show. Right? Check that in the back of my... And part of it is just we set a bit of the tone for the organizations. So, this will be inter... And we try and encourage everybody, particularly the advisors, "Listen to our show on a weekly basis." So, this'll be interesting to see if we've got one of these young interns who...
Pat: Comes back with this...
Scott: Comes back, done some research on that. Yeah. I'm thinking this is a whole new investment philosophy.
Pat: We'll find out.
Scott: Here's my investment thesis. Anyway, now we're going up.
Pat: We digress.
Scott: But the reason I brought up this Securities and Exchange Commission lawsuit, it's because people have been asking where is the SEC for the last couple years on this. Like, where are the regulators?
Pat: What's taking them so long?
Pat: But a lot of the...
Scott: They wait until the things blow up and then they come in. What's the...
Pat: A lot of the regulations are by enforcement. A lot of the regulations are by enforcement. They're not quite sure of the rules or how they apply to the rules and they wait till something goes wrong and then they enforce or they wait for... Yeah. Good point.
Scott: I mean, it would seem to me, what's the point of having the Securities and Exchange Commission when you have a whole new... I don't even know what you call a cryptocurrency. Not really an asset class, but kind of. And the regulators just sit back and watch. Well, it's not like they didn't know it existed. For crying out loud a year ago there's every other Super Bowl ad was a crypto company. They have stadiums named after them.
Pat: And now they're telling banks can't do business.
Scott: I mean, isn't their job to protect investors? Yes. Isn't that not their primary... I don't know what their mission statement is or whatever you wanna call it, but my guess it's something to do with protecting...
Pat: Well, they are protecting them, but not all of them.
Scott: Well, when you come in...
Pat: After the fact...
Scott: What's the point? That's not okay. I mean, trillions of dollars have been destroyed. And a lot of it is a transfer from those who couldn't afford it to those that already had it.
Pat: Yeah. Or they...
Scott: If you look at who the big buyers of Bitcoin and crypto have been.
Pat: Yeah. They've propped the market. They've hyped it up.
Pat: If you wanna join this show, if you have a question about your money, 833-99-WORTH, that's 833-999-6784 [Call +1 833-999-6784 via Google Voice](http://voice.google.com/calls?a=nc,+18339996784)and we'll get you on this show.
Scott: And I would say it's not just about your money, anything kind of financially planning, because it could be taxes and estate planning and...
Scott: Yeah. I was thinking this morning the estate tax sunsets 20...a lot of taxes sunset 2025. Right? 2025. We're 2023. It's not that far off. It'll be interesting to see what happens with our tax rates, current income tax rates because they're gonna sunset, as will the estate tax provision. So, currently, it's what, 11 million, 12 million bucks per individual?
Pat: Yeah. It's kind of a shell game, though.
Scott: What do you mean?
Pat: Well, the reason they sunset them is because if they put an end on it, they don't actually have to put it into the budget to run into perpetuity. So, you could do whatever you want as long as it comes to an end at some point in time. But it will be interesting, especially the estate tax. It's the largest amount that you can gift of your estate that it's been for years and years, 40, 50 years.
Scott: Yeah. And it's gonna revert back.
Pat: It's supposed to.
Scott: We'll see. Quite a few things will. All right. Let's go to some callers here. Let's start off in Chicago with Bill. Bill, you're with "Allworth's Money Matters."
Bill: Hi. Thank you so much for your program.
Scott: Yeah, thank you.
Bill: Yes. I'm looking to invest about $75,000 in either a 11 to 12-month CD, which currently has an APY rate of about 4.6 to 5.0 where the interest compounds daily, or a 26-week T-bill, which currently has an investment rate of 4.9% as seen on the last auction where the interest is added at maturity and then reinvest for another 26 weeks. I think that the interest on the T-bill is exempt from state income taxes. Could you give me some guidance as to which investment would be better?
Scott: Well, one, I'd need a crystal ball to what's gonna happen in 26 weeks. So, why aren't you comparing a one-year CD versus a one-year treasury?
Bill: I thought that the rate on the 26-week T-bill was better.
Pat: It is higher. It is higher.
Scott: Yeah. So, right now we've got what's known as an inverted yield curve. So, as the feds have increased interest rates, it's actually caused long-term interest rates to decline. So, a 10-year treasury is trading under 4%, whereas a 3-month treasury bill is trading north of 4%.
Pat: And so the inverse means, obviously, that it's inverse of what it normally is where the longer the maturity, the higher the interest rate.
Scott: Which one would think by it's, like...
Scott: The longer you have to tie your money up, the more higher interest you would demand.
Scott: But it is. And what state do you live in?
Scott: There's not a tax issue in Illinois, is there? That's a joke.
Pat: So, what was the rate on this six-month that you quote on?
Scott: You're not comparing apples. You should look at a six-month CD versus a six-month treasury bill.
Pat: I understand that. I understand that.
Scott: The bigger question, what happens in one year from now? Why do you need $75,000 12 months from now?
Bill: Well, I have an emergency fund. I have an online savings account and I just wanted to take $75,000 from that and just put it in something that's gonna gain a little bit better rate. I don't wanna put that money into the stock market right now. I just wanna have it more.
Pat: And so the online savings account, they have a bank CD available right there on that same account that you could just easily move it over?
Bill: It would be a different bank, but...
Pat: Oh, it would?
Bill: Yes. Yes. Yes. It would be a different from where my savings is.
Pat: I agree with Scott. You should be comparing the two in order to get a real comparison. I personally would just buy the six-month treasury or I'd buy the CD.
Bill: Okay. Okay.
Pat: Yeah. The difference between... And you can't compare the two because one has a known outcome and the other doesn't.
Bill: I just didn't know. With the T-bill, I know that the interest is only added at the maturity where the CD it compounds daily [crosstalk 00:13:43]
Pat: I understand, but...
Scott: The same principles that work.
Pat: Yeah. But you mentioned the APY, which means that that's the overall value in it. So, you're comparing the same thing, how it compounds, because the APY shows that compounding daily, and you actually use the word APY. So, those numbers are exactly the same, right, in how they're comparing them.
Scott: Whatever's easier. It's not gonna make much difference.
Pat: That's exactly why I asked if the bank that you're at, the online, typically they're all pretty competitive. I would just move it to the whatever was the easiest.
Bill: Okay. Okay.
Scott: Assuming their rates are about the same.
Pat: About the same. Yeah. Yeah.
Bill: Yes. Yes. Okay.
Pat: Not gonna make that big of a difference.
Bill: Well, very good.
Pat: I appreciate the call, though.
Scott: Thanks, Bill.
Bill: Thank you so much for your time.
Scott: It's interesting, Pat, we're in a time where people are feeling good about getting 4% or 5% on their cash for longer stuff they can tie up, but inflation is still clicking north of 4% or 5%.
Pat: Yeah. So, the real return is negative.
Scott: Personally, I'd rather go back to two years ago where I got zero on my savings and inflation was next to nothing. People feel better about it. I feel better about it. We all feel a little bit better about it.
Pat: Oh, look, I get some interest. My bank account gave me some interest this month as opposed to not earning anything.
Scott: Yeah. The real return. But when you got inflation cooking like it is, I'm sure the federal government, the feds will get that all under control.
Pat: Well, I think it is starting to kind of work. It is starting to kind of work. You don't think?
Scott: I do. I can't speculate where the future's gonna go. I mean, we can look and see what most economists predict, but you get 10 economists lined up and they all have a different opinion. I try not to let my opinions impact my decisions.
Pat: Well, I think it's starting to... Where we are seeing it is anything that in the service industry is just the cost of labor is unbelievable. In the services industries.
Scott: I had a buddy of mine who was in San Francisco. Did I mention this last time?
Pat: No, I don't think so.
Scott: He took a picture of In-N-Out and texted me. And 25 bucks an hour is what they're offering to pay.
Scott: Starting employees. These are high school kids typically, right, In-N-Out?
Scott: It's a burger chain on the West Coast if you're not familiar.
Pat: Which is $50,000 a year. Huh? Where's the location?
Scott: San Francisco. It's probably all boarded up. There's needles outside. You don't want to go. Let's go. Let's go. All right. Let's talk to Tim in California. Tim, thanks for joining us.
Tim: Good day, gentlemen. I appreciate everything you guys do and taking the phone call.
Scott: Thank you.
Pat: Thank you.
Tim: My question is gonna be California specific. So, I'll go ahead and make it very brief and you can ask questions for me to fill in blanks. My wife works for the state of California and looks like in the next, say, 6 to 15 months, she'll be having to go out on permanent disability. I do all the planning for, you know, the family and all that kind of neat stuff. And I'm just trying to get a grip on what that's gonna look like. I understand there's going to be social security disability on the federal level, but in listening to you... I've listened to you all the time. And listening to you in the past I do recall you having somewhat of a similar situation with another caller and there was something on the state level that was also available, if you will.
Pat: How long...
Tim: And then...
Pat: I'm sorry.
Tim: Go ahead. No. I was just gonna say, and then of course the last part is about how this affects with her pension.
Pat: Okay. And how long has she been employed by the state?
Tim: A little over 10 years.
Pat: And full-time?
Pat: How old is she?
Tim: She is now 57. We're looking at this event going on somewhere, you know, like I said, anywhere from 6 months to, you know, let's say, 15 months out, something like that.
Pat: And she's fully vested?
Pat: Is she a safety worker?
Tim: No. No. Works for Covered California.
Pat: Got it.
Bill: That whole bit.
Scott: Is it 10 years when age 55 you're fully vested with the state of California?
Pat: Yes. Yeah. I don't know what...
Tim: Yeah. It's fully vested in terms of pension and that stuff. In terms of health, it's not. In terms of health, I believe, when I looked at her setup, it was she would have to be there until age 67 to be fully vested in terms of health coverage.
Pat: Got it. So, 20 years.
Pat: But she's not deferred vested pensions. She's pension eligible. And this wasn't an on-the-job injury?
Tim: No. No. No. It's a site issue.
Pat: So, she'll be pension eligible.
Scott: I'm not an expert on the State of California's disability program.
Pat: Yeah. Yeah. My understanding is because it... You saw this a lot with safety workers where they were on...
Scott: She could be on some sort of disability until full retirement age.
Pat: That's right. She may be.
Scott: I would imagine.
Pat: Yeah. That's what I would look at. She's gonna receive a disability or a disability pension. Which one?
Scott: Have you talked to anyone over at CalPERS on that?
Tim: I've actually reached out to them, and, of course, what they wanna do is they wanna set up a meeting with her and all that kind of stuff, so it becomes a logistically difficult thing because she's the one that's working full-time at this point in time, but that is my next step to do something.
Pat: I would do that.
Scott: Yeah, I would do that. You're gonna have to
Pat: Yeah, I would do that. And the benefits change. We do have people at Allworth that understand it much better than Scott and myself. In fact, in every market across the United States, we work with big groups of employees. So, we have worked with Pacific Gas and Electric employees and Kaiser, and so we understand the pension benefits, but I don't understand them specifically each one of them. I think she can apply for disability or she could go out on a disability pension. I don't know what the benefit of going out on a disability pension would be versus just a plain disability.
Tim: Got it. Got it.
Pat: And she's 50, so...
Scott: She's not the first one who has gone through this. So, someone at CalPERS will be able to help you with this.
Tim: Okay. Okay. That's the route we'll go. I figured, you know, I knew you guys had real good knowledge I've heard in the past in terms of the California state, and I figured, "Well, I'll give it a shot." I appreciate I can get...
Scott: Well, we did at one point in time, but it changes.
Pat: It's just some of these changes.
Scott: And I don't think we were ever experts on disability side of things. It's usually the retirement.
Pat: So, we appreciate the call.
Scott: Yeah. Thanks, Tim. And it's interesting, Pat, with, I remember when I was younger in this business, there was a lot of talk about disability insurance in the private sector, which became prohibitively expensive for most people. And it was often from a financial planning standpoint, it's still a major area of discussion for people as they're planning for their retirement. Most people when they're financial planning, right, they think about... When your careers are starting to go and you have a little resources and, like, "All right. What should we be saving for retirement? Should we think about saving for the kids' education? What are some of the things we need to be saving for?" And then there's always things, like, "We'll make sure we have life insurance in case we kick the bucket and we've got kids' mouths to feed. And second, make sure we've got something, a plan if one of us gets disabled or we get disabled in order to be able to continue to fund whatever needs we have.
Pat: Those were normally the first and then the safety fund. And then you started saving for retirement.
Scott: That's correct. But disability insurance, particularly, in the private sector for self-employed got so prohibitively expensive. Most people would kind of self-insure that thing.
Pat: Yes. And part of it was, is it was a relatively new product to the industry, and so they didn't underwrite it correctly and they, as insurance companies, collect your premiums, they have to invest them somewhere. And as the interest rates fell, it was harder and harder [crosstalk 00:22:19]
Scott: I mean, what a lot of people would do, like, some doctors would view this as their retirement. Let's say you're a brain surgeon, hands are kind of important, I'm guessing, right?
Scott: And you have disability insurance. Maybe you've gotta pay for the rest of your life and it's specific to your own occupation. And suddenly your fingers got arthritic and you can no longer do brain surgery and you go on disability for the rest your life.
Pat: And for a period of time.
Scott: Or a lifetime.
Scott: Which is what's happening back in those days. Pat, I don't wanna talk about disability anymore. It gets depressing. Let's talk about another depressing topic.
Pat: Well, I was talking to my kids and we were talking about why all of a sudden do we see all of these announcements of layoffs in tech? And during the pandemic, they couldn't hire fast enough, right? They could not hire fast enough and then all of a sudden it's like an about face and going the other direction, which is let's just freeze hiring a couple months ago and now we're gonna actually start shrinking. And so my kids and I were having this conversation, they're like, "What causes the business to turn so fast? Like, what is it inside that corporate headquarters where everyone says, 'Holy smokes, what did we do? Let's turn around and run the other way.'"
Scott: And it's really interesting because if you would've went out 18 months ago and talked about a tech recession, people would be like, "Like, are you crazy?" But if you step back enough tech has gone through other cycles in the past. Tech has clearly been in recessions in the past. So, what is different this time?
Pat: So, what is different this time? Well, one is that companies are really, really focused on the fact that there's going to be a slowdown, you know, in the economic environment. And they sell to two different groups. There's business-to-consumer and there's business-to-business. Right?
Scott: And I think they're mostly worried about the business-to-business tightening the belt a bit.
Pat: The business-to-business. Right.
Scott: Their contract is up for renewal. "We've been paying you $200 grand a year. We really like you guys, but we can only pay you $150,000. If you can't lower your price, we're gonna find another vendor."
Pat: Or, you know, we were in talks with you to install your new upgrades to go from .066 your software and you want us to go to 7.5 and you're like, "You know, things are a little tight." Right? In retail, so who do they sell to? They sell to...
Scott: We're not gonna get the return for two years out. We need to worry about preserving our cash today.
Pat: Right? They're just like, that's the B2B side of it. Right? And we're not really seeing it so much in the B2C side and into tech yet with the exception of the big brands that did really well during the pandemic like Peloton and these home workouts and all those things. And the other is that interest rates are actually driving it.
Scott: Cost of capital is real.
Pat: It's real.
Pat: It's an expense. It's an expense on your P&L. It's an expense on the business that's gonna affect your earnings. And so that's why we're actually seeing companies freeze up and then retrench.
Scott: And if you were highly diversified going into this tech downturn, it hasn't been a big impact on you. If on the other hand, you've been following all these growth stocks piled extra heavy into tech...
Pat: You're gonna feel it.
Scott: You're gonna feel it and you might feel it for a long time. We're taking a quick break. We'll be right back with "Allworth's Money Matters."
Announcer: Can't get enough of "Allworth's Money Matters?" Visit allworthfinancial.com/radio to listen to the "Money Matters" podcast.
Scott: Welcome back to "Allworth's Money Matters." Scott Hanson.
Pat: And Pat McClain. Thanks for sticking with us.
Scott: Yeah. I'm glad you are. We hope you are. You might have just turned off.
Pat: If you'd like to join the show, it's 833-99-WORTH. That's 833-999-6784.[Call +1 833-999-6784 via Google Voice](http://voice.google.com/calls?a=nc,+18339996784) And if you call in or email us at any time, what we do is we'll arrange for you to be part of the program. And it's simple and it's easy.
Scott: Yeah, you can do that. Or we have a call-in session set aside, so, every once in a while we'll set aside an hour or two, we'll be in the studio and just take calls because this program we do record during the week. Pat, we did this program live 20 some years.
Pat: Twenty-three. Something like that.
Scott: Sunday mornings and then Saturday mornings. Anyway, we love doing it, just don't love doing it on a weekend morning. So, now it's pre-recorded. And frankly, we love taking calls. I think one of the things... We both got in this business because we enjoy both the finance side of things and we enjoy working with people. And the interaction between the two is really quite interesting because we're all emotional beings. As much as we think we always make rational choices, we don't. We all have different wants and different risk tolerances. We have different viewpoints. All that. It all comes into me. So, one of the things that we enjoy about the college, we just get to meet lots of interesting people and hear about...
Pat: I like the problem-solving.
Scott: So, we have a call-in session scheduled on Thursday, February 23rd from 3:00 to 4:00 Pacific time. Thursday, February 23rd from 3:00 to 4:00 Pacific time. And if you'd like to get registered to call us during that time, you can simply send us an email, email@example.com. You can say, "Hey, I'd like to ask Scott and Pat about this or I'd like to ask Scott and Pat about that." And someone will reach out to you and schedule a time for you. And if that call-in session doesn't work, they can schedule some time in the future. So, we'd be happy to take your call, especially if you're gonna be as good as this guy we're about to listen to.
Pat: Yes, Chris.
Scott: Because this is... What do we call this? Our house call segment?
Scott: Yeah. And we spoke to Chris... By the way, we're gonna set this thing up. The phenomenal saver. So, I remember...
Pat: Well, let's explain what the house call is first, Scott. A house call is where we listened to a call that took place in the past. We gave a recommendation, then we check back with that person to see what they did. And so this took place... Chris, we spoke to him back in 2021, a retired firefighter.
Scott: He was wondering if he should buy a different home.
Pat: Yes. So, let's listen to the call.
Chris: I was thinking I think I have the money and the cash flow, but I wanted to bounce it off of you guys and see if I'm thinking right or I'm too emotional in my decision. So, basically, okay, I was gonna take the money from a job that I'm gonna get later on in California, some work I'm gonna do with my work with the fire department, and then gonna pay the monthly, the PITI and the expenses from my retirement accounts. I'm retired. I'm a retired firefighter for the last 10 years, but I have a small business training emergency responders and first responders. Go ahead.
Scott: How much is your pension?
Pat: Yes. How much is your pension?
Chris: No, I took the payout.
Pat: Oh, the lump sum. How much is the lump sum?
Scott: That was 10 years ago.
Chris: The lump sum when I took... Yeah. When I took it 15 years ago was, like, $1.2 million.
Pat: What is it now?
Chris: Well, with the SEP account from the little business and the IRAs and the 457, they all total up to about $5.2 million.
Scott: And how old are you?
Chris: I'm 64 years old.
Pat: And how much income are you taking off this $5.2 million in order to support yourself?
Chris: None. Nothing. Because I have rental real estate that almost equals the amount of my monthly... My monthly expenses are about...
Scott: Got it. And how much is a single-family residence cost you?
Chris: I'm looking in an area where... Miami is where I'm looking, it's expensive. It's about $1 million.
Pat: And would you sell your condo or would you convert it to a rental?
Chris: No. I would keep the condo because that's where we wanna retire. And I'm glad you said that because we're just gonna keep the house, my plans are, you know, everything subject to change would be for 10 years. And then go back to a condo because it's an easier living when I'm, you know, in my 70s.
Pat: Got it. Listen, I really like you. Tell me the net... I assume you owe no one in the world money. Is that correct?
Chris: Yeah. My rental real estates are paid off. I have them, you know, in Florida and in Montana and my apartment is paid off. Yeah.
Pat: And what's the value of all that?
Chris: Kind of net worth if I added it all up?
Pat: Yeah. Yeah.
Chris: About $8.5 million, $8.6 million.
Pat: All right. Go ahead. Buy away. Enjoy.
Chris: [crosstalk 00:32:11] because I was gonna come first...
Scott: You know what? Here's the problem. Here's what's hard, Chris. You have this much money because you've always lived below your means.
Scott: Right? My guess is your condo in Miami is not in the fanciest tower, nor at the top.
Chris: No, no, no. It's on the water, but, right, it's a smaller, you know, 1400 square foot with a... It's not the penthouse.
Scott: Right. But you could buy the penthouse if you wanted, but you don't.
Chris: Yeah. I mean, my car is 10 years old.
Scott: Right. That's why you have these dollars, right? So, sometimes it's hard because 1 million bucks, like, that's a lot of money. Right? It is a lot of money. Still a lot of money. And you think, you remember back in days how hard you worked and how much you made a year and even at the job you've got now, like, how much you made, like, that is a lot of money. But on the other part, it's like you now have $8 million net worth. It's not like you're talking about spending it on something frivolous. You're investing it in the house. And my guess the 1 million bucks for a house in Miami is probably not... It's not the Scarface mansion.
Pat: And we're not actually talking about the full million dollars. We're talking about the delta between the value of the condominium and the house itself because...
Scott: You're gonna turn that into an investment.
Pat: You're gonna turn that into an investment.
Scott: How much is the condo worth?
Pat: See, you got now things. Three hundred grand is getting easier and easier. This is getting easy.
Chris: Yeah. And I was gonna pay the down payment, which is 20%, the $200,000 from selling one of my rental real estate.
Scott: Good. I like it.
Scott: You do it. Enjoy it.
Pat: Enjoy it. Enjoy it. Start taking money out of that IRA if you need to make the payments, spend it a little if you're not making enough. I'll give you my cell number. If your wife has any questions, she can call me. I'll tell her it's a go.
Chris: Yeah. Yeah. You can become the marriage counselor.
Pat: Oh, yeah, that'll work out perfect. I mean, marriage counselor.
Chris: Yeah. Yeah. It's just, you know, a lot of my buddies in the service, you know, they pass away, man, and I sit there and I said, "Man, I don't really wanna die with all this money. Let's enjoy it." And I'm buying the house because we have grandkids now and it's difficult in a small apartment.
Scott: Yep. Now's the time. Seriously. You worked hard to save these dollars. You've made lots of sacrifices over the years for these dollars.
Pat: And you don't need to...
Scott: You are a firefighter.
Pat: You don't not have to justify or apologize to anyone for your success. Just buy the house, enjoy it. Next 10 years, hopefully, you get to spend the whole amount of time there. Hopefully, you get to go back to the condo and get to spend another 10 or 20 years there.
Scott: But you never know.
Pat: But you never know. And you got plenty of money.
Chris: You never know.
Pat: You've achieved the objective. Enjoy it. And I like the way you're doing it.
Chris: Yep. Totally agree.
Pat: And how you're financing it.
Chris: And then I can pay for the expenses of the house from taking out, like, 2% to 3% from my tax deferred account.
Pat: That's exactly what I just said.
Scott: Perfect. That's what that's for.
Pat: Start taking money out of that IRA.
Scott: You saved for the future. The future is here.
Pat: Yeah. You're gonna have...
Scott: It's a great idea.
Chris: I will.
Pat: By the way, you should worry more than anything about required minimum distributions on that IRA.
Scott: But he's in Florida as a primary residence.
Pat: There's still federal taxes. They're not its own nation.
Scott: Not yet.
Pat: Not yet. All right. I appreciate the call.
Chris: Right. Right. Instead of converting to a Roth, just use it to enjoy the home with my family.
Pat: Yes. Yes. Yes. Yes. And maybe even a little bit more. And maybe even a little more.
Chris: Oh, listen, I love you guys. You told me exactly what I wanna heard.
Scott: Thank you, Chris.
Chris: I'm calling my wife right now.
Scott: You didn't sound like you're from Miami originally, by the way.
Chris: Yeah. No. I was born... No, man. I'm an immigrant. I came here from Cuba.
Pat: Did you really?
Chris: [crosstalk 00:35:51] Yeah.
Pat: Good for you. Good for you. God bless you.
Chris: My father was in the Bay of Pigs.
Scott: You're kidding. How old were you when you came to the United States?
Chris: Under two years old.
Scott: Good for you.
Chris: Under two years old. Because my father fought in World War II and then after the Bay of Pigs the government let us in because he fought, you know, with the Merchant Marine in the United States. But yeah, we fled communism, man.
Pat: Wow. Yeah.
Scott: Yeah. You probably have a different perspective than others, knowing the trajectory your life could have easily taken, as opposed to, "I was born in the United States and I feel extremely blessed. I love this country. I'm so grateful I could have been born in Cuba."
Pat: And you may have a scarcity gene that causes you to save like you do. And what we're trying to do is say it's okay to actually start enjoying it now, spending a little bit more.
Scott: And he's only talking about $300,000. The difference is $300,000.
Pat: I know. It was a little
Pat: It was a little.
Chris: Yeah, listen, I bleed gratitude for this country.
Pat: Well, me too.
Scott: Okay. Now we've got Chris join... And you can see what I mean, like, why I said he's a great saver.
Pat: Oh, yes.
Scott: Took personal responsibility for his financial outcomes. Clearly.
Pat: And you had pointed out he came from a mindset of scarcity having his family come from Cuba when he was young, you know, which forms people. It certainly will form your view of the world, the environment you grow up in. And not always.
Scott: I mean, with, like, my stepmother from... She was a child in England, London, during World War II. And she would, like, the plastic baggies. You don't throw those out. You rinse those, you dry them, and use them again and again and again. Stale potato chips? You don't throw those away. You crunch them up and put them on top of some sort of casserole and you bake it and that's dinner.
Pat: Anyway, scarcity.
Scott: All right. Okay. We could afford fresh potato chips, but, anyway. Let's talk with Chris in Florida. Chris, thanks for joining us.
Chris: Hey, guys, thank you so much, man, for that introduction.
Pat: Yeah. So, tell us how it shook out. Tell us how it...
Scott: Yeah. You were looking at turning your condo into a rental and buying a new house in Miami.
Chris: Yeah. Yep. And listen, it turned out phenomenal. First of all, I wanna thank you on how many people you have helped in the last couple of decades. If I'm only an example, man, you've really changed people lives for the positive.
Pat: Well, you saved the money.
Scott: You did the hard part.
Pat: You did the hard part. You did the hard part.
Chris: But you gave me good advice because I did buy that house and I did not rent my condo. And so we're living in both places and we're living in the condo, which is a beautiful small apartment on the beach in Miami. But on the weekend we get our grandkids that are five-year-old twins and our family and my sons that are little, you know, in the 20s, and we enjoy a bigger house with a pool and made the garage a rec room with a pool table and a ping pong table. And it's incredible because I'm 66 years old and this money that I've accumulated all my life, I'm now spending it on experiences with my family at home. You don't have to get on a plane and go to the other side of the world. You can get in a car and just go to the other side of town. And it's been a phenomenal. I do appreciate, you know, your guidance and your support.
Pat: And Chris, how far away is the house from the condo?
Chris: One hour.
Pat: Okay. So, this is 100% lifestyle. And by the way, I had this discussion with my wife a couple of weeks ago. And I love to travel, but I love to come home and I love to leave and then I love to come home. But I said, there is a stereotype in the United States that when you retire, you're supposed to travel and go see the world and...
Scott: Most people don't wanna do that.
Pat: Most people don't wanna do that. Most people don't wanna go...
Scott: It's a pain in the butt.
Pat: Yeah. Let alone go see the world, get on a plane overseas. Most people don't wanna do that. They don't even wanna go three hours away.
Scott: But Chris has got it set up, so on the beach during the weekends, family time, created a separate environment just for that to happen.
Chris: Right. Right. It's kind of almost in farmland. I'll tell you something. We did have a house on top of a mountain in Montana between Livingston and Bozeman, but nobody went there because it was too expensive to get there, it took all day to get there. So, it was a white elephant. A very beautiful place, but nobody is enjoying it. Everybody can drive an hour.
Scott: Isn't that funny?
Scott: That is probably one of the best advice right there for our listeners.
Pat: If you're going to get a second home or a home, you need to make sure it's easily commutable.
Scott: I watched my mother and stepfather buy a place in the middle of nowhere on a river and be, "Oh, it's so wonderful." But they haven't had to drive. It was so hard to get there that no one wanted to go.
Pat: It was in Weaverville, California.
Scott: Outside of Weaverville. Junction City.
Pat: Okay. Scott, people didn't wanna go there not because it was far away. I'm familiar with the area.
Scott: That's a nice little community. Weaverville?
Pat: The surroundings are...
Scott: The 4th of July was super fun.
Pat: The surroundings are nice. It's a little... So, perfect. And your mindset changed about spending the money and enjoying it and...
Chris: Yes. Yes. I did. I did. I didn't wanna put it all in a will. There is money for them, but, you know, I want memories, man. We had the best Christmas, setting up the Christmas tree and watching my grandkids singing jingle bells on a microphone and the family there. Yeah. It's priceless.
Scott: It's beautiful.
Chris: It's priceless.
Pat: Good for you. Good for you. Good for you.
Scott: Thanks for sharing, Chris.
Pat: Yeah. Thank you for sharing. And listen, your family is thanking you for doing this, actually.
Scott: Yeah. And this is the best kind of parents you can give them.
Chris: It feels really good.
Pat: I appreciate the call.
Scott: Thanks, Chris. Just think, Pat.
Pat: We called him. We appreciate you taking the call.
Scott: Yes, that's right. We set this up. People, if you work for Allworth, you've heard me say on multiple occasions that the clients we serve, the planning that we do can mean the difference between them being able to see, go visit their grandkids a couple times a year, and them not being able to afford to leave the house. Yes. You've heard me say it. And, like, when we talk about saving for retirement, it's not so that someone can have a big mansion. Like, those things are kind of irrelevant. It's this sort of thing. And without the right kind of planning and the right kind of saving... One of the things that we're passionate about, Pat, the reason we continue to grow Allworth and why we have over 100 advisors in different parts of the country, like, I know that the planning that we do with our fiduciary approach, there's other good independent firms out there, but just with that kind of good planning, people are gonna be able to have these sort of experiences in their own life. Maybe not be able to have a second home.
Pat: Yeah. We tell people what they need to hear, not necessarily what they want to hear. Like, you need to do this, this, this.
Scott: Yeah. Not selling some product that your money is tied up for for years and, oh, if it works out, great, and if not, then you're broke. Yes. It's, like, probabilities of outcome. How do we design the retirement plan to give you the highest probability of being able to maintain your lifestyle, the highest probability that you can continue to visit your grandkids or have a place where your grandkids can come visit?
Pat: It's what it's about.
Scott: Well, I think it's not really buying a fancier car.
Scott: Or a bigger house.
Scott: Or a handbag.
Pat: I don't get that at all. I don't get that.
Scott: I was reading about it. I don't even remember the brand. Like, $80,000 purse?
Pat: I don't get that at all.
Scott: Well, I kind of understand it. I think it's crazy, but...
Pat: I don't even understand it.
Scott: Get others who can care less about you somehow be impressed with you. Anyway.
Pat: Well, that's why I don't understand.
Scott: Okay. Well, anyway, we're out of time. We'll see you next week. This has been "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.