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February 3, 2024 - Money Matters Podcast

The current state of the economy, a defined contribution plan question, the beauty of a solo 401(k), and when taking Social Security isn’t so simple.

On this week’s Money Matters, Scott and Pat start the show by discussing current economic news with Allworth Chief Investment Officer Andy Stout. A California caller asks whether he should put money into a defined contribution plan and then roll the funds over to a Roth account. You’ll hear why Scott and Pat think a Colorado woman should open a solo 401(k). Finally, they explain a time when taking Social Security isn’t so simple.

Join Money Matters:  Get your most pressing financial questions answered by Allworth's co-founders Scott Hanson and Pat McClain live on-air! Call 833-99-WORTH. Or ask a question by clicking here.  You can also be on the air by emailing Scott and Pat at

Download and rate our podcast here.


Announcer: Would you like an opinion on a financial matter you're dealing with? Whether it's about retirement, investments, taxes, or 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 All Words Money Matters. Scott Hanson.

Pat: Pat McClain, thanks for joining us.

Scott: Yeah, glad you are taking your time to be part of our program as we talk about financial matters. Myself, my co-host here, we are both financial advisors and been practicing at this a long time and love to be your financial advisors on this podcast and radio program.

Pat: Not only love it, really appreciate it. And I might be in a strange mood. Yesterday I listened to one of my favorite podcasts, Hidden Brain, and I hadn't listened to it in a while. And I listened to a podcast about gratitude. And I thought...

Scott: So, you turned up the program.

Pat: No, I was thinking about it. We've been doing this show for what?, I'm sorry, 28 years.

Scott: Twenty-eight and a half years.

Pat: Scott, if people never called the show, we wouldn't have a show.

Scott: That's true.

Pat: Right? So I just want to say thank you for listening. Thank you for calling in. Thank you for writing reviews. Thank you. Even the negative reviews. I got to tell you, I read the reviews and even the negative ones, I learn something from, right? I mean, thank you for taking the time and energy to share your opinion about our show. So there we go.

Scott: All right. We got that. Check.

Pat: Well, I've checked that. That's all the gratitude I need to give out for this week based upon The Hidden Brain. No, that's not true.

Scott: Let's just say that you wake up with the 10 things I'm going to be grateful for. I mean, it's a good discipline in life, but this is a financial show. But I got that out of the way.

Pat: Yeah, it is a financial show. We answer questions about 401ks, IRAs, investments, tax.

Scott: Yeah. I'll tell you, this isn't your first time clicking into us.

Pat: Estate planning.

Scott: If you want to have a question for us regarding about something going on in your financial life, you can email us at, or you can call us 833-99-WORTH. Or imagine somewhere, if you listen to the podcast or something, you can click through, click, click, somewhere, and it would get you somewhere you need to be.

Pat: I'm not a listener to the podcast. Are you?

Scott: Our own podcast?

Pat: Yes.

Scott: Oh, gosh, no. I can't listen to myself. Although my friends get a joke out when I do my own Scott Hanson impersonation. "Scott Hanson, Money Matters." Is that right? [crosstalk 00:02:53.734] I think it's funny. I do it myself.

Pat: You impersonate yourself.

Scott: Yeah, I think it's hilarious.

Pat: Okay, well, they are your friends.

Scott: Yeah, I think they're my friends. Anyway, we've got a great program. We've got some good calls lined up. We'll take those calls. And also, I want to start off talking with Andy Stout. He's Allworth's Chief Investment Officer. Andy, thanks for taking a few moments to join us.

Andy: Thank you for having me.

Scott: So, the date of this recording is the first...actually the last part of January. And talk a bit about what's going on in the market right now. Because it seems like the stock market has roared ahead this year, but it's really concentrated in just a handful of tech stocks, right?

Andy: Well, if you look at the Magnificent Seven, right? Those are the seven...

Scott: Where, by the way, where did this phrase come up? Because the first time I saw that, Magnificent Seven, I'm thinking it's like every couple years there's another something, the pigs or the whatever.

Pat: Yeah, the fabulous five.

Scott: And now it's the Magnificent Seven. Well, the pigs was Portugal.

Pat: I understand that, but there's several of them. Well, for the listeners, it was at a time when during the crisis that was Portugal.

Scott: Maybe the older I get, the more I just feel it's all noise.

Pat: Greece and Spain. So, Andy, so back to the question. A little bit about the stock market run-up and the concentration.

Andy: Well, to answer the most recent question, the term came from some Bank of America analyst last year.

Scott: I actually did not expect you to know the answer to that, Andy.

Andy: Well, you ask, I will deliver. So this year, they've been doing okay. They're up about 5% or so in that general area, which is a little bit better than the overall S&P 500, which is up about 2.5% as of last Friday, at least on January 26th. Now, when we look at last year, though, oh my gosh, it was unbelievable. They were up about 107% if you take an average return for that magnificent seven. And it really just blows your mind. I mean, you thought it was a good year for the market overall with the S&P 500 up 26%, right? But it was really those seven stocks that lifted everything.

Pat: And which seven are we talking about?

Andy: Well, we have Alphabet, which is Google's parent, Microsoft, Amazon, Apple, Meta, which is formerly Facebook, NVIDIA, and Tesla.

Scott: Was it the craze around AI that drove some of these share prices? I know for, at least for NVIDIA.

Andy: Oh, yeah. For NVIDIA, I mean, they're really the winner as far as that goes in terms of how they have been able to really profit from the AI craze, just in terms of their overall contributions on the processing, the graphic processors, or the chip side of things. And when you look back at their returns, really over the past, we'll just look at the last calendar year, a little over, somewhere over 200%. I think it was 225 to 250 in that area. So it just took off.

Pat: Wow. And that's why you own a large basket of stocks is because you get the winners and you get the losers and they're not always the same.

Scott: The odds are, if we look over the next 12 months, these magnificent seven are not going to be the top performers of the overall market. That would be my guess, but...

Pat: You never know.

Andy: Time will tell, but that's why you want to be diversified because you just don't know. You want to make sure you do have everything...

Scott: Anything else kind of interesting going on that helpful for us to know about?

Andy: Well, we have the Federal Reserve meeting this week. I know by the time this airs, the Fed will have met. It seems highly likely that they did absolutely nothing in terms of interest rates. What they are going to do is talk about rate cuts in terms of what they're looking for regarding different characteristics or factors that would allow them to lower interest rates. The real chance, the first chance we might see a rate cut is going to be on March 20th, that's going to be their next meeting. And as of right now it's about a coin flip whether or not they will cut rates or not cut rates is about a 50% chance. So we're going to watch very closely, not only what the Federal Reserves says and what their statements say, but also the data coming out over the next six weeks. We've had some pretty important data releases over the past couple of weeks, like GDP last week, we saw the US economy grow 3.3%.

Scott: That's amazing. When you think of how many people were stating there's going to be a recession. And you think about all the prognosticators who stated, Oh, it's going to have a recession, it's going to be bad for the market. Get your money, put it in cash now, all that kind of garbage. If you go back a year, 15 months ago, and read some of the warnings that were out there for what was going to happen in 2023 and here we had a phenomenal growth year.

Pat: They were right for a while.

Andy: Well, there was certainly some volatility going on earlier in the year, but we definitely did not fall into a recession at all last year. Ironically, now everybody is calling for us to avoid a recession, so maybe we'll fall into one this year since everybody is [crosstalk 00:08:24.400]

Pat: That's right.

Andy: So, yeah.

Scott: Andy, I was at the gym this morning and someone said, you know, the market's doing well because of the political environment we're in. But the next president, it will change everything. Can you comment on that? I didn't comment at all. I said to him, well, the market does what the market does.

Pat: The next president is going to change what?

Scott: The reason the market's doing well is because of the current administration. Right? That was what he said to me was like, is that why it's doing well is because of the current administration. And we see this every time a new president gets elected. There's part of the clients say we need to get out, other clients say, we need to get in. The day after, whoever wins, assuming we've got these two old guys running, if it doesn't change by then, whoever wins, there's going to be someone's going to call first thing in the morning, oh, my gosh, I've got to get out of the markets because things are going to do terrible because of the president. Can you comment to the correlation between this year, election year, and what happens a D versus an R?

Andy: Yeah, I can. And I'll lead with this, though. Your money, it's green. It's not red. It's not blue. So, when you think about what you're worried with the political office being controlled by either a Democrat or a Republican, the data shows that markets generate positive returns regardless of who is in office. And that's because the market's more correlated to the economy than the politician. Politics, politicians, I mean, they're important in general, right? But they don't have a dramatic impact on the environment and business cycles. When you look at just returns, in general, going back to like 1940-9, the average election year return when a Democrat wins for the S&P 500, it's positive 9%. When a Republican wins, it's positive 12%. So that would say, oh, gosh, well, Republicans are better than Democrats. Well, they're still both positive, right? But then if you look at the average returns for the entire term, Democrats are plus 15%. Republicans are 9%. So any way you slice it, you got positive returns. And really what you see is just a connection that isn't there.

Scott: So it's all noise. There's no correlation.

Andy: No, there's not. I mean, I have a chart pulled up that I look at pretty regularly, and it shows the S&P 500 going back for the past 75 years and with the who was in office during that time, whether it's red or blue for Republican and Democrats respectively. And you know what I'm saying? I'm seeing this line just keep going higher and higher regardless if that background is red or blue.

Pat: Well, that is just...and the reason I bring that up is for those people that the day...the weeks coming up to the election and the day after the election, we always, always have clients that are reacting to a political environment where we are trying to talk them off the ledge saying, you know...

Scott: This will derail your finances.

Pat: This could really mess you up because of how you're emotionally reacting to your money because how you feel about an administration.

Scott: Considering it's almost a tie last election, probably almost a tie, the half Americans are not going to be happy regardless of whatever it is.

Pat: I do have a question, though, for Andy, Scott. When you said you look at this chart on a regular basis, how many charts do you look at on a regular basis?

Scott: And the fact that you pulled these numbers out...

Pat: It's amazing.

Scott: Are you quick with the keyboard in pulling up data, or you just remember these things?

Andy: A little of both. A little of both. I mean, I got to be able to reference things when I need them because they're important, but I've already done all the research. So I've already done all the analysis and calculations, and it just takes me a second, and I remember most of it. But I do pull up a couple of charts here and there just to make sure I'm prepared.

Pat: All right. We appreciate you, Andy. We feel good that you're at the helm there.

Scott: Yes, in managing the... Part of the investment management team.

Pat: That's right.

Scott: As you sit on as well.

Pat: That's correct. All right, Andy, thank you very much.

Andy: Thank you.

Scott: Thanks, Andy.

Pat: He's like a walking encyclopedia. Who needs Investopedia or one of them? We just call Andy.

Scott: That's hilarious...

Pat: How much he knows.

Scott: Actually, next time this guy asks me a question like that at the gym, he asks me these questions fairly often. I can't stand when I'm working out and someone starts to have a financial conversation with me. I usually just look at them. I'm at the gym. I don't... I mean... I don't go up to a dentist. Hey.

Pat: Could you look at this tooth?

Scott: I got this toothache here. What do you think?

Pat: This guy's pressing weights..

Scott: Was he a retired guy?

Pat: Yes. Okay, a lot of time.

Scott: Yes, yes, yes, yes. So next time I'm just going to...

Pat: There's McClain. I'm going to get my hard time.

Scott: Next time I'm just going to give him Andy's phone number.

Pat: Yeah. All right. Let's take some calls. We're talking with Frank in California. Frank, you're with All Worth's Money Matters.

Frank: So, hi, Scott and Pat. Thanks for taking my call today. I have probably a good problem to have, but I'll ask the question and then give you the stats if you need them. So my wife and I, through my wife's employer, have the ability to contribute to something they call like a defined contribution plan and then do an in-service rollover to a Roth in the same year. And we're trying to weigh whether or not we should be saving in that DCP and then moving it to the Roth, or if we should be saving up for a home because we don't own a home yet. And so trying to weigh those and figure out which one is going to pay out the best for us in the long term.

Scott: Oh, got it. Got it. How old are you?

Frank: I'm 30 and my wife is 32.

Scott: And tell us about your incomes.

Frank: We make a 360 combined 180 and 180.

Scott: And children?

Frank: No children yet, but we do want some children. And that's what complicates this a little bit is once we have children, we want to sort of transition my wife to staying home with the kids and then maybe eventually, you know, a decade later, go back into the workforce part-time or something.

Scott: And do you have money saved outside of your 401ks or IRAs towards the purchase of a home?

Frank: Yes, we have 160,000 saved already.

Scott: And it's in a High-Yield Money Market account?

Frank: Yeah, it's in a money market, yeah.

Scott: And any investments outside that 160 outside of the pension plans?

Frank: We have a, so like a 401k.

Scott: No, outside of 401ks or IRAs.

Frank: Oh, no, just we just have that 160 there.

Scott: And how much do you have in 401ks?

Frank: 210,000 combined.

Scott: And when do you plan on purchasing...

Pat: How much are you saving? What percentage of your pay right now are going into your 401ks?

Frank: We are... So for me, I maxed out my 403(b) and my wife uniquely has a 403(b), a 457(b), a pension and this DCP. And we maxed out the 403(b) and the 457(b) for her.

Scott: And how much would a home cost you?

Frank: We are also thinking about leaving the state of California. So we're thinking somewhere in the $400,000 to $500,000 range.

Scott: You guys are great savers. Holy smokes. Good for you. How long have you been in the workforce?

Frank: About seven, eight years now.

Scott: Good for you.

Pat: I wouldn't recommend doing the extra contributions and converting to a Roth for a couple reasons. One is what you've got on the horizon here of looking to buy a house, your age, where you're at in your career. There's always kind of a bit of balance between saving for the future and dealing with current needs that we've got today. And considering you're looking at buying a home. Secondly, if you're thinking about leaving the state of California, you'd want to take tax deduction on some things as much as possible and not necessarily use a Roth.

Scott: That's correct. That is correct. Because there's a very good chance that you will move into a lower tax haven.

Pat: Unless you're going to Hawaii or New York City, you're going to be on a lower tax rate. My guess is you're not moving to Hawaii nor New York City.

Frank: No, no, definitely not.

Scott: I would save anything extra. I would even question whether at this point in time, I would actually do the... Your wife is maxing out both the 457 and the 403(b)?

Frank: Yes.

Pat: You've got a lot going into savings.

Frank: Yeah, we really do. We're a little bit frugal. But I guess the way they described the Defined Contribution Plan was that it's already like it comes out of our check. It's after tax and then it can just be rolled right over. So would it really be a savings if we moved and take it out later? Because we're already taxed on it, I guess.

Scott: Yeah, well, that... I mean you could make a...if we were going to go that way, we could actually just direct some of your 401k into a Roth 401k, which I would not do. Which I would not do. It isn't, you're focusing on, you know, this defined contribution that you could convert to a Roth. And what we're focusing on is the purchase of a home. And so, I would have a tendency... And by the way, not only the purchase of the home, there may be a good chance that you decide to move to another state and only one of you gets a job to begin with.

Pat: Or your income is not quite the same.

Scott: Or many, many other things that happen. So I wouldn't do any of those. I even question whether you should be maximizing the 403(b) and 457 and not putting any more money.

Pat: But they've got plenty of money, 160. Yeah, you're fine.

Scott: You're for a good downside.

Pat: So I would not be doing that.

Scott: I wouldn't bother with it right now.

Pat: I wouldn't. And I assume you both have some term life insurance on yourselves.

Frank: Yes, we do.

Scott: Okay. Okay. Yeah, you're doing a great job. You're doing a great job.

Frank: So with like, you wouldn't be worried about like, if she does leave the workforce and then, you know, I take a job in another state making less that, you know, obviously, I guess I've been saving, we've been saving at such a high level that that in itself becomes scary because then it's like, we're not going to be able to get to maybe where we need to be. You wouldn't worry about that at all. You just worry about sort of what's right in front.

Pat: That's right. You're gonna get... Say it, Scott. You say it

Scott: For a lot of people, we worry about the long term because they don't have the discipline to say, you do not lack in that discipline. I'm not worried about that. Not at all. Right? You'll figure out how to make whatever work. Yes. So remember, money oftentimes revolves around the psychology of the people that are actually making it, saving it, and spending it.

Pat: Yes. Not oftentimes. All the time. All the time. So if I were you, I'd be thinking, okay, where do we really want to spend the rest of our days? Or at least this next season of life, you're talking about having a family and stuff. Where do you guys want to be?

Scott: Where what does our economics look like? What do the economics look like when my spouse leaves the workforce, right? And you're fine. And so the more money you have in that high-yield money market before you make the move, the more comfortable that move will be. Because, you know. You move out of state, you move to what state are you thinking of?

Frank: Oh, we're in between a few of them, but like Texas, Tennessee, Virginia.

Scott: There we go. Well, Virginia, I wouldn't have called, but Texas and Tennessee were on my list. And I would have thrown in Arizona as well.

Pat: And Nevada.

Scott: And Nevada.

Pat: That's where all the Californians are moving. A few make it to Florida, but usually it's those ones.

Scott: Yeah, don't do that. Just continue. Don't do that at all. Just continue to save more money into the money market for the move.

Frank: Okay.

Scott: All right. And you're always going to worry about it, by the way. So that's never going to leave you. You show me someone that doesn't... It's just the way it is. It's just the way it is. Show me someone that doesn't worry about money and I'll show you someone that doesn't have any. You know, I'm 61. I could retire tomorrow comfortably. I still worry about money.

Pat: I still worry about money as well. Right? I'll wake up in the middle of the night afraid I'm going to run out of money. I'm not that bad. I'm not that bad. I'm not that bad. So you're fine. You're fine. And listen, you know, if that move is on the horizon, you've really got to be intentional about it. You can't just kind of wait for things to line up. You have to be intentional. It is a big move to move. Did you grow up in this area, in the area that you live now?

Frank: Yeah.

Scott: That's a big move, right?

Pat: You've got family, I imagine.

Scott: You've got family and friends, and you're going to go out and create a new life.

Frank: All my family already left the state.

Pat: That makes it easy.

Scott: Okay. How long and in what period of time did they leave the state?

Frank: My brother left in like, 2014 and then my parents left during COVID.

Pat: Where'd they go?

Frank: They went to Texas.

Scott: Okay. Yeah. All right. Frank, appreciate the...

Pat: Be intentional. Be intentionable. [crosstalk 00:22:29.327] Have great intentions about the move.

Scott: You know what I think is going to be really interesting, Pat, over the next 5 to 10 years. If you look at some of these states that people are fleeing, California, Illinois, New York, these high-tax states that have these tremendous pension obligations. I mean, you wonder how California is going to survive this. Like what? There's going to be some reckoning at some point in time.

Pat: There has to be.

Scott: Because they can't. There's this talk. There was a bill that someone put forward and I thought it was noise at the time about taxing billionaires.

Pat: Well, the wealth tax.

Scott: The wealth tax. It's been thrown up a couple of times. But like they can't really enact that because you still have the ability to leave. Especially the people that actually have money have the most...

Pat: Even more ability, yeah.

Scott: Yes. And so you look at the deficit...

Pat: Yeah. Well, it's just not California. Look at Illinois.

Scott: Somebody just mentioned.

Pat: New York, right?

Scott: Yeah, those same states I just mentioned and there's a handful of others. Yeah. You just kind of... You kind of wonder how... I mean, I've lived in California my entire life. I certainly hope to stay here, but there'll be at some point you just say, this doesn't make sense anymore. Especially when all your friends leave. you

Pat: Oh, yeah. Right? I've had a number of friends move.

Scott: Yeah, the social circle is...

Pat: To Texas, to Tennessee, to Arizona. Yeah, close friends. Yeah, that I've gone and visited in those states. You know, like...

Scott: I'm like, how much does gas cost?

Pat: I was in Colorado a couple weeks ago, my brother and I were driving down the road, and I'm like, did I see that right? Is that a leader? That's what I said. Am I in a foreign country? That's what I said to my brother. I said, at that price, I think it's for the leader. Exactly the same thing. That's funny. You and I went to exactly the same place. All right, it'll be and who knows. Like you've got four kids.

Scott: One in Colorado. One's in Colorado, but we don't know where he's going to end up. He's working at a ski resort.

Pat: He was the one that was in New Zealand before.

Scott: Yeah. Yes, he is.

Pat: I think my next life I'm coming back... I usually say I'll come back as one of my own kids. I think I'll be coming back as one of your kids.

Scott: He doesn't. He's very frugal too. Very, very frugal with his money. I'm going to point that out. One daughter in LA in law school, we have no idea where she's going to land. And another son that is between jobs and I have absolutely no idea where he's going to land. So, yeah, whatever.

Pat: Yeah. My oldest is in Denver. My second's in Phoenix. And I've got two still at home.

Scott: Home?

Pat: Yep.

Scott: Not for long.

Pat: I've got a junior high, seventh grader.

Scott: That's still not that long.

Pat: Eh, it's not that long. It feels long. Some days feel longer than others, don't they? It's like the years fly by, but the days take forever.

Scott: And I'll tell you what, teenage girls, it's like you never know who you're going to get when you're talking. Like some days are just bubbly and fun and full of stories. Other times they are the most crankiest. You know, you've raised a teenage girl.

Pat: Anyway, let's continue on with calls here. We are in Colorado talking with Sarah. Sarah, you're with Allworth's Money Matters.

Sarah: Hi, how are you today?

Pat: We're wonderful.

Sarah: Good, good. Thanks for taking my call. Couple questions. One is, Roth contributions and there's limits every year. And now I'm in my mid-50s. So, does that change ever?

Scott: When you say mid-50s, there is a catch-up provision, which makes no sense.

Pat: Yeah. Are you talking about Roth 401k contributions, Roth IRA contributions?

Sarah: So what's the difference? Because I have a Roth.

Pat: Well, 401k... Tell me about your situation.

Scott: Yes, and then we'll...

Pat: So you're in your mid-50s. You're working, I'm assuming.

Sarah: Yeah, so, I am working and my net is about 150.

Scott: Which is gross?

Sarah: Uh, 250.

Pat: Are you self-employed?

Sarah: Yes.

Scott: Okay. And single?

Sarah: Yes. And so what I'm thinking is how do I do a catch-up? And I don't understand, like, can I have four Roth accounts?

Scott: Yes, you can have as many as you want. But you may not want that.

Pat: What do you have set aside now in retirement accounts? 401ks, IRAs, Roths, SEPs?

Sarah: I have a Roth, I have an IRA, and I have a SEPs.

Scott: And tell us the account values.

Sarah: A total of about 200.

Scott: And what are you living on a year?

Sarah: Me, about 75.

Scott: And has your net pay been this 150, has it been in somewhat that ballpark the last five years or so?

Sarah: Uh-huh. That or it's fairly steady. It's gone up to 200. It just fluctuates with how I spend money in the business.

Pat: And do you own a home?

Sarah: I do. I own two homes, one rental and the value, like if I were to sell that today, I might walk with 300, maybe 350. And then I own another home as well. And the interest rates on the rental is 3.5 and the primary is 2.8.

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

Sarah: About 650.

Pat: And what do you owe on it?

Sarah: Of under 400, maybe 390.

Pat: And you're 50, you said mid-50s. Fifty-five?

Sarah: A little higher.

Pat: Okay. And how much longer do you want to continue working?

Sarah: Um. I don't know. I just, yeah, I don't know. I guess I just have to, I'm fine in 10 years, maybe 15. At least 10, I'm guessing.

Pat: So you have so many things you can do. So your taxable income is $150,000. That's what I was trying to get to.

Scott: And to be really blunt here, like you don't have a lot saved up for retirement relative to your income.

Pat: Not at all.

Sarah: No, I do not.

Scott: You've got a little more than a year's worth of income set aside. And for your age, you should be really concentrating on that. Really, really concentrating on it. So you have lots of things you can do. And I wouldn't bother with a Roth. You can do... At your income level, you can do a SEP IRA. You can do a...

Sarah: And I do that and I max it out every year.

Scott: Okay. You can do something beyond that if you want to save even more money, which is you could put a defined benefit pension plan in. I don't know for income side.

Pat: A solo K.

Scott: And a solo K.

Pat: A solo K, you can contribute almost 70 grand a year into a solo K.

Sarah: Solo K. Yeah, think of it.

Pat: It's kind of like a 401K for self-employed. They work great for people who have no employees. I assume you have no employees?

Sarah: Correct.

Pat: Yeah, you can funnel a ton of money into it. I'd start with that.

Sarah: Okay.

Pat: Who does your taxes?

Sarah: My CPA.

Pat: And have you done your taxes for 2023 yet?

Scott: Of course not.

Sarah: No.

Scott: Who's done their taxes yet?

Pat: I had to ask.

Scott: You want to talk about a solo K. You can't do it for last year, but you can do if...

Pat: You could do the SEP for 2023.

Scott: And then a 401k for 2024. And maybe set aside three grand a month that you contribute or four grand a month that you contribute. Or five grand a month. I think whether it's a combination of a SEP and some other things or a solo K. Those are of secondary importance to me. I think of greater importance is getting kind of serious about saving for retirement. And you might want to work another 15 years, but what happens if there's a health issue and you can't work another 15 years?

Pat: You really need to catch up. That would be my concern. Like if you're my sister, I'd be, hey, Sarah, like maybe you would never want to retire. I get it. But like the majority of people retire earlier than they'd planned due to outside influences. And often the most common is a health issue.

Sarah: Mm-hmm.

Pat: Are you expecting a large inheritance?

Sarah: Yeah, this is, I mean, a recorded line, so I don't want to...

Pat: All right, never mind.

Sarah: Sometimes I feel like my...

Scott: Okay, we only get so deep on this. Okay, okay. If we were in an office, we'd, we would dig into that. But yeah, you need to catch up and except for last year and you want to set up a 401k and you need to put a lot more money into it. A lot. As much as you possibly can afford.

Pat: And I'd use the tax deduction feature, not a Roth feature. Given your income and your current size of your retirement accounts.

Sarah: So the solo is a tax deduction feature?

Pat: Oh, it works just like a SEP, but there's higher limits.

Sarah: Okay. The other thing I'm struggling with is that I have my money in Schwab and I look at it and then I go to portfolio performance and it shows me the last week my portfolio performance since inception. Was it like maybe it was just above 6%. And today it's at 8%.

Pat: When was the inception?

Sarah: 2016.

Scott: You may want to hire an advisor. You may want to hire an advisor. Well, if your returns have been 6%...

Sarah: I know, but then... But then I'm stuck with trying to weed through The fees, do I pay someone just for a fee to consult, or do I pay someone to manage the whole thing?

Scott: Both. You could do either or.

Pat: Yeah, I think if you started with some, start with someone you maybe pay a fee for it to do a financial plan. You could look at, when am I going to retire? Let's say you want to be financially independent in 10 years from now. What would be required as far as annual contributions? Then, do we look at using the solo K or do we maximize the SEP and do a little Roth in addition? I mean, those are the kind of things that a financial plan would do. And then from there, it's what kind of asset allocation should there be? And how aggressive should it be? Yeah. And then after that, you may choose to hire that advisor to help them implement this and monitor and manage the portfolio. You may choose not to. Yeah, and so most advisors will charge you a financial planning fee and sit down with you for a couple hours.

Scott: Some advisors. A lot of people already call themselves advisors. They're not certified financial planners. They don't even have designations.

Pat: They're salespeople. But it's probably worth going through that exercise and paying whatever it's, you know, a few thousand dollars. Normally you could on this one, it's probably not that complicated, but you could do it for less than three grand. And then they sit down and say, okay, this is if you want to retire in 10 years, you need to do this. These are the best vehicles to get you there. And at that point in time, if you are pretty certain there's an inheritance coming, then you would actually work that into the plan as well.

Sarah: Yeah. All right.

Pat: If you, you know, I did it with my own sister-in-law and brother-in-law. I said to him, look, you need a financial plan. In fact, you need it. I will pay for you to go to Allworth. I will pay for a financial plan to have. Because they were asking, you know, I don't know when we should retire. Can I afford to retire? And I'm like, I can't tell you that. I'm not into your finances. And by the way, I'm pretty connected to you. I told them I'll pay for a financial plan at Allworth, and you'll sit down with an advisor, and they will tell you when you can retire, and how to retire, and what vehicles you need to get there. By the way, Allworth did not charge me to do my in-law's financial plan.

Sarah: That's good. You made them who they are.

Scott: I do think it'd be worth your while, Sarah.

Pat: Absolutely helpful. If you were my sister, I'd pay to would demand it. Yeah. I would. Wouldn't I? Of course.

Scott: [crosstalk 00:35:49.350] You got to get this done.

Sarah: But why is this like rate of return? It's kind of like when I saw that two weeks ago, I was like, oh my goodness, I'm like running backwards.

Pat: Look, we don't...

Scott: I have no idea how your money's allocated, what changes you've made over the years.

Pat: Right. When the monies came in, what's it compared to? No idea. Right. Did you start with 100 grand? At what point in time? It's a sequence of returns. Right. So you throwing that number out, I don't know if you were putting in $100 to start and who, I have no idea.

Sarah: Right, right, right. Well, I left a group and moved to my own intelligent portfolios and just kind of let that do its thing. But a financial planner sounds like the way to go.

Scott: Well, my guess, Sarah, had you been working with a financial advisor, a quality one over the last few years, you would have a lot more saved in your retirement account right now.

Pat: That's for certain. That's for certain. Because they would encourage you and probably maybe put the portfolios a little bit more aggressive. It doesn't sound very aggressive on those returns. But again, we don't know when you put the money in and how it's invested. That's what a good advisor, you know, the first meeting you walk out there, they're going to tell you, OK, save this amount, use this vehicle. Oh, and by the way, this is what the portfolio should look like.

Scott: Well, maybe not the first meeting. After they give you a financial plan.

Pat: That's right. So, appreciate the call.

Scott: Thank you, Sarah.

Sarah: Thanks so much. And take off the inheritance conversation. My voice is very memorable. If you can.

Scott: It's too late now. I don't know. Say hi. Yes.

Pat: We mentioned it like three or four times. It's okay, Sarah.

Sarah: I have an uncle. So, all right.

Pat: Does your uncle listen to our show?

Sarah: Maybe.

Pat: All right, well, he'll be proud of you.

Scott: Well, I know. You sound like you didn't say anything. No. You said nothing. Might have just went up. You didn't say my Uncle Bill Smith's going to lease me a boatload of money. Yeah, he's a real jerk. But I can't wait to get money from that guy. My Uncle Bill Smith owns a farm in Iowa.

Sarah: There you go.

Scott: Thank you, Sarah. Wish you well.

Sarah: All right. Have a good day, you guys. Thanks.

Scott: You know, talking about family. So I'm not going to say what family member, what relationship this is to me.

Pa: You've got a large family, though.

Scott: Yes, I do. Many siblings, step-siblings, in-laws. Yeah. And so this was, this is not going to say what everyone in your family, no one in your family. He or she, them. I'm going to call 'em them. Okay. Actually, they might have chosen them at this point. Who knows, right? So they first came to me and asked if someone could do a financial plan for them.

So, actually before that, years ago, they had an account with me, personally, and then they moved it because they weren't happy with it. Then they later, and I said, I'll tell you what, I don't want to deal with any of your stuff, but I'm going to have one of our advisors. So our advisor put together a plan for them, just kind of what we talked about. And then I get a phone call like a month later, hey, can I run an asset allocation by you? And I said, well, what do you mean? I said, didn't one of our advisors do a plan? And he, she said. They. They. They, them said, well, yeah, but I had someone else who lives in my town here do one as well, kind of a second opinion. So I wanted your... I said, so wait a minute. Let me get this straight.

I had my advisor, didn't cost you, didn't charge you a dime for it, do a plan for you. And then now you're getting, you went and got another plan, a second opinion. And now you want my opinion on that second opinion. So I said, good luck. And then later, and we'll get back to the calls. He was bragging. Them was bragging.... I can't getting it out. Was bragging about their advisor and how this advisor gets in, knows when to get in, when to get out. And I'm like, well, I don't believe that exists so whatever. And I didn't really want to engage him. He tried a couple of times. Well, then a couple, a few years ago, he called up this time with a little panic in his voice.

Pat: The advisor?

Scott: Yeah. Did really poorly. And I think I met 'em, I mean he lost 30% of their portfolio overnight. While the market was going up, he called to see what recourse he might have against this advisor. And I just remember thinking this is a strange conversation. It's like, like we have a good relationship and for whatever reason, you don't quite trust me in this area and the grass is greener elsewhere. And now you're paying the cost.

pat: The advisor knew when to get in and out.

Scott: Well, apparently, obviously not.

Pat: Well, they knew how to get in and out. They didn't know when to get in and out.

Scott: But it's really challenging with personal relationships.

Pat: Well, Scott, it's really challenging to find an advisor you trust. For the general population, it is a challenge.

Scott: For not just the general population, for high net worth individuals, it's a challenge.

Pat: It's a challenge as well.

Scott: Because it's hard to tell good from bad. And some of the more "successful financial advisors" are successful because they're really good at selling and at prospecting and at brand creation and all those other kind of things. Right? They've got a lot of charisma, and they know how to attract people around them. They're not necessarily the best financial advisors.

Pat: That's correct. So it's okay to visit with more than one or two advisors, but many people could benefit from a good financial advisor.

Scott: Yeah. And, anyway, I think it's time for us to go back to the calls. We're talking with Robert. Robert, you're with All Worth Money Matters.

Robert: Hey, how are you guys doing?

Scott: Hey, Robert.

Robert: Hey, long-time listener of the show. My parents actually used to be clients of Pat's many years ago.

Scott: Oh, my.

Robert: So, yeah, just, wanted to run a question by you regarding taking Social Security. I am three months away from turning 65. Retired a little over two years ago.

Pat: Wait. Can I ask a question real quick? I'm sorry. This is Pat. Were they handed off to another advisor? Did they fire us or did they die?

Scott: I get Pat's confused now. Wait a minute.

Robert: No, hand it off to another advisor.

Pat: Okay, okay. Internally. Internally, internally.

Scott: Which Pat still has responsibility over it.

Pat: Thank you. And, by the way, it isn't unusual for a growing firm to share advisors bring in other advisors.

Scott: The team. It's the team.

Pat: Yeah, yeah. So it's not unusual. So, anyway, well, I don't know who your parents are but thank them for me.

Robert: Well, unfortunately, they both have passed away since, but they were very happy with you and actually very happy with the person that they were passed on to.

Pat: I appreciate that.

Robert: Yeah. So I think I know from listening to the show for quite a while, the things that you're going to ask me. So if it's okay with you, I'll just throw a bunch of numbers at you.

Pat: Yes, please.

Robert: Asset-wise, IRA is totaling about 1.25. 80K in a Roth. 300K in a brokerage account. $60,000 in savings and about $75,000, $77,000 in deferred comp, which will get paid out to me over the next three years at about $25,000 per year.

Scott: And I'm sorry. And you said after the brokerage account, how much do you have in savings?

Robert: 60.

Scott: Okay. Thank you.

Robert: Six zero.

Scott: Are you married?

Robert: Married. My wife is on and has been on a permanent disability. She gets about $1,500 a month in permanent disability. And actually right now, that's our only source of income.

Scott: And will she have a normal life expectancy or?

Robert: Hopefully. Yeah. She's had a number of health issues, but I mean, in general, I think she'll do okay.

Pat: Okay. And when did you retire?

Robert: Two years ago.

Pat: And what did you live off in 2023?

Robert: A combination of some liquid savings and just taking distributions from the high risk.

Pat: And how much are you taking out for distributions?

Robert: Took out roughly, I guess, about 60K last year.

Pat: And your home's paid for?

Robert: No. I have my primary home is worth about $1.1. I owe about $300,000 at a 3% rate. I have a rental property that's worth about $500,000 and about $55,000 in mortgage at 3.1% on the rental. So, I've gone on the Social Security website. If I take my Social Security at 65, I'd get $3,353. Full retirement age, $3,702. And at 70, it's $4,640.

Scott: Yeah, and of course, if you wait between now and age 70, there's five years you don't have any income coming from Social Security.

Robert: Right. So is it better, I guess this is kind of my overall question, is it better to just draw down the IRAs, knowing that I'm going to have that bigger check coming with when I do start taking social security? Or am I better served to just start it at 65?

Scott: You're like right in the middle. Sometimes these are really clear-cut and dry.

Robert: I mean, I don't think I have enough assets to where I know, I know you guys often talk. You know, people possibly...

Pat: Yeah, I'm not worried about you having to... So you...

Robert: A reduced benefit.

Scott: So you withdrew $60,000 a year.

Pat: Here's what I don't know is like what do you really need for the family, what's your true family income need? And if you wait till age 70, are you going to be drawing too heavily upon your savings?

Robert: Right.

Pat: And I say savings, I mean your retirement accounts...

Scott: But you drew out $60,000 the last two years each year. That was the gross amount that you took out.

Robert: Right.

Scott: And so you had that income and then your wife's.

Pat: Also the deferred comp.

Scott: And was the deferred comp paying at the same time?

Robert: Yeah, a little bit. Not very much on the deferred comp, but like I said, otherwise just liquid savings, my wife's disability, and I work very, very part-time, so that contributes a little bit of income, but very, very little as far as earned income.

Scott: So how much did you pull from the IRAs though?

Robert: Like I said, about 60 between, I take some out of my wife, some out of mine, and the total was, I think, probably in the neighborhood of 60.

Pat: What did you pull out of savings or brokerage?

Scott: That's what I was getting at.

Robert: Probably another 25 or 30.

Pat: Okay. Plus your deferred comp that was paid out last year as well?

Robert: Correct. Yeah. So, we probably need, you know, net income of $7,000 to $8,000 a month. Now, one of my other questions was, you know, with my rental property, if I paid off that $55,000 loan at 3.1%, that would free up the rent that I get every month, you know.

Pat: You don't want to do that.

Robert: That would help towards my income, right?

Pat: Yeah, but it's too low of don't want to do that.

Robert: Okay. Okay.

Scott: I'd take Social Security. I'd take Social Security. We could run an analysis. If you could guarantee me you're going to live until 92 years old or something. The challenge is if you wait till age 70, you're drawing a little heavy on... You'll end up drawing a little heavier on your portfolio than you need to. And if you had Social Security coming in now, you wouldn't have to draw nearly as hard. And you could allow those assets that still have some growth.

Pat: And I wouldn't...when you say you draw on your IRA, do you just go in there and take money when you need it or do you have a check come consistently on a monthly basis with taxes withheld?

Robert: No, I go in there and take it when I need it.

Pat: So this is super dangerous. I mean, this is super, super dangerous for many, many reasons. One is you may actually be taking more than the IRA can support, the savings can support. And the other is you may be taking a lot less than you should. Right? So what you want to do is to send up...

Scott: And how much should come? Because one of the things I looked at, I don't know how the brokerage account is structured, but maybe instead of those withdrawals, maybe it would have made sense to have a Roth conversion.

Pat: I didn't even want to go there, Scott, but that is 100% correct, right? Which is because the brokerage is all taxable, and you just missed an opportunity last year to take some of those dollars and put it in a...

Scott: And maybe you actually do some Roth conversion this year and then start Social Security in 2025. Right. So the last two years, you missed some great planning opportunities. And I hate to say that, but you did because you were basically...

Pat: But I don't know how his brokerage account's set up. It could be three stocks that all have very low cost bases.

Robert: No, so the brokerage account is about $200 in cash and $50 in stock, and $50 in bonds.

Pat: Okay. So what you want to do is you probably should start Social Security sooner rather than later. We missed a Roth opportunity. So what? It was on the margins in terms of helpful. You're not driving yourself up into a higher marginal tax rate at any point in time.

Scott: That's right. And on the right plan you can remain in a lower tax bracket.

Pat: So if I was sitting in a room with you, I would probably say, let's...

Scott: Well, you'd run the numbers.

Pat: That's right. But my guess is that Social Security is not going to be 70. Right.

Scott: If it's not 70, then it's today.

Pat: Yeah. And I would probably be more inclined if I went through this financial plan, which we don't, this is a radio show or a podcast, is what you're probably going to end up doing is going on Social Security and having three distributions come out to you. One from your brokerage account, one from deferred compensation, and the other from your IRA, and you're going to withhold it, taxes on it, and it's going to come in like a regular paycheck so that you're not diving in or out. Because what happens is it's hard to budget around just... What you want to do is set up an income plan very similar to what you had while you were working.

Robert: Okay.

Pat: All right.

Scott: Hope this was helpful to you.

Pat: Appreciate the call.

Scott: Yeah, glad you called. There's lots of planning opportunities there as well. But hey, this is the program we got lined up for you, and this is the time that we've allotted. So glad you took part in listening to us. Again, if you've got a question for us, you think, I wonder what those guys think about this? Just send us an email: We'll schedule a time to take your call. And also, if this was helpful, go review us wherever you listen to your podcast and share this with a friend. We'll see you next week. This has been Scott Hanson and Pat McClain of All Worth Money Matters.

Voiceover: 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.