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

Scott: Welcome to Allworth's Money Matters. Scott Hanson and Pat McClain, glad you are with us as we're talking about financial matters. Both myself and my co-host, longtime co-host, are both financial advisors. We spend our weekdays with people like yourself and we broadcast on the weekends to be your financial advisors on the air. So whether you listen to us through our podcast or terrestrial radio or whatever the case might be, we're glad you are with us.

Pat: Yes, thanks for being here.

Scott: And we promise to have a good program.

Pat: We will do our best.

Scott: As usual, we'll take some calls, interesting calls, which we tend to find most of them quite interesting.

Pat: Yes.

Scott: It's what I actually enjoy about financial planning, it's the... I went into this business and I studied finance in college, had no intention of going into the investment business. And as I started looking at different career paths, this was 30 or something years ago, I saw this as a perfect blend between finance and just the human interaction and how we're wired as humans and...

Pat: The psychology behind money.

Scott: Yeah. One of my best friends wanted to become a psychologist, and became... He's teased me at times. He's like, "You're kind of a psychologist when it comes to money." I'm like, "Well, that's what's interesting about, financial planning." And when we have times of volatility like we've been seeing in the markets...

Pat: Finally.

Scott: Finally, I know. You mean they don't go up at 29% every year?

Pat: It is always scary to me when we have a never ending climb up.

Scott: Oh my gosh.

Pat: What happens is it appears that risk goes away.

Scott: Although earnings are way up and there's some, you can make a case that maybe it's pricing isn't too bad right now for a lot of companies, but yeah.

Pat: And maybe you could say actually the inflation is good for many of these companies. It actually gives them a reason to increase...earn revenues above and beyond, because you've got something to blame.

Scott: Absolutely. That's what [crosstalk 00:02:31.959] I've got a sister, has a small restaurant in the central coast of California and I was talking to her. She raised her prices. I said, "Why don't you raise them again?" Because she said no one bought the first time. She's in the restaurant business.

Pat: You're trying to explain the supply and demand curve door.

Scott: Look, I mean, I feel bad for the people who buy the food, but most of them can afford it. It's a line of pizza, takeout pizza and stuff like that and so it's not an expensive line item for... But I said, "Right now, no one's gonna blink. First of all, you survived the pandemic running a restaurant."

Pat: Well, let's just go with this. Eating out in a restaurant is a want, not a need, so.

Scott: Yes, eating is a need.

Pat: Eating is a need. Eating out in a restaurant is a want.

Scott: But inflation is pretty nasty right now.

Pat: Oh, it's very, very real. Extremely real.

Scott: Seven point five percent last year.

Pat: Yeah. Yeah. Real, real, real.

Scott: Last month, I guess.

Pat: And I've been watching the economists go back and forth arguing both sides, whether this is transitory or not, it's inflation regardless of whether it's transitory or not. And all they're saying is, "Transitory is, we don't think it's gonna stick around that long." Well, it's not going back. That inflation is built in.

Scott: Well, if you look month by month, it keeps ticking a little higher, doesn't it?

Pat: Yeah. Yeah. And it's not like the prices are going to drop, they're just gonna stabilize. It's not how inflation really works. It's very rare that you get into deflationary...

Scott: Yes. Almost never. That's correct. People aren't gonna start lowering their prices.

Pat: So, you could say transitory, you're thinking "Transitory? It still costs me more." And the weird thing is, you know, the service sector of the economy is much, much larger than the good sector pre pandemic. During the pandemic...

Scott: Service.

Pat: Fell and goods filled in, right? And so now what we're seeing is a back to service, and the market's having a hard time adjusting to that.

Scott: That's a lot of it, isn't it? People are out doing stuff. Last weekend it was the Super Bowl. But we're gonna take calls here in a moment, and if you wanna join us, 833-99-WORTH is the number. Love to schedule a time to get you on the program here.833-99-WORTH. So, Super Bowl's last Sunday and the number one commercials were for crypto.

Pat: Some of them very strange.

Scott: Very. Companies I'd never heard of.

Pat: Yes. Very strange.

Scott: And I'm thinking, you spent 7 million bucks to air this commercial. It reminded me so much of 2000 and the .com. Pets.com, all those other companies. But the precursor for me personally to this was on Saturday, the day before the Super Bowl when a friend of my daughters came over to get her. So, a friend of my daughters came over, she walked over to my office. I was doing some work in my office.

Pat: How old?

Scott: Eleven. And she starts to tell me about this crypto that I need to invest in. And I'm looking at her, she's going, "Oh no. Yeah, it's just gonna make so much money and this and that." She's telling me and I said, "You do realize what I do for a living, don't you?"

Pat: What did she say?

Scott: She says, "No." I said, "Well, I help people with their investments for a living." So, I find it a little ironic that a 11 year old is telling me what I should be invested in. And I thought, "When 11 year old kids at home are hearing about this, obviously from their parents, sounds a little frothy."

Pat: Well, it used to be obviously from their parents. It could be a chat room now with 11 year olds spreading the information.

Scott: I suppose. My 11 year old doesn't have access to this.

Pat: But not all.

Scott: That's true I know. A lot of them have got the iPhone with no restrictions.

Pat: At least she's not pitching the Iraqi Dinar. Do you remember that?

Scott: What's the difference at this point?

Pat: It really is. It doesn't matter, does it?

Scott: I mean, some of these, they're ridiculous.

Pat: Well, Scott...

Scott: There's thousands of coins now.

Pat: Well, back to your point, I said to my wife exactly. I said, "These commercials remind me of pets.com." And she said, "Who's pets.com?" I said, "Let's just put it this way. When pets.com went into bankruptcy, the number one asset actually in the whole company was the puppet dog that was their spokesman, which was a sock, had more value because it had brand recognition than anything else left in the company." And you look at this crypto...

Scott: There were so many companies that were... The stock price went through the roof. It kept going up and up, up and up, and it got to the point, I remember a client in the year 2000, he came into the office. He was upset because his portfolio didn't do as well as he had hoped to it. His portfolio was up to about 21%, about equal to what the S&P 500 had done that year, and yet he was diversified. He had bonds in the portfolio, had some real estate in the portfolio, but the NASDAQ was up 85% in 1999. He says, "Obviously you haven't been paying very close attention to my portfolio." This is in 1999. "Why in the world would you have real estate in here?" Of course, what ended up doing extremely well the next several years?

Pat: And the answer is because you don't know when this cycles...

Scott: That's when everything was so hot. The text of it didn't matter if it was.com, people bit it up. And it feels a lot like that in the crypto market and these people, the companies that are advertising, they make huge transactions when they trade crypto.

Pat: Oh, transaction fees.

Scott: Transaction fees.

Pat: Yeah. Not transaction, transaction fees. Yeah.

Scott: Oh yeah. That's what they want it for, the transaction fees. They can make a lot of money as you buy and sell.

Pat: Yeah. So one that was a year old was valued at $7 billion, $7 billion. Obviously, we don't get it.

Scott: I understand the value of blockchain. I actually can see a purpose for digital currencies. But it doesn't mean just because something's a digital currency, it's worth a ton of money. $7 billion to your point. $8 billion, whatever the number you used.

Pat: Yeah. That was an exchange, a year and a half old.

Scott: I mean, there's clearly alternative investments. You wanna buy antique cars, awesome. They're probably gonna go up in value over the long term.

Pat: Wine.

Scott: Wine, art, there's lots of things.

Pat: Now the big thing is portions of art. You don't have enough money to buy a whole Monet, we're gonna put 500 people and we're gonna sell you... See that hat she's wearing, I own half that hat. Actually, that's part of it. That's exactly what they're doing. They're subdividing real estate.

Scott: Here's how I look at it all. Because I was talking to another gentleman over the weekend about crypto. I said, "Look, I think regardless of whether I participate in crypto or not participate in crypto, it's gonna have no impact on my life at this point." And frankly, I said, "Most of our clients are at retirement age. Whether or not they participate, if they're gonna participate, it's gonna be such a small amount of their portfolio because they're not gonna wanna bet their lifestyle on this or this. So it's not gonna have any meaningful impact in their lives either. And for those that are making a huge bet on it, good luck. Good luck." This doesn't make a lot of sense. Anyway, let's take some calls here. We are in Arizona talking with John. John, you're with Allworth's Money Matters.

John: Yeah. Hi. Thanks for having me. I got a couple of questions here. What is, I guess, a good age if you're just, you know, trying...whether you're teaching kids or you're just starting to get into the market yourself as a, you know, middle aged adult, what age is the best age, I guess, to start worrying about your retirement? Start looking at it going, "Hey, I need to pick my game up here," or "Oh, I've got some time. I can play around."

Scott: The best age or the most realistic age?

John: I'm sorry?

Scott: The best age or the most realistic age?

John: Well, okay. Most realistic age.

Scott: We'll start with best. Look, because a lot of us have kids. Kids grow up, they get jobs, some go to college, they start a career. Those who can start right off the bat, saving 10% of their money for towards retirement are gonna be light years ahead of everybody else.

Pat: At least 10%

Scott: I started early on, I know you started early on Pat and it's quite amazing how much you can accumulate in a 401(k) over a career.

Pat: Yeah. And so, the thing is, if you start early, it's a discipline.

Scott: Yes. Now, from a realistic standpoint, life gets in the way. Just talking a normal situation. You end up getting married, have a couple kids, get the house and all those different responsibilities and demands and everything else. Sometimes there's a divorce and all kinds of other things that can go on in life, and what we find is people tend to get really serious about retirement when they've got either their first kid goes into college or goes outta college. It's when they see the light at the end of the tunnel. They can see a date when they're not gonna have to support these kids any longer. At least not too much extent. And that's when they really focus on their [crosstalk 00:11:47.113]

Pat: It's not when they focus on savings, it's not when they start focusing on savings, it's when they actually start putting the plan together to take those savings and convert them to income in retirement. So the best retirees start the discipline early and live on what they take home, which is, look, if you get a job right outta college and let's say you're making $80,000 a year and you're saving 15%, you've got that discipline and you can live with that discipline forever.

Scott: Maybe you have to skip going out to dinner with some friends on a Friday night.

Pat: Maybe you don't get the dream house right away. Maybe you buy used cars, maybe you drive those used cars a little bit longer, right? But, when people actually start counting and like putting plans in place, it's typically between the age of 50 and 55. Now, I don't know if that was the answer you were looking for. That is actually what realistically happens. So the best place to start is day one.

Scott: What is your situation?

John: Yeah, makes sense.

Scott: What's your situation?

John: Well, you know, so I'm 48 years old and I did not start thinking about actual retirement until probably, I don't know, maybe eight to 10 years ago. And I started thinking, "Hey, wait a second here." Much like you said, I've been divorced and, you know, I've got a couple kids and my kids were approaching their late teens, early twenties and I realized, "Wait a second. I don't have to do this anymore. I've actually got a retirement I can think about." Whereas before I didn't think I could think about it because I didn't feel I had that extra to give. And furthermore, you know, with today's media happenings, we'll say, I have a hard time finding who do I trust? There's so many different resources out there, which ones are the most reliable? Who can we look to get the best information?

Scott: Well, not the media. I just said it. I mean, the same headlines you see with all the COVID stories last two years, that's the same reporting they do in the financial markets, right? It's the same thing. It's all that shock and awe, what's gonna get the clicks. That's what they write for. So, really looking at education, there's obviously some good education sources, whether it's from some online courses or whatnot, but from independent advisors, firms like Allworth, our firm, or there's a lot of other good independent firms. And when I say independent, means they're not manufacturing financial products that they're trying to sell. They're not in the business of selling things, they're in the business of offering advice.

Pat: And before you hire anyone, and the best way to do it is actually talk to your friends. I know it's a subject that doesn't probably come up very often, but people might say, "Oh, I got this advisor." Then you look at, you go to brokercheck.com and you look at their background.

Scott: Yeah. If you're gonna hire somebody.

Pat: If you're gonna hire someone, you go to brokercheck.com and you look at their background. And, if they have, you know, it's normal. Anyone that's been in the business for 20 or 30 years, they're gonna have one or two complaints on there maybe, right?

Scott: I've been fortunate. I don't think [crosstalk 00:14:59.831]

Pat: I have well, but we've hired people with one or two. Not every client is rational. And if they have five or six, then you just... Or four even, you just don't want anything to do with them. And you want someone that's a fee-based fiduciary, that is not [crosstalk 00:15:18.486]

Scott: But John, it sounds like you're on the right kind of thought. And we see this a lot. The kids, you see the light at the end of the tunnel. It's like, "Okay, I better get serious." Or you start seeing your own mortality and you might not even wanna retire. It's not really about planning on so you can quit working because some people don't wanna quit working but be in a position so that you can quit work, if you have to quit work. Maybe you have a health issue that forces you out. I mean, eventually we're all gonna have a health issue that forces us out of work or we're gonna die at our desk. One of the two, right? I mean, that's just kind of how it all goes. To your point Pat, before you hire somebody, just google broker check and there's a link for investment advisors for registered brokers. Yeah, you can get all their background.

Pat: Yeah. Oh, I'm thinking, we...

Scott: Sometimes Pat, you can tell his brain's elsewhere and I look over, like...

Pat: I was thinking what a way to go, die at your desk. And then I was thinking, we have these stand-up desks. What happened to those people? They don't die in their seat. They just keel over.

Scott: Standing, the poor guy died at his stand-up desk. That's terrible. I start picturing it like. I mean, that's really bad, right?

Pat: Bad enough you slumped over at your desk, but if you dropped over your stand-up desk.

Scott: Yeah. Okay. That's terrible. All right. That's not even funny. Well, its kinda funny. It's dark.

Pat: It is dark.

Scott: All right. We're in Minnesota talking with Seth. Seth, you're with Allworth's Money Matters.

Seth: Hey guys, thanks for taking my call. I have a question about not crypto and not dying at my desk, but I have a question about IRAs and 403(b)s and 401(k)s. Like many people, I've changed jobs. I haven't changed that many times. I have a current 403(b) that I'm really satisfied with. I'm happy with. Feels like I have control. It has the right mix of different investments in my portfolio but [crosstalk 00:17:16.428]

Scott: Is it a 403(b)(7) and so you have investment options that aren't tied to insurance products or is it insurance? Okay.

Seth: Yeah, it is. Yeah.

Scott: And are you currently employed?

Seth: It is, yeah, it's a question of stock bonds. Exactly.

Scott: Are you currently employed at the employer that has the 403(b)(7)?

Seth: I am.

Scott: Okay. All right.

Seth: Yeah. Then I have a 401(k) rollover where it's still sitting with my former employers money management company or broker company. And, I think it's a straightforward question. I want to know what's the right time to roll these over and into one account or not to and keep them separate. And, I have a couple of various other accounts sitting around an old Roth IRA and they've separately...

Pat: And these are not Roth 401(k)s or 403(b)s, they're regular deductive.

Seth: No, they're regular.

Scott: Our philosophy is have as few accounts as possible. You can have broad diversification within the account, but it's not... We've seen people that'll have more than a dozen retirement accounts, like the 401(k) from four employers ago and a spouse has a couple over here, and then they've got this IRA that they got at the credit union 20 years ago and then they got... And the challenge with that is they never really pay attention to anything because they've got just too many things going on. So, I mean, you could either take that 401(k), you can roll it right into your 403(b), transfer it there, like that or you can move it to an IRA.

Seth: Yeah. I like those options. I really wanted...

Pat: I would actually... What's that?

Seth: I just really want it as simple as possible for my management. Capabilities and time I have. I'm 46. I have kids just like the last guy. Have gone through ups and downs in life. I just wanna make it as simple as possible, but still have a little bit of control to adjust my mix.

Pat: Yeah. Just move it over to your 403(b)(7) or an IRA. They both do the same thing. So, remember, we use tax code, right? 401(k) 403(b).

Scott: That's Internal Revenue code 403(b)

Pat: And in IRA is actually, what is it? A 408A, right?

Scott: Or 401A or something.

Pat: So I think there's...well, whatever. Okay. So, it's a tax code, right? And all it is is a shelter over the investment. People confuse the investments with the shelter around the investment, right? So, you like your 403(b)(7) because it gives you great flexibility and you like the lineup. You're gonna get that in any IRA as well, right? It doesn't really matter. So, if you move it from your 401(k) to your 403(b), you're used to your 403(b), just move it in there as long as it's a low cost, tons of options, you're fine. If you leave that employer, then you can move it to an IRA, or you can move it onto your next employer.

Scott: How long have you been with this employer?

Seth: Three years.

Scott: How long do you think you'll be with them?

Seth: I hope a long time. I'm definitely not looking to move, but I know a lot of my peers are also thinking the same way and they're moving anyway with the great resignation and things like that.

Scott: Do you work for a hospital chain, for it to be...?

Seth: No, it's actually a medical device and healthcare services organization.

Pat: Nonprofit?

Seth: Yeah, nonprofit.

Pat: Not on purpose, because a lot of companies are nonprofit, but not on purpose. Yeah, just move it over there. Just move it over there. Just move it into the 403(b), and you'll be fine.

Seth: Great. Any ideas about mix?

Pat: You should be a hundred percent equities.

Seth: A hundred percent equities, so not a lot of bonds?

Pat: Nope. None. None, none.

Scott: I mean, the reason Pat says that, you're 46. You've got 20 years before you're gonna be spending these dollars.

Pat: A dollar.

Scott: A dollar.

Pat: Not the dollars, a dollar.

Scott: There has never been a 15 year period of recorded history back to 1925 that stocks, broadly diversified stocks, have not outperformed bonds.

Pat: Except for real estate.

Scott: Correct. So, if you've got a really long term time, your best bet is to be, have as much in stocks as possible. Now, the only reason you wouldn't is if you had some concern that you would react in a down market and make a poor choice, that is, selling out when things are low. That would be the only reason not to have it all in stocks. The only reason.

Pat: Yeah. And remember, when you go to retire, you don't spend all your money in one year. You actually are going to keep it invested, hopefully, for the rest of your life, right? And that's when you actually start, as you get closer to retirement age, you start putting more conservative assets in the portfolio. That's how you do it.

Seth: Great. It makes great sense. Yeah, I appreciate the follow up too. Yeah.

Pat: You know, I gotta tell you the worst part about a well-balanced portfolio is the owner of the portfolio, not the portfolio itself. It's because of how they react to the marketplace. And if you can get past that reaction, then you're fine. And it's not, by the way, I'd been doing this for a long time. My wife occasionally will point out certain holdings in our portfolios that aren't doing well, and she says, "What do we do about this?" I'm like, "What do you want me to do?"

Scott: Wow, I didn't know. I forgot about that one holding. I don't...

Pat: And God bless her, right? I mean, she's watching it, not that we're gonna do anything with the information.

Scott: Because the challenge is, that which had just done the best is now more expensive. And odds are it's not gonna be that area that's gonna perform the best the next quarter or the next year. Whether you break things down and there's actually, there's an interesting chart. We should probably have it on our website if we don't have it. Yeah. It goes back and it breaks investments down into all these different categories. So, stocks would be broken down and first of all, you just take domestic stocks, U.S. stocks into large company growth, large company value, large company blend. And then you've got mid-cap, same categories, small caps, you've got nine different quadrants there. You can do the same thing with international stocks, add in emerging markets, add in fixed income, different types of fixed real estate, etc. And if you go and you look at this, you can see there's absolutely zero pattern between what had just done well and what's gonna perform well the following year. There's no correlation.

Pat: You know, Scott, as we're talking to Seth, the question we really should be asking is now that we've determined what the portfolio balance should be in terms of stock to bond ratio, are you doing a Roth, you're doing a deductible, and why are you doing a deductible? Have you considered doing a Roth contribution?

Seth: I haven't considered it lately and I think I would, based on listening to you. Yes.

Pat: And so what is your income, the family income?

Seth: It's under $200,000, but in between $160,000 and there.

Pat: And how many children do you have?

Seth: I have four total.

Scott: And Minnesota, that's a pretty high tax state, isn't it?

Seth: It is pretty high tax. Yep.

Scott: Do you plan on staying there long term?

Seth: Yep.

Pat: I would look at... When you do your taxes this year, do a proforma on the taxes with the Roth contribution and with the deductible.

Scott: The simplest way to do it is just, it is like, what happens if I had $10,000 or whatever you're contributing more in taxable income, how would that impact? And then you can figure out exactly what your tax rate would be if you chose to do a Roth.

Pat: And it's not an all or nothing either. So you could do half Roth, half regular, whatever the number is. But, and the other thing I would add in there, since you have four children and a home, I assume you have a whole bunch of term life insurance on yourself?

Seth: Enough, yes.

Pat: Like over a million?

Seth: Yes.

Pat: Okay, good. Good. Perfect

Scott: Yeah, I would hope over a million.

Pat: Appreciate the call.

Scott: Yeah, good luck to you, Seth on everything. And to your point, it's not the portfolio, it's the investor that usually causes the havoc.

Pat: And the tax. We add a lot of value in our advice to our clients around tax.

Scott: Oh, two areas that we add value. One is keeping people from making mistakes from which they cannot recover. The longer I'm in this industry, the more I believe that's the case. The second is by the tax planning, which is one of the reasons... I mean here at Allworth, we've got a whole tax team.

Pat: And the table stakes on it are just well diversified portfolios that are monitored on a weekly basis.

Scott: I mean, yeah.

Pat: That's table stakes.

Scott: As the ad I noticed on the Super Bowl with E*TRADE. So simple a baby can do it. But, good luck on that one. Anyway, we're gonna be right back.

[00:26:00.453]

[music]

[00:26:17.360]

Man: 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. So Scott, household debt jumped in 2021 by 1 trillion dollars. 1 trillion. This is the most [crosstalk 00:26:45.255]

Scott: A trillion dollars.

Pat: A trillion dollars, right?

Scott: Is this global?

Pat: No, this is U.S. Right? This is the U.S. The most since 2007. And a lot of this actually came from auto loan balances, right?

Scott: Have you seen how much some of these used car prices are up? I was looking at this thing the other day, some up 50% from where they were a year ago. Like, who's buying these things?

Pat: Well, who's financing them? We know who's actually signing the papers to actually...

Scott: Why would you pay 50% more than what the car was worth a year ago? Go find some other car. Doesn't have to be our ideal car, does it?

Pat: No. But Scott, they're not really buying them, they're just signing the paper that says that they'll pay someone back that already bought them. That's what financing is, right? That's what financing is. Was watching this program the other day and they were talking about people repo-ing cars and the people come out to the repo cars. You know, I feel bad for the people getting their cars repo-ed and they go, "You can't repo my car." I'm like, "You don't actually own the car. The bank owns the car. You just signed the paper that said you were gonna pay back the bank." If you have a loan on your house, you don't actually own the house. You might own some equity in the house, but it's not technically your home, right? So you worry about a little bit about the financing of used auto, right?

Scott: Well, you've teased me because I'm often angry about the ads I hear on refinancing. And early this morning, driving home from the gym, I heard an ad and it made my skin crawl again. Some mortgage company... What did it say? It's about taking out money, refinancing your loan to pay off all your household debt. And you even have two months with no payments. Think how much this, it was basically said something like, "Think how helpful this is gonna be to your family." And I thought, "Helpful?"

Pat: Scott, you can't make people be responsible. You can't make people be responsible. I know you get frustrated by this stuff and you don't think it's good for them and it's certainly not good for them. But they're not dealing crack or heroin or [crosstalk 00:29:01.964]

Scott: No?

Pat: They're just going to the need in the marketplace, and that marketplace would fill that need. So, when the...

Scott: When the ducks quack, feed them. That's an old saying on Wall Street, when the ducks quack, feed them.

Pat: Right. So, mortgage debt and auto loans...

Scott: Not that I agree with it.

Pat: Mortgage debt and auto loans were the big drivers in the increase of a trillion dollars in 2021. Largest since 2007. Ah, think about that for a minute. What happened after 2007?

Scott: Smooth sailing, baby.

Pat: 2008, 2009. So last year, we had that debt go up by a trillion dollars. We also had the federal debt in 2021 go up about 4 trillion dollars.

Scott: So this is what was making me think, are you think people...

Pat: The U.S. debt right now is 30 trillion dollars. We went from 20 trillion to 30 trillion in about four years. So the reason this debt went up is because people had more debt to lev... More equity to leverage, right?

Scott: That's right.

Pat: So the government gives, back to your point, used car prices. Oh, it was worth 10 grand now it's worth 15 grand. Guess what? We'll loan you $14,000 on it to buy it, right? So what happened is the government borrowed the money, they give the money to a certain group of the population. That certain group of the population doesn't really need the money, but they're like, "Hey, I got the money. I got a down payment, my credit's good. Let's go out and leverage this." And I think that's what we're actually seeing, is we're seeing multiple leverage in the marketplace. Corporations are doing the same thing. Borrowing money for share buybacks, just too much cash in the system.

Scott: Well, that's what happens when you put interest rates at zero. And then the federal government through the Federal Reserve, because technically it's not part of the federal government but certainly acts like it, they decide they're gonna be in the business of buying bonds which it disrupts a supply and demand marketplace.

Pat: Of course. Yes, that's exactly what has happened, is it's a disrupted, which is, by the way, at the end of it, what do you have when you have too much cash chasing too few goods?

Scott: Inflation.

Pat: Inflation. And why do we see it on the service side, inflation? Driving wages. Forget the legislation that drives the wages. That's what it used to be. Now the market is driving wages, because...?

Scott: Because of inflation.

Pat: Some people just aren't coming back to work. Many people are leaving the workforce for good.

Scott: That is the strangest thing.

Pat: Years and years before they expected to.

Scott: That is the strangest thing. I still scratch my head at that.

Pat: Why? I don't understand why you don't understand why...

Scott: Just my nature. I don't know what I would do if I didn't, couldn't work.

Pat: But you like your job.

Scott: Yes, I do.

Pat: So, okay. You're in San Francisco.

Scott: No, I'm in...

Pat: No, no, no. Let's say hypothetical. You're in LA. You're in LA. You've got a job.

Scott: Yes.

Pat: You're making $150,000 a year. Your house is worth a million dollars. You're commuting an hour and 10 minutes, 20 miles down the road, right?

Scott: Okay. Yeah.

Pat: You're like, "Man, I am not loving life." You're like, "Ah, Pocatello Idaho. I could buy a decent house for $400,000, $500,000, right? Not even Boise, because that's priced out." Now you're going to smaller and smaller towns in the middle of nowhere. You're getting a decent house, your kids are outta school, high school, you don't care about the school systems. You're just worried a little bit more about health and safety. Is this a safe place to live? You go to your employer, I'm gonna quit. Are you gonna let me work remotely? What do we say to our employees that can work remotely? Do we say no?

Scott: No, of course not.

Pat: Right?

Scott: Yeah.

Pat: We'd rather have them work remotely than not work at all.

Scott: Of course.

Pat: So that's, you know, they talk about the great resignation. I don't know if it's [crosstalk 00:33:08.459]

Scott: But there's still people that...if you look at the number of people and we'll get back to college here in a second because we're gonna go down a rabbit hole. But people in their twenties, men in their twenties that aren't working. Like, you don't have to be much of a historian to look at it and say, "That's probably not healthy for society."

Pat: Yes.

Scott: I dunno. Although my son's in Columbia right now, paragliding, so we got that. He's on his own now. That's his profession, kind of profession, is teaching paragliding, but he's in Columbia. Paragliding.

Pat: I assume he's not in the accumulation phase of his financial future.

Scott: I don't think he's worried that much about the accumulation of his saving for retirement.

Pat: He will at some point in time.

Scott: Yes. But he's 24 and he doesn't have a real career.

Pat: Will at some point.

Scott: Anyway, at some point in time he will.

Pat: Most do.

Scott: Actually, it's interesting, we'll get back to college. My son is 24, graduated from Boston College, right in the midst of the pandemic. Had a great job lined up, lost the job, kicked outta school the same week, right? Home for a few months freaking out like, "I gotta live my life, what am I gonna do?" And he started paragliding as a teenager. Loves it. That's like the soft wing, think of it like a hang glider but a soft wing. And so he got this job in Santa Barbara teaching paragliding.

Pat: Living in a van or...?

Scott: He lives in some rented bedroom from some of his three bedroom apartment. I think it's right by downtown Santa Barbara. And essentially, his office is this hill overlooking the ocean where he teaches people how to paraglide. And he was thinking about maybe doing something different, but his boss likes the way he works so when his boss talked to him about running the business, running the small business and boss was like, "Maybe I step back." So my son was talking about like, what a great experience that would be. Are you kidding me? All the things you learn running a small business.

Pat: For a while.

Scott: Yeah. That's what I said, for a year or two...

Pat: And then you go into something real.

Scott: Yeah. Yeah.

Pat: But well, not that paragliding isn't real.

Scott: It's not real. Come on. Although, I did have someone tell me years ago, either go into something that you know you're gonna make enough money to provide yourself a decent lifestyle or go follow your hobby when you know you're gonna be broke. But don't be one of those schmucks that gets stuck in the middle and you find yourself at 42 years old with a mortgage and a spouse and kids, and you're stuck in your job.

Pat: Yeah. Following a hobby thinking that you're gonna be able to support yourself. All right let's go to the calls. If you wanted to join our show, it's 833-99-WORTH. That's 833-999-6784.

Scott: Yeah. And, by the way, it's Scott Hanson and Pat McClain with Allworth's Money Matters on all kinds of topics today. We are talking to Angie in Northern California. Angie, you're with Allworth's Money Matters.

Angie: Hello. I'm sorry about the noise.

Scott: Oh, that's all right. We kept you holding a long time because Pat wouldn't stop talking.

Angie: Great. Thank you for picking up my call. I have a twofold question and it's regarding my 403(b). We used to have a 403(b) from a non-profit organization and they cut that. Not cut, but they stopped it and moved on to a 401(k). My question is, I have about $200,000 in my 403(b) and we got a letter from Voya that we can, or I can transfer it anywhere, roll over it or, you know, because I'm over, I'm 62 years old, will be 63 this year. And, my question is, do I leave it there, transfer it to...? I'm still working full time and right now we have Principal, our 401(k) administrator is Principal. Do I move the money there or open an IRA, a Roth or, you know, the standard IRA?

Pat: Do you have an existing IRA anywhere else?

Angie: No. But Principal offers...is Roth IRA.

Pat: Got it. And what's your income, family income?

Angie: About under a hundred thousand.

Scott: You really can't transfer this $200,000 to a Roth. I mean you could, but if you did that $200,000 would be taxable to you as ordinary income in the year that you transfer it. So it'd be like you're in $300,000 instead of a hundred thousand. So that would be disastrous from a tax standpoint.

Pat: So the question is do you move it to the 401(k) or do you move it to an IRA? That's the question.

Scott: So when you mentioned the company that is providing the 401(k), so oftentimes employers, in order to pay for their 401(k), will have the employees kinda subsidize the costs by having internal expenses of the funds higher than what you might be able to get on the outside, in the open marketplace.

So, without knowing your particular company and how it's structured, it's hard to know whether you've got, you know, rock bottom low cost funds or if you've got expensive funds. So, my guess is it's not rock bottom cheapest funds out there. With an IRA, you've got essentially unlimited options. Our only hesitation is that you might not have the knowledge and the experience to choose the correct investments inside that IRA. And so, tell us about the rest of your situation, Angie. Do you own a home?

Angie: Okay. I own a home. I have a rental house and also, I am still working, but I would like to, if I could, retire in five years.

Scott: And the home you owned, is there a mortgage on it?

Angie: Yes.

Scott: And how large is the mortgage?

Angie: The home is, I have about $370,000 left.

Scott: On the primary residence?

Angie: On the primary residence. And the rental is about probably $270,000. But it's the rental is paying the mortgage of it.

Scott: Yeah. Understand. What's the value of the home that you owe $370,000 on?

Angie: It's in the $600,000.

Scott: What's your plan when you go to retire? What are you gonna do?

Angie: That's a good question. Maybe travel, spend time with my grandkids. I have five grandkids.

Scott: Are you married?

Angie: No. Single.

Pat: Are you gonna have any sort of pension at retirement?

Angie: I mean, my thought is social security and my pension at work. Oh, by the way, I missed something. My employer, since I'm still working, I'm putting 30% of my income, gross income to my 401(k).

Pat: And do you have another pension of sorts?

Scott: Like will they pay you a monthly check once you retire?

Angie: Not that I know of, no. I work for a nonprofit organization so we don't have that structure.

Scott: Here's what you need. If you wanna retire in five years, you actually need a financial advisor.

Pat: And a good plan.

Scott: And a good plan because what you just described to us right now, you can't retire in five years. With what you described right now, is there a path to there? I believe there is. I think Pat believes there is.

Pat: Yes. Yes. And, it may or may not require... So, the problem is not that you don't have the assets, it's your debt is relatively high. So, that's what a financial advisor would actually sit down and walk through with, which is, you know, are you gonna stay in that house? If you're gonna stay in that house, how are you gonna stay in that house? Is that the right thing? Should we accelerate more money into that mortgage? My guess is that you actually should be making Roth contributions right now and not deductible contributions based upon what little you've told me so far. And that's what a good advisor will do, is actually walk you through that. Like do this, this this...

Scott: And does it make sense to keep the rental?

Pat: Well, that was part of it too.

Scott: Sell the rental, pay off or pay down the mortgage.

Pat: Yeah. How much equity is in the rental?

Angie: Right now the rental is probably $400,000. It's in Sacramento.

Pat: Did you used to live in it? Was it your primary residence before?

Angie: That was my primary residence before in the nineties.

Scott: Okay, so you got a very low cost basis on this. So, the answer to your question is, yeah, moving into the easiest thing for you to do is just to move the 403(b) into the 401(k). That's the easiest thing to do. You're gonna be at the same place. The reason that took place is 403(b)s only used to be available... Nonprofits could only use 403(b)s years ago and then they opened it up to 401(k). So that's the change. But that's not gonna fix all of your problems. You need to sit down and pay an advisor to give you a financial plan and a path going forward. All righty?

Angie: Okay. Can I ask one more question?

Scott: Sure.

Angie: I would like to know if I continue contributing my employer matches only 5%, but of the gross income. But do I continue, you know, saving that or open an IRA?

Scott: No, no, it's fine. It's fine where you're at. But you're asking about percentages and I'm talking about tax. So I think that 30% is actually a good number. Tells us that you're living well below your means in terms of you're not spending all your income. But I think that you'd probably be better off putting it in a Roth and maybe even putting in less money in order to get to the same place. So, if I was to do a financial or any of our advisors was to do a financial plan with you, my guess is that we'd end up actually with an individual IRA and well diversified, continue the 25% into your 401(k) and do it as a Roth rather this than deductible. That would be my guess as to where you'll end up.

Angie: Right now Principal, our 401(k) administrator offers that financial thing, but...

Scott: So, I don't like picking on individual companies because you might end up with a phenomenal advisor. My challenge is the structure of the relationships because typically those products, those...Principal oftentimes will have their 401(k) sold by brokers. Brokers tend to get paid by selling products. So my concern, and I'm not picking on Principal, it's just part of the structure. So my concern is that you might be talking to somebody who is more interested in selling you some financial product when that's not what you really need.

Pat: You need a financial plan.

Scott: You need a certified financial planner to help you put a plan together. Then we figure out the products, figure out how much goes into the 401(k), figure out if we use a Roth IRA or not, figure out what do we do about the rental house, how do we get that paid off? Figure out what do we do with the mortgage? Do we get that mortgage paid down? Do we look at using a reverse mortgage in the future? All those kind of... When do we take social security? All those things need to come into play. And that's through a financial plan. And then, we can say, ah, based upon this, this is how our portfolio should be constructed. And then if you've got a good advisor, it's not, they don't just forget about it. It's like as your life changes, you get closer to retirement, things happen. Again, that financial planning is...

Pat: It's a plan and it's ever changing.

Scott: It's ever changing and the investments follow the plan. So anyway, appreciate the call. We are in...

Pat: Wait Scott, one second.

Scott: What? You are making me some hand signal.

Pat: No, no. So, I said you might be better off in a Roth at 25% than you are a deductible at 30%. And you said maybe.

Scott: Well, because she said her income was under a hundred thousand, so I was assuming it was close to a hundred thousand. She's single, so she's...and she doesn't have a lot saved for retirement. So she's pretty high up in the 22% federal tax bracket when she'll be in a 12% federal tax bracket at retirement, just on my first flush.

Pat: Maybe. Yes, that's why you do the math.

Scott: That's why you do the math, right? I mean, yeah, we're making this stuff up on the radio like...

Pat: Well, yeah, we're not, it's not like we actually have a...

Scott: Calculator here running. That would be two hours for every call.

Pat: That was riveting.

Scott: Yeah. Hold on. Let me enter that number.

Pat: But we use a seven personal decision steps process that we actually bring our clients through or potential clients and we have both people pay us a fee to manage their money and other people just pay us to put financial plans together, which we can do either.

Scott: That's right. Let's talk to Sharon in Illinois. Sharon, you're with Allworth's Money Matters.

Sharon: Hi.

Scott: Hi Sharon.

Sharon: I think you've answered some of my questions while I was listening but I'm gonna go with it anyway. I have a question about my IRA. I'm just turning 70, I rolled over my 401(k) to an IRA.

Scott: You sound about 38, by the way. You do not sound 70.

Sharon: Well, thank you. I don't feel it either. At what age do I take it?

Scott: Seventy two.

Pat: Well, the rule is you must start a distribution no later than the April 1st following the year in which you reach age 72. So technically, and every once in a while, it makes sense to defer into the next calendar year, but then you're stuck with two distributions in that following calendar year. So most of the time, 90 plus percent of the time it makes sense to start the year in which you reach that age.

Sharon: Okay. So, that answers my question. How much is...?

Scott: How big is the IRA?

Pat: IRA 401(k).

Scott: All the, they call qualified money.

Sharon: I'm not sure what the total is. I wanna say $400,000 maybe. How much is the required minimum distribution?

Scott: It's based upon a formula where you take that number and you divide it by a factor. It's turns out to be a little, it starts a little over 4%.

Pat: So yours would be about $16,000. $16,000 to $18,000.

Sharon: Okay. And does the amount remain the same?

Pat: No, it changes every year.

Sharon: Okay.

Scott: The minimum, now the required minimum changes every year, but oftentimes what people will do at this stage... Are you retired?

Sharon: I'm semi-retired. I'm working like 20 hours a week, just to keep busy.

Scott: Then, if you don't need the money, then what I would recommend you do is you wait in the latter part of the year, November or December, and what you wanna do is just take your required minimum distribution and just have it go directly to another account at the same firm your IRA is as at. You pay the tax person, right? The taxes have to be paid, but then the money is still there as an investment for you instead of... If you're retired or when you go to finally fully retire, you might wanna just set up a monthly income stream and ballpark how much dollars it's gonna be a month and just take that on a monthly basis.

Sharon: Okay. One more thing. Let's see. And what can I do with the money? Are there restrictions in all of that?

Scott: No, you can do anything you want with it.

Pat: As long as you [crosstalk 00:49:18.002]

Scott: IRS just wants to get their taxes.

Pat: Yeah. But one thing you should do with it, if you're contributing to a charity, to charities on a regular basis, you should actually be using part of your required minimum distribution to fulfill those obligations or potential obligations.

Scott: And you could do that after age 70 and a half still, I believe.

Pat: That's right.

Sharon: At what age did you say?

Scott: Seventy and a half.

Sharon: Oh really? Okay. Okay. And one real basic question, what's the difference between an investment broker and an investment advisor? Mine is a CRPC, Chartered Retirement Planning Counselor.

Scott: Okay. So the CRPC, that is an educational designation similar to a certified financial planner. There's a number of them out there, frankly. I think the CFP is probably the more common one, but what you just mentioned is not uncommon. The difference between a broker and an advisor is based upon the way they get compensated. So a broker, at least historically...a broker, think of the big brokerage firms, they get compensated on a transaction. You buy this, you sell that, as a transaction. They sell, they recommend an annuity. They get a commission for that. An advisor operates on a fee basis either by charging a flat fee for some planning or charging an hourly fee or more commonly charging a fee based upon how much money he or she's managing. Now in saying all that, some brokers do both.

Sharon: Okay.

Scott: So, let me ask you this question. How long have you been with this, you called them, he or her...

Pat: CRPC.

Scott: How long have you been with them?

Sharon: Probably for about, I bet you about 15 years or so [crosstalk 00:51:05.276]

Scott: Oh, good. And why did you not call them and ask them this question?

Sharon: You know what? I don't know. I think I'm just kind of looking at my numbers now and my dollars and just kind of going along. I like the guy. He seems to be upfront and honest.

Scott: When was the last time you talked to him?

Sharon: Last week.

Scott: Oh, good. Go have a visit with him and ask him about...

Pat: So you talked to him last week?

Scott: Yeah. Yeah. Have a visit with them. Are you giving money to charities?

Sharon: I do.

Scott: Yeah. And ask him about using these, the dollars to direct to the charities, and then the rest of them will fall into an income stream for you, and then you set up a brokerage account, you pay taxes and then they drop in the brokerage account and you could replicate the investments at the same place. All righty. Appreciate the call.

Sharon: All right. Welcome. You guys are great. Thank you so much.

Pat: Thank you Sharon. I must say I did find it peculiar that she met with her advisor last week that she's been with 15 years, says she likes a lot, but called our program.

Scott: Maybe she was...

Pat: Getting a second opinion.

Scott: Maybe she got the same answer from him.

Pat: Yeah. Unfortunately we are just about out a time, but someone asked about how can you learn more? Where are some places? allworthfinancial.com's got a ton of great educational materials with the website there, so check that out and, we'll see you next week. This has been Scott Hanson and Pat McClain of Allworth's Money Matters.

Man: 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.