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January 27, 2024 - Money Matters Podcast

A Roth account question, guidance on a portfolio allocation, and where to invest $800,000.

On this week’s Money Matters, Scott and Pat help a caller decide whether to contribute money to a Roth account. A man who will retire next month asks whether his portfolio is allocated properly. An Oregon woman diagnosed with stage 4 cancer wants to know where to invest $800,000 she says she received from a medical malpractice settlement. Finally, Scott and Pat advise a Minnesota doctor who has an extra $85,000 to invest each year.

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

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

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

Pat: Pat McClain.

Scott: Thanks for being part of our program. Actually, you are part of our program because this isn't just a podcast with a couple guys sitting, sharing our own opinions because we have callers. And then we share our opinions to the callers.

Pat: Sometimes they ask our opinions, too.

Scott: That is why they're calling. They want our opinion, our biased opinion.

Pat: Biased opinion.

Scott: With our biases.

Pat: Yeah. I was always confused by the word unbiased opinion, by its very nature.

Scott: Well, you want an opinion in your best interest, right? If I'm getting an opinion on anything, whether it's medical, I don't care what it is, my hope is that it's going to be in my best interest, the best possible opinion I can have.

Pat: Correct.

Scott: Receive, I should say. But you want it to be biased.

Pat: Yes, if I go to a medical expert who's got 15 years of training in a particular field, I want their biases involved.

Scott: That's right.

Pat: Not just like, "I don't know what that is. I remember that. I remember that."

Scott: "Wait a minute. That was like the fourth week in med school they talked about that."

Pat: "What was that again? Here, let me get to my Google machine."

Scott: All right. Anyway, we take phone calls. We'd love to take your calls.

Pat: We talk about financial matters, 401(k)s, IRAs, mortgages.

Scott: Yeah. And we had a nice, we try to, we try to. cut through some of the noise, really get down to good basic foundations for financial planning. We try to speak so that a typical high school grad could understand. That's the hope. Right? I mean, that's how I try to do it.

Pat: Or me.

Scott: Or you, who dropped out of high school.

Pat: No, I didn't. I didn't, but there was one class.

Scott: I was having a discussion. So we, my wife and I, we had raised two biological kids, adopted two kids from foster system, these sisters. And they're both doing fantastic. And I was talking to the 16-year-old and she was going to work on a resume to go try to get a job. And so I'm just talking to her. Like I said, "You know, it's a bit of a miracle how well you're doing." She's like, "What are you talking about?" I said, "Well, you could easily be dropped out of high school and been pregnant right now. At 16."

Pat: Because?

Scott: Her background, foster system and the family that she came from and all that. She says, "Dad, how can I be pregnant? You guys don't let me go anywhere."

Pat: That's pretty funny. That's pretty funny.

Scott: I mean, we kind of do know where you are 24-7. We let you go places.

Pat: That's kind of maybe the point. Yeah. Maybe the point. But I did graduate from high school, although I did have an English class where the teacher referred to me as the guest student because my attendance was relatively poor.

Scott: You also had one that said the world needs ditch diggers too. Or was that in college?

Pat: That was college. That was college.

Scott: Anyway, if you want to be a guest on our program, have a question for us regarding anything financially related, you can send us an email at or you can call us 833-99-WORTH. And let's start off here with James. James, you're with Allworth's Money Matters.

James: Hi there.

Pat: Hi, James.

James: Appreciate it.

Scott: Yeah.

James: I really enjoyed the show over the years, and I'm glad you guys have the podcast, too.

Pat: Thank you. What can we do to help?

James: I am really interested in your completely biased opinion that's in my best interest.

Scott: All right, good.

Pat: Thanks for playing along.

James: So recently our 401(k) plan at work did allow for a Roth option this year. It's never been allowed in the past and I'm kind of looking for some guidance around the rule of thumb, maybe for a percent of Roth as a guide towards retirement, maybe if there's a rule of thumb or something that's best to understand.

Scott: How old are you, James?

James: Fifty-two.

Pat: And what's the family income?

James: Two-fifty.

Scott: And are you married?

James: Married. I have some rental income, too, that nets out around $17,000 a year.

Scott: Are you going to stay in California long term?

James: Til I'm done working, sure. Then if I can get out, I'll get out.

Scott: Well, if you're, I mean, if you are dead serious about leaving the state of California, we would say do not do a Roth IRA because you're paying 10 point something percent to the state of California. Matter of fact, it just went up in 2024 because the money that you pay, I think it's 1.1% to unemployment, they lifted the cap on that. I think it's...

Pat: I don't remember what the number was.

Scott: I don't know if it goes to 250 or it's, it goes...

Pat: It just went up.

Scott: Went way up.

James: Yeah, it used to cap out like in the 105 or 115.

Pat: Yeah. So, so are you, how serious are you?

Scott: It's not 10.3, it's 11.4.

Pat: How serious are you about moving out of the state of California?

James: I don't think, I don't, it would be a nice to have but with family obligations, I think we could be locked in for the forseeable.

Pat: And how much money are you putting into your 401(k)?

James: I max it out, but our plan's top heavy, so they dial it back every year.

Scott: I wondered if you worked for a small company.

Pat: I was going to ask the next question.

Scott: Yeah, because they just now allow for their own.

James: Yeah, it's no safe harbor. And every year, even if I max out with the catch-up, it'll come back to us.

Pat: And are you converting... Can he convert that to... No, you can't convert that to a Roth. That's just a refund.

Scott: That's just a real thing. What do you have in your 401(k) plans, you and your spouse, 401(k)s, IRAs, tax-deferred accounts?

James: All right, tax-deferred, 3.4 combined in the 401 case. I do have about 500 in deferred comp non-qualified. Outside in the Roth IRA, we have about 500.

Pat: So you've been making the non-deductible IRA contributions and then converting them?

James: Correct. We've been back door Roth'ing since 2010.

Pat: Yeah. I don't think I'd do anything different.

Scott: I mean, I contribute on a pre-tax basis in my 401(k) and...

James: Pre-tax, okay, okay, yeah, because they do offer in-service too, right? I could do conversion, but the tax rate would be paying pretty much the tax rate to convert.

Pat: It wouldn't make any sense.

Scott: I mean, you've done a nice job saving, right? So for 52 years old and having 3 million bucks in your retirement accounts, you know, that's a lot. I mean, if you figure your contributions and compound growth, this is going to be a sizable account one point in time.

Pat: And when do you think you're going to touch that deferred comp? Is that from the existing employer?

James: Yeah, so as soon as I separate employment, it activates. All right, and now they're five years old.

Pat: And then paid out over five years. Yeah, it's a non-qualified deferred compensation plan. I don't think I'd do anything different.

Scott: How many children are at home? It's just the difference. I mean, if you said, "I'm never leaving the state of California," then. that's one thing. But if you think there's a chance you might... They keep raising the taxes, everyone's going to leave.

Pat: Everyone that can. Wait to see what this proposed wealth tax.

Scott: That died this year.

Pat: It was resurrected.

Scott: Yeah, but it just died again, apparently.

Pat: And you're funding the children's 529s, I assume?

James: No kids. No kids.

Pat: Oh, no kids. I don't think I do a thing differently.

James: All right, so pre-tax it is.

Pat: Yeah, and I assume that it's based on these numbers.

Scott: Again, if you said you're never going to leave the state of California, then maybe make an argument because the income you have now is probably going to be that, if not more, in retirement, just how much you guys have saved, unless you plan on retiring tomorrow. But if you kind of work a normal retirement, work until normal retirement age, your income will probably be this or greater in your retirement years. So one can make an argument why, if you lived in a tax-free state, it probably makes sense to do some Roth. But living in California and you're at almost at the top tax rate for the state of California at this limit. Unless you like the way Sacramento spends your money, then you can do a Roth, and you can send them a few more bucks each year.

Pat: No, I wouldn't. Keep it exactly. Whatever you're doing, keep on doing it.

James: All right. And then just one crystal ball question I did. I was interested a couple weeks ago, you talked to somebody and said the guidance is changing now. I've always thought that SSI wouldn't be there and Social Security wouldn't be there just because. And now it sounds like there may be guys are actually giving guidance around that. What are your thoughts on Roth in 10 years when there is Roth monies coming out? Are they going to be able to stand it that they can't get their hands on it as people are withdrawing?

Scott: You mean will Roth distributions ever be taxable?

James: Yeah.

Scott: Look, when I started in this industry, and most people don't realize this that is nearing retirement, there used to be an excise tax on excess retirement withdrawals. And it was a lump sum of $750 or more. And what was the annual amount?

Pat: I don't remember. I forget. It was $100...

Scott: I believe it was a 15% excise tax. So if you did too good a job savings, the federal government would do an excise tax at 15%. So when you look at the federal deficit we've got, you look at our deficit spending, anything's possible. I had a years ago, I had a client convert his entire 401(k) to a Roth when you can spread it out over five years or whatever the tax liability. And I argued with him at the time, just because Congress is saying that, Senator Roth, I don't even know if...he's not in the Senate anymore. I don't even know if he's alive. I think he passed away. By the time you're pulling money out, most of the people on Capitol Hill are going to be replaced by other people. They're going to like, "Wait a minute. Who's this James guy? They got 10 million bucks in their retirement account?"

Pat: Fat cat.

Scott: "They think they should have free Roths?"

Pat: So the answer is who knows?

James: Maybe.

Pat: I wouldn't, but I wouldn't, I think you're diversified appropriately.

Scott: Do you have savings out? Because we kind of, do you have additional money in like a brokerage account or that sort of thing?

James: Yeah, probably $100,000 in a cash account.

Scott: The rest is just going to rentals. That's kind of exchange, right?

James: Everything else is in retirement, absolutely.

Scott: Yeah, retirement rentals. All right. Keep it up. Yeah.

James: Okay.

Scott: You're like a poster child for good planning. Yeah. Good job.

Pat: Yeah, good job.

Scott: And it's interesting with California, there's quite a few, it seems like there's been quite a few articles the last couple weeks just on people leaving the state. Because there's some high profile people who are kind of done with paying the taxes. And then they said they're going to come back with this wealth tax on people. They're going to start at billionaires, but then go down to people with a mere 50 million or whatever that is. But where's the...and you could have a family business worth 50 million that the people do not live like millionaires, right? You know what I mean? Hey?

Pat: Yes.

Scott: Eventually...

Pat: The problem with wealth tax is if it's a non-public traded company, it's actually determining the value of any particular asset because it's not publicly traded. I talked about it when I got back from Norway because they have a wealth tax.

Scott: That's right.

Pat: And how many of these small businesses have to actually borrow money in order to pay the taxes on their wealth.

Scott: So now we're putting the businesses at risk.

Pat: Yeah, you're levering them up. They're levering up to pay tax. And what I thought was interesting is talking to my two relatives that actually worked, owned part of a small business, the number of actually businesses that actually leave the country. They start in Norway, but then they leave.

Scott: In the European Union, you just slide overboard.

Pat: Right over there. Just go over there.

Scott: Yeah. Well, let's now talk with Mark. Mark's also in California. Mark, welcome to Allworth's Money Matters.

Mark: Yeah, hi. My name is Mark. So I've been working for the federal government for a long time. I'm looking at retiring next month, and I just wanted to get a second opinion, as well as a current allocation that maybe I should do going forward. I'm doing 75-25. Okay.

Scott: Are you talking about, well, let' you're retiring next month. How old are you?

Mark: I'm 56 and a half.

Scott: And are you married?

Mark: Yes. One child.

Scott: And is your spouse relatively the same age?

Mark: No, she's about seven years younger.

Pat: Okay.

Scott: And is your child still in the house or out of the house?

Mark: Yes, she's a minor, she's seven.

Scott: Okay.

Pat: All right. And what's your question for us?

Scott: Look, I'm 57. Mark, I'm 57 and my youngest is 13, and I feel sorry for myself every once in a while. And you've got a 7-year-old, so we're roughly the same age. Right?

Mark: Yeah. So I just want to see if I'm ready financially as well as I wanted to get a stock allocation going forward. Right now it's currently I'm doing 75, 25 stocks, 75 in S&P 500 basically.

Pat: Yeah. You're in the FERS program?

Mark: Yes.

Scott: Okay. And when, how much, what was your, what's your income now and what's your pension going to be when you retire?

Mark: My income is about $100,000. My pension will be, it's going to be after paying the medical plan, because I have a medical plan for life, will be $2,069 a month.

Pat: Two thousand how much?

Mark: 2069. And then I get a second piece of that is called a supplement, basically makes up Social Security. And that's going to be $1,300 a month until I hit 62.

Pat: Okay. And how much money do you have in your FERS program? For the rest of the listeners, it's similar to a 401(k).

Mark: Sure, sure. My TSP, I have 538,000. It's about 95% traditional, 5% Roth.

Pat: And what other assets are there?

Mark: I have a Roth of my IRA for 104,000. and I have cash about $55,000.

Pat: And is your home paid for?

Mark: Yes, my home is paid for.

Scott: How long has that been paid for? I'm just trying to understand cash flow and what...

Mark: Sure. We bought it cash in '21.

Pat: And how much money do you save on a monthly basis now?

Mark: I save about half my check. Expenses of what I'm looking at, $50,000 a year, basically, is what I make.

Pat: And so when you paid cash for the house, did you come into a lump sum of money in order to pay cash for that home?

Mark: No. I mean, I've bought houses in the Bay Area so I made a little bit there. I had a couple hundred thousand inheritance. I'm frugal. And I made a little bit more in the house over here in Roseville and just save, save, save.

Scott: And does your spouse work?

Mark: No, she's a stay-at-home mother.

Pat: And do you plan on going back to work?

Mark: No, maybe a part-time if I get bored at work or home, but something like that maybe. I can make up to $19,000 a year without losing that supplement. It's kind of like Social Security.

Scott: And is your plan to start taking a little bit of income from the FERS plan, the 401(k)?

Mark: Not really. I can live on $50,000 because the house is paid, so I don't plan on taking a lot from there.

Scott: Yeah, but between the pension and the supplement, that's about $40,000. So where's the other $10,000 coming from?

Mark: Well, I mean, there'll be a little bit from there. Correct. The difference would be from there, correct.

Scott: Okay, so if you're not planning on touching your 401(k), there's nothing... Look, one can make an argument that you should always have at least 75% allocation to equities in that 401(k) because you've got a pension income that's guaranteed.

Mark: Right. Right.

Scott: So if you calculated the net present value, previous week's call, we talked about with the woman looking at a pension lump sum from Boeing, and how those things work. So if you calculate what the net present value of that pension is, that's all guaranteed fixed income. One can make an argument because really our allocation is based upon our time when we need the money, and you're not planning on touching it anytime soon, it sounds like.

Pat: I think you should work a couple more years. This is going to be tight.

Scott: Well, if you truly only spend half of your pay.

Mark: I do.

Pat: I don't believe it.

Mark: I put the rest, I max out everything. My TSP, I max out. HSA, I max out. [Inaudible 00:17:51.847], I max out.

Pat: It's going to be tight.

Mark: But it's always an option to take a part-time job.

Pat: Okay. I think you should plan on it.

Mark: Okay.

Pat: You got a seven-year-old.

Scott: You're not going to retire. You're just going to go be a full-time mom, dad. That sounded very old-fashioned.

Pat: It was old-fashioned. Could you stretch out your employment for another year or two?

Mark: Oh, yeah. I could.

Scott: I got to tell you, I don't know. I might disagree with you, Pat.

Pat: Really?

Scott: My guess is you're no longer passionate about this job.

Mark: I'm absolutely not.

Scott: Yeah. Otherwise you wouldn't be...

Mark: I've been there a long time, federal service.

Scott: You're probably at a time like you don't spend much now. You're very frugal. Your house is paid for. You don't have a lot of financial needs. You're thinking, worst case, I'll go work part-time somewhere.

Mark: Right.

Scott: You just want out. I get it.

Mark: Right.

Scott: And if, in fact, your expenditures are like what you state, then you can make it work.

Pat: Are you going to take a full joint survivor on this pension for your spouse?

Mark: Yeah, that's a full joint. Actually, it would have been much more. So she gets 50%. That's the highest the federal does.

Pat: And are you going to buy a life insurance policy, a term life insurance policy, like a 10-year level term?

Mark: I have a 20-year that I got maybe five years ago.

Pat: Perfect. What's the face value on it?

Mark: Half a million.

Scott: Yeah, that's about right for this. And does your spouse work?

Pat: She doesn't work.

Mark: No, stay-at-home mother.

Pat: I don't know how your seven-year-old's going to feel about you being at home all the time. Yeah, yeah, yeah. If you were sitting in my office today, I would say, you know...

Scott: Either work longer or consider getting another job.

Pat: That's right. And up to $19,000 a year, I think you'll be fine.

Mark: Right, that's what I was thinking.

Pat: Yeah, you'll be fine. You'll be fine. You'll be fine.

Mark: I got one other quick question if we have time.

Scott: Yeah.

Mark: Social Security. So when I hit 62, my child can get an extra 50% Social Security because he's a minor?

Scott: That's right.

Mark: Would that be the best time to claim it, considering that?

Scott: Yes, most likely.

Pat: Probably.

Scott: High probability. Assuming you're not working. Yeah, but even you're not... You don't want to work because you're going to lose the supplement here.

Pat: Yeah, but even then at 62, the limits will be whatever number they are in six years in terms of earning income. So it's probably going to be less than that $19,000. So yes, you would want to take it as soon as you possibly can. In fact, I have given advice for grandparents that were raising grandchildren to adopt them.

Scott: Sure, of course. Yeah, we have multiple clients that have done that. No one wants to be raising their grandkid. I shouldn't say they don't want to. Not the ideal situation.

Pat: It wasn't the plan, but it is what it is. So, yep, congrats. You worked hard. Yeah, just plan on taking some part-time work.

Mark: Okay. Sounds good.

Scott: All right. I appreciate the call.

Mark: Thank you. I appreciate it.

Scott: We're talking about adopt. So I've got a friend of mine, a close friend, that his daughter got pregnant around age 19, wasn't dating anybody, really, just kind of thing. And they ended up, she had her own issues. Had she been like a normal girl, they might not have been so conservative. And they ended up adopting the child, raising the child. Mom has just kind of a flake in life.

Pat: It happens.

Scott: Yeah. And the exact thing we talked through is the whole Social Security thing on it, getting Social Security. Yeah. But the conversation with Mark on whether to retire or not, as you've had it, Pat, you've had people come in and say, "I hate my job. I got to get out of here." And you're like, "Well, if you retire today, here's what your income is going to be." And they're like, "I'd rather have a lesser standard of living and get out than to keep working."

Pat: Yes. And I might be, you know a little bit harsh there, but for the idea that he was going to go and live comfortably, because I didn't quite believe that he was living on 50% of his income because he'd have more than $55,000 in the bank. But I don't know his full situation either. So just on the surface, based on my years of experience.

Scott: Yeah, yeah, yeah. Right?

Pat: It is what it is.

Scott: All right, we are in Oregon talking with Christine. Christine, you're with Allworth's Money Matters.

Christine: Hi, yes. I was diagnosed with stage four cancer about two years ago and was given at the time five to seven years to live, which would be three to five at this point. I was also involved with a medical malpractice lawsuit and I just, got in about $800,000, maybe $900,000 from part of that lawsuit. And so, I'm trying to figure out what to do with the money. I'm on disability, so I get about $2,000 a month from that, and I have about $650 a month left from part of my job that I was doing. So I'm just trying to figure out what to do with the money that I got.

Scott: That sounds like you've had a rough couple of years. I'm sorry for that, Christine.

Pat: So explain the $650 a month.

Scott: Is it a disability?

Christine: It's just a piece of my job that I, no, it's just a piece of my job that I kept. I worked remotely for 12 years, and so I was able to keep a little piece of the job.

Pat: And the disability payment that's coming to you, is it Social Security disability or a private pension?

Christine: It is.

Pat: It's Social Security disability.

Christine: Social Security Disability.

Scott: And how old are you?

Christine: Forty-six.

Pat: And tell us, family?

Christine: No kids. I'm single. So I don't need to worry about offspring. If there's money left, it'll go to my nieces.

Scott: So this is an interesting situation here. And so two years ago, they said you had five to seven years odds. You're two years in. Do you think you have more than three to five years now or...

Christine: I think so. I'm doing really well. I'm really stable right now. The cancer has shrunk a lot. So I'm hoping that I have more than five more years, but you never know.

Pat: And what are you living on?

Scott: I have a good friend who passed away two months ago, 16 years, similar diagnosis. I think it was less. Actually, it was 95% chance she was going to be gone in two years, 16 years. And I would say, Christine, like 85% of those years, she was in great shape. You know what it's like, all those treatments you've got to go through and all that garbage. So sometimes you never know.

Pat: So what were you living on prior to this $800,000 to $900,000 in the medical malpractice? Were you living on just the $2,650 a month?

Christine: Oh, no. About $60,000 to $70,000 a year.

Pat: And where was it coming from?

Christine: My job. I worked remotely doing financial management for my families' business.

Scott: Let's just say that the disability payment, suddenly you got a letter saying it's going to go from $2,000 a month to $10,000 a month, how would your life change?

Christine: I don't know that it would, I'm already doing a bit of traveling right now, which is my main focus. So I don't know that it would. As long as I have enough to cover, you know, my bills, which are about $5,500 a month. So I just need...

Pat: So, Christine, I'm trying to piece, I'm sorry. I'm trying to piece this together. So you recently went on disability.

Christine: Last year, yes, but I fully quit my job at the end of December.

Pat: Okay, thank you, thank you, thank you.

Scott: And when will you receive, what, I mean, when might you receive some additional funds from lawsuits and what do you think that would be?

Christine: Okay, I've received 800,000 so far, and there is about 242,000 still being discussed with the health insurance company that I may have to pay back, but I may not. And I'll know that in the next week or two and we'll get whatever amount of that back. And then there is one more piece of the lawsuit that has the potential to be a whole lot of money or zero money.

Pat: Okay. And the $800,000 you've received so far is net of attorney's fees, after the attorneys took their cut.

Christine: Right. It's after all the vultures got to the money.

Pat: They'll be glad to hear that.

Scott: Do you own a home?

Christine: I don't. I rent.

Pat: And do you like where you live?

Christine: I do. I live on the Oregon coast and it's very beautiful and...

Pat: I would put all of this money into a government money market account and I'd probably start taking distributions of $7,000 to $8,000 a month on it.

Christine: Okay.

Scott: Well, that's why, I mean, so it really comes down to, Christine, like what is your life expectancy? Right. Because what you don't want to do is be too conservative and spend too much, and then some new treatments, new therapy keeps coming along, and the next thing you know, which would be a good thing. But then suddenly you find yourself years down the road and not having as much capital as you need.

Christine: Right. Do you think I should, because I've talked to three different financial advisors and they were all very different and I liked them all, do you think I should go the way of a financial advisor or just try to manage the money on my own?

Pat: I don't think I would put this in any financial instruments other than cash.

Christine: Okay.

Pat: Scott?

Scott: Well, that's why I asked the question. So if two years ago they said you've got five to seven years, do you think your life expectancy is three to five years today?

Christine: I think it will be longer than that.

Pat: All right. Okay. So maybe I'd be a little bit more conservative with my opinions there. Maybe I would, you want to net somewhere around $7,000 pre-diagnosis what you were making so that you had the same standard of living prior to your diagnosis. And I'd put two-thirds in cash and a third in...

Scott: longer term investments.

Pat: That's right.

Scott: Or maybe half, run the numbers, maybe half cash.

Pat: Maybe half cash and have long-term investments.

Scott: You want to make sure you've got enough... What we don't want to see happen, Christine, is that markets go through their cycles. No one knows when things are going to go down in value, but they always go down in value for shorter periods of time. We don't want you to be in a situation where things are down in value and then you find yourself tightening your belt, not spending and not enjoying the life you have because the markets are down. That would be like a horrible.

Pat: Yeah. So 50% to 60%, I'd go with Scott here, 50% to 60%.

Scott: What did these other financial advisors say?

Pat: Yeah. I'm curious now that you met with three really nice people. What was their advice?

Christine: Well, they were pretty much meet and greets. You know, it ranged from I'm only going to give you interest from the principal to spend this money.

Scott: Don't talk to that person.

Christine: I know. Let me help you spend this money was the opposite extreme of that.

Pat: Any like exotic financial products?

Scott: I like, I mean, so Pat's concept is let's keep you in the same kind of standard of living you had prior to this diagnosis. And which I think is the right kind of approach.

Pat: Yes, yes. I mean. Yes, yes.

Scott: Hopefully you've got a couple decades still and you've got assets to continue to go there.

Pat: Yeah, in a 50-50 portfolio, and you said your income prior to the diagnosis was, you said you were making $7,000 a month. Is that correct?

Christine: Seventy thousand a year.

Pat: Okay, so $6,000 a month. Yeah. Oh, absolutely. Come on. Easy. Yeah. I'd say I'd start taking it. I'd start, I'd start taking it. In fact, I'll put a little bit, I'd start taking a distribution because this $800,000, if I started taking a $5,000 a month distribution, right? So it's $60,000 a year. That's a 7.8% distribution of the principal and 50% in cash and 50% in a long-term portfolio. Scott?

Scott: Yeah.

Pat: Yeah. I'd be, I'd become, it's, listen, it's really high. That 7.8% distribution is really high for someone your age, but not for someone with your life expectancy.

Christine: Right.

Pat: Right.

Christine: Okay.

Scott: And look, ideally, your health can improve and you can go off disability and back at a career, live a normal life, which would increase your life expectancy, but you wouldn't need so much from your principal at that point either.

Christine: Yeah.

Pat: Yeah. And I wouldn't...the person that told you to live off the interest didn't quite frankly probably doesn't have a great connection to reality.

Scott: Maybe not a lot of experience.

Pat: Or not a lot of experience. Not a lot of experience. And yes, yeah. So I would go that way. And you're probably better off hiring a financial advisor.

Scott: Yeah, I think so.

Pat: But in my opinion...

Scott: In my opinion, 95% of the time, I think people are better trained.

Pat: And it doesn''s not a complicated thing, but you want someone to watch this, and you also want to want to get a will or a trust and order, especially if you become incapacitated. You can also put these on TOD, but I was thinking about if you become incapacitated.

Christine: Right, yeah.

Pat: Well, hang in there. But at least you are on the, how long have you lived on the Oregon coast?

Christine: A total of 10 years.

Pat: It's beautiful. I mean, it is absolutely in my youth, I bicycled when I was a junior in high school way, way, way, way, way long time.

Scott: Is this a long life story?

Pat: It is. I bicycled the Oregon coast. The Haystack Rocks, the town of Newport, beautiful, Cannon Beach.

Christine: Oh, yeah. It's all very beautiful. It is very beautiful. I'm very lucky.

Pat: It is very beautiful. Well, in that respect.

Scott: And the sun shines about eight days a year.

Pat: It is a little dreary. All right. Well, take care of yourself the best you can.

Christine: Thank you so much. I appreciate it.

Scott: I appreciate the call. My oldest daughter went to college outside of Portland and played lacrosse.

Pat: In the rain.

Scott: Oh, yeah. So we'd go and see as many games as we could because daughter's playing college. The first child. My son didn't play any sports. But it was always cold and rainy and the Oregonians know how to dress for it. They've got galoshes and stuff like that.

Pat: Galoshes.

Scott: Whatever they are. It's something. They're all bundled up in rain gear sitting there like no big deal. Because it was always rainy and windy. Not just rain, rain and wind.

Pat: Winter, people that gave us Starbucks and grunge music, you wonder why.

Scott: Why are they so frustrated? Why? Why the angst? All right, let's continue on. And we're in Minnesota with Gary. Gary, you're with Allworth's Money Matters.

Gary: Hi, Scott and Pat.

Pat: Hi, Gary.

Gary: Thanks for taking my call.

Scott: Yeah.

Gary: I want to first thank you for your podcast. Our son turned us onto you several years ago, and I don't think my wife and I miss a week that you broadcast.

Scott: Oh, thank you.

Gary: We have a good problem. My wife and I are both 67 years old. And I'm a part of a physician group where a cash balance plan is being offered this next year. So in addition to the 76,000 a year we can put in, you know, into the 401(k), I have this extra money I can put in. At what point does it make sense to maybe not add to the 401(k)?

Scott: Can you do a Roth 401(k)? I mean, I know you legally can. Is your plan set up for that?

Gary: I don't know that. The problem with that is that I'm in the highest marginal tax brackets and we're in a tax state of 10% marginal rate.

Scott: Yeah, I understand. But when you said, at what point doesn't it make sense to do the 401(k)? I wouldn't quit the 401(k). If anything, I would convert to a Roth before I would quit contributing at all.

Pat: But tell us about the rest of the financial situation.

Scott: Well, first of all, how much can you contribute?

Gary: We can put 85,000 a year into the cash balance plan in addition to the 76,000 into the 401(k). I wasn't planning to not contribute to the 401(k), but the question is, would that 85,000 be better put into something, into a taxable brokerage, considering when you look at financial projections.

Pat: That's right.

Gary: Currently, we're at $5 million in the 401(k). And if you look at, okay, Monte Carlo projections, in five years, that could potentially be $10 million.

Pat: That was exactly the question I was going to ask is what's the qualified dollar balance right now? And you say it's $5 million. So that's anything that's pre-tax qualified in all your plans is $5 million. How much money do you have outside of plans in brokerage accounts, bank CDs, that sort of thing?

Gary: It's about two and a half million in banks and in taxable brokerages, and we have some real estate and some businesses, etc.

Pat: How much longer do you plan on working?

Gary: I think in another five years, I'm thinking I like it. I like my job, 73 seems like a good number. You know, 72, somewhere in there.

Scott: And what's your, what's your pay?

Pat: Approximate annual income.

Gary: Well, adjusted gross runs about 750 a year.

Scott: No, but I mean, just from what you're... Because some of that is, I presume, you said some other businesses, maybe some other properties, some interest. So just from your work.

Pat: Yeah, earned income.

Gary: I'm anticipating between 5 and 550 a year.

Pat: And do you have a Roth?

Gary: We just started doing the backdoor Roth a couple of years ago. So it's really very little.

Pat: On your 401(k), do you have a Roth offering there?

Gary: I believe I do because I just, we just joined this group. And so it's something, a new election that just came up and I would have that option. The question is, do I want to make putting that kind of money, you know, paying tax on it, putting it in the Roth. versus tax deferring. Because the Roth does make more sense.

Scott: Right, so you have an option of putting 85 plus 76 into tax-deferred retirement accounts, right?

Gary: Correct.

Scott: So what you're trying to, so your income from work is roughly half a million, and you've got an option of putting 170 grand a year, 160 grand a year into retirement accounts, anywhere from zero to 160. And that could be some Roth, no Roth or up to half, roughly half with your 401(k)?

Pat: That's right. And this one's pretty, this is actually, this is a great, this is a good problem. But this is really...

Scott: Let me ask you this question. This new cash balance, if they came to you, Gary, and said, "Hey, guess what, Gary? We have a new, we've got this new pension plan for us. We're going to allow you to put 85 grand into a Roth." Would that be something that you'd be excited about?

Gary: Well, you know, I'm torn between saving the taxes now and paying 45% or, you know, marginal rates right now versus, you know, a bird in the hand.

Scott: Yeah, I get it. No, I get it. That's why we're having this conference. None of us know the right answer because we don't know what the future is going to be.

Pat: So here's what's where you look at this, right, you're thinking about required minimum distributions on that 401(k) right? Gary, I assume that's what you're thinking.

Gary: Correct.

Pat: All right. So you're 67. You're going to retire in six years at 73. You've got account balance of $5 million. If we, if, if we can expect this 5 million to grow to 7.5, 8 million...

Scott: That's exactly what I was thinking.

Pat: Right? And then we've got required minimum distributions. Let's just say we just start taking distributions at age 74, the year after you retire.

Scott: A little over 300 grand a year?

Pat: A little over $300,000 a year. Which is less than the 5 or 550 you're making today.

Gary: Yes, and throw it in a little bit of a twist, I don't really plan to stay as a resident of our state here. I plan to go to a no-tax state, which would give me a 10% drop in the marginal rate.

Pat: Oh, easy. Put it all.

Scott: So somewhere in Florida, the west coast of Florida.

Pat: Yeah. Yeah, yeah. You want to...

Scott: If that's the case, I'd put it all tax-free, every dime. Yep. Cash balance plan 85. Because you guys do have a high tax rate, don't you, in Minnesota?

Gary: Oh yeah, yeah. It gets you to the marginal tax rates really, the top marginal really quick here.

Pat: Yep. Every dime.

Gary: So, here's my thing, you know, it's like, I'm worried about, you know, being the best, doing the best with the resources that we have and passing to the next generation. And, you know, you think, okay, very quickly, you can see how, you know, you get another 10 years like we've had in the last 10 years and this, you know, it's 10 million, and then all of a sudden, it could be 20 million, and then you die, and then you got your wife who's now, you know, in a, you know, doesn't, you know, is filing individually, and then she dies. And now you drop 10 million into each of your kids's account. And with, you know, with the inherited IRA 10-year withdrawals provisions. And then it's a problem. I mean, it's a good problem, first world problems. I understand that. But what's the best, you know, considering all the things, which is it a bird in the hand better than two in the bush?

Pat: Well, let's it's how many children do you have?

Gary: Two.

Pat: Oh, yeah, yeah, yeah, yeah, absolutely.

Scott: At this point, let's assume that this 401(k) grows to $10 million, the deferred...

Pat: Yes, I'd still do it. I'd still put it all in because you're going to move to it and your kids make as much money or more than you?

Gary: My son is getting close. My daughter is completely different. It's going to be different.

Scott: And if you give any to charity, this tax is zero.

Gary: That's another thing. When I'm still working before RMDs, I can throw money into my DAF, and that's what I was considering the alternative, putting it into a taxable brokerage and then siphoning off the capital gains, putting it into my donor advise fund and so forth.

Scott: I'd rather see you take, you can find some appreciated securities in your brokerage account to do that rather than this cash balance plan.

Gary: Yeah, adding to it, you mean.

Scott: Yeah, so I mean if you want to contribute and you get a nice tax deduction, find some highly appreciated securities, gift those to your donor-advised fund in these calendar years and contribute the maximum to your retirement account. But when you look down the road, like when you're doing it, let's assume your estate's $20 million when you pass on. You might say, let's have some portion go to charities of some nonprofits. Most, I mean, it's pretty common as someone's estate gets larger. Then that can come directly from your 401(k) where there's no tax liability whatsoever at all.

Gary: up to $100,000 apiece.

Pat: No, no, no, no, no. That's why you're living on your death. You just name them as a beneficiary in your IRA.

Gary: Oh, I got you.

Pat: Yeah, that's right. You can name them, you know, you can name any charity, qualified charity you want.

Scott: There's no tax consequences at all then.

Pat: Because they're in a zero tax bracket. So no, there's nothing that changes my opinion about putting the maximum into the cash balance plan. Nothing.

Gary: Okay.

Pat: Scott?

Scott: Yep, I would agree.

Pat: Yep, yep. Other than, you know, when you retire, maybe spend more.

Gary: I've heard you say that more than once.

Scott: Well, the reason you had is, you know, I've seen enough physicians that come to retirement that don't have the kind of money you have saved either. That's also very common. So you've done a nice job saving.

Gary: I filled gas at Costco this afternoon.

Scott: I go to Costco for gas as well. And if I can't, I don't go to Costco, go to Safeway because Safeway is almost as cheap.

Pat: That is exactly right. You are exactly right. You watch the pennies and the nickels and dimes and the dollars will take care of themselves.

Gary: It's true. It's true.

Pat: All right. Well, keep up the great work. And yeah. And listen, spend a little on those kids. If you want to hang out with them more, just bring them on a nice vacation.

Gary: Well, we already do that to the maximum that we can, you know, that's allowable. And we're in a great position, really enjoying life, really enjoying sharing it with their family and the charities, you know, and that's becoming a bigger, bigger part of our life, too.

Scott: Well, that's a blessing. And if that's where your heart is, then all the more reason to maximize the pre-tax 401(k)s because you can spend, you can gift away the other stuff while, I mean, you've just got a lot of options.

Pat: Yep. Yeah. It's a good situation to have.

Gary: Yeah.

Scott: I appreciate the call. Thanks, Gary. I wish you well. Glad you called.

Gary: Thank you.

Scott: Well, that's all the time we have in today's program. It's been great having been with you. Give us a review if you like this podcast. Send it on to somebody else. You've been listening to Allworth Financial's Money Matters with Scott Hanson and Pat McClain.

Host: 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.