Man: Would you like an opinion on a financial matter you're dealing with, whether it's about retirement, investments, taxes, or 401(k)s? Scott Hanson and Pat McClain would like to help you by answering your call. To join Allworth 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 McClain: Pat McClain. Glad you are joining us. Both myself and my co-host, we're both financial advisors, certified financial planners, chartered financial consultants. We meet with people like yourself throughout the week, helping them with their finances. And we broadcast on the weekends being your financial advisors on the air and glad you're taking part in our program.

Scott: Yes. So, if you'd like to join the show, 833-99-WORTH. That's (833)-999-6784. You can get on the air. And we will do our best to help you.

Pat McClain: You know, what's interesting the financial markets, the European, I don't know if you paid attention to the European stock market, it's done extremely well in the three or four months.

Scott: Yeah. Yes.

Pat McClain: In spite of, when you think of the headwinds there, right? Ukrainian war, the embargo on Russia, what that means for the natural gas. Granted, they've had a warm energy, right? Which is not...I mean, this is not the way Russia was hoping this would turn out, that it would be a warm winter. And there was supposed to be some economic crippling of the European economy.

Scott: Because the winter's not over.

Pat McClain: That's a good point as well. That's an excellent point as well. But yeah, those stocks have done well.

Scott: Very well. So, yeah.

Pat McClain: And before the break, you told me you wanted to talk about, or before the break, before the show, that you wanted to talk about student loans. Did you wanna talk about it now or later on in the program? Let's take a couple of calls and then we'll talk about it.

Scott: All right. Because if you got a kid going to college, you'd be crazy not to get a student loan if you can get them, load them up. Seriously, load them up. And you might say, "I don't know how I feel about this morally the way that government is...

Pat McClain: You can always pay them off if you want, right? But you may change. And it's no different, I would think that the government's saying, "By the way, college is now free." And you're thinking, "No, I'm gonna pay anyway." It's an excellent point. Someone he was saying, "These wealthy people that always use all these loopholes." And I said, "Let me ask you a question." I said, "This is when you could deduct your interest on your mortgage on because..." I said, "You can still deduct the interest on your mortgage, by the way. But for most people, that's standard deduction is..." I said, " Do you itemize your deduction deductions?"

"Yeah." "So, you check to see exactly what your mortgage interest was, and you put that down on your property tax." "Yeah". I said, "What's the difference?" Is that a loophole? I don't know. Is that a loophole? No, it's the tax law. Congress sets the law. Sometimes the administration does their own things, which we'll talk about.

Scott: And you operate within what is...

Pat McClain: Like, look, when I sit down to play a game with my kids, like what are the rules to the game? I don't make up the rules, but I'm gonna play by those rules and as aggressive as possible.

Scott: Absolutely.

Pat McClain: So, my children lose and learn to like it. Sorry, parked place. Get used to it.

Scott: It's a hotel...

Pat McClain: Sorry you landed there, no mercy.

Scott: Get bankrupt.

Pat McClain: I just listened to a podcast about the history of Monopoly, which was quite fascinating.

Scott: The game monopoly.

Pat McClain: The game monopoly not the history of monopolies, which I did listen to a podcast about the history of monopolies.

Scott: That's a relatively new concept.

Pat McClain: Yes, it is. But loophole is not. The loophole comes from a hole in a castle in order to shoot a loop through or an arrow with the use of a bow. That is the origin of the word loophole.

Scott: What loop are you shooting?

Pat McClain: It was a bow used to be called a loop. And if I was in a castle and we were being raided by some of these long narrow slits used to be called or called loopholes. And you would shoot an arrow through that loophole.

Scott: Pat, have you ever considered going on "Jeopardy?" You have a lot of useless information.

Pat McClain: There is 100. I find it fascinating. When I hear...

Scott: Obviously, I mean like, I watch "Jeopardy." I'm like, "I probably heard most of that stuff in my life." But I guess I don't take any interest in it. I forget it.

Pat McClain: When you hear a word, like where does the word loophole come from? I actually research it.

Scott: Anyway, to your point, let's take some calls.

Pat McClain: Okay. You're like a no.

Scott: 833 99-WORTH is the number to be part of the program. 833 99-WORTH. We're starting off with John. John, you are wIth Allworth's Money Matters.

John: Hi.

Scott: Hi, John.

Pat McClain: Hi, John.

Scott: How can we help?

John: I had a question on Roth conversions. So, I began converting my old traditional from my previous employer accounts in 2015. And when they talked about changing the rules last year, I decided I was gonna do it for about 10 years but I speeded it up and ended up doing a lot at the end of '21, in the beginning of '22 because I was concerned they were gonna revoke that privilege to do that. So, I did that. And so now I'm wondering, I'm planning to retire in about 10 years and...

Scott: How old are you?

John: 52.

Pat McClain: Okay.

John: And so I was thinking about at the last five years, I mean, I really do like the Roth, obviously. That's why I always contributed when available. And I like seeing the balance of Roth assets. So, I was wondering though, in the last five years before retirement it made sense for me to do traditional in those last five years and kind of put it all in fixed income. Because I'm kind of light on the fixed income side. And that way if I wanna convert, it'll be close to retirement so it won't have much time to gain and it'll be in fixed, which won't go up in value that much. And I thought that might be better than like getting a tax break now on like the 30,000 you can contribute versus, later on as it grows for the next 10 years.

Scott: Now I like the way you're thinking, right? So, what you just said is, "Scott and Pat, should I have a diversified tax strategy, much like I have a diversified portfolio, whether you meant to say it or not?"

Pat McClain: That's exactly right.

Scott: That's what I heard.

John: Yeah, that's what I meant.

Scott: So, tell us a little bit about yourself. You're 52, what is your income? Family income?

John: $155,000.

Scott: And are you single or do you have a spouse?

John: I'm single.

Scott: Okay. And how much money do you have in Roth's and how much do you have in other qualified plans?

John: I have a total retirement of just over a million. It's like, 1,050,000 in that, about 40,000 of that is traditional, the rest is all Roth.

Scott: So, you have over a million dollars in Roths and $40,000 in just traditional.

John: And that's just a matching because I can't convert that with my...

Scott: Yeah, when you say you like the Roth. [crosstalk 00:07:33.847] I'm kidding. I don't think I've ever met anyone that liked the Roth as much as you like the Roth.

Pat McClain: I don't think so either.

Scott: I don't know if I would wait till the five years. I don't know. So, just think about it, will you receive a pension when you retire?

John: Well, yeah, that's another thing. I mean, I do have money in a brokerage account too that's gonna have gains and I will have pensions and social security.

Scott: How much will you have in pension?

John: I will have probably a total of $90,000 to $95,000 in pension and social security. That's pension and social security. I'm sorry.

Scott: Okay. But that's pretty much gonna makeup what your income is today. You know that right? Because you're saving 30 grand in your retirement account, which you're not getting a tax deduction form because you're using the Roth and you're paying FICA taxes on your wages, which you won't be paying on your pension and your social security. So, yeah, you'll be fine with those two. How much do you have in your brokerage account?

John: About $800,000.

Scott: Oh my gosh. Now listen, I can't believe that I'm going to utter these words because I never thought I would say it. You actually have too much in Roths. I would've discouraged you...

Pat McClain: Well still, he doesn't have too much today. You mean you would've recommended a different strategy five years ago. But that's true. No, he converted a lot last year.

Scott: I understand.

Pat McClain: And I would've said slow that down because here's what's gonna happen. You lack flexibility in your distribution from your plans. So, look at it, Scott, he's at $95,000, right? Look, you hit retirement, you've got a million bucks in a Roth or a million bucks in a traditional, you'd rather have a million bucks in a Roth.

Scott: No, I'm gonna go with that but the reality is that some of his income's at a 24% tax bracket right now and he'll be taking it out at a 22% tax bracket or lower because only half of his social security will be included in his income. 85%, I'm sorry.

John: Well, wouldn't I have though investment income too potentially, because I'm not including any of...

Scott: Yeah. And how is your brokerage account allocated? What percentage are in stocks and fixed income and how's that stretch?

John: It's about 80% stocks and the only fixed income I have is in California in municipal bonds within the brokerage account.

Scott: You should get a radio show. You're really good at this. Well, you save a lot. You live way below your means.

John: Yes. And also another thing I was thinking about is that in retirement I might actually buy a residence. I've never done that. So, I would use the brokerage account for that and live off the Roth money.

Scott: And where would you buy this residence?

John: That I'm not sure of. I haven't thought about that.

Scott: Okay. Well, you might find you actually use some of your Roth to buy that residence to avoid the capital gains. But that's a different story. And that can be decided down at that point. And you'll stay in California or leave California?

John: I'm not sure. Maybe leave California.

Scott: So, I would actually split it at this point in time, 50-50 in terms of how much money to go into the Roth and how much to go into...

Pat McClain: No, you wouldn't. Actually, your thought is put 100% into the traditional at this point.

Scott: Until he said that he was gonna buy a house. And then he also said he might leave the state. I mean, here's the risk you have with, we don't know the future Congress, how are they going to deal with large Roth balances. That's just a reality. Or I mean, it used to be years ago you would pay a 10% surcharge on excess distributions from retirement accounts. Since this was in the '90s and they did away with it in the latter part of the '90s.

Pat McClain: What was that, 415 or something? What was it?

Scott: It was that, but it was something like over $750,000, there was a penalty on this. And you used to be able to do a 10-year average time...

John: But compare it to [crosstalk 00:11:41.451], I don't really...

Pat McClain: Or a 5-year average. They changed all that. But it doesn't mean at some point in time they can't come back and say... I stand corrected, Scott.

Scott: Or what if they change the tax line, it's now more value-added tax and less income tax.

Pat McClain: I would put 100% of it in pre-tax.

Scott: And they take those tax savings and save it more money in your brokerage account.

Pat McClain: Or spend it or spend it. And by the way, I would start thinking really seriously now about where you want to live in retirement. Because look, we don't...

Scott: He's 10 years away.

Pat McClain: I know that, but we can't predict the markets. But there are certain times in the real estate market that are more attractive than others. Especially for a cash buyer. And you're as close to a cash buyer as you can get. So, you're like, "Well, I don't wanna move." You're like, "Well maybe you don't have to move." So, let's just say you're gonna go buy a place in Arizona or...

Scott: It wouldn't be this year. It could be this year.

Pat McClain: I doubt it.

Scott: But yeah.

Pat McClain: But, and you're like if you're pretty sure that that's where... It's okay to buy a house and use it as a rental years before you actually retire to that. But you know, before you go and do that...

Scott: But he hasn't bothered to own a house now for whatever those reasons are, those reasons will probably carry over to whether he wanted to have a rental. Anyway, hope this was helpful, John, appreciate the call. Yeah, it's huge saver.

Pat McClain: He's a huge saver.

Scott: Yeah. You know, it's funny as you read those articles about, someone died and there's like everyone's amazed they left $9 million bucks to the library or whatever, right? That would be John. Because if you drive by his house, you don't think he's got a million bucks in his Roth IRA. I guarantee you at 52.

Pat McClain: No, yeah. The millionaire next door.

Scott: I mean if his income was $500,000.

Pat McClain: Yeah, he makes...

Scott: And this is all he saved, I'd say, well he is probably behind on things, but...

Pat McClain: And he's living on a lot less than he makes.

Scott: A lot less.

Pat McClain: Than he makes.

Scott: Yeah. Most people can learn from that.

Pat McClain: Well, there's a balance.

Scott: Clearly there's a balance. And you know, it's interesting and as we've been doing this long enough, two couples come, I mean a couple comes in, not concerned about retirement at all. Neither one of them have ever been worried about money. Before we even look at the dollars, I know they probably don't have enough saved for retirement.

Pat McClain: That's right.

Scott: And you have a couple, they're both super concerned then they probably have plenty of dollars. I think the ideal situation is you got one is really concerned and one who wants to enjoy the money today. They tend to balance each other out.

Pat McClain: Well, I...

Scott: And enjoy whatever that might look like. Maybe it means you're giving it to charity, maybe it means you're consuming it, whatever. I had a conversation with a client today, talking to them on the phone and he says, "I'm worried." And I said, "You should be." And he said, "Why?" And I said, "Because that's your nature." Not that you should worry about the portfolio of your financial situation because you're fine, but your nature is to worry. And I said, "And by the way, you show me someone that doesn't worry about money, I'll show you someone that doesn't have any." But his nature is to worry. And so what's the point of me fighting it? I'm just gonna agree with him. You're gonna worry, but we're not changing our strategy.

Pat McClain: Well, and he knows at this point in his life that he tends to worry about things.

Scott: He absolutely agreed with me.

Pat McClain: Yeah, of course.

Scott: He agreed with me. I told him, for you not to worry wouldn't be normal for you. There'd be something wrong. So you're like, "You can worry, but we're not gonna change..."

Pat McClain: We're not changing anything.

Scott: We're sticking with our investment program. Our thesis is this and we're living it. And the variety of the market cycles, which I think is a key thing, Pat for investors. And he's gonna worry. And by the way, he worries when the account's up 20%. He worries when they...

Pat McClain: We went up too fast, let's come back in the fall.

Scott: That's right. Look, we are who we are.

Pat McClain: We are who we are.

Scott: Yeah. But sometimes it's helpful. I think what a financial planning process can do for somebody like at least going through that process is give them a clear picture about where they are financially. Maybe for some people it might mean they can spend a little bit more than they thought. For other people, it's gonna be, you need to save more than they thought. An example. We're in California, Northern California, lots and lots of storms here. So, this week...

Pat McClain: Over the winter.

Scott: ...over the winter, I developed a couple of leaks in my house. So, I had a roofer come out and he said, "I have leaks every year." We've been in the house 17 years. I've had 17 years of leaks. I'll give you this guy's number. He's great. Really good. So, he comes out and he's like, "Man." Not all the roof, by the way.

Pat McClain: Yeah, go ahead.

Scott: He's like, "I feel like I know you. How do I know you?" And I'm like, "I do this way." "Yeah, I've listened to you for years." He said, "Our financial advisor." And I said, "Does what?" And he says, "Our financial advisor, you know, he manages the portfolio and says that we're probably fine." And I said, "Do you know, you don't have a financial advisor." And he said, "No, the guy manages the money." I said, "He's an asset manager. We do that too." But I said, "A financial advisor, will be able to tell you with some degree of certainty when you're able to retire and what your lifestyle will look like." And he said, "Don't you guys all do the same thing?" And I said, "No, there are asset managers and there are financial advisors and there are financial advisors that are asset managers."

Pat McClain: And so, there are those roofers who will build a roof that will never leak. And those that'll slap something up there that's gonna need to be replaced in five years.

Scott: He did not build the roof. He's repairing it. All right, let's go back to...that was a very interesting story about the roof. Thank you. Thanks for that antidote.

Pat McClain: Not antidote, antidote.

Scott: Antidote.

Pat McClain: Antidote.

Scott: Yeah, I thought you said antidote. I do know the word though. It's not like...

Pat McClain: Okay. Why are you coming at me, I get to come back at you.

Scott: Fair enough. All right. Anyway, let's go back to calls here. We're talking with Laura. Laura, you're with Allworth Money Matters.

Laura: Hi. Yeah. How are you doing?

Scott: Wonderful.

Laura: That's awesome. Well, I have two questions or 2.5 maybe. The first one, I'm not at all sure that's podcast worthy but it's been bothering me. And so I wrote in because you say, if you have a question, write into questions@moneymarket... da da. And so I did. And Pietro called me back and says, "Hey, why don't you be on this call"? So, here I am.

Scott: Perfect. You made it past the screeners. Okay, congratulations.

Laura: Thank you. So, I recently retired. I spoke to you guys recently about this. And one of the things that I've noticed and I'm a little concerned about is that I used to have like 850 credit score, right? And then I took over my mom's money and it kind of fluctuated because I would pay her bills with my credit. And then kind of go up and down. But I mean, by 835 or 840 to 850, you know, and depending on when I paid it. But now it's kind of slumped down since I've retired. And everything's great, except I don't use enough credit. Do you have any idea?

Scott: Yes. Do you think you're ever going to borrow any significant amount of money again in the future?

Laura: Oh God, this is what my husband says.

Scott: And I like him.

Laura: Well, I don't know. It doesn't matter then, really,

Scott: No, I'm gonna tell you a personal story. I was involved in a charity that I sat on the board of and someone internally in the organization took a credit card out under my signature and my credit line.

Pat McClain: Forged your signature.

Scott: Forged a signature. And I had left the nonprofit. I was no longer on the board. I'd never known this happened until this credit card company sends me a thing that says, "You owe us $30,000." And I say, "I don't know even who you are." And they said, "No, you've signed this and this." And I said, "Never happened." And they said, "Well, we're gonna send it to collections." And I hired an attorney. And this was at out of State. And I put like a two or three grand and I said, "Fight this thing." And finally, attorney turns around to me, goes, "Look, you can fight this, but we're gonna have to spend a lot of money, right?" And I said to them, "I'm not paying it." And they said, "It's gonna ruin your credit." And I said, "Okay, good. I don't care what it does to my credit." Now here's what happened. We go to apply for a new credit card. I used to apply in my name. We applied in my wife's name from that point forward and I became...

Pat McClain: So, you're a deadbeat. You're dead.

Scott: My credit score was in the 400.

Pat McClain: Mr. Financial advisor.

Scott: But I didn't care. I wasn't going to use the credit. What is your credit score, Laura? I'm guessing [crosstalk 00:21:25.543].

Laura: 833, I think.

Scott: How much is it?

Laura: 833.

Scott: It's not up here. Wait, come on Laura. Your husband is...

Laura: You really sound like my husband honestly.

Scott: He's so right. Laura, there's a lot of things in life to worry about like this. I don't know, you got a better credit score than I have.

Pat McClain: Why are you checking your credit score? It's not like it's a beauty pageant, it's not a measurement of success.

Laura: In my misspent youth, I had bad credit.

Scott: 830 is not bad credit.

Laura: Yeah. Okay.

Scott: Okay. So, you're fine. Do we promise that you're never gonna mention this credit thing to your husband again?

Laura: I promise.

Scott: Okay, thank you. I would like him to listen to this podcast so that he can hear that as well.

Laura: I don't think he listens to me anymore anyway.

Scott: Okay. Good. That's what my wife says too. Okay, so the next question.

Laura: The next question is, I'm going to be starting a job. It's like, it's a 4-month job and it's gonna pay just under $10,000. And I was trying to decide whether I should be the...do a contractor, you know, 1099, or be an employee. If they take the taxes out as an employee, then I'd have to add more to it anyway because my husband gets a pension and I have a pension and so it wouldn't be enough. So, the benefit of having taxes taken out is kind of negated anyway. And so I went kinda down this rabbit hole and then I started freaking out thinking, "Oh my God, is this gonna change the amount of social security, which I haven't started taking yet because of the averaging?"

Scott: No.

Laura: And so I...

Scott: It doesn't really average. I mean it's not...

Pat McClain: It's lifetime income. Yeah.

Scott: Yeah. So, it's not final year's income. So, it doesn't affect your social security.

Pat McClain: It's not gonna impact your social security. It will only help, it will not hurt, it will only help.

Scott: So, it's only $10,000, right?

Laura: Yes.

Scott: And so the question I would ask the tax, is the tax, is the tax?

Laura: Yes. Exactly.

Pat McClain: You're gonna pay it. So, the question I would ask is, is it more of a hassle for me to actually be self-employed versus an employee? And 7.65% of FICA tax they would pay if you were an employee versus you paying [crosstalk 00:23:40.185] and you pay 7.65% and if you're self-employed, you pay both those, you pay 15.3% FICA in addition to income tax.

Scott: So, if all things are equal, it's $10,000 either way you go, then you wanna be an employee.

Laura: Okay.

Scott: Okay. That's just flat out, you wanna be an employee because it will save you 7.65%.

Laura: Well, there you go. That's my answer for that. That's fabulous. Because I was just like teetering in the middle. Once I determined that probably it wasn't gonna affect my social security, suddenly I decided when am I gonna start taking social security. I thought it was gonna be this year. And so I went down the rabbit hole and I created all of these spreadsheets. Okay, what would it be if I took it this year and next year and the year after that and the year after that? And what would the opportunity loss be relative to the amount that I'd make more year over year?

Pat McClain: You know, there's software programs that can do all those analyses for you.

Scott: So, how old are you?

Laura: Thank you for that after the fact.

Scott: How old are you?

Laura: I'm 62.

Scott: And what's the family income on your pensions?

Laura: Between the two of ours is about $90,000, $92,000, something like that.

Scott: Okay. All right. I wanna continue this conversation. So, we're gonna hold you over the break and people are like, "Well it's a podcast, how do you have breaks?" Well, we run...

Pat McClain: In some podcasts they read the ads. Angie's List or whatever, vitamin supplements.

Scott: And we are on terrestrial radio as well. So, we're gonna ask you, Laura, to hold over the break because I wanna revisit this, because this has implications for lots of different people.

Pat McClain: This is a very different question than what you start with, which is fine. You did say you had 2.5, so we're gonna...we'll come back to you.

Scott: Yeah. So, anyway, this is Allworth's Money Matters with Scott Hanson and Pat McClain and we'll be right back.

Man: Can't get enough of Allworth's Money Matters? Visit allworthfinancial.com/radio to listen to the Money Matters podcast.

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

Pat McClain: Pat McClain.

Scott: And we were talking with Laura and the conversation turned to when to start Social Security.

Pat McClain: Yes. And Laura is 62 and the family income you said with pensions is $95,000, is that correct?

Laura: Yes.

Scott: Okay. And what other assets do you have saved for retirement inside retirement plans or outside?

Laura: About one point now, because it's going up 1.6, 1.597.

Scott: Okay. And depending on the day at this very moment, that was $1.6 million. Well, you knew she was gonna give the exact number. She's building spreadsheets for social security. How old is your spouse?

Laura: 76, I think.

Scott: And how much of this $1.6 money is he...

Pat McClain: He's on Social Security now?

Laura: He is.

Scott: So, he's 76. And how much money of this $1.6 million is in...

Pat McClain: Why can't she start a spousal?

Scott: She could.

Pat McClain: Yeah. And then convert to your own when you're 70.

Scott: Yes. Which is probably, but that wasn't where I was going.

Pat McClain: Good.

Scott: I was thinking that they should be looking at how much of this $1.6 million is in your husband's name versus your name?

Laura: Some of it's trust, God, I'd say maybe 30% trust, 20% his name, and then the rest, like 401(k). And gosh, don't hold it into my head over that.

Scott: Okay. Here's what I would do here. Here's what I think you should do. I think that you should start the spousal social security...

Pat McClain: Probably.

Scott: ...probably. But I think...

Pat McClain: Here's what you would do. You would use a program designed that answers these questions that combines everything going on in your life. A financial plan. And then you could do differently what if scenarios. What if I took it now, what if I waited till my full retirement age? What if I waited till age 70 and what's that gonna look like? How does that impact my overall finances, my net worth when I'm 75 and 80, and 85? And you can do a variety of different what if scenarios and then you can make an informed decision.

Scott: But I think that they should be seriously considering Roth conversion at $95,000 a year. And your husband has...

Pat McClain: Yeah, I would agree.

Scott: Based on the numbers you gave us, your husband has a couple of $100,000 in his IRAs, right? So, you're in this window where you should, my guess is if we did the analysis, you probably could convert $30,000 to $40,000 thousand a year in Roth over to Roth at this lower marginal tax rate than you will be in the future. And so you called about, well, this has been a great call because we started with a perfect credit score you were worried about.

Pat McClain: I know, right? And you're an interesting person too is what appears.

Scott: Yes. So, my guess is that you did some sort of analysis when you were working. I think that what you should do is probably start the spousal social security benefit and then start a Roth conversion immediately. Especially before you actually are eligible for Medicare. That would be my guess. And I assume your husband has a pension coming in because you said that. Is it...

Laura: It's his pension that's the biggest of the two. Mine is $905...

Scott: And what's the survivor benefit on it?

Pat McClain: Thank you, Scott. What's the survivor benefit on it?

Laura: 75%.

Scott: Beautiful. Well, then we would make a plan around that as well, right? So, you're gonna need to replace some of that in retirement and I assume you have a living trust or will that's up to date.

Laura: Yes.

Scott: Okay. Yeah, that's what I would look like, but I would most certainly go for a spousal benefit right now. Just make sure that you watch the income limits, how much money you're making in your job...

Pat McClain: Run the numbers.

Scott: And including the Roth conversions. You need to refactor all those things in.

Pat McClain: Yeah, but I...

Scott: You get there...

Pat McClain: I mean, we know I could run the numbers, but we know where most of it's gonna end. You're gonna start this...

Scott: No, you might say, "I'm gonna wait a year on social security and I'm gonna convert a little more heavily to Roth this year and start next year or start in 2025." You might do that.

Pat McClain: You might do that. Anyway, appreciate the call, Laura. Wish you well.

Scott: And I gotta be totally honest here. I'm always honest. That right there is probably a lie, I try to be honest all the time.

Pat McClain: Do you think the Pope ever says that? I'm trying to be totally honest.

Scott: Because I hate it when someone said, to be honest with you, and I said that and caught myself [inaudible 00:30:28.001]. So, we have a little list of our calls coming up and the question is, how do I get am I still on the credit score? I'm like urgh. Like there's a place for that kind of advice of people that have destroyed their credit and they went bankrupt and all that. This isn't the program for that, right?

Pat McClain: We are not.

Scott: I mean, we could be...

Pat McClain: We're not experts at that.

Scott: Yeah. But I understand, that's not the space we live in.

Pat McClain: Yes. We tend to help.

Scott: I don't well, we try to help as many people as we can given the economic environment in which we operate our business. All right. Hey, we mentioned at the start of the program, Pat, that I wanted to talk about the student loan thing because I don't think many people saw us. Most of us have heard that the debt forgiveness of $10,000 per borrower or $20,000 per borrower of student loans was going to be forgiven. The administration came out with this. Then there's been lawsuits. And we're waiting for the Supreme Court to issue their guidance on this. Does the administration has the power of the purse that is given to Congress? So, I'm not gonna give it legal advice.

Pat McClain: You mean the Supreme Court's judgment on it, not guidance.

Scott: Thank you. Judgment. Yes. That is not guidance. They might wanna consider it, right? We call them guidance counselors. They're not judgmental anymore.

Pat McClain: If you would.

Scott: Anyway, so this is hold up on courts. A lot of people are saying it's probably not gonna come to fruition. Sorry to the 26-year-olds that have took the time to go to the website in this stuff. So, you know, they just unilaterally came out and said, "For people who apply for this program, the maximum you have to pay each month and your student loans, I don't care. You owe $180,000 from your art history major. And your payments are supposed to be 900 bucks a month. The most you have to pay is 5% of your discretionary income. If you work for government or a nonprofit after 10 years, it's forgiven. If it's in the private sector after 20 years, it's forgiven." So, we talked about discretionary income before. Well, this was all made up in the last 15 years anyway. None of this existed. And then different administrations had said it's gonna be 10% and discretionary income was anything above 150% of the poverty line. Under the new rulings here, it's 5% of discretionary income. And discretionary income is defined as anything 225% above the poverty line.

Pat McClain: And the reason the poverty line is important is because the poverty line is different in different geographies across the United States based upon the cost of living in that particular geography. So, it's 225%.

Scott: So, if you're making less than 30 grand a year, you pay nothing.

Pat McClain: Well, yeah. Well, listen, Scott, you get an art history major. Not a lot of the big art history companies are hiring right now.

Scott: Okay. Maybe art history is more employable than some other. Whatever that degree is that we all know, you just look at the stats, you're not gonna get hired in that job. You might be...

Pat McClain: But by the way, we have lots of people that work at Allworth that have non-business degrees that work with... It doesn't mean that you're not gonna get a job. You're just not gonna get a job in that particular...

Scott: Not fair enough

Pat McClain: ...sector of what you studied.

Scott: Do you know what, that's an interesting point because we tend to look at it, well, you have a tendency to look at it. And I have a tendency to look at that.

Pat McClain: You look at it the correct way.

Scott: Yeah, I mean, anyway, when you look at, they show you here's how much the careers earn. But you might get a degree in art history and go into finance or go into...

Pat McClain: But you may love art history and you may go to college.

Scott: Totally agree. Which is great.

Pat McClain: Which is great, if you can afford it.

Scott: Which I don't wanna have to pay for it. I'd like you to underwrite the loan. You can underwrite an education. I see this as just making the problem worse. Because now you go into the financial aid office, they're not talking about... Now it's like, "Well, what about how much loans do you need?" Don't worry about that. Because no matter how much money you borrow, you'll never have to pay more than 5% of your income toward your student loan. So...

Pat McClain: Well, you'll never have to even pay 5% just because of the math.

Scott: I understand the part.

Pat McClain: You'd have to make $2 million or $3 million a year...

Scott: Okay, before you got really close to 5%.

Pat McClain: ...where it even get even close to 5%.

Scott: Okay. Well, thank God, fair enough. So, you make 60 grand a year and you're paying 2.5% of your income...

Pat McClain: If that...

Scott: ...and it's forgiven.

Pat McClain: It's 225% over the poverty line.

Scott: And we try not to get political on the program. Look, there's blame on both sides of the island.

Pat McClain: This is no different.

Scott: Like Santos.

Pat McClain: Look, you joked about him before.

Scott: We talked about him. God, unbelievable. And you think about, look, you're a Republican and you're controlling the House and you've got this moral quandary, which is, you know the guy shouldn't really be there.

Pat McClain: Doesn't sound like a moral quandary to me.

Scott: That's right. It's disgusting. Yeah, anyway I didn't know we were becoming a little political. I don't wanna be political.

Pat McClain: No, but the House leadership. Anyway, we can't get into it. But, Scott...

Scott: No, you don't wanna get into politics. Because not only are there clients, we have clients of all different political stripes. I've got friends of all different political stripes. And I learned from just about everything.

Pat McClain: When I get friends, they're gonna be of all different political stripes.

Scott: But we have been talking about for years, telling our clients, and we've said it on this radio show, that the chances of them changing the payback rules for student loans is high. And it came to fruition. Now look, this week we're talking about the deficit ceiling. The social security will be on the block at some point in time for high-income earners. Well, we're gonna hit a point there's not gonna be any options left. There's such a small percentage of the budget. Do we have any that has any control? Almost all of it goes to entitlements, interest, and entitlements. Do you think interest payments are higher now or lower than they were a year ago?

Pat McClain: Okay. Much, much higher.

Scott: Dramatically higher.

Pat McClain: Yes. So, when you're doing your financial plan, and you've heard us say this before if you don't need the money, you should probably start Social Security as early as possible. If you do not need it.

Scott: If you really don't need the money.

Pat McClain: If you really don't need it, because when they cut Social security, who are they gonna cut it on? The people that don't really need it to live. But if you need the money, you're probably better off waiting as long as possible.

Scott: Yeah. They're not gonna have a thing on "60 Minutes" or on "Frontline" or on whatever the news program is on the poor guy who was making $600,000 a year and doesn't get social security. Or $160,000 a year.

Pat McClain: That's right.

Scott: It'll be on someone who's making $18,000 a year.

Pat McClain: So, financial planning, investment management, the whole thing is dependent...is a large part of it is surrounded with tax rules. And you worry about where taxes are today and where they'll be in the future. And quite frankly, I had this discussion with a client this week, which is undercurrent tax law. There is a step up in basis in your gains at death. And for the life of me, I don't understand why.

Scott: Well, because when you tax a capital gain with the no inflationary... I think the argument behind it, as loud as it is just an in... It's tax law.

Pat McClain: Okay, there we go. You were trying to...

Scott: It doesn't make sense. I mean, I'm just trying to come up with an argument. I can make an argument why it's there, but it's not logical.

Pat McClain: It makes no sense to me.

Scott: I could be certain from a logical standpoint, you would exclude whatever inflation. So, you look at a real gain, not a nominal gain. Right now we just [crosstalk 00:38:37.820] is not real.

Pat McClain: Yes. And tax that.

Scott: But to your point is, this currently is a stepped-up basis that may or may not be in the future.

Pat McClain: And why do private equity firms get carried on it and get charged capital gains, but an auto dealership that buys a car and resells it doesn't? Tell me that. Does that make any sense to you?

Scott: It was like the Trump taxes.

Pat McClain: Okay, anyway, let's go on.

Scott: We're gonna have right now Jeff Debore is joining us and Jeff is a partner advisor with Allworth. What does that mean? Jeff had built a nice firm and then became part of Allworth Financial. He's in the Northern California area. And Jeff, thanks for taking a little time to join us.

Jeff: It's great to be with you both. I haven't talked to you in a while since our art history class that we were in together.

Scott: I actually probably would enjoy an art history class at this stage of my life. But I wouldn't have...would you when you were 20?

Pat McClain: I had a class. It was the history of American Thought and Values. And it was all writings from the forefathers. I was so bored at age 19 and now I'm like, "I've barely read the stuff. I just..."

Scott: I know you were like, you do it for fun.

Pat McClain: Yes. I would be fascinated. Anyway, that's a completely different time.

Scott: There we go. Jeff. Thank you. So, you're gonna talk about... What are you talking about here, Jeff?

Pat McClain: A little bit about the recession.

Jeff: We're talking about a possible recession.

Scott: All right. Well, give us your view.

Jeff: Yeah. So, there's been a lot of speculation as we all know of whether we're gonna have a recession in 2023. And even if I thought it would be good to talk about, even if we do have a recession, it's like not all recessions are the same. So, it's probably always good to start with, you know, what is a recession? So, the unofficial definition of a recession is when we have a significant and prolonged downturn in economic activity where we experience two quarters in a row of negative GDP growth or also known as gross domestic product. So, in other words, it's when our economy contracts versus growth for two straight quarters.

Scott: And that is not a technical definition, that's just a broad definition of it because...

Jeff: That's a broad definition. That's correct. I don't think anyone wants to go into the technical definition...

Scott: Thank you.

Jeff: ...of it. But recessions really aren't all that cut and dry, as if anything is nowadays. In the past, some recessions have been so hard to pinpoint that we're already out of it before the government even acknowledged that we were even in one. But here's what we do know, recessions, and especially the inflation that we're experiencing right now can make it tougher for people to borrow and to spend. This in turn can lead to lower wages and then also higher unemployment. So, there's really two basic types of recessions. If we don't count, you know, the short-lived COVID-induced downturn in 2020. So, the first is what we call a garden variety recession.

This is where the economy overheats, which causes inflation to rise, probably sounds familiar. The Federal Reserve then raises interest rates to try and crush demand and to crush inflation. Then a recession sometimes ensues, and it's the most common type. Usually, it occurs every 8 to 12 years on average. And the second type is more of a, what we call a debt bubble type of recession like we experienced in 2008. And that's when people spend a significant part of their income paying down debt versus spending it on things which in turn spurs the economy. With this type of recession, which obviously as we all remember, it's not fun at all, we typically see mass unemployment and a much slower recovery. So, first of all, you know, if we do have a recession this year, we're much more likely headed for the former garden-type recession versus the latter debt bubble-type of recession.

Scott: That's an interesting perspective, Jeff, because I think a lot of people, they think recession, they think back to the financial crisis. Which was a...

Pat McClain: Yeah, that was pretty... As you said, it was rough.

Scott: And it was all on debt. So, you know, it's interesting, Jeff, almost every day this week, Microsoft announced they were downsizing some 20,000 plus employees, and you read them, but it's not showing up in the unemployment numbers. Is that because people were so easily getting jobs or that they're just withdrawing from the workplace for a period of time? And I don't think that we're gonna tame inflation until we tame the wages, correct? At least my view of the world.

Jeff: Absolutely. Right. Absolutely. It's interesting because coming out of... There's a lot of argument, that this inflation that we're experiencing right now truly is coming out of the after-effect of COVID. There was just in 2021, there was this huge pent-up demand. There was 5 million of stimulus in the system and, you know, people were spending money like crazy. So, you know, demand was extremely high, supply was really low because all the factories were closed and it took a year to get anything here, you know, across, on a boat or what have you. And people had money so they were willing to spend, you know, whatever they had and as much as they needed to. But now we're certainly seeing with higher interest rates, we're certainly starting to see people are slowing down a little bit. But at the same time I'm in northern California where you are and when you go to restaurants or drive by the malls or out on the freeway, it certainly doesn't feel like it's slower, does it?

Scott: It does not. And so what is the historic correlation between stock market returns and recession, if any?

Jeff: Yeah, so it's interesting because historically, as we all know, the stock market and the economy don't move together. In fact, I was just looking at some numbers the other day. Since 1948, the average stock market return during a recession, believe it or not, is actually positive. It's +3.8%. And the true outlier was the 2008 recession when it was actually -35% that year. And of course, what do investors remember and, you know, what do we hear about on the news media? It was the -35%, but we've had 12 recessions since 1948 and the market was positive, okay? The average return was actually positive. Here's what's really interesting though, and it's the case for staying properly invested during a recession. Over 12 recessions since 1948, after the recession has ended, the average 12-month stock market return has actually been over 21%...

Scott: Average.

Jeff: ...during the period of time.

Scott: That's average.

Jeff: The average over the 12 months after. And then now for the 3-year period, it's something like 49% average. I don't know about most people, but I certainly don't want people to miss out because they react emotionally out of fear, right?

Scott: And we don't know when the recession it's over. You can be out of a recession before you actually knew you were in one just because of how it's a lagging indicator. Man, I think that's...

Jeff: That's correct.

Scott: Yeah. I think people in the financial news, they need to put the... Remember that's the same organizations that do the weather forecast and the atmospheric rivers and the all, I mean, it's the news headlines are designed to shock and awe and get you to click and to read. Watch the program. They do the same thing when it comes to, yes, the financials.

Jeff: Absolutely.

Scott: So, Jeff, thank you. That was actually a good reminder. We appreciate you being part of the Allworth team.

Pat McClain: Yeah, for sure.

Scott: In joining us. What, it's been two years now?

Jeff: Yeah. Almost about a year and a half now.

Scott: Yeah. Perfect.

Jeff: Been wonderful.

Scott: Yeah. Well, you're a great part of the team and your clients are fantastic, you're all great people, but oftentimes you find great advisors have good clients.

Jeff: Always enjoy talking with both of you and the listeners.

Scott: All right, thanks, Jeff.

Pat McClain: Thanks, Jeff.

Scott: Appreciate it. So, in that vein, so we integrate firms across the United States into the Allworth brand, if you will, over time. And we've integrated 25 firms. So, we have offices in multiple states.

Pat McClain: Like-minded people, fiduciary focused, financial planning-driven. Yep.

Scott: Let's go to Michigan, talk with Pat. Pat, you're with Allworth's Money Matters.

Pat: Hi, how are you? Yeah, thanks for your help. I purchased REIT, Inland Real Estate from an investment company. I guess I shouldn't mention the name, but...

Scott: You can. Sure.

Pat: Ameriprise. And it seems it wasn't a really good investment because I think I spent like $24,000 and now it supposedly is only worth like, $0.05 cents a share or something, which puts my value at around I think $700 and some change or something.

Scott: Yeah. And this was a non-traded real estate investment trust. So, it showed that value of $24,000 for months and months and months, if not even years. And then one day you woke up and it was much lower. Is that how it worked?

Pat: Pretty much. Yap.

Scott: Okay. So, these are...

Pat McClain: And is this part of a larger portfolio? Just one small piece?

Pat: Yeah, it was a part of it, yeah which I've bailed out of those guys a long time ago because...

Scott: Because they sell your commissioned products like this. So, it...

Pat: It didn't seem it was in my best interest.

Pat McClain: Is it inside of an IRA or outside of an IRA?

Pat: That one, I can't tell you honestly because I'm not sure.

Scott: Yeah. So, what's your question about this?

Pat: Well, it's the company, Mackenzie Capital. I got a letter in the mail. They're offering me $0.05 cents a share. I have to respond by the 14th of next month. And I'm just wondering, usually when somebody offers you a lowball price, they've got their eye on...

Scott: That's right.

Pat: ...a bigger price down the road or something, so.

Scott: That's right, the price will go up down the road. So, the reason I ask...

Scott: I wouldn't sell out.

Pat: Now, wait, Scott, the reason I asked whether it was in an IRA or not...

Scott: Because if there's a capital gain, a capital loss you can take.

Pat: That might drive me to actually sell it.

Scott: That's true. That I would agree.

Pat: All right. Yes. True.

Pat McClain: But if it's inside an IRA, you can't take a loss on it.

Scott: And it's almost no capital there. We're talking about $700 bucks.

Pat McClain: Yes.

Pat: Yep.

Pat McClain: Yeah. So, I...

Scott: It's a minimus at this point. It's not good.

Pat McClain: Yeah. So, if it's outside of an IRA

Scott: It's not gonna make much difference. The $700 might go to $900.

Pat McClain: That's right.

Scott: I go to $1,200. Actually, if I were you, I would sell it and move on with my life and try to forget about that.

Pat McClain: That's right.

Scott: And don't ever buy a non-traded REIT again.

Pat McClain: Yep. Sell it.

Pat: Well...

Pat McClain: Seriously.

Pat: I'll never buy nothing from Ameriprise again.

Pat McClain: Well, we can't comment on that.

Pat: No, certainly.

Pat McClain: Even if I agreed with you, I wouldn't comment on it.

Pat: But yeah, I understand.

Pat McClain: But you should sell it and, and be done with it. And make sure that if it's outside of an IRA, that you take the loss for 2023.

Pat: Sure.

Scott: Glad you called and appreciate... Look for that everyone. Like there's no reason to buy non-traded REITs. We've talked about it for years in this program.

Pat McClain: No reason.

Scott: And it's this sort of thing that we see that keeps us away from those kinds of products. So, anyway, glad you've been with us this week. We've appreciated having you. Looking forward to having you again next week. This has been Allworth's Money Matters.

Man: This program has been brought to you by Allworth Financial, a registered investment advisory firm. Any ideas presented during this program are not intended to provide specific financial advice. You should consult your own financial advisor, tax consultant, or estate planning attorney to conduct your own due diligence.