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

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

Pat: Pat McLean. Thanks for joining us. Glad you are here with us as we talk about financial matters here at the first weekend in February.

Scott: In the Allworth studios, high atop the strip center in downtown Folsom.

Pat: That's right. One of those kind of...

Scott: It's an upscale mall.

Pat: Outdoor mall-ish type thing.

Scott: Yeah, that's where our office is located.

Pat: Upscale.

Scott: Mid-market.

Pat: It's got a Nordstrom Rack. Where I grew up, that's upscale.

Scott: You know, it's really interesting. I hadn't been to a mall, actually I didn't go into the mall, but last weekend I was in the Bay Area with my wife. We were down for a volleyball tournament and went to a mall in Pleasanton area, which is a nice suburb of the Bay Area. They must have had two or three anchor stores completely gone.

Pat: Oh, yes.

Scott: This is a big mall right by the freeway in an area where housing's very expensive. Three major anchors completely shuttered. And the building's actually starting to look in disarray. They hadn't like, put any money to even keep up the facade or the parking lot. And it just got me thinking about how things change over time, consumers change,
how we behave changes, how we consume things changes, how we socialize. And businesses change. I mean, you think back to some of these businesses that were the hot commodity, Sears and Roebuck.

Pat: Montgomery Ward, my father worked at Montgomery Ward selling appliances.

Scott: Woolworths?

Pat: Back in the day. And at one point in time, I remember I was in the sixth or seventh grade, I couldn't understand, like I found out that like, Montgomery Ward owned, was it, Greyhound bus and Dial soap and it was a big conglomerate at one point in time and how things like grew together and splintered apart. And that was back when the day when the commercials for Greyhound bus said it was the window seat to America.

Scott: I'm amazed they're still in business.

Pat: There's a [inaudible crosstalk 00:02:45].

Scott: Are they a government sponsored entity?

Pat: I don't believe so. But this is a financial show. As we started out, we take your calls.

Scott: My point with this, you mentioned [inaudible 00:02:54]. My point with that is that a winning business is not a winning business forever. And if you look at the S&P 500, the companies that make up that today, they're not the same companies that made it up 10 years ago, or 20 years ago. Matter of fact, you go back 30 years, you wouldn't even recognize, like, what happened to all these companies?

Pat: Yeah, where did they go? And some of them reinvented themselves. Some went out of business. Some merged.

Scott: Intel's a prime example. Okay, let's talk about...

Pat: Remeber the '90s, Intel.

Scott: Their stock has just been hammered the last year. They lost billions last quarter, you want to talk about it. And they make computer chips. Remember it was six months ago, Congress passed the chip bill with billions of dollars of our grandkids' money they're gonna use to build more chips. Now there's no demand for chips. There's over supply, right. And, but Intel was the hot flier for many years. And from an investment standpoint, if you own individual securities, as opposed to indexes or managed funds, if you own individual securities, you really need to be on top of what's going on with those companies and ask yourself, "Would I buy this company today?"

Pat: That's a good question.

Scott: With what I know about this company, would I buy this company today?

Pat: The stock doesn't know you own it. You know you own it, but the stock doesn't care. And so, I see people having an allegiance to individual securities, stocks, that it's mind boggling to me as to why they have some sort of, and they say...

Scott: Well, maybe they worked there.

Pat: Maybe. They inherited it.

Scott: That's a big one. Dad always told me never sell whatever the company is.

Pat: Yes.

Scott: Or maybe it has done so well for him over the years that there's the belief that it's going to come back and do it again. That is why when we talk about diversification, and especially, if you think about real estate. I was having this conversation with a friend of mine who's in corporate finance. And he said, he has a tendency to be a little cynical.

Pat: He is in corporate finance.

Scott: He is in corporate finance. That is true.

Pat: You want them to be slightly cynical.

Scott: He said, he thinks one of the big push for the big banks, the Goldmans of the world, the big Citigroups to push people back to the offices in downtown New York, is because of their own investment in the office buildings in downtown New York.

Pat: That's hilarious.

Scott: He said, "Because if Goldman comes back then other smaller companies will push, point at them and say, 'Well, everyone from Goldman came back or everyone from Citi came back, you need to come back.'" And I thought to myself, he might have something because a lot of those buildings are actually, they're still not coming back.

Pat: They're still not coming back.

Scott: We have the same thing in our own organization. I think it was last Thursday, I was walking around...our studio's in our office, and our policy at Allworth is three days a week in the office was what we'd like you to do.

Pat: We'd like you to.

Scott: More if you've got client needs that demand that.

Pat: And oftentimes, what you'll see is client facing people will be in the office a lot.

Scott: But it looked like a ghost town. And it feeds on itself because people come in and like, well, none of their colleagues are here. So, what's the point of coming in? I might as well just dial it in from my bedroom on my Zoom call or whatever. Anyway, this show is we typically talk about financial matters, which this is.

Pat: That was.

Scott: And take your calls. And every once in awhile, some interesting guests. If you want to be part of the program, 833-99-Worth is the number. We just finished January, the stock market had a phenomenal month of January. As they say, there it goes. So goes January, so goes the year.

Pat: Who is they? The proverbial they.

Scott: That's what they say. So, we should all feel really good about it. That, or you also look at where we are in the election cycle. You could look at all kinds of things. None of them mean anything. Earnings mean something. Earnings mean something and the economy means something. We've asked Andy Stout, our Chief Investment Officer to join us for a bit because the Federal Reserve raised rates this last week, made some other announcements. The stock market was down during the day. And then when they made the announcement, the majority of it was back up. So, Andy, thanks for taking some time to be with us.

Andy: Absolutely. Thanks for having me.

Scott: Yeah. So, what happened this week with the Feds? Why'd the markets turn around midday?

Pat: Yeah, after most everyone actually, what was it, Wednesday, the markets opened in the morning, they're down, the announcements coming out. Everyone expecting that there's going to be an increase, but the markets are down. And then it ends up, just like that one day, what...

Scott: Yeah, the S&P finished up one percentage point. The NASDAQ finished up two full percentage points, 2% in one day, it's a big swing. So, what...tell us what you think.

Andy: During the day, the market was down a lot. People were expecting Federal Reserve Chair Jerome Powell to come out and really be hawkish, meaning that he wants to talk up interest rate hikes to fight inflation, to make sure that inflation keeps going down on its trend. However, markets turn very, very quickly. When Chair Powell said these four words, I guess five when I put the word the in front of, the disinflationary process has started. At that exact moment, markets flipped around, starting to see the end is in sight.

Scott: So, he said... I'm glad it's different this time. You said four, I'm like [inaudible 00:09:03]. He said this may be the last of it? Is that what people read into it?

Andy: Well, no, no, no, because he did say a few times in his press conference, about how there's a couple of more rate hikes coming. But the fact that he acknowledged the disinflationary process, that it's begun, markets really keyed in on that, and the fact that the end is in sight, and if you look at where market pricing is, the market's expecting one more quarter-point rate hike, and that...

Pat: Can you explain to us all, when you say the markets price that in, how? Like, where are you getting those? How can you say that? You say it with great confidence, by the way, which we appreciate. But how do you know the market's priced it in?

Andy: What I look at what's called fed fund futures, these are securities that are bought and sold by market participants. Think of the people on Wall Street, if you will. And these securities will trade based on where the fed funds rate is expected to be at these upcoming meetings. For example, we have a meeting on March 22nd. So, there is a security tied directly to that and directly to where the fed fund futures currently is versus where it's expected to be. And if you look at the current market pricing of that, it suggests there's 0.817 rate hikes priced in for that meeting. So almost a full hike is priced in and then it's expected to get up to 1.2. by May. So essentially, one rate hike is what's expected over the course of the next two meetings, most likely in March. So, looking at what's called fed fund futures.

Scott: And so, when you said that it was priced in three-quarters of 1%, is that what happened in the fed fund rate? Did I read those numbers right?

Andy: Well, that's for the upcoming March meeting. So, when we looked at what was priced in for today, we looked at the values yesterday on these fed fund futures. We had a full rate hike price, and so the market was 100% expecting this occurrence to happen. What the market really liked, though, is when he started talking about the disinflationary process, but when we're talking about market pricing, there's still a disconnect between where the pricing is and what Chair Powell said. He's saying there's a couple more hikes. There's only one hike priced into the market right now. Then there's a rate cut priced in later on this year. So, there's still that disconnect, when you look at what's going on out there.

Scott: And so, when you say, so we're talking about the bond market or bond futures market here, correct?

Andy: Kind of.

Pat: Federal funds. I mean, you can bet on everything on Wall Street.

Scott: Correct. Correct. But then you're saying that the equities market take a key off that?

Andy: Oh, 100% 100%. So, everything is, you know, keyed off this and everything, I mean, everybody knows these prices. So, it's all expected, it's all priced in when you look at these different probabilities, so there was no surprise, from that perspective.

Scott: What do you think would have happened to the markets if he hadn't raised? This is just speculation, obviously, if interest rates hadn't been raised a quarter percent this week?

Andy: Markets probably would have taken off and like, just nosebleed territory, higher and higher, because what the market's been hoping for over the past year, and every time you see these rallies, sometimes they don't last. But when you see them, they seem to be centered around the expectation that the Federal Reserve is about to pivot away from all these quick rate hikes. Now, once the end is here, and the end's in sight, it's a new story, but you know, we're not there yet. And if it would have happened, oh, yeah, it just would have went exponential.

Scott: Well, I think time will tell if what they've done actually has any impact on...what impact it has on inflation.

Pat: And do you think that lower wage growth is slowing? Well, I think I know the answer to that. It's slowing in the inflationary environment. Is that having...

Andy: It's definitely slowing, and it's definitely having an impact on the broader inflationary market. We're seeing the impact from the Federal Reserve's rate hikes have an impact on the economy. We're seeing that in multiple ways, inflation is one area that we're seeing it. The thing that the Fed doesn't know is what is the extent that the impact has had on the economy, because their effect happens with a lag. So, they make a rate hike or cut or whatever they do, but in this case, lots of hikes over the past year, there's generally about a six-month lag before those rate hikes really start to affect the economy.

Scott: And they don't know exactly how it's going to affect the economy. They just know it's going to affect the economy.

Andy: Oh, yeah, they have no clue. I mean, there's a few things we can know for sure. Like, when rates go up, short-term rates, that's going to result in mortgage rates going up, and that can slow down the housing market. That's probably the most obvious thing. Outside of that, it becomes a little, not a little bit, a lot muddier.

Scott: So, they don't know what it's going to do to employment or capital investment, or they have an idea, but they can't really, I mean, they're throwing things at the wall and just seeing, you know, what happens, right, and then measuring the next time and throwing more at the wall or not throwing at the wall.

Andy: That's exactly right. And that's why it's been pretty common for the Federal Reserve to have hiked us into recessions in the past, meaning they don't know when to let their foot off the gas there and we end up going into the ditch.

Pat: So, when you read the paper, it says soft landing, soft landing, soft landing. I've always, like, does that mean it's a recession or not a recession or is it not a major recession or...

Scott: I think you just squeak by without a recession.

Pat: That's a soft landing?

Andy: Yeah, basically, they get inflation under control. slow the economy down, because they do want to slow the economy down to bring down inflation, but they slow it down just enough to make sure inflation is on its path to 2% and the economy does continue to grow. So, whether or not we get that proverbial soft landing, you know, time will tell. The Fed does not have a great track record when it comes to that. But I will say, from a starting point, the job market is still pretty strong. And that's giving the Fed a little bit of leeway there.

Scott: So, I do have a question that is off of this. I was reading some statistics about the employment participation rate. And they said that it was the lowest employment participation for males between the ages of 25 and 54, in the history of since they started statistics. So, this isn't unemployment numbers, these are participation rates for males between 25 and 54. And my friend and I were talking about it. And he's in finance, too. And I said, "Well, where...who are these people? Where do they go? And how do they live without a job?" Any idea here?

Andy: There's a big problem with that headline you saw there. That statistic did not begin to be tracked until 2001. So, it's not much history there.

Scott: Good enough. Thank you. So, do you believe that the participation rate is at an all-time low? You would have no idea? We'd have no idea. We'd just be guessing at that point.

Pat: All's we have is 20 years of data.

Scott: Yeah, it's not enough.

Pat: Well, it's low for 20 years.

Andy: Yeah, it is. I mean, there's obviously a structural change going on in the world today, just with retirement. But there's just not enough history to say one way or the other.

Pat: Well, I gotta tell you, I have three boys, almost between the ages of 25 and 54. And if they want to join that statistic, they wouldn't even be welcome for Christmas at the McClain household if they're not working.

Scott: [inaudible 00:17:12]

Pat: This is the McClain's. Every day they wake up to a list of chores. Come home, here's the list. Here's the work you're gonna do. Work, work, work. Is that not the McClain household? I'm gonna instill a work ethic in my kids.

Scott: You might have a little, there might be a little truth to that.

Andy: There's 100% participation rate at your household there, Pat?

Pat: There is 100% employee participation.

Scott: Hey, Andy, thanks for taking a little time with us. Appreciate it.

Andy: Thank you, Scott. Thank you, Pat.

Pat: All right. See you.

Scott: Always. It's funny. I was talking to my wife. Should I share this?

Pat: When it's too late now. Your wife doesn't listen to the show, though.

Scott: No, no, it's not about her. It's about this topic. And she's talking about, I think we're talking about retirement. I'm 56. So sometimes people ask me, Scott, "When are you retiring?" Because I guess I'm getting retired. I look old. Right. And I've been doing this since 1990s, when I started in the industry, right about the same time you did, Pat. I've guided hundreds, several hundred people from the workplace to retirement.

Pat: Personally.

Scott: Personally helped them through that process, not counting people that have called in or heard the radio program, that sort of thing.

Pat: So, thousands of people in the firm.

Scott: And I was telling my wife, I said, "Sometimes you meet this couple and I always want to get to know them and, "Oh, what kind of work do you do?" And the guy would say, "I'm retired." "Oh, how long have you been retired?" "Twenty-five years." And I would think, what a deadbeat. And my wife said to me, "Well, if there was a couple, and it was a woman who said that she...would you just assume she was a homemaker?" And I said, "Well, I suppose." That's why I got in trouble. Like, yeah.

Pat: Well, that's a little old school thinking.

Scott: That's what my point was. Yes. Yeah. It is a little old school thinking.

Pat: But I gotta tell you, I still feel the same way. I am old school. I'm 60.

Scott: I'm just saying my bias. That's what I would think.

Pat: Yes. Yes.

Scott: Guy hasn't worked in 25, 30 years. He's a deadbeat. Wife hasn't worked in 25, 30 years, homemaker.

Pat: Yes, I actually...but in all fairness, I have had friends that stayed home and took care of the kids and drove them to school.

Scott: I have too.

Pat: And by the way, I'd much rather go to work.

Scott: I would too. I couldn't imagine.

Pat: It's hard. It's hard.

Scott: No, I have a 12-year-old still in the house.

Pat: And remember, these views of Scott and Pat are not necessarily the views of Allworth and its employees or sponsors.

Scott: What sponsors?

Pat: We don't have any sponsors, but you hear them say that all the time.

Scott: We have no sponsors.

Pat: We have no sponsors.

Scott: All right, let's go to the calls here, 833-99-Worth is our number. We're talking with Mark in South Carolina, Mark, you're with Allworth's Money Matters.

Mark: Hey, gentlemen, how are we doing today?

Scott: Fantastic.

Pat: What can we do for you, Mark?

Mark: Thanks for taking my call. I have three quick questions. I'm hoping you can answer them pretty quick. My first one is I have an investment property. And I'm trying to decide if I should sell it, take the proceeds, pay off my other rental property and put the remaining into a 529 for my kids.

Pat: Okay.

Mark: So, I just can't decide. The house is vacant right now. I'm paying the mortgage. I could rent it back out with a tenant, or I could just sell it.

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

Mark: So, the value of the property that I wanted to sell is about $550,000.

Pat: And what do you owe on it?

Mark: I owe 277.

Pat: And what did you pay for it?

Mark: I paid 382.

Pat: And what's the interest rate?

Mark: 3.125.

Pat: Okay, and what's the rent for this place?

Mark: About $3000 a month.

Pat: How old is the property?

Mark: Two-thousand-one.

Pat: Wow, okay. And it would rent for $3000 a month. All right. And you have another property that you were thinking of taking the proceeds and paying, if you sold this one and paying it off?

Mark: Correct.

Pat: Tell us about the other property.

Mark: So, the other one is a townhome. I paid 120 for it. It's worth about 170. I owe 90, 92 on it.

Pat: And what's it rent for?

Mark: Thirteen hundred a month.

Scott: What was the value again on that?

Pat: One seventy. And it rents for... And tell me about your primary residence.

Mark: So, I own a primary residence. I paid 340. It's worth about 425. I owe 317 on it. It's brand new, only a year old.

Pat: How old are you?

Mark: Forty-nine.

Pat: How many kids do have?

Mark: Two kids, divorced. Two kids getting ready to go to...one getting ready to go to college.

Pat: And how much money do you make a year?

Mark: About 150 grand.

Pat: And how much money do you have in 401ks, IRAs, that sort of thing?

Mark: Eight-fifty in 401ks and Roth IRAs.

Pat: And do you need money?

Mark: [inaudible 00:22:37]

Pat: If your kids are ready to go to college, funding a 520...

Scott: What's driving this question right now?

Mark: So, that's the money... Well, oddly enough, I listen to you guys all the time. I'm just tired of being a landlord.

Pat: Okay. I get it. Okay.

Mark: That's why.

Pat: Okay, I wouldn't sell either of these. If you were my little brother, I'd say suck it up. This has been a great investment for you. At that interest rate, I believe it will continue to be a great investment. If your interest rate was a variable rate interest rate and it was higher, I might feel a little bit differently. You're going to actually probably suffer a little bit of downdraft in value.

Scott: You're in South Carolina, what part of South Carolina are you from?

Mark: Charleston.

Scott: Okay.

Mark: And I would pay 15% of my salary, 15% capital gain on that, right?

Pat: Oh, yeah.

Scott: Yeah. You have capital gains.

Pat: I would use those proceeds [inaudible crosstalk 00:23:36]

Pat: It doesn't matter what you do with it. Doesn't matter with it. Unless you gave it to charity.

Scott: No, unless he transferred it to another property.

Pat: He did a 1031.

Scott: Yeah.

Mark: But I can't pay off another property.

Pat: That's correct.

Scott: Yes, that is correct.

Pat: That's correct.

Scott: And you can't transfer it to the other property that you own either.

Pat: No. So, you'd be at the same place. I mean, unless you said, I mean, the smaller rental is yielding about 9% gross yield from the rent relative to the price. This other one, the larger one's at six and a half percent. So, if you thought to yourself, oh, maybe I should sell the bigger one, let me exchange, which you could do a tax-free exchange, let me exchange the large one and do two small ones. The problem is you've got a mortgage at three and an eighth percent that would cost you six and a half percent today for [inaudible 00:24:24].

Mark: Yes, but I don't want to buy another property. I want to take...that's college money in that house.

Pat: Understand. But can you afford college without selling the property?

Mark: Well, I mean, they...yeah, probably. I've kind of earmarked that house for college.

Pat: That was in your head.

Mark: It was in my head for the past...I've owned the house seven years, six years and ever since I bought it, in my head, okay, this is college.

Pat: Why don't you have your kid take student loans and...

Mark: Well, I listened to you guys last weekend and I'm talking to my ex-wife about that right now.

Scott: And it's morally, ethically, I struggle with it. But then at the same time, I'm like, Congress sets the... Congress, the administration, they're the ones who say, "This is the rules to the game."

Pat: But I'm assuming that you're a relatively new listener, Mark. We've been saying it for five, six years.

Mark: No, I've been listening to you guys for like, four years.

Pat: Oh, yeah, it's that we would expect legislation to change and it will be highly subsidized, which it is now or outright free. If you can afford, even if you had to lower your contributions to your 401ks and your IRAs, you're still much better off putting less money away towards your retirement and funding their education with cash, out of earnings, rather than sell this property.

Mark: Okay, good advice. Two more quick questions.

Pat: No, we're fine. We're fine.

Scott: Yeah, we're gonna put you on hold for just a second, because we're gonna take a quick break. We'll be right back.

Narrator: 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: Pat McClain.

Scott: We're talking with Mark in Charleston, South Carolina.

Pat: So, you had a second question for us?

Mark: I did. Well, I have two more. I can make them quick.

Pat: No, we're fine.

Mark: My company just started offering a Roth 401k. I've been contributing to a Roth IRA from a different brokerage house. What's the difference? Is there any?

Pat: Yeah, there's significant differences between the two.

Scott: I was about to say, not really.

Pat: No, they're significant. Oh, between a Roth IRA and a Roth 401k. There isn't any. I was thinking between a regular...

Scott: Where's Pat going with this?

Pat: No, I was thinking between a regular IRA and a Roth IRA. The only difference is that you can borrow from your Roth 401k.

Scott: Right now, you're maximizing your 401k. Is that right? On a pre-tax basis?

Mark: Yes, sir.

Scott: And then, you're also saving in a Roth IRA in addition?

Mark: Yes, sir.

Scott: I think if I were in your situation, that's how I'd approach this as well because...

Mark: So, don't even bother with the company Roth 401k?

Scott: Well, you're going to have less spendable income if you make those deposits with the Roth and you have 800, what'd you say, 850 in there?

Mark: Yeah.

Scott: You're 49 years of age. What's the tax rate in South Carolina?

Pat: I don't think...

Mark: Twenty, 22.

Pat: No, no, the state income tax.

Mark: Oh, I'm sorry. Nine, I think is the max. Not really sure.

Scott: Do you think you're gonna move to Florida?

Mark: No, not any time soon.

Scott: You're not far enough east to move to, or not far enough northeast to move to Florida.

Pat: He's in Charleston.

Scott: I know.

Pat: Why would you want to leave Charleston? I thought Charleston was a beautiful place.

Mark: So, in a nutshell, not much difference.

Scott: No, I think...

Pat: What's your mix right now between Roth and traditional?

Mark: You mean, 401k and my Roth?

Pat: Yeah. I mean, you've got 401k, and maybe some old IRAs.

Mark: I've got 560 in a 401k. And about 150 in a Roth.

Pat: I think I'd continue the same strategy.

Scott: I would do the same thing, especially if you're funding the kids' education out of pocket.

Mark: Doing that, too.

Scott: Yeah, doing a Roth is gonna give you less spendable income.

Pat: That's right.

Scott: And if you continue on the path, right, your standard of living should be higher in retirement, but your income will probably be lower. So right now, your income is fairly high, you're saving a bunch into your 401k, saving to the Roth IRA and supporting children. You're not going to need to replace as much. And so, your income will probably...

Pat: You're doing a great job. And your third question for us?

Mark: And okay, real quick. So, my company just popped on me last year that they're only allowing me to put up to 6% into my 401k. I do turn 50 this year, so I have to catch up, which is good. But they're limiting me to 6%. But they're offering a non-qualified compensation plan. What is that? I don't understand.

Pat: That's a top-heavy plan. You have what's called a top-heavy, so I'm guessing you work in some sort of either trucking or manufacturing where there's a few...

Mark: Sales. I'm in liquor sales.

Pat: Okay. So, there's a few highly paid people and then not that many highly paid people. People delivering the liquor or whatever, right. So, there's a bunch of people at the top that make a ton of money and then there's not much in the middle and then there's a bunch of people with lower income. Fair statement?

Mark: Yes.

Pat: Okay. So, what you have is...it's a qualifier on the plan, which makes your plan top-heavy. They could get around that. They could put 3% in for everyone. And it's called a safe harbor rule, but I don't know if you want to go to management and recommend that.

Mark: Yeah.

Scott: So unfortunately, you're limited. A non-qualified deferred compensation plan...so, when you put money in a 401k, you are electing to have some of your paycheck put into this account, that's essentially think of it as a trust set up for you. It's your dollars, in your name, for your retirement, not the company's name. Should the company go bust, doesn't really matter. It's totally protected. A non-qualified deferred compensation plan, it's a company...the savings goes into a company's asset, and then the company has a liability. And should the company run into financial problems...

Pat: You become a creditor to the company.

Scott: Just like everybody else.

Pat: Just like everyone else. So, there's a lot more risk in a non-qualified deferred compensation plan than there...

Scott: And you can't roll it over at retirement. Oftentimes, you have to elect your payout when you sign up for it.

Pat: Years in advance.

Mark: So, would you contribute to it?

Pat: I wouldn't.

Scott: It depends on the company.

Pat: I wouldn't.

Mark: I mean, we employ 6000, 7000 people. I mean, yeah, 7000 people. We do like, $10 billion a year. I mean, we're not a huge company. We're pretty big.

Pat: Well, so did Enron.

Mark: Yeah, yeah.

Scott: They're in the liquor business. A little different.

Mark: What can I do to maximize...

Scott: I mean, supply and demand might fluctuate a little, but not a lot.

Mark: But there's nothing else I can do to maximize my retirement. I contribute to IRA.

Scott: You can just save an non-qualified account.

Pat: Would you, Scott, would you put it into a... We had, years ago, we had an offer to put money in a non-qualified deferred compensation plan.

Scott: Years ago, yeah.

Pat: And we didn't do it.

Scott: That's correct.

Pat: At 49...

Mark: I get to like, with the company's matching, I get to like $18,000 a year, so I'm short like, $5000, something like that, whatever. So, it just bugs me that I can't put the full maximum amount in there.

Scott: So, you're not that far away. You're talking about five grand a year?

Mark: Yeah.

Scott: I would just buy the total market outside and treat it like it was a Roth.

Mark: Yeah.

Scott: I would not. What's the point? Your job is relying on them. It's got all sorts of rules around it. They're non-qualified. It's held as an asset of the company. If you said, "Wow, for whatever reason, I'm going to be making a million bucks a year for the next three years. My income's typically $200,000, then and yet a lot of confidence in the company, then maybe a non-qualified deferred compensation plan makes sense. But at this point, what's it matter? It's like, you're not... The risk return isn't there.

Pat: I don't think so.

Scott: It's just something you shouldn't even worry about. So, only go as far as the qualified and don't go any more than the non-qualified deferred compensation.

Mark: That's what I'll do then.

Scott: Yeah. And use the money to pay for the kids education and/or buy the total market. But either which way, you'll be fine. You're a great saver.

Mark: I could put it in the 529, that extra five grand.

Scott: You could. You could.

Pat: That's actually a great idea.

Scott: And you know, the 529 plans now, if they don't use it, you could roll $35,000 into the kids' Roth.

Pat: I thought it's your own Roth. Is it the kids' Roth?

Scott: It's the child's Roth. But that becomes effective in only a couple years out from now, right?

Pat: Yes. Yeah. I was excited about because I thought I'd be able to get money into my kids Roth and then move it into my name.

Scott: Take it back away from them.

Pat: Yes. And that would be great for me, but then when you read it, it was in the kids' name. Haven't these kids taken enough from us already?

Mark: Yes.

Pat: Yes. Hey, Mark.

Mark: I appreciate all your help.

Pat: All right. Thanks. Great job. Great saver.

Mark: Thanks.

Pat: Great saver.

Mark: Thank you very much.

Scott: Yeah, for sure. Particularly, going through divorce.

Pat: Forty-nine years of age.

Scott: Divorce. It is, from a financial standpoint, it's a disaster.

Pat: And the rest of it's good?

Scott: I guess it can be. There are clearly times when it's a necessity, right. And you look at like, gray divorce, which is on the...like, people that 55, 60. You've seen it. I've had clients, friends, retired and two years later they get divorced and you're thinking, your lifestyle, I mean, you have a finite amount of assets already set aside for retirement. That's cutting it a little close. And now you're gonna want to support two households. So, from a financial standpoint, figure out a way to make the marriage continue to work because it's... If possible.

Pat: I'm not gonna weight in there. I don't live in their marriage.

Scott: What's that?

Pat: I don't live in people's marriage. I don't know how happy or unhappy they are.

Scott: Have you seen marriages that looked on the rocks and then recovered? And then the couples were happy again afterwards?

Pat: Yes.

Scott: Okay. Well, then, a little more encouragement. Thank you, Scott. Thank you.

Pat: Excellent point.

Scott: Reminds me of a time years ago, this woman, this couple came into my office, meet them for the first time and they've been together for...ow many years you guys were married, I think I asked. "Oh, we're not married. We've been living together for 26 years," something like that. And I said, totally jokingly, I look at the guy, I said, "When are you going to make her an honest woman?"

Pat: It's like 1955 all over again. This show's gonna be cancelled with comments like that.

Scott: They came in two weeks later, and she had a ring on. She says, "Scott, we took your advice." I said, "What advice?" She said, "We got married." I said, "I was joking. I don't know if you should have got married or not." So, I should stay away from any sort of marital talk, any divorce talk.

Pat: What'd you ask them to do next?

Scott: I'd like you to paint your house purple, bright purple. They come back, "Scott. We did it."

Pat: All right, let's continue with calls here. This is Allworth's Money Matters, 833-99-Worth is to join the program. We're talking with Bonnie. Bonnie, you're here with Allworth's Money Matters.

Bonnie: Good afternoon.

Pat: Hi, Bonnie.

Bonnie: Hi. I don't know if you...

Pat: How can we help?

Bonnie: Well, three years ago, I lost my husband.

Pat: Sorry.

Bonnie: And at the same, I retired.

Pat: Oh, boy.

Bonnie: And two weeks later, he passed away.

Pat: Oh, gosh.

Bonnie: So, it ended up that I received his social security. I was only 63. I ended up being able to take his social security. And I have two pensions. I worked for a school district for 22 years, and I have a 403b. And the gal that was in charge of it, I listened to you guys quite a bit and learned what I needed to do to retire and to be in a good position that if something happened to me, he would be taken care of. That's what the 403b was for. Then the gal, you had told that I should pay my house off, which I did. I have no bills, I have nothing. I'm in much better position than I was when I was working. And the gal that was taking care of this wanted to move it out of the 403b to a company. And at the time, I just wasn't in a place that I could decide that.

Pat: That was smart.

Bonnie: Yeah, now I'm feeling like I need to deal with it, but I don't know what kind of decision I should make.

Pat: So, you owe no one in the world money.

Bonnie: No one.

Pat: And you're receiving a pension from working for 22 years at the school district and your husband's social security. And presumably, you'll transfer off your husband's social security. Oh, you may not have actually been eligible for social security. Were you are eligible for social security yourself?

Bonnie: I was because I turned 63. I would have been...

Pat: Okay, but you're gonna stay on your husband's until as long as possible, until age 70.

Bonnie: Until I'm 70.

Pat: Yeah.

Scott: And if yours was higher than you'll revert to yours. If not, you'll continue on the widower's.

Pat: Yes.

Bonnie: Right.

Pat: So, how much money is in the 403b?

Bonnie: It's only $170,000, which I exceeded my goal to make sure that he's taken care of, and it's got $170,000 to stay, you know, to make sure that he got to stay in the house.

Pat: I'm with you. I'm with you. And what did they want to move it to?

Scott: Bonnie, you said only. I'm thinking you were able to get your house paid off. You worked for a school district. I'm presuming not because they paid a huge wage.

Bonnie: Right. Because it's close to home.

Scott: But they had a pension. Right?

Bonnie: Yeah.

Scott: So, you chose that route. So, I would call that a way of savings as well.

Pat: Yes.

Scott: And so, don't knock yourself out.

Pat: The 170 in the 403b, I presume they want to move it to an IRA.

Bonnie: I do not know. She just wanted to move me to a company. And that was a red flag to me. She also, when I asked her because you guys have made it very clear that you should know what you're being charged, I couldn't get a straight answer.

Scott: That's a red flag.

Pat: That is a red flag. And what was the name of the company they wanted to move it to?

Bonnie: I don't remember. It's been a couple of years not.

Scott: It's probably insurance.

Bonnie: I didn't do it. I didn't do it because...

Pat: And how is that allocated today? How's it set up?

Bonnie: She said it's very well diversed. See, that's the problem. My husband was disabled. So, he was a full-time job for me there. And I worked full-time at the school district. So, I didn't have time to understand this all.

Pat: Got it.

Bonnie: So, all's I know is she told me it was in a medium diversed account.

Pat: Yes. So, what Scott pointed out, he said, an annuity. He just said it. I don't know if all the listeners heard it. But he said an annuity. And so, I presume that you're in a 403b now, which is a form of annuity. What company is it with now?

Bonnie: It is with Invesco.

Pat: Okay.

Bonnie: Which is out of Kansas City.

Scott: Oh, maybe it's a 403(b)(7), mutual funds.

Pat: It might be. It might be.

Bonnie: I don't remember ever being a seven. But you could be right.

Scott: Well, if they own mutual friends, it's...anyway, it's...

Pat: It's most likely a 403(b)(7). So, if you're my sister, Bonnie, I would say one, you don't really know how it's allocated. Two, it's all with one company. I would say you have the option of setting up an IRA and having a highly diversified, not only amongst different types of investments, but different companies within that. So, Vanguard and et cetera, right, so you can get some broad diversification off that. And then really, the kind of how its invested depends upon two things. One, when might you want some money or need some money from that account. And...

Bonnie: I don't see ever having to do that, unless I have to fix something on the house.

Pat: Which you will at some point in time, and you're required to start taking money out by 75 at your age today.

Bonnie: Yeah. [inaudible 00:42:19] went up.

Pat: So, what kind of scares me about this person a little bit is they recommended this soon after your husband died?

Bonnie: Yeah, it's soon after I had asked her what her costs were, what it would cost me.

Pat: Okay. You need to go, you need professional advice. And you obviously are not comfortable taking the advice of the person that's been talking to you. And there are many, many people, you want to go to a fee based financial advisor, and pay them for an asset management fee. There's not much financial planning that you need done, other than to make sure that you have...

Scott: Well, a little like, how much of this should be earmarked for expenditures that we can presume we're not going to know about.

Pat: That's right. So, how much if we need to take a distribution? Are we going to take a distribution? And does it actually make sense to start taking a distribution prior to age 75, and converting it over to a Roth IRA a little bit at a time? So, there's a little bit of financial planning that needs to be done there. But the reality is, you need to find someone that you can trust that can explain to you what you're investing in and why. And most certainly, how they're going to charge you, because they're not doing it for free. I cannot tell you how many times I have seen people come to my office and say, "Oh, I bought this annuity because it doesn't charge anything." And I said, "That's why that person was driving the BMW, because they make no money." So, you need to kind of go out, I forget what that person said, go out and find yourself a good financial...

Scott: Fee based advisor, someone who doesn't sell product.

Pat: That's someone that doesn't sell product, so but you've done a great job. You just don't want to... Make sure you don't want to mess it up now.

Bonnie: Okay. Also, I've got a pretty good savings. And I thought, can I still contribute to something and what would I contribute to?

Pat: No. How much do you have in savings?

Bonnie: Almost $200,000.

Scott: Oh, wow. There is some financial planning.

Pat: There is some financial planning, and this most certainly would bode why you should actually consider converting some of this to a Roth today, especially if you've got the money to pay the tax liability. And that money is probably sitting in the local bank. You can be earning three to four times as much money in US Treasuries or another fixed...

Scott: Money market.

Pat: Money market account. So, yeah, reach out and find yourself a good financial advisor. Appreciate the call.

Bonnie: Okay, thank you very much.

Scott: All right, Bonnie, wish you well. Thanks.

Bonnie: Thank you.

Scott: We're now we're going to talk to Jose in Illinois, Jose, you're with Allworth's Money Matters.

Jose: Yes. We want to pay an additional $10,000 or so from the $1000 extra that we do monthly.

Pat: Okay. So, what is the cost? What is the outstanding balance on your loan?

Jose: The outstanding balance on the unpaid principal is $173,000.

Pat: Okay, and what's the interest rate?

Jose: Three-point-five percent.

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

Jose: Oh, the value of the home is over $600,000. Last time it was assessed was a couple of years ago and it was well over $600,000.

Pat: And how old are you?

Jose: I am 67 as of a few days ago.

Pat: Well, happy birthday.

Jose: Thank you.

Pat: And how old is your spouse?

Jose: My spouse is a year younger than I am. She's 66. [inaudible 00:45:49].

Pat: And are you both retired?

Jose: Yes, we both are.

Pat: And how many years are you into this mortgage?

Jose: I am not recalling how many years because we made the mistake of refinancing all those other times for all the reasons that people generally do, to acquire more money, pay off other things.

Pat: Now you're retiring, like, dang, I wish we had not done that. Do you owe anyone else in the world any money?

Jose: No, no, no, the mortgage. I mean, aside from our credit card companies, which are basically one that's affiliated with an airline under Chase, and the other one Savings Warehouse in the city, which is a Citibank one, we owe on the average about $6,500 per month. And it's not because we enjoy the debt, but we'd like to benefit from the benefits that those...

Pat: Yeah, you put everything on the credit card. Yeah. And then you pay it off every month. So, how much money do you have in the bank?

Jose: In the bank, we have over $103,000 in our savings. And then we also have investments, at least mine in the tune of about $333,000. My wife's, I can't pin that down because I can't find the folder. That's not in the right place.

Pat: Okay. And are you...do you have a pension?

Jose: Yes, yes, I do. And so does my wife.

Pat: Okay, so why do you want to take $10,000?

Scott: Yeah. Why is it $10,000 and why not $100,000? Or zero?

Jose: I see.

Pat: No. I'm curious. What are you trying to accomplish?

Jose: Yeah. Because my wife related to me, she had heard a few days ago, there was some talk, and I'm not sure who the participants were because I couldn't find these old programs to pinpoint who actually said that it's a good idea to make a big lump principal payment.

Scott: I wouldn't pay any of this off. Here's what I would do.

Pat: No, I wouldn't either.

Scott: If you had 250 in the bank, then I might say pay the thing off. But you don't want to take all your cash. It still wouldn't pay the mortgage off. At his point, here's what I would do. I would go to bankrate.com, bankrate.com. And there's a button that says high yield savings, click on that. And it will give you some online banks that pay very, very high yields that are FDIC insured. And you will find one that pays more than 3.5% interest. And I know that because I looked for myself two days ago, and there was one that was paying 3.75 and another one that was paying 3.9.

Jose: Okay. I'm sorry. I might be a little confused. The interest rate that I referred to as 3.5, is what we're paying on the loan.

Pat: That's right. But what we're gonna do is we're going to do is we're going to take your $100,000 in the bank, and it's going to earn more than 3.5. So, you're actually making money by not paying it off.

Jose: Yeah, I thought about that but it's been kind of a hard sell in terms of not having all that money in the bank. I don't like the idea that I...

Pat: No, no, no, no, no.

Scott: It's in the bank.

Pat: It's all in the bank. It's just not in the bank that you have down the street anymore. It's still in the bank.

Jose: No, I agree with you. That's my understanding. What you said is that there's a better online way of getting a higher yield. And what we currently have sitting earning pennies and...

Pat: And why wouldn't you do that?

Jose: Money's in the bank.

Pat: That's right. So, as an example, in FDIC if you go to bankrate.com to look at savings, they're all FDIC. If you go right now and put that $100,000 in PNC Bank, it's going to pay 4% and it is FDIC, it's the same risk as the money you have at your local bank right now. You make an extra half a percent by actually keeping that money for yourself and not paying down that mortgage. Now, you might call us in a year, or two years or three years and our advice may differ. But right now, the interest rate that you're paying is lower than what you're getting in a bank account. So, the risk or equivalent. My guess is these rates are gonna go up from 4% to 4.5% to even 5% at the bank account, which would make even more of an argument not to pay this thing off.

Scott: And I think an even greater argument, Jose, is that if you were 47, then I would say, let's figure out a strategy to have your home paid off by the time you retired. But you're 67. So, even if you put the 10 grand down, it's not going to change your monthly payment, your monthly payment is going to be the same. You're not gonna get this thing paid off, well, at least not while you're a young man. I mean, it might be 20 years from now, by the time the thing's paid off. So, like, what's the point? There's no real point, particularly when you could earn a little bit more and have it in a safe FDIC account than what you're paying. So, hope that helped. Appreciate the call.

Pat: Appreciate the call.

Scott: Well, hey, before we sign off here, I want to let everyone know we've got a financial planning virtual workshop we're calling Now to Next. And in this you'll learn some proven investment strategies, things maybe particularly important in this timeframe, really, to figure out if you're saving enough for potential retirement, some ways to save money on taxes, some social security mistakes that people make that you want to avoid, how to balance living for today, while saving for tomorrow. And so, if any of those topics are of interest to you, we've got three different times for this virtual workshoPat: Tuesday, February 14th at noon Pacific, Thursday, February 16th at noon Pacific, and Saturday, February 18th at noon Pacific. And you're thinkin, what did he just say? You can go to allworthfinancial.com/workshop. Did I make a mistake?

Pat: Yeah. So, Saturday, the 18th is at 10am.

Scott: Ten a.m.

Pat: Not noon.

Scott: February the 14th at noon, February the 16th at noon.

Pat: All Pacific.

Scott: Saturday the 18th at 10 a.m. Virtual workshop.

Pat: Yeah. And we're out of time. It's been great being with you. This has been Allworth's Money Matters.

Narrator: This program has been brought to you by Allworth Financial, a registered investment advisor 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.