Man: Would you like an opinion on a financial matter you're dealing with, whether it's about retirement, investments, taxes, or 401(k)s? Scott Hanson and Pat McClain would like to help you by answering your call. To join Allworth's "Money Matters," call now at 83399-WORTH. That's 83399-W-O-R-T-H.

Scott: Hey, we hope you're having a great Saturday following the 4th of July. Pat and I are away for the holidays, so we have a best of show for you. We tackled questions about a 401(k), a long-term care concern, annuities. Anyway, we hope you enjoy the show, and if you'd like to be a guest on our show in the future with a question you may have, just send us an email at questions@moneymatters.com and we'll schedule time to have you on. Welcome to Allworth's "Money Matters." I'm Scott Hanson.

Pat: I'm Pat McClain.

Scott: Glad you are with us today as we talk about financial matters. Myself and my co-host here, we're both practicing financial advisors and we've got a great program lined up today.

Pat: Hope so. Lots of calls.

Scott: Yeah. We're gonna take...

Pat: Lots of calls.

Scott: ...a few calls, and talk about what's happening in the world of the markets. Big shock, this story. I think we talked about this a couple weeks ago that remote workers were losing out in promotions, but now this is a big shock. Remote workers are more likely to be laid off than non-remote workers.

Pat: Imagine that. Just imagine that. Imagine that that personal connection does matter.

Scott: I remember this was years ago, a friend of mine was talking about they were doing a downsize network and he was manager there and he had to kind of [inaudible 00:01:52] this riff thing... This was a long time ago. He was trying to figure out, like, who, and so there was one remote worker, he said, he asked, like, three people and like, "What's this person doing?" and three people all said, "I'm not quite sure what she does, but I heard she does really good work," and he said after the third time, no one could say what she did. She was on the list.

Pat: But the remote work, there are some positions where it works beautifully. I mean, it...

Scott: That is true.

Pat: Like, it's probably the most efficient way to do it from some positions, having a company with, I don't know how many employees we have, 400 and some odd, right?

Scott: We have some remote and [inaudible 00:02:37]...

Pat: We have...

Scott: Yes.

Pat: And it works perfectly for some.

Scott: Doesn't work so well if you're an advisor or work directly with clients.

Pat: Or client service or if there's a lot of collaboration needed. My guess is that we will start to see this thing. I don't think we'll ever go back to a five-day-a-week in office, like 1960s style, but...

Scott: Most of that was built on kinda the industrial age...

Pat: That's right.

Scott: ...work.

Pat: And it's been [crosstalk 00:03:11]...

Scott: I mean, for history, it's been you work when you're awake...

Pat: What are you trying to say?

Scott: Find food, protect the family. Then with the modern industrial age, it used to be seven days a week, then six days a week for a long time, then it became five days a week. Now there's those that were pushing for four days a week.

Pat: If it works.

Scott: There's this whole concept of this technology is supposed to be that we work less and there's this people that were, 40 years ago, saying how little we'll be working today. But then the studies show that actually most Americans are working more today than they were historically.

Pat: I don't know. I don't know.

Scott: The beautiful thing is that we all...

Pat: Have a lot of say in our own life.

Scott: Yes, we write our own stories. Listen, if you have the ability to work and you wanna work, there is no better place than a capitalistic society if you wanna put the energy in, and just flat out...

Pat: Obviously.

Scott: Yeah, if you wanna put the energy in. And financial stability is possible.

Pat: Yes, most people that listen to this show actually would probably agree with that.

Scott: Anyway, why don't we take some calls. questions@moneymatters.com will get you lined up to...

Pat: Join the show. So if you call in or email, we will schedule a time when we record the show that we can answer your questions.

Scott: All right. We're starting off in California talking with Laura. Laura, you're with Allworth's "Money Matters."

Laura: Hello, gentlemen.

Scott: Hi, Laura.

Laura: Nice to talk to you again.

Pat: Likewise.

Laura: And the topic that you were just on is just giant. I mean, it's something that my acquaintances have lots and lots of discussions about. We're just glad when people actually show up to work, okay? At this point, just, you know, whether it's in bunny slippers or whatever it is, because I don't know what the pandemic did overall, but it sure did make people disappear. Anyway...

Pat: It's interesting. Isn't it interesting?

Scott: Yeah, and you kinda wonder where some of them went.

Laura: I do, every day. Where in the hell? Excuse me.

Pat: That's all right. It's strange.

Laura: Where'd they go?

Scott: I don't know. Well, anyway...

Laura: I think there's a lot of basements that are being utilized that were previously not being utilized.

Pat: Listen.

Laura: I'm just saying.

Pat: But for mental illness and addiction, no one starves in America.

Laura: Okay. And I've heard you say that before, and again, this is a huge conversation. I'd love to just get into it, but I have a question.

Pat: On another show.

Laura: Okay. So I have a question that you guys touch on all the time as far as 401(k)s versus IRAs. And you kind of have a... Everyone has a different flavor of it and I'm never in a position to write stuff down when I'm listening to you. So I'm sitting here with a pen in hand and I wanna talk to you about my specific situation.

Pat: Okay.

Laura: I have...

Pat: Please do.

Laura: ...a 401(k) with...

Pat: How old are you?

Laura: Sixty-three.

Pat: Okay.

Laura: Retired-ish. I'm working at a job that I've worked harder than I've ever worked in my life, but it's not a high-paying job and I actually separated from my company in 2022. And I have a 401(k) from that.

Scott: Are you working with that same company or doing something different entirely?

Laura: Entirely different.

Scott: Got it. Okay.

Laura: And there's $347,000 in that and it's making 16.83% rate of return.

Pat: It made...

Laura: I have a...

Pat: ...16.83%?

Laura: Yes. When I wrote this down.

Pat: Okay.

Laura: I have one IRA at $499,000 that when I wrote it down was 16.3% and a second one at $267,000 at 13.82%.

Pat: And that's it? And the second one, the $267,000 is an IRA as well?

Laura: Yes.

Pat: Okay.

Laura: Two IRAs and a 401(k). And when I separated in 2022, a very notable year because the IRAs were actually pretty much stinking up the room because of the bond funds that were in there, because they were well-balanced IRAs, right? And the 401(k) had a stable value fund in it, which was doing its job, you know, but the difference in return was significant. And so the agreement was that I was going to wait until everything stabilized, the bond market stabilized, and then make the 401(k) into an IRA. And I've been told that it's better to have an IRA because there's more investment options and now that the bond market's better [crosstalk 00:08:16]...

Scott: What's the stable value fund that's paying there?

Laura: I couldn't tell you right off the top...

Scott: Okay.

Laura: ...of my head. But it's gonna not probably change much.

Pat: That's right.

Laura: And so...

Scott: My guess is paying less... I mean, if you said the stable value fund that's paying 5.5%, we would say, "Keep the 401(k)." If you said the stable value fund's paying 2.5%, we'd say, "Why bother with the 401(k)?"

Pat: Laura, are you married?

Laura: Yes.

Pat: And when we talk about these assets, does this include your spouse's?

Laura: They're all ours.

Pat: Okay. Perfect. And is your spouse retired?

Laura: Yes.

Pat: All right. And what income do you have coming in now?

Laura: So he had about $90,000 with his pension. And my pension, I got a tiny little one. He has a larger one from PERS. And then his, what do you call it, Social Security. And then the job I have pays $25 an hour, so it's probably gonna be $30,000 a year when I do a full year of it, which I haven't up to this point.

Pat: Okay. And...

Laura: So [crosstalk 00:09:43]...

Pat: How old is he?

Laura: 77.

Pat: And are you taking any income off of any of these?

Laura: No.

Scott: And if he were to pass away, is there a survivor benefit on the pension?

Laura: Yes.

Scott: And is that 50% of his amount or same amount?

Laura: It's 75%.

Scott: Okay.

Pat: And so your argument before to keep the 401(k)...

Scott: What's your main question for us?

Laura: The argument is, well, that I'm happy to move the 401(k) into an IRA, but tell me why I should do that. I understand, and here's the thing. In the back of my head, I keep remembering something about when you put it into an IRA, then the interest grows tax-free or something?

Scott: From a tax standpoint, it's essentially the same.

Pat: The only reason you'd move it in... And I agree... Wait, the only reason you'd move it in is for simplicity of life. There's no reason in the world to have three of these accounts. There's none. I can't make...

Scott: That's right.

Pat: Because under one IRA, you could have anywhere from certificates of the deposit to penny stocks to anything in between. Is one of these IRAs your husband's?

Laura: No. Okay. The second part of my statement or the second thing I was gonna tell you, you're kind of making my point. I have two different fiduciaries, and I know that that is not efficient and I just had a perfect opportunity to identify why that's not good. At the beginning of last year, that would be the beginning of 2023...

Scott: We both looked at each other, like, "Wow, we're interested in this comment."

Pat: Yes.

Scott: Go ahead.

Laura: At the beginning of 2023, now that's a long time ago, right? And I had actually forgotten that this happened. I had taken a mass mutual annuity thing that my husband had, and we put it into one of our managed accounts, $178,000. And we took a $38,000 tax liability for it. We knew we were gonna have to pay taxes on that $38,000. We had reasons for doing it. Don't ask me what they are right now. They were very good and I think they still are, but that's not my point.

Scott: They are.

Laura: Okay. And so, you know, 2023 passes, I mean, a million things go through my head, and then we get to the end of 2023 and it's like, "Hey, we should do some Roth conversions." I ask my tax guy, a third person, and I say, "What kind of, you know, money do I have that I could do rough conversions before I go up to the next tax, the 24%?" And he said $90,000. And I'm like, "Okay." Well, luckily, I was being a little bit, you know, standoffish about the whole thing and I only did $70,000. [crosstalk 00:12:49]

Scott: And really the only reason you actually didn't have nearly that much room because of that you took an annuity and you had it paid out and that's where the $38,000... And by the way, a good advisor may have suggested different ways to take that annuity payout, right? You could have annuitized it over a 10-year period or a five-year period based upon what that...

Pat: Or even a couple years.

Scott: ...what that contract was. Did your advisors actually dig into that mass mutual annuity and say, "Look, this really doesn't make sense because the death of your husband is gonna get paid as taxes, and at that point in time, you're gonna annuitize maybe or take it as a lump sum." Did anyone have the discussion about how to take the income out of the annuity other than it as a lump sum?

Laura: No.

Scott: All right. That was a mistake.

Laura: Well, and it's partially... You know, what I end up having to do is I have a question I have to ask both of my advisors and then figure out which...

Scott: Don't do that.

Laura: ...is the better answer.

Pat: You're making it way too much.

Scott: You don't...

Pat: And by the way, you don't trust either one of them.

Scott: I know. Otherwise, you wouldn't be calling us.

Pat: Or you wouldn't be calling us. And you wouldn't ask both of them either. You don't trust either one of them.

Scott: And I don't know if that's because you don't have great advisors or if that's an issue that you've got.

Laura: It's probably me.

Scott: Okay.

Laura: I'm just gonna say.

Pat: Okay.

Laura: Because I don't understand it well enough. And again, what I really wanna do is I wanna be intelligent enough and informed enough to be able to do this myself, but have somebody else do it because I don't wanna have to think about it. It's not my favorite thing.

Scott: Okay.

Laura: But I wanna know.

Scott: And a good advisor will actually dig as deep as you want to go, right, as deep as you want. So I have an advisor... A quick side story because I'm 61 and that's what I'm supposed to do now. I have an advisor who can talk at a fifth grade level, and at the same time, he could talk at a PhD level. And so I asked him about that. I said, "How do you decide how to interact with the clients?" and he said, "Normally I start in the middle and then I judge how it's going from there about whether they're comprehending or whether they're interested." And I said, "Give me an example." He said, "I had a professor," that he said, "All I knew was the guy was a professor." And he came in for a meeting, a couple meetings, and he realized this guy was a statistics professor in college. And he said, "Okay, let me just go deep with this. Let me explain to you why we do exact things and the statistics behind why we're doing it." So it's you...

Pat: I like your thought process. Like, I wanna know enough to know I'm making the right decisions, but then I want to hand it off and not think about it and go live my life.

Scott: And a good advisor would probably say to you, "Look, Laura, here's the three choices I thought about. And let me tell you why we landed on number two, because these were the three routes we could take but I believe that over the long-term, number two is the best for you." So you're making your life much more complicated than it really needs to be.

Laura: Yes.

Scott: And a good advisor... I had a client come in. We were sharing a client with another advisor, and he came in with stacks of paper. He said, "My other advisor told me I should read this." And I said, "Why?" And he said, "So that I understood what was going on with the money." And I said, "How much do you wanna understand?" He said, "I just wanna know why I'm making decisions." I said, "Well then why are you reading that crap? Why doesn't the advisor..." And I said to him, "I will be your new advisor." He was interviewing advisors. "And I will tell you exactly why we're making decisions and what the benefit and downfalls. There's pros and cons to every one of them."

Pat: That's right.

Scott: Right? So you hit on right then. You said this mass-mutual thing, you converted it into this annuity. And quite frankly, you should have explored taking a payout because he could have annuitized it and spread that tax over multiple years. It wasn't, like, you were doing a 1031 exchange into another product. And so you took this big hit...

Pat: Which could have been another alternative of a low-cost annuity.

Scott: And depending upon what would happen at her pension...

Pat: And left it.

Scott: That actually could have been.

Pat: Continued to grow.

Scott: Anyway. So there's no reason in the world that these IRAs don't sit together. And by the way, land with one of the advisors or the other, or go find a third.

Pat: And have him or her do a financial plan for you.

Laura: And that has happened. And God, no, I'm not going to find a third. I actually like them both and they both bring different things to the table.

Scott: Okay.

Laura: I'm in love with two men.

Pat: My guess is...

Scott: Wait. So, I don't have many clients anymore, but for years I did. And over my career, there was a handful of times where someone would have some of their assets with me and someone... And I always hated it because what ends up happening, it's like it becomes a horse race. And if you're an advisor, like, for most people, like, I'm fairly competitive, right? So to me it's like I wanna win. Like, if Laura's got an account elsewhere, I wanna win, dang it. And what you wanted to make sure is that your advisors' interests are always fully aligned with yours and not wanting to win by trying to outperform this other account, because this is your life savings that need to be managed well for the rest of your life, not based upon what it's gonna do on any particular quarterly basis.

Pat: Now, in saying all that, take that 401(k) and move it to one of these IRAs. And the reason that one did 13% has nothing to do with other than the asset allocation on it was...

Scott: [crosstalk 00:19:01]

Pat: ...more conservative than the other ones. It has nothing to do with other than the fact that the asset allocation. But I'd move the 401(k) into one of those IRAs today.

Laura: Okay.

Pat: Today.

Scott: All right, Laura.

Laura: Well, thank you so much. I really appreciate it.

Scott: You gotta choose one.

Pat: I do have a question. You said you're in love with...

Scott: No secret.

Pat: ...you're in love with two men, but you left your husband completely out of the equation, which is perplexing to me. You forgot about him altogether.

Laura: It confuses him a lot too.

Pat: "Where are you off to, honey?" "I gotta go see the financial advisor again."

Scott: He's good-looking.

Pat: "Weren't you visiting with a financial advisor yesterday?" "Well, yes the other day." Glad you called, Laura.

Scott: We appreciate it. All right. Let's...

Pat: That's funny.

Scott: Laura likes to be involved. And to most people, Pat, it's prudent and wise to educate yourself enough so that you know you're making a good decision, because otherwise you don't know what's good from bad. Not that you're gonna understand all the nuances, but... I remember years ago, he was a business leader, I forget, large company. He was an executive type guy and a client. I thought, "Oh, man, this guy's gonna be a bit of a work" because he drilled me on every little question. It went deep. And after the first few meetings, I'm like, I'm thinking, "I don't know if this is gonna be..." And then never again.

Pat: He just wanted to make sure.

Scott: Never again. And now he's been a client for years, we'd get together, we'd talk about all kinds of...we'd spend five minutes on his financial stuff and [crosstalk 00:20:44]...

Pat: He just needed to get to the confidence level.

Scott: To the point where he's like, "I trust that guy." Anyway. Let's talk with Michael. Michael, you're with Allworth's "Money Matters."

Michael: Hi, Scott and Pat, Michael here. I had some questions for you guys about a plan for retirement.

Pat: All righty.

Michael: So I'm 32. One thing that has been recently proposed to me by my father-in-law. So he is a insurance agent...

Pat: Oh, no.

Michael: ...[crosstalk 00:21:17] insurance. Oh, no.

Scott: No, I just... Your father-in-law wants to sell you something?

Michael: He already did. So he...

Scott: How much do you love your wife?

Pat: That's exactly right. This is getting really... We haven't even gotten deep and it's already complicated.

Michael: So he felt... Right now I'm putting money into an IUL and he's really, really aggressive about saying...

Scott: It's Index Universal Life. For the rest of the listeners, Index Universal Life. So he's aggressive, how?

Michael: So I have other, you know, retirement plans. You know, I do have a 457 with the state and, you know, I put money on the side, and I also invest in, like, you know, just CDs and some of my funds are in the money market. So he wants me to try to be as aggressive as I can with my IUL because he kind of thinks that, hey, you know, 457s, 401(k)s and things like that, they're not as good, so I should kinda be throwing all of my money into the IUL.

Scott: Is he licensed in other areas of financial advice? Is he a certified financial planner?

Michael: I'm not too sure. But, you know, whenever I do bring anything else up, like maybe just putting funds into a Roth IRA and just kinda managing it myself, he says that it's not a good idea because you know how the IULs, they have a floor...

Scott: That's right.

Michael: ...and they have...

Scott: You could...

Michael: ...you know,...

Scott: Michael, let's just step back for a minute. Let's forget he's your father-in-law. Let me ask you a couple of questions. Do you have any children?

Michael: I have one.

Scott: Okay. And how old is your child?

Michael: She's turning two this year.

Scott: Okay. And how much money do you have saved already in everything but the IUL?

Michael: All together, I have about $100,000.

Scott: Okay.

Michael: Somewhere around there.

Pat: Okay. So here's what happens, is in these IULs, they're Index Universal Lifes, and they have a floor, which is a return...

Scott: A really complicated product.

Pat: And they have a CAP as well. And they don't pay dividends on the underlying index as well. And by the way, each one of the Index Universal Life will actually have its own index that it's actually measured against. It doesn't have to be the S&P 500. Many of them actually have a combination of different indexes that they measure themselves against. What they're designed for is for those people that want to have some stock market exposure and want some downside protection. But the reality is the cost associated with that...

Scott: I think they're designed for those that don't want to take the time to go through the education process to really understand how financial markets work. And two, that for whatever reason, can't get to the point where they're comfortable seeing things fluctuate in value.

Pat: Thank you, Scott. And either which way, they're looking for a...

Scott: I don't view it like insurance, like homeowner's insurance, like your house burns down.

Pat: I love insurance. I love certain types of insurance. I love umbrella insurance, I like auto insurance, I like homeowner's insurance, I like disability insurance, I like life insurance. I don't like pet insurance. I've never insured anything, an appliance or a stereo, anything that Amazon offers me.

Scott: That's right.

Pat: Never, right? I don't take insurance when I'm playing blackjack 21, don't like that type of insurance either.

Scott: How often you play blackjack?

Pat: That's a joke. So you don't need this.

Scott: He needs life insurance.

Pat: You need a million dollars...

Scott: And this is his father-in-law.

Pat: That's right. But just say to your father-in-law... First of all, it's unfair for your father-in-law, quite frankly, to suggest this to you. It's just flat...

Scott: It's irrelevant. It is.

Pat: It's unfair.

Scott: I know, but it is.

Pat: Okay.

Scott: We all have families.

Pat: But just, look, I would just say, if someone was trying to sell me something...

Scott: Here's what...

Pat: If my brother sold aluminum siding, I would say, "I think that's awesome."

Scott: It's the year 2024.

Pat: I don't know, people are still using aluminum siding. But my brother from... What was that movie?

Scott: "Tin Men."

Pat: "Tin Men." If my brother was selling aluminum siding, I would say, "I'm glad you've found a career that you love. I don't want any. I don't need it. I don't think I need it. It just..."

Scott: This is his father-in-law.

Pat: I understand. You don't need to buy anymore. And by the way...

Scott: You're much better off doing a Roth before you buy more of those.

Pat: That's right. So you need a million-dollar term life insurance policy. What do you make a year?

Michael: Close to $100,000.

Pat: You probably need $600,000, $700,000.

Scott: A million bucks? How much is this IUL for?

Michael: For $500.

Pat: And how much are you putting in on it?

Michael: Right now I'm putting in monthly $750.

Scott: $750 bucks a month?

Michael: Yes, $750 a month.

Scott: Oh my gosh.

Michael: And so he also added on there for long-term care. So I did, you know, take a look at it because it's now at about a year and a half-ish. So I did kind of take a look at the statement to see what the breakdown and everything was. And after looking at it, it's kinda looked ridiculous, you know, how much I'm paying.

Pat: Because the long-term care only covers the premiums to keep the insurance enforced if you become disabled, right?

Scott: You know, most people don't need life insurance their whole life. They need life insurance when they have people depended upon them. Typically for the vast majority of Americans, it's when kids are at home or still in the middle of college.

Pat: Does your spouse work?

Michael: Yes, she does.

Pat: And what does she make?

Michael: She's about the same thing as me.

Pat: Does she also have one of these IULs?

Michael: Yeah, so her dad's been doing it for a while, so, you know, she's been putting funds into it for a while.

Pat: You have 10% of your income going into an IUL.

Michael: Yeah.

Pat: Do you realize that? Nine percent. You're putting $18,000 a year.

Scott: Your father-in-law is a fringe advisor, right? So if you go out and looked at the universe of financial advisors of the United States, his recommendation, that was very fringe-end.

Pat: So don't buy any more of this stuff. Scott, say it.

Scott: Look, and I've got a father-in-law that's... I mean, if I were in your situation, I'd probably say, "Hey, Bill, at this stage in life, I think it would be cleaner and easier if I had a financial advisor outside of the family. It just is too uncomfortable for me. And I'll hope you respect me as a man. I love your daughter. I'm gonna do the best to take care of her as best I can. I just think it would be healthier for me if I had a financial advisor that was not family. The same way a surgeon would not wanna operate on their child's son-in-law, I just would feel more comfortable having someone completely independent."

Pat: I gotta agree with you, Scott. And you wouldn't call our show if you thought this was the right thing, Michael.

Michael: Yeah. And so, I mean, the next step for me would be to...you know, because there's a surrender value or surrender charge on it, so just pay that out and get out.

Pat: I would start with that conversation.

Scott: Yep. Start with that and...

Pat: See where that leads.

Scott: And look, you said you work for the state of California. Correct?

Michael: Yes.

Scott: Does your spouse work at the state?

Michael: Yes, she does as well.

Patt: Okay. So you've got great pensions already. You have access to a 401(k), 457. You could buy term life insurance through your employer, almost everything you need.

Scott: I would argue to have term life insurance on the outside should at some point in time you separate service and...

Pat: Almost everything you need is [inaudible 00:29:29]...

Scott: [crosstalk 00:29:29] term life insurance for the next...

Pat: And you set up a 529 for the kid. You've got $18,000 a year going to this garbage. So I agree with Scott.

Scott: If it was a variable universal life or a variable whole life, I would like it a lot more than this index for a 32-year-old.

Pat: That's right. Yes. But you have all these...

Scott: And by the way, I own a variable life policy that I've had for 20 some odd years.

Pat: I own a variable universal life.

Scott: And while it looks like it did great, if I run the numbers, had I just bought a pure index fund over that period of time, it wouldn't...

Pat: You did have life insurance for a period of time when you really needed it.

Scott: Yeah, I still own some term life insurance. I have kids at home.

Pat: I agree with Scott. You need to have the conversation with your father.

Scott: And I would not talk about anything about insurance. That's all irrelevant. Product's irrelevant. It has nothing to do with the product. It's just you would feel better having someone that's not family, and that way, when you're together, "We don't have to have any financial discussions. We can just enjoy one another as family."

Michael: Right.

Pat: You shouldn't own this. You should not own it. But that's the way to start. And listen, you know, if he fights back, he's probably not gonna disown you. I mean, you've got that grandchild, right?

Michael: Yeah. And it's his only grandchild, so...

Pat: Okay, there we go. There's leverage. That's all we needed.

Scott: That's a lot of leverage.

Pat: That's all we needed.

Michael: So, did you guys have time? I had another question.

Pat: Sure, briefly, yeah.

Michael: So since I do work, you know, for the state, I do have a pension...

Pat: That's right.

Michael: ...you know, when I retire. So I don't know how aggressive I should be with investing.

Scott: You mean the amount or the allocation?

Michael: Just the amount.

Scott: Well, look, you should probably be saving. First of all, you've got $18,000 a year that you're gonna be able to put in there. And quite frankly...

Pat: If you took $750 a month, you'd pay $50 bucks a month for a million-dollar term life policy.

Scott: Yes, you've got plenty of room there. You should be putting at least, I'd say, 12% to 15% that you're paying. And it should be all equities, not a dime otherwise.

Pat: And maybe some of that should be Roth. I'm not sure I'd have money going to a Roth 401(k), invested 100% stocks, then buying an indexed UL [crosstalk 00:31:59].

Scott: I have a 28-year-old son. If he worked for the state of California and was married, I would sit down and I would go through these. And I had a kid. I'd go through this. First of all, you need a simple will or trust, nothing super complicated. Either go to an attorney or do it online, but get one in place. You need some term life insurance. If they sell disability insurance through your employer, you should purchase it. You should start funding a 529 for the kid. And we should probably put at least 10% to 12% into the 401(k). I'd probably go half Roth, half deductible. And that's where I'd start. And then I'd increase my 401(k) by 1% every year until it was the maximum. And if you didn't catch all that, you're gonna have to go back and listen to the tape of this show. But that's... Scott?

Scott: Totally agree.

Pat: I mean, that's the list I would go through.

Michael: Okay.

Pa: If I had...

Michael: Sounds great.

Pat: ...a 32-year-old son with a grandchild... And then by the way, if I sold...

Scott: And I'm just hoping your father-in-law's gonna say, "Hey, no problem whatsoever."

Pat: Yes.

Michael: Yeah. Okay. Great.

Scott: I appreciate it. All right.

Michael: Thank you guys.

Scott: That's not fair.

Pat: Well, the father-in-law thinks he's doing the right thing.

Scott: All right. Well, the father-in-law should give back the commission then. What?

Pat: Maybe he is, I don't know.

Scott: Michael didn't mention it.

Pat: Maybe he does think he's doing the right thing.

Scott: I'm sure he does think he's doing the right thing. We both started at insurance companies.

Pat: Certainly did.

Scott: 1989 and 1990, lasted a couple years there. When you work for an insurance company, they teach you why that insurance product is good in every situation.

Pat: If all you have is a hammer, everything looks like a nail. And so all we had when we first started was...

Scott: And my guess is Michael's father is not securities licensed. I mentioned a variable universal life. My guess is he doesn't have the license to sell that, doesn't have a license to help people set up a stock accounts or buy index funds.

Pat: Well, actually, the life insurance company we worked for, you and I got securities license almost immediately.

Scott: Correct. And we didn't last there because we didn't...

Pat: There's a place for some permanent... There is...

Scott: I'm not a big fan of index annuity, Index Universal Life. But...

Pat: Anyway... And for the rest of you out there, before you get engaged, find out the profession of your in-law and make sure they don't try to dictate your life.

Scott: I tell my kids to ask on the first date, "What is your father doing? Is he gonna sell me anything?"

Pat: My kids aren't married yet. I don't know what that journey's gonna be like. I already know with adult kids, there are how many times I bite my lip because I'm thinking I wanna tell them my opinion here, but probably not gonna help the relationship, so I just keep my mouth shut.

Scott: If you want them to continue to talk to you.

Pat: That's right.

Scott: If you want the otherwise, say whatever you want.

Pat: Well, I love my kids so I...

Scott: All right. Let's continue here talking with Lisa. Lisa, you're with Allworth's "Money Matters."

Lisa: Hi Scott and Pat. Thank you for...

Pat: Hi, Lisa.

Lisa: ...taking my call. Pat, well, I know you coached my son on the Martian soccer team way back in 2002.

Pat: The Martian? That was a long time ago.

Scott: Pat must have been a great coach, you still have enough respect for him to be calling this program 22...

Lisa: You know what...

Scott: ...years later.

Lisa: ...Pat coached with all the seriousness that a five-year-old soccer team demands.

Pat: I remembered I tied ribbons around their left shoestring to teach kids to use their non-dominant, so left or right.

Lisa: Right.

Pat: And then we used to play duck, duck, goose at the end of every practice, which was what the kids just showed up for. They were like, "Who cares about soccer? Duck, duck... Anyway, that was a long time ago. How can we help today?

Lisa: I have a question about my dad's finances. My mother has been diagnosed about three years ago with vascular dementia. She's in the severe phase, rapidly declining, needs to be placed in a memory care nursing home. He's unable to take care of her. She's pretty difficult [crosstalk 00:39:41]...

Scott: Awful, yes.

Lisa: So he is an Oklahoma farm boy, saved hard, worked hard his whole life, thought he had it all figured out until they told him it would be about $95,000 to $100,000 a year to help...for him to pay for my mom's care.

Pat: And how old is he?

Lisa: He's 86.

Pat: Okay. I'm assuming you live in California. Do they...

Lisa: Yes, they're in California. They live in the Central Valley farm area.

Pat: Okay.

Scott: Came out from Oklahoma about the same time my stepfather came out from Oklahoma. Migrant farm workers came out for work.

Lisa: Migrant farm workers, yes.

Pat: Also known as the Okies.

Scott: Yep.

Lisa: Yes, they [crosstalk 00:37:25]...

Scott: If you read "The Grapes of Wrath," it's the story of...

Lisa: He is the story. He is.

Pat: That's my stepfather, so...

Lisa: So he was really not sure how to handle that. Their income is about $4,000 a month, which is fine and great. He has assets. He has Medicare, AARP, thought everything was fine, but neither of those covered long-term...

Scott: What do they have as far as savings in the bank, stock accounts...

Lisa: They have...

Scott: 401(k)s?

Lisa: The only thing they have, well my mom has a retirement pension, which is about $1500 a month and...

Pat: And that's part of that $4,000?

Lisa: Yes.

Pat: Okay.

Lisa: And then they have their Social Security, which combined is about $2100.

Pat: Okay.

Lisa: Then they have a New York Life rollover IRA, which is only about $500 between the two of them.

Pat: $500,000 or $500 in income?

Lisa: No, $500 a month.

Pat: Okay.

Lisa: So they're right about $4,000 a month. But he does have quite a bit of cash, well, what he considers quite a bit of cash, which is about $350,000.

Pat: And do they own a home?

Lisa: They do own a home.

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

Lisa: About $750,000. It's, like, say in the Central Valley farmland, 10 acres.

Pat: And anything else? Stocks, bonds, anything like that?

Lisa: No. I had $300,000 of his money in CDs. But the problem is... Well, it's not a problem. I had gone to a workshop on elder care planning, and as of January this year, Medicare stopped looking at assets. Or Medi-Cal, sorry. Medi-Cal stopped looking at assets. So he's eligible to apply to Medi-Cal not looking at his assets, and help there is only determined by your income. But he is about $500 a month over in income for it to be, I guess, qualified.

Pat: And if we assume he qualified, I mean, is that the facility he's gonna wanna put his wife?

Lisa: There are three of them in Porterville, yes. That would be where it would work out, yes.

Pat: And that would be a pro rata reduction...

Lisa: Yes.

Pat: ...in the cost. So they...

Scott: It's funny you mentioned Porterville. That's where my stepfather lived for years too.

Pat: [crosstalk 00:40:19] Springville, and Porterville?

Lisa: Yes.

Pat: So...

Scott: A lot of Okies there.

Pat: So this $4,000, so the $3,500 would actually qualify, their income would qualify for Medi-Cal, but it wouldn't pay 100%. It would pay on a pro rata basis.

Lisa: Right.

Pat: So what's your question for us?

Scott: You could probably stop the distributions from the...

Pat: [crosstalk 00:40:41]

Scott: ...I don't know how the New York Life thing's structured.

Pat: That's an IRA though. That New York Life is an IRA? You said it was an IRA, right?

Lisa: Yeah.

Pat: Are they just taking withdrawals or was this annuitized, turned into, like, a pension?

Lisa: It's annuitized

Pat: It's annuitized? Okay.

Scott: But it's probably not all taxable.

Pat: It's an IRA.

Scott: Yeah, it's all taxable.

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

Lisa: My question is the elder care planning gentleman that I spoke to said it would be better... Well, so the CDs, I pulled...his money came up mature. All that cash is in the bank, and my dad wanted to invest it back in. And the elder care advisor said, "Don't do that, because now you're going to bring up his income again," because he was making, like, you know, $10,000 on it every year.

Pat: And what did they want you to do with it?

Scott: Buy an annuity?

Lisa: Yes.

Pat: Okay.

Lisa: He suggested deferred income annuities or zero coupon bonds, saving bonds. So my question is, is that a smarter way to go or should...

Pat: I like the fact that he...

Scott: Zero... [crosstalk 00:41:52]

Pat: I like the fact that he mentioned zeros.

Scott: I mean, I don't know exactly how they... I'm not an expert in the Medi-Cal planning.

Pat: You know, I'd have to dig into that.

Scott: How long do you think your mom will survive?

Lisa: The average lifespan is eight years, but she is in perfect health except for, of course, her dementia. So probably another five years is our guess, best guess.

Pat: And Lisa, so he mentioned deferred income annuity, zero coupons, and what was the third thing?

Scott: Savings bonds.

Pat: And savings bond?

Lisa: Saving bonds.

Pat: I'd be okay with the second and third.

Scott: And maybe the first as well. The challenge is there's so many annuities out there that are just garbage and they have huge surrender penalties.

Pat: But you could buy a low-cost annuity.

Scott: That's right.

Pat: And how's the elder care consultant charging you?

Lisa: He is not charging me unless I have him apply for Medi-Cal for me, and then he does a flat fee.

Pat: And what's he charge?

Lisa: $6,000.

Scott: And does he get commissions on selling product?

Lisa: No.

Scott: I like this.

Lisa: He doesn't do any financial and he says that right up front.

Scott: I like this.

Pat: Yeah, because you can buy a deferred income annuity without any surrender choices.

Scott: Well, he didn't sell product. I love it.

Pat: Yes.

Scott: So many of these elder planning folks, they sell product that's...

Pat: We were waiting for you to say that this elder care person was going to recommend an income...

Scott: Everything in annuity.

Pat: ...and in annuity.

Lisa: I felt that. I felt like you were waiting for me.

Scott: That's right because...

Pat: We were waiting for it.

Scott: ...that's what we see it all the time.

Pat: That's what you see. I like this. I think that they're worth the $6,000. And I would...

Scott: You don't know what you don't know. And if you could find... You know, at that point in time, it all comes down to yield on that because what you're trying to do is artificially impoverish...

Pat: The income down.

Scott: ...his income down. I don't know that's the right word, but it's how the rules are written. Yes, good.

Lisa: Okay. And so...

Pat: Is that the question?

Lisa: Yeah, I was just...I wanted to make sure that that made sense as opposed to, you know, putting it back into CD and just...you know, he wants to be investing the money, but again, he doesn't want to be creating more [crosstalk 00:44:33]...

Scott: Well, you gotta see what the...because if it pushes you into these higher limits, it could be a multiplier effect. So...

Lisa: Right.

Pat: And the zeros and the savings bonds would be... The zeros would be the easiest thing to buy.

Scott: Zero-coupon U.S. treasury bonds.

Pat: I would go that direction. If you said make a decision right now, I'd buy the zeros.

Lisa: Okay.

Scott: Because they're super easy.

Pat: And how many children are in this...

Scott: But I don't know if that's gonna help because for tax income tax purposes, you still have to determine that imputed interest and report it on a tax return. So that's why it's helpful to have a Medi-Cal expert here helping you to navigate the rules because their income form is different than your 1040...

Pat: And how do they do...

Scott: My guess.

Pat: ...now if this wasn't there? Were they able to live comfortably on that $4,000 a month?

Lisa: Yes.

Scott: Have you been to Porterville? Sorry, I'm just kidding.

Pat: And how many siblings are in the family?

Lisa: Two.

Pat: Okay. All right. And you both do equally well, one better than the other financially?

Lisa: Yes, I do quite a bit better than my sister does.

Pat: Okay. One of the things, if they do need more income beyond that, you can actually give them money and not recognize that income and just actually put a claim on the home. And compute interest internally. I've done that for clients in the past where mom and dad need more money...

Scott: That could be a reverse mortgage.

Pat: ...and it's basically an internal reverse mortgage. And as long as your sibling understands it, it's fine.

Scott: I'd push as hard as you can though to get some Medi-Cal support.

Pat: That's right. I would pay the $6,000 happily. And I have a question for you, Lisa.

Lisa: Sure.

Pat: The son that I coach in soccer, did they go on to achieve any sort of fame in the...

Lisa: You know what, Pat, he went on to be on the national team and he played soccer at Berkeley, and he attributes it to the Martian beginnings. So, [crosstalk 00:46:45]...

Pat: I don't know if she's even BS-ing the Berkeley thing or not.

Scott: I know.

Pat: You reek of sarcasm. Did they go on to play soccer at all?

Lisa: No, he did. Both those things are true.

Pat: Oh. Okay. Well, he did? I don't think he attributed it to the Martians though.

Lisa: No, but he does remember you.

Pat: And still plays duck, duck, goose after...

Scott: Does he?

Pat: ...every game?

Lisa: I'm hoping the duck, duck, goose is not a thing, but yeah.

Pat: I appreciate that. That's awesome.

Scott: Yeah. Thanks, Lisa. Sorry you're going through this. This is [crosstalk 00:47:17]...

Pat: It's hard.

Scott: It's been great having you with us. We are here every week at the same time and, of course, podcasting the same thing. If you've enjoyed this, give us a review and forward it...

Pat: Please.

Scott: ...to a friend.

Pat: Please.

Scott: See you next week. This has been Scott Hanson and Pat McClain of Allworth's "Money Matters."

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