Skip to content.

June 10, 2023 - Money Matters Podcast

The cost of money, how to pivot when investments are locked up, and an unexpected response to a Roth conversion question.

On this week’s Money Matters, Scott and Pat discuss the impact that higher borrowing costs have on local governments. Then, an 83-year-old asks how he can gain access to $2 million tied up in his company’s money purchase plan.  A California man wants to know whether his mother-in-law should sell a home. Finally, you’ll hear Scott and Pat’s unexpected answer to a question about a Roth conversion.

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

Download and rate our podcast here.


Advertiser: 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 8-8-3-3-99 Worth. That's 8-3-3-9-9 W-o-r-t-h.

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

Pat: I'm Pat McClain, thanks for joining us.

Scott: Yep. Glad you're here with us. It's funny, Pat and I were just chatting, by the way, this is a financial program. Both myself and my co-host, we're both financial advisors and we take calls from people like yourself.

Pat: Yeah. And actually, we love the calls that come into the game. Like favorite part.

Scott: Yeah, mine too. Just because...

Pat: Other than sometimes talking with you, so.

Scott: Okay. Pat and I were chatting before just...Oftentimes we'll have these conversations we're in the studio before the show, and we'll have a, like, well, let's have this conversation on the air because sometimes we're learning from each other and formulate our own opinions as we're having conversations. And so we thought you'd be...anyway, we were chatting about municipalities, cities, counties, states with the raising...the higher interest costs today on borrowing money. Like the federal government, the interest on our debt is much higher now than it was. It's actually, it's a pretty significant portion of the budget. The thing about the federal government, they could just print more money. They get Congress and the president to agree on a package, they sign it off and the debt ceiling gets raised and they keep print more money, right?

Pat: But states', municipalities don't have that luxury. In fact, they have another headwind, right? So all of a sudden the cost of money goes up, right? And so, these bonds are actually, they roll over, they're coming due. They sometimes refinance it. They have projects, they refinance it. It's actually quite common in certain states where they'll receive settlements from something like the tobacco, and what they did is they issued bonds against that income that was coming in for years and years in order to get at that cash today.

Scott: Which is...

Pat: Which is crazy. But what happens is the cost of money goes up, two things happen. One, it makes it more expensive to actually run your municipality or state. And the second is that if you have pension obligations out to your retirees and to your employees, that actuarial number that you have to actually save up in that pension, the higher the interest rate, the more money needs to be set aside to fund those pensions. And so you see it, you...look, there is parts in the marketplace. You go to San Francisco and that is in a debt spiral.

Scott: It certainly feels that way, doesn't it?

Pat: It is in a debt spiral because all of a sudden businesses have left. So your tax base is leaving. What's left behind is less and less tax base in order to support bigger and bigger problems.

Scott: And when you've got companies that have up and left. Office towers are...

Pat: Not just in, like, we could, I could name five cities in the United States right now. Chicago is another one, which is like, this stuff, you wonder if this is ever gonna repair itself. Is it ever...will these large cities ever be the same?

Scott: Well, we're going down a completely different path.

Pat: I understand, but the cost of money is one thing. How it feeds on itself continual, this continual loop where less resources, the resources you need are more expensive, tax base ranks and gets...

Scott: Yeah, progressively worse until the federal government bails them out. You watch. That's next. Anyway, let's take some calls. 833-99-Worth. We're in California talking with Richard. Richard, you're with Alworth's "Money Matters."

Richard: Yes. Good morning.

Scott: Hi, Richard.

Richard: My question involves something that's probably fairly unique in that my firm has gone through my career, I've been with the same organization for 56 years.

Scott: 56 years?

Richard: Yeah.

Scott: Holy smokes.

Richard: Started when I was in kindergarten, but never mind. Anyway, to make a long story short, we've gone through three organizational acquisitions and mergers and somewhere in that process, my 401K funds got tied up with something called money purchase funds.

Scott: Was this years ago?

Richard: Yes.

Pat: Yeah. So yeah, money purchase pension plan. Okay.

Richard: Right. And so when that happened, it wasn't originally that way. And, of course, I'm fully vested in this thing. But the problem I'm facing is that although, again, it's unique in that I'm still working, but I am and full-time and as a senior consultant, I'm a Civil engineer. And to make a long story short, as I understand it...and unfortunately, the current HR department doesn't know when it happened either. But the information I've gotten is that I either have to die or quit to get any access to the funds. And at my age, let's...

Scott: Yeah, that's a type of pension plan.

Richard: Is that, you know, I can't even borrow on it, I can't move it over to an IRA. I can't do anything with it...

Pat: Because they're employer funds, they weren't your monies that were put in. And that's the restriction they put on it. So how much money is in the money purchase plan?

Richard: $2 million.

Pat: And how's it invested?

Scott: Holy smokes.

Richard: It's invested in a normal, that part has not been constrained. It's invested through the 401K manager for the company is Merril Lynch. And it's a directed investment. I have a directed investment account. In other words...I have, it's not just the alphabet soup of, you know, picking and...

Scott: Do you want income from it? And how old are you today?

Richard: 83.

Pat: And so you have it in a self-directed brokerage account window inside of the 401K, which is a money purchase plan inside of that.

Scott: And are you taking required minimum withdrawals on that? Do they require that? Because...

Richard: No, because I'm still working.

Pat: He's still working. They changed the pension. It used to be that you would have to...

Scott: Yeah. You don't see, like, that's why I asked about the money purchase. I haven't, I don't think I've even seen these things.

Pat: Oh, it's been years. So what's your question for us?

Richard: Well, I'm just wondering, very few financial advisors that I've ever talked to know anything about it...

Scott: That's because they've been phased out 20 years ago or whatever, but yeah.

Richard: Yeah. And they, and so consequently, I'm just looking to see if there's any loopholes at all. And nobody can even...they don't think so, but nobody's given me a definitive answer. So, I mean, one alternative that the company has offered me, they'll say, "Go ahead and quit and we'll hire you tomorrow."

Scott: That's exactly...

Pat: That's right. Then that would've been my recommendation. But why do you, what's the hurry to get at the money?

Richard: It's just, well, at our age, my wife is about to...we're about the same age. We would like to do some things with it. And consequently, you know, it's just constraining. I mean, I feel constrained in the sense that I even could take some distribution at my age without a concern or I could move it over to, as I said, to an IRA or...

Pat: But I don't know if there is anything to worry about. Do you have other monies outside of this money purchase plan I assume?

Richard: Yes.

Pat: How much?

Richard: About 600,000.

Pat: And are you spending any of that...

Scott: That's a considerable amount there for your savings.

Pat: Yeah. Are you spending any of the 600,000?

Richard: A little bit because we've been doing a couple of things. We have a bucket list trip we're gonna plan for this summer with some of our adult children. And...

Scott: Awesome. What a great investment at your stage in life. Fantastic.

Richard: Yeah.

Scott: Hundred percent.

Pat: Yeah. And it's funny how they actually show up for all that stuff.

Scott: Yeah. When grandpa is paying.

Pat: I'm doing one, this guy coming up here and my kids are asking if they can bring their girlfriends. Like, yeah, if, you know, if the 600,000 isn't enough, remember you don't lose this at death. You just want access to it.

Richard: Yeah. Well, that's right. You're right, I'm not gonna lose it. You're absolutely correct. I'm not gonna lose it. And eventually I will stop working, somewhere.

Scott: Maybe down until you're forced, if you're 83 still working.

Pat: Because you have it in the self-directed window, you have the same access to any other investments that any IRA would have it. It's just a little bit more expected than...

Scott: So the longer you go, let's assume you leave it the way it is, and you and your wife both pass away on the same day it goes to your kids. How many beneficiaries do you have? How many children is it gonna go to?

Richard: It's going to six. There's six children.

Scott: Okay. So with six, I mean, they'll have to withdraw it with over a 10-year period, which means, you know, one-sixth of $2 million, it's a much smaller amount to be spread out. So that would make the argument that the longer you keep it tax-deferred, probably the better.

Pat: And what is your income?

Richard: Well, with, of course, we're getting full social security plus my salary, plus a small rental income, probably around 300,000.

Pat: And are you kids in a lower tax bracket, or do you suspect these six kids, they're gonna be all over the board? On average, are they in a lower tax bracket or higher tax bracket than you?

Richard: I would think, probably two of them are higher. One probably the same, two probably lower.

Pat: Okay. That's a push.

Scott: This is a really interesting call.

Pat: That's a push. I was just thinking, you know, you could quit and they could hire you back. And that would actually free them...

Scott: There's the downside of doing that. Now you've got required minimum distributions on $2 million.

Pat: That's right.

Richard: Yeah. A million instantly, right, which is over a hundred thousand.

Scott: That's right. It's over probably 5.5%, 6%.

Pat: I would spend...I gotta tell you, I'd spend down the $600,000. Is that in IRAs?

Richard: It's half in already taxed. In other words, free count and half of it's in an old IRA.

Scott: I would spend down the IRA.

Pat: I'd spend down the IRA, I wouldn't, I'd leave this thing, right? I wouldn't worry about it.

Scott: I would spend down that IRA, in all seriousness, I'd probably move it to cash and use those dollars for your bucket lists.

Pat: Yes. And I wouldn't worry about the 2 million in there. It just, it's...

Scott: If you're 600,000, were 200,000.

Pat: Actually, I could make an argument why you should really not do it. I mean, I could make an argument why you should let that thing ride for as long as you can because of the required minimum distributions.

Richard: Yeah. Obviously, I don't want to be working full-time. I do not wanna be working...

Scott: Well, you said that obviously, your 83 still working full-time. So, we don't if we believe you. That's right.

Richard: No, it...

Pat: I'd spend down the three...

Richard: As I said, I'm fairly, I bet you this is fairly, I probably in my company this happened, I suspect organization has got over multiple tens of thousands of people. And I betcha I'm one of the few people that have extended the spong. Most people, you're right, absolutely most people who have got trapped in this have already either retired fully or unfortunately passed away.

Pat: I've been doing this over 30 years and I can't remember the last time I actually had a question on a money purchase.

Scott: And the rules around that are driven by the plan document.

Richard: Right.

Scott: Right. So it's all based on the plan document.

Pat: So I would, I'd spend down the 300,000 and let this thing ride. And when once that $300,000...

Scott: Then revisit it

Pat: gone, then I'd revisit it.

Richard: Yeah. And maybe that's when I retire and say, okay.

Pat: Yes.

Richard: I've been trying to nurse both pots. And you're right, that you can't keep both, you can't do everything and keep both pots nursed.

Pat: No, I would make the argument that you should be really happy it's in the money purchase plan and that you're still working. I don't know, even if you retired...well, if you retired, you'd even the money purchase plan would have required minimum of course distributions on there but just because you're working. And it wasn't too long ago that even while you were working, you had required minimum distributions on these. But those rules have changed. I think it's a perfect scenario. I wouldn't worry about it at all.

Richard: Okay. No, that's...

Scott: Just make sure you spend your other money so that you do the things you wanna do.

Pat: Spend it. And don't worry about. I know...

Scott: And a big family trip, it probably costs more than you think you're ever gonna spend. But you can't take these dollars with you.

Richard: No, you're right. You can't put 'em in your coffin.

Pat: That's right. Well, you can, that'd be a little odd. He loved his money so much he was burried with it. Are you he a King Tut?

Richard: And, you know, we were fairly well planned. We bought a second-to-die policy on my wife and I so that the kids, there's always, even if that entire money disappeared there is a...

Scott: Is it a paid-up policy or you're making premiums on it?

Richard: No, we have to pay premiums on it, but it's universal life kind of second-to-die policy.

Pat: How long ago did you buy it?

Richard: Oh, it's 15 years ago.

Scott: I'd look at that.

Pat: You know what I'd tell you? I would look at that and I would actually consider converting that where it had some, a long-term care, how much is the cash value in that?

Richard: Oh, but by now it should be hundreds of thousands. Probably a couple hundred thousands.

Pat: What's the face value?

Richard: 1.3 million.

Pat: You know, I...

Scott: The cost of insurance is probably pretty high.

Pat: It's pretty high. I don't, and how's your health and your spouse's health?

Scott: He's 83 and still working. It's great.

Richard: Yeah, it's generally good. I would say good. It's not, you know, obviously...

Scott: You're 83.

Pat: I would revisit that. You've got a whole host of things, planning stuff. You're fascinating. I would actually... It's fascinating.

Scott: Well, because you bought it 15 years ago, is underwritten based upon your health and mortality risks 15 years ago. But you've lived, so if your health today is better than the average 83-year-old, just the average 83-year-old, underwriting a new policy might make sense for you. It might be your internal cost of insurance might be less than what you've got now.

Pat: That's right. And you put a long-term care writer on it as well, which weren't very well known 15 years ago. I'd revisit that. I would absolutely revisit that. I like the idea. And then, your estate isn't large enough that we would worry about putting it in an irrevocable life insurance trust, but it would be something that I would most certainly look at. Now, I'd revisit that life insurance. All right. Give us one more, Richard, you probably got some other crazy thing going on there.

Richard: No, you're right. We've had a lot of unique things and a lot of blessings I guess, too at the same time. Yeah.

Pat: Look, our advisors, in fact, I was having dinner with one of our advisors and he said, "The more complex the work, the more fun it is." The advisor was telling me, he said, "The more complex, the more fun."

Scott: A hundred percent.

Pat: Yeah, 100%. Yeah. And your was, yep. You've got some work to do.

Scott: Appreciate the call, Richard.

Richard: All right. Thank you very much, guys. Thanks. Good information. Thank you.

Pat: Thank you. Let's talk with Steven now. Steven, you're with Allworth's "Money Matters."

Steven: Hey, good morning guys. I appreciate your time and taking the call. I'm actually calling for my mother-in-law. So my father-in-law passed away about two months ago. And her social securities, she's getting 80% of his, which is about $1,500 a month. She's got an IRA worth about 130,000 and in that it's comprised of about probably 60,000 of individual stocks, bigger companies like Chevron, Amazon, things like that. And then she's got about 400,000, net in her house. And she still has a mortgage on it, total with taxes and insurance and everything is roughly $1,800 a month. So I guess the question is just a confirmation of my thoughts that she needs to sell the house. And then...

Pat: How old is she?

Steven: She is 76.

Scott: What's her health like?

Steven: It's not the best. And, you know, who knows, she could live for 5 years or 15 years, right? That's what makes it more challenging.

Scott: What's the mortgage, what's the house worth?

Steven: It's worth about 700.

Pat: And what's she owe on it?

Steven: 250.

Scott: And does she really wanna stay in that house? Does she...

Steven: She doesn't, it actually has a little ADU on it that she gets about 1600 a month, but that includes the utilities. So she's actually at a net loss per month on the house. And it's got a lot of deferred maintenance. She really has no interest in being a landlord. And kind of my thinking was that if she could live for free and she could do that, whether if she moved in with us or my brother-in-law, we could take that essentially 500,000 and she could kind of live off the interest. She'd be real conservative investing, she doesn't like any risk. And...

Pat: So, Steven, what's her income? Her only source of income is Social security?

Steven: Correct.

Pat: And how much is that a month?

Steven: Yeah, it's about $1500 a month.

Pat: And how long has she lived in the house?

Steven: Almost 20 years.

Pat: And have you had this conversation with her about moving?

Steven: We have. She's totally good with moving.

Scott: Is that, I mean, will that work with you or with your brother-in-law?

Pat: For her to live with you?

Steven: I don't think it's ideal situation for anybody and she is worried about being, you know, a burden. But I think the way my wife and I feel is that the bigger burden is that if we have to pay, you know, $5,000 or $6,000 a month, if she were to need further care down the road, and she didn't have any money to pull from. So we were figuring if we could limit her expenses now we could conservatively, you know, especially with interest rates coming up a little bit, kind of invest the money. She could live kind of off the interest and hold onto the principle a little bit until she needed to pull from that money later.

Pat: Do you or your brother-in-law have the ability to build an ADU on your property?

Scott: I think in California you're allowed to build them anywhere now, aren't you? Something like that.

Steven: Yeah. Right. It would be just challenging based on the layouts of the property.

Pat: Yeah. What about selling the house and having her rent somewhere for a while? Get a lease sent off a small house or a condo?

Steven: Yeah, it's just to try to stay, we're up in Auburn and trying to stay, you know, the rental for that is still, you know, 1,700 to 2000 a month. And it's kind of a cash flow problem, you know, the way I see it, just because she doesn't have a lot of income and we were trying to preserve the kind of the bulk of the principle in case she needed further care, you know, down the road.

Scott: And what would a modest home in the Auburn, California, cost? A small modest home that didn't need a ton of repairs. Have you looked at all?

Steven: Yeah, probably. I mean, I don't know that you could...400,000 probably.

Scott: So what if you use a reverse mortgage to purchase a $400,000 home and a reverse mortgage paid the first 200,000? Just think, I'm just trying to think of creative ways to make this happen. I know if I were in your situation, I mean, my mother-in-law was, I couldn't have asked for a better mother-in-law. Truly, she was phenomenal. But I don't know how well it would've worked with her living with me or my, just the reality like...

Steven: Right. I get it.

Scott: There's mother-daughter dynamics at play oftentimes.

Steven: Yep.

Pat: I actually, and you say her health is, you're not quite certain.

Steven: Well, yeah, we, you know, I mean, she's smoked for a long time and, so it's not the best.

Pat: I gotta tell you, I like Scott's idea of leasing a place for a year or two and all you're doing is kicking the can down the road a little bit to see what happens.

Steven: Yeah.

Scott: I think I'd do that too, Pat. Okay. Just take some...sell the house, earmark some cash. We're gonna spend this down over the next couple years to lease somewhere and see how things progress because now she's without her husband, she's not in the greatest health, she might snap back and say life's for the living. I'm gonna figure out how to move forward and get my get in good health. And she might slowly deteriorate.

Pat: Yeah. I would be, just, you know, I agree with Scott that the dynamic, especially at 76, right? And if you...

Steven: Well, she needs...she's already started to need a little bit more care and it kind of falls on my, you know, on my wife a little bit, probably more so than my brother-in-law. And so she's kind of of the opinion it's almost easier instead of her constantly driving to a place if she can just help her, you know, and living with us. And she doesn't wanna cook. She doesn't really want anything. We were kind of looking at like converting the garage into like a little studio apartment.

Pat: That would work. The reality is she probably can't afford to stay in that house. So the options...

Scott: One of her acts. Yeah. That's correct.

Pat: And either...

Steven: I think she has like 20,000 in a checking account and it needs probably...

Scott: Suddenly she needs a new, yeah, right? Yeah. It's, it's of work. Yeah. She doesn't have much savings.

Pat: So if you're comfortable moving her in, I think it's a great idea. I think it's a great idea. Okay. Or lease something real close to the house. So...

Steven: And then as far as, like investing, like my thought would be like a 20% into a, like just a S&P index and then the rest of it and just kind of like an income producing...

Scott: I think that would make sense. I mean, I'd kind of look at it like, you know, she might be around for another decade or so, right? So we need to plan...

Steven: Exactly. And that's the hard part...

Scott: Right. So I'd make sure that you have enough money set outside of the stock market or outside of growth investments for five years worth of expenses because the stock market over a five year period, I think it's like 92% of the time it's positive, something along those lines. You can run the numbers historically, it doesn't guarantee the future anyway. But there's a high probability that things will be higher five years from now. If you go much shorter than that, you don't want to suddenly, it's three years down the road she needs some other care. And you got, you're forced to sell stocks in a down market, right?

Pat: So a bond ladder or a bond ETF or...

Scott: Up into a ladder.

Pat: Just a...

Scott: ...easy something that's this size.

Pat: Good point. It's pretty small. Yeah.

Scott: Yeah. Bond ladder unless you've got 50 bond different companies represented in there.

Pat: Yep.

Steven: Right.

Pat: I'd do a ETF for sure.

Steven: Something that is somewhat liquid because...

Pat: It's all liquid you may need...

Steven: Yeah. Yeah.

Pat: That's a good idea.

Steven: Okay. All right. I appreciate it, guys.

Scott: Yeah. Good luck to you, guys. So...

Pat: I have a friend that actually has built a number of these nursing homes. He doesn't operate 'em, but he builds them and then leases 'em to operators. I found it fascinating. He said the statistic is that it's normally women that go to the nursing homes, normally, and where they end up is the closest to the oldest daughter in the family is where they... So he said, when they look to build nursing homes in community, they do the demographic studies of where the oldest daughters live and whether they can find all this information. So where is the oldest daughter live? And that's where they actually will put these nursing homes. Normally in a middle to upper-class neighborhood.

Scott: We're taking a quick break. We'll be right back.

Announcer: Can't get enough of Allworth's "Money Matters?" Visit to listen to the "Money Matters" podcast.

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

Pat: Pat McClain. Thanks for sticking with us. Yep.

Scott: Good old financial markets. It's interesting. It's funny, I was thinking...I was at the gym earlier this week and for whatever reason during my workouts, I started thinking about just the behavioral finance aspect of investing. And I start thinking about my own history with clients and just maybe some of my advice to get them to act a certain way. I mean, I'll give you an example. Like I remember years ago, I had a client, he had...I'm gonna make up the states just so I protect, but he had a house in Northern California that was his primary residence. And then he had a house up in Washington area on the water. And he would go up there and fish all summer long. He would spend all summer there on the fishing. And he called me up one day and he was always an aggressive investor and a client for a number of years, aggressive investor, good working relationship with him.

And he called me up one day, he says, "Scott, I've been doing a lot of research. I wanna take half my account and put it in this particular sector." Okay? Not, not an individual stock, but a particular sector. And the reality is sectors go through their own kind of ups and downs, right?

Pat: They got.

Scott: And the sector he was wanted to pick obviously was not the one that had been out of favor for a number of years. It was the one that was the most hot of that period of time. And I'm sitting here thinking, and I said to him, I said, "Well, here's the deal, Bill." I said, "We can do that. And if you're right, whatever fishing boats you've got up there in Washington, you can probably trade it for a nice much nicer fishing boat. So you can maybe double the value, you know, double your fishing boat. If you're wrong, the fishing boat might have to be gone and the property, your second house might have to be gone as well."

Like basically you're saying this is a big bet and if it turns out well, and to put things in perspective, like you've already got, like the incremental increase, incremental lifestyle return was so minuscule compared to the potential for a loss and a degradation of lifestyle, right? So I don't know what kind of boat he had, but going from some boat to no boat is a lot different than going from a 28 foot boat to a 31 foot boat or whatever the case may be. Yeah, right? A boat and losing the house like that. Like the risk was there. Yeah. And so, what you were trying to frame is the investment around the lifestyle. What this actually, the implications of it...

Pat: If it doesn't go well.

Scott: Forget the statement, forget what it looks like online or whatever, what the value is, forget that's all. It's kind of irrelevant. Like what can this possibly yield for you and what are the downsides if things don't work?

Pat: And what was the outcome?

Scott: He didn't do anything. He was just like, it was a good thing, frankly, because the sector just...

Pat: Sectors...

Scott: And even look, and there are times when I recommended clients like I do, I wouldn't recommend doing that, I disagree, I don't think you should. And then it works out really well. I mean, that's possible, right?

Pat: Yeah.

Scott: You see it with people with highly concentrated portfolios. People have all their money in their employer stock and you say, "Look, I think this is foolish." And they say, "Okay, oh, you don't." And sometimes when you don't know, you split the difference. It's not completely binary.

Pat: No, for sure.

Scott: All right. Let's do the house call.

Pat: Yeah. So what is a house call, Scott?

Scott: It's when we've had someone on before and then we have a call with them later to see what had actually transpired. It's between the time we had to call and today.

Pat: And I used to, as a child, I would listen to Click and Clack. As a child, man, like when I was 13 or 14, what was wrong with me?

Scott: Click and Clack. I think they still run 'em on the...

Pat: The tap brothers that work on automobiles and people would call and ask about automobiles.

Scott: And you're not an automobile guy.

Pat: I am not an automobile guy...

Scott: And you're not a mechanic at all?

Pat: That is correct. And then I was, I must have been a bit of a nerd at...

Scott: Really?

Pat: So this is how we do it. We play back the call that we took, we took this call back in...

Scott: Sometime earlier.

Pat: February. We play back the call from February and then we have the people that ask the question, come back and visit with us and say, "What was the outcome? How did you deal with our recommendation? Or did you completely ignore it?" So let's listen to the call.

Scott: And back in February we spoke to podcast listeners, Vincent and Samantha for full disclosure, they were not Allworth clients and are not Allworth, but they plan to retire in June of 2024. They called with a question. Here's a clip from that call. How much will your pensions be at retirement time?

Vincent: Our pension will be about 140,000 a year.

Pat: Between the two of you?

Vincent: And I'm sorry, go ahead.

Pat: Between the two of you?

Vincent: Yes. It's total.

Pat: And you said you will be 55 in June of '24 or you are 55 now?

Samantha: No, yeah. He'll be 55 in June of 2024.

Pat: And you'll be...and Samantha, you'll be 52. And what do you have in your retirement accounts, your 401K? 457?

Samantha: Between the two of us, we have about 2 million.

Pat: Well, you guys have been great savers. And what do you have in as far as money outside of retirement accounts?

Samantha: We have our private investment about 575K. And then we have CDs and savings and we just recently sold our house, that's about 700K. And then we have a Roth IRA between the two of us for 250K.

Scott: And you, the 700 doesn't include the proceeds from the house or it does?

Vincent: That does include the proceeds of the house.

Pat: And where are you living now?

Vincent: In Folsom?

Pat: No, but are you renting?

Samantha: Oh, we're renting. Yes, we're renting.

Vincent: We're renting an apartment.

Pat: And do you plan on moving, buying a place?

Samantha: Not really sure at this point. We just decided just to downsize and move into an apartment just to see where we're gonna go from there, whether we continue renting or we purchase a house.

Pat: And what was the proceeds from the sale of the home?

Samantha: The proceeds of the sale?

Vincent: From after paying the agents and all that it was 638,000.

Pat: Okay. Thank you. And was the home paid for?

Samantha: Yes.

Pat: All right. You guys are good savers.

Scott: Yeah, no kidding.

Vincent: Yes.

Scott: And what's your income today?

Vincent: Total income is today is, for gross is about 250,000.

Scott: And you're doing the maximum into the retirement plans?

Vincent: Currently, no. We dropped it down to about 2000 a month each, so it'll be 4,000 total. We were trying at the time to build up some of our private investments to carry us through till 60 when we access...if we need to access...

Scott: 59 and a half.

Pat: Okay. So you have laid out a host of financial planning opportunities that are just mind-boggling to me. My head is spinning and you've made a couple of minor mistakes, but your great savers. First of all, you're asking me right now whether you should actually take tax-deferred income and make it taxable via conversion to a Roth IRA and drove forward. At the same time, you're at a much higher income now than you were, but you lowered your 401K and 457. So here's what I would do, I would actually look...and you both have the 401K and...

Scott: Let me pop up a little higher before. Because you both participate in social security or no?

Samantha: Yes.

Vincent: Yes, we do.

Scott: So you're both paying 7.65% of your pay is going into social security. So when you factor that out, your pension income is not going to be too far off what's been coming through the checkbook now.

Pat: Correct. And because of the fact that you were putting money into the 401K or 457, I assume at the maximum level at one point in time.

Vincent: No, we were before, but then we cut that down...

Pat: Yeah, I understand. But you didn't get $2 million in your 401K and 457 by making the minimum contribution or that's even $2,000 a month. That's why I knew the answered it. Here's what I think I would do. I liked the fact you're asking this rock...

Scott: Do you guys have kids?

Samantha: Yes, we do.

Pat: Okay. The Roth IRA conversion is, yeah, probably you're gonna do that there. But let's take advantage between now and June of 2024 and maybe I would actually put the maximum into the 401Ks and 457s and on both sides. And that way you've actually lowered your taxable income to about $150,000. So let's talk about why we're okay doing that. And you're worried about this 59 and a half thing and you said emphatically we're going to move our 401Ks and 457s into IRAs when you retire. That may absolutely be the worst decision. And let me tell you why. The 457 is a deferred compensation plan that actually has no restrictions at how you get it, the money, once you retire. By you moving it into an IRA, you have now put restrictions on it till age 59 and a half.

Scott: You might wanna take 1.8 million of the $2 million and move it or whatever and move it to an IRA, but you'll wanna keep some money in either Vincent, you're 401K account or, Samantha, a 457 so you can take withdrawals if wanted or needed.

Pat: And why the 401K for Vince and not for Samantha, Scott?

Scott: Well, 401K, if you're 55 or older when you leave service, you have access to it. You don't have to be 55...59 and a half.

Pat: So what you are worried about this liquidity event, which is why you actually lowered your contributions to the 401K and 457 for the ages between the date you retire in age 59 and a half. And I'm telling you that that fear should not exist.

Vincent: Okay.

Pat: And so the Roth IRA, we're gonna worry about the Roth IRA when we get to the Roth IRA, but your world is kind of in turmoil right now, so you've got plenty of money and you've got plenty of liquid money by the way, money that you could get at now. So you have $575,000 in, you call private investments, so I'm gonna call it a brokerage.

Vincent: Yeah. Index funds. Yeah, basically index funds, yeah.

Pat: Okay. A brokerage and you have $700,000 in bank CDs. I don't know if...and I assume you're using a high-yield money market or something along those lines in order to get the most out of that.

Samantha: Yeah.

Vincent: Yes, we are.

Pat: So the answer to your question that you called about, should we do a Roth conversion after we retire, maybe probably you'd have to actually map what your lifetime income looks like and then figure in required minimum distributions at age 75 for you. But today you need to go back and change your contributions into that 401K and 457. And if I thought I was moving out of the state of California to let's say, Tennessee, Nevada...

Scott: Texas, Florida...

Pat: Even low-income tax states, Arizona, right, I would put it all in pre-tax. All of it. And I'd do both the 401K and the 457s.

Scott: Okay. So that was a clip we heard from Vincent and Samantha back in February. And so Vincent and Samantha are joining us now. Welcome to the program you two.

Vincent: Hey, how're you guys doing today?

Pat: Good.

Samantha: Hello?

Scott: Hello.

Pat: So good. What did you end up doing?

Vincent: Okay, well, we completely ignored it. Now, just kidding. Thank you really much. No, we actually did a lot of changes. One of the first things we did, probably two days after we listened to the actual call on that weekend, we bumped up our contributions to the 401, 457 to 2350 in each one. So that would be a total of 4,700 a month to the 401, 457 each.

Pat: Okay. 60 grand a year or so?

Samantha: 60 grand a year.

Vincent: That comes out to be...

Pat: Little less money.

Scott: Little less.

Vincent:'s about 112 a year.

Pat: Oh, got it. So you both have the ability to put money in the 457 and the 401K is that correct?

Samantha: Yeah. Yes.

Vincent: Yes. Pretax.

Pat: Yes. Pre-tax. Beautiful. Brilliant. Well, now...

Vincent: Yeah, we've all been doing the catchup provision too.

Pat: Well, now, we should discuss doing the Roth conversion now versus when before you take your pension.

Scott: Anyway, tell us something else you did.

Vincent: Yeah.

Pat: Like, so this program's fun because we gotta do a little bit of financial planning, but we only get, it's typically only a handful of minutes and you never get quite the full picture. And so you both have the ability to contribute to 401Ks and 457s, which is unique to municipality employees, state municipality employees of some states. And so between the two of you, how much is going into your retirement accounts?

Vincent: Between the two of us, well, I said I'm putting 4,700 a month into the savings part.

Pat: 110 grand or whatever.

Vincent: Samantha is also putting 4,700 month into the savings plan.

Pat: So your taxable income is now back to...

Scott: Because your gross income is roughly 250, right?

Pat: Yeah. So your taxable income is back to about $140,000 a year.

Scott: Do you guys plan on staying, you're in California, is that right?

Samantha: Yes, we are.

Pat: Do you plan on staying in California?

Vincent: For currently, yes. We have families, we'll be here for a while for sure. Options are always open for the future though.

Pat: Have you looked at other states or had a discussion about moving?

Samantha: No, we have not looked at other states.

Pat: Okay. Nevermind. Okay. Don't leave just for the taxes unless you need it for your lifestyle. Otherwise, yes. Live where you wanna live. I mean, if you save enough money, then you can have the luxury of choosing those things.

Pat: So the, so you know, in that call I said we'll worry about the Roth when you worry about the Roth, which is, we were thinking when you retire, but your income will be the same now as it'll be in retirement.

Scott: They said the first thing they've done, let's go through. What are the other things you've done then? We'll then we'll add some more.

Pat: I'm digging in a little bit too quick. And what else did you do?

Samantha: What else did we do?

Vincent: What else we did? So we, from also from your call, from the original call you guys were suggesting about not moving it all when in retirement moving our savings plus into traditional IRAs so we have better... We did agree our thought is leaving our 457 along with savings plus and then moving our 401K to our traditional IRA. And so that would leave about 300,000 in each of our 457.

Scott: Which will give you plenty of flexibility based on what income you choose or choose not to take. Between 55 and 59 and a half.

Pat: Yes. Yes. Alright...

Vincent: So that...

Pat: Good plan. Go ahead. Yes, I agree. That was a great plan. Anything else?

Vincent: Yeah, so and one of the ideas also is, from our discussions, we're talking about the pensions, you know, bringing that down and we looked at a couple of options because with the state, you have one option where if the person in the pension passes away, the spouse gets the same amount. Or you have the one where if's called a 50% one where if the spouse is living and then under pension they get a certain amount, it's higher than a 100%, but if they die it drops for the spouse. And we're kind of looking at those, but like I said, we're kind of, we like the idea with if the pension stays the same, if one of us passes away because then you're not trying to recalculate how much to take out of your savings or anything to compensate for that or just keep it the same.

Scott: That's correct.

Pat: So this is a personal choice at this point for you because those dollar amounts are all the same if you look at a net present value based on a normal life expectancy for both you and your spouse...

Scott: And you have enough financial assets that one, like I could...someone can make an argument saying, look, we're just taking single life only when if I pass, my spouse gets nothing. Here's why that makes sense because we have all these other assets, blah, blah, blah, blah. And someone else can say, just like you're stating, we like the concept of just having it staying the same. That way we don't have to...if someone passes away, we don't have to worry about changing anything else from our financial lives. The only thing that would change that is if you actually had a medical history that made you believe that you had a shorter-than-normal life expectancy.

Vincent: Yes. Okay. That makes sense.

Pat: Or if you're in the...

Scott: Or longer.

Pat: Or longer, right? So if you had parents that lived to be 104, you'd be more inclined to take...

Scott: I can think of my client we had years ago. Her mother was a hundred and some odd or her grandma was a hundred and some odd. Her mother was. And so she wanted an annuity that had like a longevity insurance on it. Because she's like, I'm gonna live a hundred and some on it and I want to like, take advantage of that. So yeah, a product that was not medically underwritten and times for that.

Pat: But you make that decision as late in the cycle as you possibly can.

Vincent: Okay.

Pat: Right. So I know you, you're retiring in June of 2024. You can have the discussion today, but you don't know what your health is going to look like on that particular week or month or whatever. So you push that off as long as you possibly can and I'd be inclined to take the joint in life. If everything else remained equal, I would be, in your situation, you should probably more inclined to take the joint with full survivor benefits.

Scott: What else we got on the list here?

Vincent: Okay. Yeah, no, thank you very much. Appreciate that. And also in that call you were talking about whether or not to purchase a house or stay in an apartment or condo. We're still in that mode. We still don't know yet. We're just taking our time on that. And, but...

Samantha: But the phone call did make us think that we shouldn't keep thinking about the future, but we also have to think about the here and now. So it was a kind of a good wake up call to know that we need to bump up our 401 and 457.

Pat: Oh, absolutely.

Scott: Well, just anytime you have an opportunity to put money in retirement accounts. And so on that note, there's a couple ways to go about things. One is either look at a Roth conversion later in this year. The second is have some of these deposits go in on a Roth basis and not a pre-tax basis...

Pat: Which achieves the same objective.

Scott: ...which achieves the same objective.

Samantha: Oh. So opening up in the 401 and 457 into a Roth?

Pat: Yeah, there may actually, you guys are on top of all these things. So I think for you two if I were in your situation, I would look latter part of November, look where things are financially, calculate how much does it make sense to convert to a Roth in calendar year 2023.

Scott: That's right. And do it in early December and then do it again for next year, latter part of November, early December. Take a look at it.

Pat: Yeah. But there is some great planning opportunities there for you.

Scott: Yeah. And so when we said earlier don't worry about the Roth, now's the Roth because your income will actually, you know, from what you've shared with us, it looks like it's gonna remain completely level between your working days with your contributions to the 401K, 457 today.

Pat: I love talking to people like yourself just because, look, you've taken complete ownership of your finances from day one, right?

Samantha: Yeah.

Pat: You've saved well, you've got that financial independence and it just gives you a lot of options in life. And you sacrificed, I know you sacrificed early on in your careers, there were things that you guys chose not to do that you saw your friends and neighbors doing because you wanted to save the money, right?

Vincent: We tried. Yeah.

Pat: Well, no, you did more than try, you succeeded.

Scott: You did, you did. Great job. Good job. So congrats the two of you guys.

Pat: Yep. And just look at the Roth conversion around November, December.

Scott: Yeah. Appreciate, appreciate you guys calling back too. It was a nice chat with you. Hope things work out well and it's funny, Pat, we've been doing this program 28 years and part of the reason I like doing it, it's a bit educational for people. So I'm just telling you the story. So the other night my wife and I had dinner and we bump into a guy...a person, kind of a friend, like our kids grew up together. I mean, I don't think I've talked to this guy outside of bumping into him at stores, I mean years, but he's a friend. Like we're kind of chatting and so he says something to the effect of, "Oh, you guys, so you still doing your..." Maybe I think someone else at the table had said, made some mention of our radio program. And he said, "Oh, you still doing that?" And I said, "Yeah, [inaudible 00:50:10.048]." I said, "Apparently you're not a big fan." I just kind of joking with him. He says, "I think I got it." Oh, what's his response? Right? "Yeah. I think I got it, Scott." And I thought to myself like, do you really think that you've known everything you need to know financially? I mean, like...

Pat: Scott, compare that to this last caller we just had, right? I ask your opinion on my own personal financial matters, do I not?

Scott: I think I've got it.

Pat: But do I not ask you your opinions on some of my own personal financial matters?

Scott: And vice versa.

Pat: Yes. Because even if I thought I got it, I might not get it.

Scott: I get it if you don't wanna listen to the program, but it's fine. But it was just...

Pat: That's interesting.

Scott: It was just this response, like

Pat: Well, that might just be a little puffy, whatever, right?

Scott: I guess I should say I wouldn't, didn't take it personal, but I must have thought of it somehow because I'm still remembering it. Not that I expect people that... It's funny, I'm sure you're the same. I've had long-term friends, people I know quite well that I see on a frequent basis that if they've ever listened to the program, it's just by accident, once or twice driving. I could care less frankly. Actually, sometimes I prefer that to the ones who listen to every week and they wanna remind me of the car, that car you had there. I understand. Like, anyway, we're outta time. It's been great being here with you. Look, if you'd like to be a guest on our program, you've got a question for us, we'd like to take your call. You can send us an email at, and we'll get you lined up. Also, just throwing out, we've got a hundred-plus financial advisors and a variety of different markets across the United States. If you'd like to have a consultation with one of our advisors and see if it would make sense to...

Pat: Either in person or virtually, you know, go to and you can figure out how to do that there.

Scott: Yeah. And if you'd like this program both review us on where you listen to your podcasts as well as letting your friends know about it. So that's all we ask. Anyway.

Pat: We certainly appreciate our listeners. We appreciate our callers and that's why we do this.

Scott: It's been great being with you. Enjoy the rest of your week.

Announcer: 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.