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

Scott: Welcome to "All Worth's Money Matters." Scott Hanson.

Pat: And Pat McClain. Thanks for joining us.

Scott: That's right. Glad you are with us on this mid-March weekend. At least that's when we're recording our program.

Pat: Yes. And the volatility. Wow.

Scott: The markets continue.

Pat: Continue. That comes out and says, "Look, we're just gonna keep at it until it's fixed, until the inflation is fixed."

Scott: The markets have not liked that comment.

Pat: And it's a strange, you read more layoffs and layoffs and layoffs, and then you look at the job numbers and you're like...

Scott: We're spending.

Pat: Yeah.

Scott: Go to a restaurant. It's hard to get a reservation, right?

Pat: There's a complete disconnect. And you wonder, is it still cash just flushing around from the COVID eras? And it is, quite frankly, for the middle and upper income.

Scott: Well, what's interesting, Pat, is consumer behavior has changed. We as consumers have changed. And I actually think some of that lockdown, their perspective on some things have got a little different. And maybe some of the people were like, "I was so cautious and careful and conservative before, like, things can change quickly. Maybe I'm not gonna worry about tomorrow so much."

Pat: Like my son said to me, YOLO. YOLO.

Scott: This was a recent conversation?

Pat: About a year and a half ago. YOLO, You Only Live Once. Like, I don't know if I'm gonna live like that. I'm a little bit too conservative to live like that.

Scott: Yeah. And if you live a normal life expectancy, you better start saving. So, because most people can't be working very productively at 75.

Pat: But Scott, what we do know is that the savings rates, obviously, have plummeted, the amount that people save.

Scott: That's right.

Pat: And the saving out of their income has plummeted from the pandemic and... Not the pandemic. It's the...

Scott: Lockdowns.

Pat: The lockdowns.

Scott: You shut the economy down. There's nowhere to spend money.

Pat: And the lower your income is, the less savings you have now because you've been spending it to keep up with inflation. But the middle and upper class still has plenty of money, the highest savings levels that they've had for years and years. And quite frankly, consumer behavior is such people are comfortable at certain levels. I've been a financial advisor for over 30 years. Someone comes in with $5,000 in credit card debt, I show them how to pay it off. And then a year later, they come in with $5,000 in credit card debt, and I show them how to pay it off. And for whatever reason, they are comfortable. They don't change their behavior until it comes over $5,000.

Scott: Your example might have been about 25 years old because it might be maybe $50,000 in consumer debt of some sort.

Pat: Okay. Okay. Right. I am an old guy. So, inflation continues and the Fed will continue to raise interest rates.

Scott: And we've talked about in the past, this whole concept, TINA, There Is No Alternative. And up until last year, 2022, when the stock market kept going higher, people... You'd see this printed somewhere. I'm like, "Of course, there are alternatives." Look, stocks are a phenomenal place to be for the long term. If you've got 5, 10, 15 years, particularly, if you've got 15 years, like, why would you want your money in anything else than owning... Assume you're broad diversified, you own a broad basket of companies. They go up over the long term. These are the companies that produce the products and services that we all need, everything you can think about, right? That's what we're talking about. You're broad. Let's say you own the S&P 500 index. Over the long term, that's gonna do very well for you. Over the short term, who knows? It's anyone's guess. Historically, stocks have went down about one out of every three years. That's what's happened historically. Right? So, when you have a few years where things are going up, now we're looking like it's been over a year that we're in this bear market.

Pat: And now you don't hear that there is no alternative.

Scott: TINA is being replaced. I saw this article this last week or two. I thought it was hilarious because now Goldman Sachs came out with TARA, There Are Reasonable Alternatives. TARA. There Are Reasonable Alternatives, TARA.

Pat: I laughed when I read this.

Scott: Yeah. Inside investments come with TIARA, There Is A Realistic Alternative. And I think my favorite was Deutsche Bank, TAPAs, There Are Plenty Of Alternatives. I thought TAPAs is a little play on words because you go to TAPAs, you usually get a little bunch of everything, right?

Pat: Yeah. Especially, if you're going into the Spanish stock market. You can look at the Tapas.

Scott: But the reality is there have always been alternatives. There always will be alternatives. But when markets are down, those are great investment times to be buying. When they're up, not so great. So, when the market was up at its peak, that's...

Pat: And we won't say [crosstalk 00:05:54]

Scott: ...TINA. There's no alternative. Just put your money in stocks. Why don't you just have your money in stocks?

Pat: How much do you think that is just Wall Street fluff, garbage, rhetoric spin, yeah, versus, like, this is the real world?

Scott: Most people, Pat, that I know, veteran Wall Street people, veteran industry people, they don't time the market.

Pat: They don't.

Scott: Right? They don't. They don't even get that concerned about the ups and downs. I had a conversation with a very senior guy this last week. He's like, "Yeah. Market is gonna recover. Who knows when? We don't know when, but it's going to cover. It always has recovered." There's a guy who started with Paine Webber 30 years ago, an executive. And that's the kind of what most people...

Pat: But, actually, I was asked that the other day at the gym.

Scott: That guy's not on CNBC, given his prediction because it's boring.

Pat: They're like, the guy at the gym goes, "This must be a really tough time for you." He said, "You know I've been doing this 30 years. This is part of the program. This is the life I chose. In order to get to the excess returns over time, you have to live through the bad markets." And by the way, I have never heard more commercials on podcast or terrestrial radio than people pitching some sort of, you know, get-out-of-jail-free card, "You don't have to tolerate this. You can get great returns without market volatility." You can. You can get returns without market volatility, but they all come at a cost.

Scott: Yeah. A lower return.

Pat: A lower return.

Scott: Over the long term.

Pat: Over the long term. And am I, you know, hedging the portfolios for that? Now, my time frame is such that it makes no sense to hedge the return. Well, if you get a decade or more...

Scott: Yeah, it's kind of foolish.

Pat: It makes no sense.

Scott: You're not gonna time these markets.

Pat: And by the way, those downside, the cost of the downside protections goes up significantly during down markets when in fact it should actually do the other. Right? The further the markets go down, the less expensive the hedges should be, but that's not how it works. So, anyway.

Scott: And a part of this just comes from, look, we are all wired to avoid danger as a species.

Pat: Yeah. To seek pleasure and...

Scott: As all species for that matter. You avoid danger. You don't wanna get killed or eaten by the... Right?

Pat: To seek pleasure and comfort and to avoid danger. We're all the same. I shouldn't say all. Okay, 99.9%. Yeah.

Scott: Okay. And so what ends up happening when we look at our account statements going down, our natural tendency is, "Uh-oh, I better seek safety. I've got danger around me. I need to seek safety," but it is irrational to listen to those emotions. It's an emotional reaction to the marketplace, 100%. All right. Let's take some calls. If you wanna be part of the program, we'll schedule time for you to join us and we could be just about any time. And so we love our callers because they ask us interesting questions and we get to meet interesting people. So, to be part of "Allworth's..."

Pat: I just really like the callers.

Scott: What'd I say? I love them.

Pat: We've had this conversation before.

Scott: I love ice cream too. I mean, I love lots of things. So, it's not like I love my kids, obviously.

Pat: Okay. Well, I just think that the word love is greatly overused.

Scott: Okay. Fine. Pat doesn't like the word love. 833-99-WORTH is our contact number. 833-99-WORTH. You could also send us an email, questions@moneymatters.com. We're in California talking with Helen. Helen, you're with "Allworth's Money Matters."

Helen: Hi.

Scott: Hi, Helen.

Helen: You have consistently great information and you're a lot of fun.

Scott: Well, thank you.

Pat: Thank you.

Scott: Pat, this is why I love our callers.

Pat: Okay.

Scott: I don't get this sort of accolades at home. Right?

Pat: No. That's why you own it.

Scott: Yeah. That's very, very true. Thank you very much, Helen. What can we do to help?

Helen: I'm in a pickle and I got here in the last six years without realizing. I am 68. I feel like I'm 58. I have no debt. I'm single and have always been self-supporting. And I'm not collecting Social Security until 70, at which time it will be $44,940 a year. My relatives have all lived to their mid-90s and I'm not planning on taking RMDs if I can help it until 72 or 73. So, the pickle is this. I heard, you know, how important it is to plan for taxes before retiring, but I heard all this too late or more like I was actively getting myself in trouble when it was planning years for that. So, I'm newly on Medicare because I'm working little this year. For the first time, I'm not working full time. So, I have to worry about IRMA for parts B and D. And honestly, I wonder at what age people become aware that Medicare premiums can be over $600 a month. That must unsettle a few stomachs.

Pat: Yeah. It's needs-based. Medicare is needs-based because if you didn't earn the money, it wouldn't be $600 a month.

Scott: That's right.

Helen: I know that, but I really wonder how many people are shocked.

Scott: Yeah. By the way, Helen, most people, it's not a problem because the vast majority of Americans aren't in that situation. For the majority of retirees, get this, the majority of retirees in the United States, Social Security comprises the majority of their retirement income.

Pat: Over 50% of the population relies on Social Security as their primary source of income.

Scott: This primarily hits people who've saved well over the years.

Pat: So, tell us about your situation. How much money do you have in your IRAs?

Helen: Well, I have $1 million for in tax-deferred work 403B type of stuff. Actually, some of that, a very small amount of that I actually managed to roll over and get my hands on. And then I am working only some hours and I'm only making $45,000 a year right now. But I'm having $30,000 go to tax-deferred retirement out of that small amount. And I hope to keep that up for a little bit. I don't know how long I can keep any of this after...

Pat: Are you going into Roth?

Hh: No, I wish. I wish, but no. So, tax-deferred is just going into the work 403B.

Pat: Okay. And then how much money do you have outside of IRAs?

Helen: I have about $900,000 in cash, and I'm living on the $91,000 that's in my checking. I have a $60,000 Roth that I have set up for the purpose of doing Roth conversions, but I haven't done any of those yet.

Pat: We're missing so many good things. You're making me sad. You're making me sad. You're making me sad.

Helen: I'm making me sad too because I know [crosstalk 00:13:28]

Scott: Do you have other investment accounts?

Helen: I have about $1,060,000 in a brokerage. And the pickle part is really bad. This is in the last six years. I don't make a lot of money or have a lot of money, really. I'm not one of those... I'm in the former category that you were describing about people making only Social... Social Security is actually gonna be my main source of income by the time.

Pat: No, no, no.

Scott: You've got over $3 million in savings.

Pat: Let's just so we get this right. You have $1.4 million in qualified dollars, 403Bs, IRAs. You have $900,000 in cash. You have $91,000 in brokerage. And you have $1 million...

Scott: Checking.

Pat: I'm sorry, $91,000 in checking and $1,060,000 in a brokerage account.

Helen: Right.

Pat: Okay. I'm not super good at math, but that's over $3.5 million. So, there's so many things you're missing. I don't know if this program is actually long enough.

Scott: Oh, come on.

Pat: No, I mean, truly, Scott. She's continuing to defer all that income into a qualified...

Scott: What's your pickle?

Pat: Yeah. What is your pickle? What do you think the problem is?

Helen: Well, the reason I'm deferring is because I need to get out of a situation where I bought some stocks in the last five years. It was during the time that I should have been planning for taxes and retirement, but instead, I was getting myself in trouble. So, I bought two stocks that ran way up and then, you know, now there's all these capital gains, so one of them has over $1 million, $1.1 million or $1.2 million of capital gains alone.

Scott: Wait a minute. Let me back up. Is this in addition to your million dollars in your brokerage account?

Helen: This is actually an addition.

Scott: Okay. Sure.

Helen: But it's just a stroke of luck.

Scott: Oh, who cares what it is? I mean, look, you invested in the company. If you had not invested in the company, you wouldn't have it.

Pat: So, tell us, what are the two stocks?

Helen: They're biotech and medical technology.

Pat: And how much is the value of both of those combined?

Helen: Oh, I see. About a million three, four.

Pat: Okay. And what was your basis on this?

Scott: How much did you invest?

Pat: Thank you.

Helen: Well, the first one was, like, $45 a share and then it split 4 ways.

Pat: Yeah. How much did you cash? How much cash? Like, did you buy $10,000, $20,000, $50,000?

Scott: You've got over $1 million in capital gains in this, you said, right?

Helen: Well, the long-term capital gains on the first one are about $1,008,000. And the long-term capital gains on the second one are, like, $200,000.

Scott: Okay. So, it's almost done.

Pat: This is a good pickle, by the way, Helen.

Scott: Oh, my gosh. We feel so badly for you.

Helen: I'm so happy.

Pat: This is incredible. You're fine. You're absolutely fine.

Scott: There's some planning opportunities here, but from a financial standpoint, you're obviously in great shape.

Pat: If you were sitting in my office right now today, I would be telling you to spend more money. You know how much you should be spending? You start running the numbers on this, even with a modest growth assumption, you're gonna have problems. You should be trying to spend $125,000 to $150,000 a year.

Helen: But I'm not retired yet.

Scott: Or giving or do something.

Pat: Or giving.

Helen: I'm not retired yet, and I actually have three wonderful, amazing children, so, I'm worried about all of that in the big picture.

Pat: So, let me ask you this question, Helen. Are you doing the 403B contributions of $30,000 of tax-deferred to lower your income so you can sell some of these stocks and have the gains?

Helen: Absolutely. Absolutely.

Pat: Okay. Well, then that might make some sense. And let's talk about your kids. Are they in a lowered tax or any of them in college or not working right now?

Helen: Grad school.

Pat: Have you looked at actually gifting some of those shares, highly appreciated stocks to your children?

Helen: I don't think they're stable. I think they can disappear, like, tomorrow.

Pat: The kids.

Helen: Not the kids.

Scott: The kids.

Pat: Well, then, look, if you believe that, then you should take the hit on the gains.

Scott: And just sell and move on.

Pat: And just sell them and move on and pay the tax. If you truly...

Helen: Even if you pay 58% taxes or something?

Pat: Long-term capital gains.

Scott: Long-term capital gains, a maximum rate of 20%. You're in California, and then you get the 3.8% Medicare tax.

Pat: So, 30%.

Scott: A little higher than 30%. Thirty-five percent.

Helen: And the Obama tax.

Pat: Yeah, we included that.

Scott: Yeah, 3.8%.

Pat: We included. But the point being, if you truly believe that these things could disappear tomorrow, then...

Helen: I do.

Pat: ...take the tax hit and consider yourself blessed.

Helen: It's as simple as that? I was trying to figure out a strategy to, you know...

Scott: So, here's a couple strategies you can employ. One is, Pat, was leading you down that path. You can give these stocks to your kids or some of them to your kids. Once you do that, it's no longer your money. It's their money to do whatever they want. You can set up a charitable remainder trust or a variety of those sort of things where you give these stocks to a nonprofit in exchange for an income stream.

Pat: And the nonprofit then sells the stocks, doesn't incur any gain because they're gonna turn it into an income stream. You could just gift them to a charity if you were so inclined, and not get income from it.

Scott: Or donor-advised funds. You can set up like a family foundation. Super simple.

Pat: And you could put money... I have a donor-advised fund, myself, Scott Hanson has one. I put appreciated shares in it. I do it about every third year, just for tax planning purposes. And if I die, my kids are listed as beneficiaries on how they dole the money out. There's a lot of things you could do. But the reality is, if you truly believe that these things could disappear tomorrow, then you're worried about paying tax on it, the question is, are you more worried about paying the tax on it or them disappearing? Because if they disappear tomorrow, you won't have any tax implications.

Helen: Right. That's a good question. I don't mean to sound ungrateful, but, honestly, I don't feel that I have enough money to survive in California.

Pat: Okay. Well, I'm not gonna... Look, I've been doing this 30-plus years. Based upon the fact that you have not made tons of money and you have this much money, you're the last person I'm going to worry about.

Scott: That's correct.

Pat: You show me someone that doesn't worry about money, I'll show you someone that doesn't have any.

Scott: And it's quite natural, Helen. You've probably, your whole life, been a little concerned about the future. You've saved well, right? You hit a savings goal, and you get there, and you're like, "Well, this isn't really enough." And you have a new goal, right? And then you hit that number, "That's not quite..." And now you're at a point, you got about 5 million bucks of savings and investments, and you're thinking, "I don't know if I have enough money to survive on."

Pat: That's normal.

Scott: You put a zero behind that, you'd feel the same way. And I'm dead serious.

Pat: If you had $50 million, you would feel the same way.

Helen: Getting a house alone will wipe it all out, right?

Pat: But you said your home was paid for.

Helen: The home is paid for.

Pat: Okay.

Scott: I mean, most homes in California, they may be expensive, but they're not 5 million bucks.

Pat: So, the question on those stocks. And if you're uncertain, you don't have to use any one of those techniques that we talked about. You can use a combination. So, if I was uncertain at all, like, I don't know, I'm not sure, I'd sell half of them tomorrow and pay the capital gains. I'm just telling you what I would do. And then if my kids are in a 0% tax bracket, maybe...

Scott: I mean, you could look at using a put option on sell half of them this year.

Pat: Makes sense. And put a put option on it, which is the downside protection on them.

Scott: And wait until sell the other half of the January of 2024.

Pat: Yeah. And you're gonna worry about this... You talked about this Medicare thing for the $600. That's around... You're gonna live with that forever. You're gonna pay that.

Scott: No, she's not gonna pay that much. She's gonna have high capital gains for a year or two, and she's gonna have a couple of years without huge income, and then her requirement of distribution is going to be [crosstalk 00:22:10]

Pat: I understand, but I would encourage her to rather than wait for the RMDs, to actually start converting her...

Scott: Helen, can I ask you? Have you ever used a good financial planner?

Helen: I want one, actually.

Scott: Okay. Because, I mean, all the planning opportunities... And look, it's not free hiring an advisor. I get it. We're in the industry. And sometimes people are like, "Well, it costs..." But typically, when people end up with higher networths, and you've got a variety of planning opportunities, a good advisor is gonna more than pay for themselves just in the planning opportunities.

Pat: Yeah. And actually, what a good advisor will do for you is actually, will actually let you know it's okay to spend the money. Quite frankly.

Helen: Okay.

Pat: I have a client with over $10 million and I have to send him a check every month or he will not spend it. And he tries to send it back to me. I'm just telling you. And he's 80. And now, finally, he rents a private jet when he flies because he only flies a couple times a year and I'm like, "Buddy, you're not running out. You worked for it. Enjoy it." That's a big step. I remember the... And when you're in your 80s, you're closer to the end.

Scott: That's right.

Pat: So, you've got lots of planning opportunities. Either sit down with a qualified advisor or if you really believe that stock is gonna go away tomorrow, I'd get rid of half of it. And I like your idea to put options, but, Scott, I kind of disagree. I think she should start taking money from the IRAs early or most certainly converting to Roth.

Scott: Not probably this year. Because you're single, you could do almost $500,000 a year in capital gains and it'd be at a 15% bracket. So, what might make sense is to look to see what the cost would be to basically ensure part of this portfolio. You do that by using options for part of that portfolio, which enables you to essentially lock in a price today. There's always cost. And then you can sell the other half January of next year.

Pat: Makes sense.

Scott: But the markets move so fast too that, like, you kind of need to be on these...

Pat: It really does. The biotech. And we didn't even ask if it was a biotech spec [SP].

Scott: Yeah. Appreciate the call, Helen.

Pat: Yeah. And, like, Novavax, they think it's gonna file for bankruptcy. They got, like, $1.5 billion from the government on creating a vaccine. You would have thought, like... But the government did never liked the vaccine they came out with. And so they're almost they're in death's doors now. I'm not an expert on the company, so, if I was slightly off in my little analysis, please keep your emails to yourself.

Scott: That's right. Not until we get them. But anyway, I do appreciate the call, Helen. And it is interesting, Pat, that I find a couple of things interesting about this when we spoke to Helen it's... One, the reasons that she doesn't have an advisor now. My guess is she was probably burned by some sort of 403B salesperson. She comes from the school district, most likely, 403B.

Pat: Or hospital.

Scott: Someone probably sold her some financial product years ago that wasn't that great and scared her off from the industry.

Pat: And look, I understand the scarcity mentality.

Scott: I do, too.

Pat: Right. I understand it.

Scott: I do too.

Pat: And I actually have to work on it. My kids are like, "Why are you so freaked out that there's leftovers and we don't eat them?"

Scott: Well, it's a waste.

Pat: It's a waste. It's a waste. And where I grew up, man, you ate all the leftovers. There was nothing... I think that's probably the way it is in most people's family today, don't you think?

Scott: I think so. Yes, Pat. I don't wanna waste food either. But we're gonna take a quick break. When we come back, you'll hear more of "Allworth's Money Matters."

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

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

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

Scott: Yeah. Let's...

Pat: Let's give out our phone numbers if you want to join this show.

Scott: We just did. How many times do we have to give it out?

Pat: Most people listen to podcasts, not, like, they're driving around in their car flipping around channels anymore.

Scott: 833-99-WORTH. 833-999-6784. I guess it is on the thing.

Pat: Yeah, most of the people are.

Scott: Yeah.

Pat: I don't know. I am.

Scott: Huh?

Pat: I listen to podcasts. Although I like terrestrial radio parts of the day. Parts of the day I like the terrestrial radio.

Scott: I do a little bit.

Pat: I go back and forth.

Scott: Anyway, let's... People don't care what we listen to, Pat. I'm just saying. Let's go to Colorado. We're gonna talk with Mike. Mike, you're with "Allworth's Money Matters."

Mike: Hi, Scott and Pat. I certainly enjoy your show. You always have interesting conversations that we can all learn from.

Scott: Thank you.

Mike: So, thank you for taking my call.

Scott: Thank you.

Mike: And I have a question about taking Social Security, when would be beneficial to take it? My wife and I are both retired. I'm 68. She's 65 in April. We have about $3.2 million in IRAs, Roth IRAs, 401(k)s, and Roth 401(k)s.

Scott: How much of that is in Roth versus pre-tax?

Mike: The Roth is pretty minimal of that. About 55K is in Roth.

Scott: Okay.

Mike: We have been doing some Roth conversions in the last couple of years, but it's been pretty minimal to keep within that lower tax bracket.

Pat: And what do you have outside of IRAs or qualified money?

Mike: We have about 156K in a brokerage account, and about 10.5K in cash.

Pat: Okay. And what income do you have coming in? Do you have pensions?

Mike: We will have a monthly pension of $850 starting in April.

Pat: And when did you retire?

Mike: I retired in April of '21. My wife's been retired for a couple of years, so she's been retired a little bit longer than me.

Pat: And what are you living on?

Mike: But me about two years.

Pat: Yeah. What are you living on?

Mike: So far, we've been living on some seedy ladders that we had built over the years, and we pretty much exhausted those at this point.

Pat: And you were doing the Roth conversions this whole time, correct?

Mike: Correct. Yes.

Pat: So, you didn't miss this planning opportunity with low income to do the Roth conversions?

Mike: No.

Pat: Okay. Thank you. Thank you.

Mike: We tried to convert as much as we could while staying in that lower of the 15% tax bracket as much as possible.

Pat: And you had a question about Social Security, which, by the way, coincidentally, we are having a Social Security workshop, and this was not planned. We didn't line up Mike for this call. You're like, how opportune was that? Although, had we thought about it, we might have, but we didn't. We have them coming up. Scott, do you have the dates?

Scott: Yes.

Pat: I saw it on our website.

Scott: Well, there are a variety of dates between March 22nd and April 1st in Sacramento, Denver, Cincinnati, and the Bay Area.

Pat: So, I don't know what your location to Denver, but we have a live event in Denver about Social Security. It's called the Rule of Five. Now, go to allworthfinancial.com/workshops. Now, let's go back to you. That was a shameless plug. We are in business, right? We are in business. Let's not forget for a minute that we...

Scott: You don't hear a lot of ads during the podcast.

Pat: But we are in business. We do have paying clients. So, how's your health and how's your wife's or your spouse's health?

Mike: We're both healthy. Don't have a lot of medical issues, so that's not a problem for us at this point in time. And what I'm kind of trying to figure out is whether I start Social Security now to kind of offset what I'm gonna need to pull from the retirement accounts for a few years or should I wait until 70?

Scott: You're, like, in the perfect planning window because you've probably heard us say sometimes, rule of thumb, if you got over-saved, take it as early as you can. If you need it, wait until you're 70. You're in kind of that sweet spot of planning opportunities. I mean, if you could tell us the day you're gonna die, it'd be super easy, so we could just go by some broad assumptions there. And then part of it depends on how much you wanna leave to your kids. Part of it depends on what degree of certainty you wanna have in other areas of your portfolio. And Pat kind of joked talking about the Social Security, the shameless plug, but, I mean, there's some...

Pat: We have a program that actually will show you...

Scott: The scenarios.

Pat: ...like, if you start now and don't take income from your portfolio and you die at age 90, this is how much will go to your kids. If you start now, then the portfolio either goes up or down or it spikes for a period of time and then it comes back up just by starting at higher income now and less Social Security. So we play with this thing. And typically, at the end, you're better off deferring Social Security assuming you have a normal life expectancy. The problem is if you die prior to that, a normal life expectancy, it goes negative. So, you would have been better off actually starting earlier. But we map that all out. The thing here is I don't think your income is gonna be high enough that you should worry about losing Social Security with changes in tax code. Scott?

Scott: Yeah. Well, not for... So, if you had to do required minimum distributions this year, it'd be about 115 grand you'd have to take out.

Pat: Yes.

Mike: Okay.

Scott: So, by the time you hit age 72, 73, it's been moving now, odds are your accounts are gonna be worth more than they are today. So, it's probably going to be higher than that.

Mike: Okay.

Scott: So, I mean, when you add Social Security on top of it, your income, it's not gonna be long before you're at 200 grand a year.

Pat: That's right. That's right. And so, actually, I don't...

Scott: You gotta run the number. I mean, we're [inaudible 00:33:06]

Pat: But I think that you should... Because you only have $55,000 in Roths right now and you said you've been doing the conversion, I don't think you've been doing enough of the conversion there. And if you don't have the money to pay taxes on the conversion, then I would probably start the distribution from the IRA now and live off them and possibly defer Social Security.

Mike: Okay.

Pat: And sometimes you don't know, and so maybe you start your Social Security today and you defer your wife's Social Security till age 72.

Scott: She's working, so her...

Pat: She's still working.

Mike: No, she's retired.

Pat: That's right. That's what I thought.

Scott: Oh, the pension just starts when she turns 65.

Mike: Yeah, right. Correct.

Pat: And what's her Social Security... If you guys both took Social Security today, what would the dollar amounts be, ballpark?

Mike: Let me see. Mine would be about 51K a year. Hers would be...I'd have to calculate it, but I see it's $3,187 a month.

Pat: Yours sounds high.

Mike: Yeah. If I wait till 70, that would be the max you can draw on Social Security.

Pat: Yeah. That's right. So, yours isn't that high today.

Mike: No.

Scott: And it's 70. Yeah, yeah. That's kind of one.

Pat: Yeah, yeah. Because that number sounded high. So, I don't think we're gonna...

Mike: That would if I wait until 70.

Scott: So, we're not gonna... We're just talking off the...

Pat: We're not gonna get to an answer.

Scott: So, here's some other factors you need to consider, right? And the reason we asked about the dollar amounts is because when your husband and wife get Social Security, they receive the greater of either both benefits or 150% of the largest benefit. So, let's say, assuming that you had a spouse that stayed home and raised the kids and never was in the workplace or were just very minimal, then their Social Security would be worth very little and so they would get 50% of their spouses when they received it. But when a spouse passes away, it pops up to whatever the greatest amount is. There's a three-year age difference between the two of you, number one. Number two, males tend to have a shorter life expectancy, so there's a good chance in the future, high probability, that you will pass before your wife and her Social Security is gonna pop up to what your Social Security was at the time. So, all these facts... But she's also in a position where her Social Security is large enough she would receive that, not just 50% of yours.

Pat: I'd have a tendency if... I'd run through the numbers, but I think at the end of the day, we'd end up with your wife starting Social Security now, you deferring Social Security.

Scott: You're probably right.

Pat: And I would actually then start taking more money out of the IRAs today and paying taxes on them in order to live. And I probably wouldn't do as much in Roth conversion because I might wanna keep that $156,000 in brokerage account available.

Scott: Well, you can also Roth convert and take extra money to go to the taxes.

Pat: That's right. Or live off of it. We're getting to the same place. But if you asked me just on the Social Security, I'd start my wife today without running the numbers. But being a financial planner, I'd end up running the numbers.

Scott: The $3.2 million in your retirement accounts, how are those dollars allocated?

Mike: They're spread across various broad market index funds.

Scott: Okay. Okay. Perfect.

Pat: Wait. All stocks?

Mike: Yes. Well, no, there's some bond in there too.

Pat: Okay. All right.

Scott: Thank you.

Pat: The reason I asked is when you had the bond ladders, I was like, "Is this all gonna be bonds in there too as well?"

Mike: No, no.

Pat: A CD [inaudible 00:36:42], excuse me.

Mike: Probably my portfolio is about 60-40 stocks to bonds and my wife is 50-50, I believe.

Scott: And what do you guys figure you spend a year to live off?

Mike: Well, right now it's pretty high. It's about 120K a year.

Pat: Why is that high?

Mike: I don't know. It just feels high to me.

Pat: I don't think it's high at all. I don't think it's...

Scott: Not relative to your...

Pat: Not relative. Well, that's what you spend in the taxable. No, that's just about right.

Scott: No. Three million, a 4% distribution on that?

Pat: Yeah, yeah, yeah. And then you add Social Security in there.

Scott: A hundred and twenty thousand, add Social Security, another quite a bit.

Pat: Yeah. That pays the taxes off.

Scott: And another 10 grand a year from pension.

Pat: Yeah. Yeah. A hundred and twenty doesn't sound high.

Scott: Nope.

Pat: In fact...

Scott: Totally agree.

Pat: ...head on down to the Chili's and celebrate the fact that you could spend $120,000 forever.

Mike: That'd be great.

Pat: Yeah. Don't go to the French Laundry because you'll...

Scott: Oh, no, because that's the bad move. Just the Chili's.

Pat: I appreciate the call, Mike.

Scott: I appreciate the call. Yeah.

Mike: Okay. Well, thank you very much.

Scott: All right. Thanks.

Pat: Actually, you know why I mentioned Chili's? Is I just read an article where they brought in new management and how he's revamping the Chili's. The first thing he did was start with the menu and he shrunk the menu immediately and then studied how long it was to actually make each dish and what kinds of plates they sat on so that they wouldn't have any redundancy. And I thought, management, I mean, this is just, like, someone walked in one day and goes, "Why are you doing that?" Right? Anyway, I thought about Chili's because we used to eat there years ago.

Scott: When you had younger kids.

Pat: Oh, my gosh. I mean, they had their own little parking spot and they'd greet us all by name.

Scott: At Chili's? When did you eat at Chili's?

Pat: Oh, I didn't eat much, but the kids loved it. But I was thinking about Chili's as I said that, how important management and actually every business examines their business structure as they go along. And then I always remember what Warren Buffett said, "People think they're buying stocks, they're buying companies."

Scott: A hundred percent agree with you.

Pat: People think they're buying stocks, they're buying companies. And when you're buying companies, you're buying management in companies.

Scott: And the reason index funds are so popular because it's very hard to distinguish quality management and non-quality management.

Pat: Exactly.

Scott: Like, Jim Collins wrote a book, "Good to Great," I don't know, it was 20 years ago or something, 15 years ago? I haven't seen the study lately, but if you look at the companies... So, he highlights all these different companies in the same industries. "This one barely did anything. Oh, this one, phenomenal growth, incredible, all this." But then if you look at those same companies in subsequent 10 years, there is no major...

Pat: Nothing. Because then he wrote a book called "From Great to Good," which is the backside of from "Good to Great." From great to irrelevant, the story of Woolworth and Company.

Scott: "How to Reach the Highest Level of Mediocrity." That's the book I'm gonna write. "The Highest Level of Mediocrity." All right. Let's continue with calls here. We are in Maryland talking with Larry. Larry, you're with "Allworth's Money Matters."

Larry: Hi, Scott. Thanks for taking my call.

Pat: Hi, Larry. I had a beautiful... I had the chance of going to Baltimore. I hadn't been there for a long, long time and I really enjoyed myself. I thought that what they have done with the waterfront was beautiful.

Scott: How do you know he's in Baltimore, Maryland.

Pat: Because he's right in there.

Larry: Close enough, about an hour from there.

Scott: All right, fair.

Pat: I mean, everything's an hour from everything in Maryland.

Larry: Right. It's pretty small.

Pat: That's pretty true. That is true. Okay.

Scott: What can we do?

Larry: Well, Pat and Scott, I listen to your show regularly on podcast and I'm looking to do a late-in-life career change.

Scott: Awesome.

Larry: So, before I get ready to make a fatal flaw, run some numbers past you and make sure that I'm not making a mistake that I'm gonna regret later.

Scott: How old are you, Larry?

Larry: I'll be 59 in July.

Pat: And are you married or single?

Larry: I am married. My wife, Anne, is 2 years younger, 57 in April.

Pat: And all the responsibilities of children have left the house?

Larry: The children have left the building.

Scott: Okay, perfect.

Larry: Adults on their own.

Scott: All right. So, lay out the situation.

Larry: All right. So, I've been at a commercial utility for about 33 years. I did military time for eight years before that. Looking to leave the commercial utility and take a government job working for the military for the Department of Defense and buy back military service time towards retirement, etc.

Scott: Thank you. Thank you. And your question is, like, from a financial standpoint? I know it's gonna be very creative. Yes.

Larry: So, I was gonna...making sure that from a retirement perspective, making sure that...because it is a considerable pay reduction to go down there just to make sure that I'm not gonna be making a mistake that I regret in a year or two.

Pat: How big of a pay reduction?

Larry: So, currently, our family income is approximately $260,000 a year. It'll go down about $180,000 a year.

Scott: And how much... Is that $260,000 all of your comp from the utility company or does that include other sources?

Larry: That's comp. Family income, mine and my wife's.

Scott: Well, do you have a pension from your military service?

Larry: I do not. I will when I retire from [crosstalk 00:42:30]

Scott: You will once you get two more years.

Pat: And will you receive a pension from the utility that you're working for?

Larry: It is a retirement plan, but it's a defined contribution plan, not a defined pension plan.

Scott: Did they used to have a pension plan that they froze years ago and some cash balance plan now?

Larry: They did. They did.

Pat: And how much is in the cash balance plan?

Larry: Seven hundred.

Pat: And how much is in your 401(k)?

Larry: I have $350,000 in my 401(k). I moved the $1.2 mil over to an individual retirement account a few years ago.

Pat: So, you have 2.25...

Scott: You don't have a lot of savings for...

Pat: But he's got $2.25 million.

Scott: Yeah.

Larry: Correct. In those two accounts. I have another $110,000 with a brokerage account. I have about $210,000 in FDIC-insured accounts. I have about $90,000 in money markets I've been goofing off with for the last 30 years.

Pat: And your wife has some in her retirement plan as well.

Larry: She has 125 in her 403B. She'll have a school system retirement plan.

Scott: Let me ask you this. Do you think you would work longer with a new job than staying in the old job?

Larry: Absolutely.

Pat: Money aside. What's the reason that you wanna take the new job?

Larry: Work-life balance, quite frankly.

Pat: Positively, I'm guessing?

Larry: Absolutely.

Pat: Yeah. Look, you're 59.

Scott: We can run a financial model, frankly, to tell you whatever you wanna hear on this stuff, right? But you factor in what a military pension is gonna be by the time you retire in the future, you get that credit for those eight years and you don't have credit for now. That makes a tremendous difference.

Pat: That's right. And you bridge it and you've done the math. We know you've done the math because of how you have saved. I assume you have no mortgage on your home.

Larry: That's correct.

Pat: Yeah, of course. You're picture-perfect.

Scott: I think it's brilliant.

Pat: Yeah, I think it's great.

Scott: And the reason I say, look, there are so many people who come and talk with us and they're like, "I've been at this job for 29 years, I can't stand it. How many more years do I have to work so I can retire?" Right? And then you talk to others who are doing something they really enjoy and they're like, "Well, I wanna make sure I'm financially set so I can retire, but I might keep doing this until I won't have anymore. I'm just gonna continue on because I like what I'm doing." So, you're 59, you could be saying, "I'm going to retire today or at 62 and I hate my job, I wanna retire." And instead, you're saying, "Why don't I go look at a new opportunity?" And from a financial standpoint, it's gonna work out in your favor anyway...

Pat: Correct.

Scott: ...to the pension.

Pat: It's very accretive to the pension, extremely accretive to the government pension.

Scott: And when you factor in, you'll end up working longer, more years there.

Pat: And you may be happier.

Larry: That's the objective.

Pat: Yeah. Look, you did the hard part, which is you got enough money to retire comfortably. That's done. Check that box. Right? Now it's about how do I stay engaged and give myself purpose, right, people and purpose so that I actually stay engaged, so that when you finally retire, you do it on your terms, not because you hate your job, it's because you're like, "I'm ready to move on?" But I think if you were sitting in my home...

Scott: Or if you have enough balance and you do those things you wanna do while you're working, you might think, "Well, maybe I'll never retire."

Pat: That's right. So, congratulations, I mean, truly. Enjoy it. And by the way, if you get into that job, remember, the bridge starts almost immediately, right? So, you bridge that service immediately because it's based on years. And are they gonna ask you, did you withdraw the military money before or the government money before?

Scott: He's gonna have to pay it back.

Pat: You gotta pay it back.

Larry: Never did. Never had a government payment or retirement rate.

Pat: Okay. Perfect, perfect, perfect. And if you get in that job and you realize you don't like it, then quit. You've got plenty of money.

Larry: Alrighty. Appreciate your time, gentlemen.

Scott: All right. Glad you called, Larry.

Pat: Thanks.

Scott: Congrats.

Pat: Congrats. Yeah. When he started going through the list of all the assets, you knew there was gonna be a lot more that could be on...

Scott: When he first said what he had, I'm like, "You've got $260,000 and you only have $350,000 in your retirement account? We got a problem." And then...

Pat: "I move $1.2 million out." You know, like, okay. We've seen this movie.

Scott: Hey, before we wrap up the program, there's a story that we both talked about and we had forgot to mention in the program.

Pat: Scott and I, we visit a couple of times a week, and if there was an article that I found interesting, oftentimes I will bring it up to Scott, and about 80% of the time we actually land on the same...

Scott: Well, what's funny is that we have a process that...well, my process, anyway, throughout the week when I see an article that I find particularly interesting that I think, "Maybe this would be a good..." I'll send an email so it'll get printed out and sits here in front of...on paper, old school, but it's in front of us so we can share it.

Pat: And I do the same. And oftentimes 80% of the time is the same articles.

Scott: That's funny.

Pat: Which tells us...

Scott: Well, I was just looking today, I'm like, "These are all the same articles."

Pat: So, we wanna talk about the... If you listen to this show for any length of time, we've talked about how this crypto thing was gonna end poorly...

Scott: For most people.

Pat: ...for most people.

Scott: Not all.

Pat: And not for a lot of the promoters, the people that actually created the... The ones that were very top of the pyramid in the pyramid scheme they will do well. Even the promoters have been sued by the SEC, so they're not gonna do quite as well.

Scott: Including the celebrity promoters.

Pat: Oh, which is great to see.

Scott: I know they're not being sued by the SEC.

Pat: They've been fined by the SEC for actually promoting unlicensed securities.

Scott: Oh, yeah, there's ongoing... I don't know if they've been fined yet. I think there's ongoing investigation.

Pat: Yeah.

Scott: They could get in trouble.

Pat: Yeah. For promoting unlicensed securities, but they're being fined by people that have lost money in these pyramid schemes. So, this Silvergate Bank was one that just shut down. And this is a California lender. It used to be a lender that actually was involved in primarily real estate, but a number of years ago, they decided that they were gonna get into the crypto business, which just didn't make any...

Scott: You're talking about management. Management decision.

Pat: Correct.

Scott: Chili's you're happy with.

Pat: Yeah, I guess. Yeah. It makes sense for Chili's to continue to serve food.

Scott: There we go.

Pat: But a bank that was a lender that all of a sudden pivots to become a crypto, no sense. So, they're shut down.

Scott: Yeah. It's really interesting because this is a bank that it's like old school, like, basic banking business that shed and sold off those pieces just to focus to become a bank for crypto.

Pat: Whatever a bank for crypto does.

Scott: I don't really know it. I was still kind of scratching my head with "What is that really mean?" But it's going to wind down... And if you own a stock in that, you...

Pat: Yeah. They've been doing it 10 years in the crypto. So, as they say, another one bites the dust. And this one, we will continue to watch the crypto universe implode. I guess it would be the metaverse. It will continue to implode. And I believe that we have just started watching this.

Scott: With what?

Pat: With the cryptocurrencies, the regulations coming in, the governments.

Scott: The ripple effect of it all?

Pat: Oh, yeah. Look, it was created for the transfer of illegal dollars. That's what it was built for. And it was hijacked by some group that wanted to think that it was Beanie Babies without the Beanie Babies.

Scott: Yeah. Anyway, it will be interesting to see how it all finishes up. Well, it's been great being here with everybody this weekend. Glad you took the time to join us. Pat did mention the Social Security Workshop.

Pat: You should mention it again, though.

Scott: So, I'm gonna give a shameless plug on it this time, because the workshop, you're gonna learn things such as how to determine what your retirement income needs are to begin with, just plain simple, but some different tactics to plan the best time to start claiming your benefits, understand how the benefits are taxed when they're tax-free, when they're taxed at 50%, when they're taxed at 85%. Let me rephrase that. When 50% is included in your income and 85% is included in your income. What changes could impact your benefits and some planning strategies to help maximize your retirement income.

And there are some strategies, and we lay these out in the workshops. There's, I think, three different scenarios where, depending on your claiming strategies, how it not only impacts your income today, but to your portfolio and your net worth by the time you pass away. So, if your objective is to leave as much as possible to your heirs, you might go one path. If your objective is to have your last check bounce, you might go another path. Right? So, it kind of goes through all those things. And we've got these in Sacramento, Denver, Cincinnati, and the Bay Area. There are various days and times between March 22nd and April 1st. So, essentially, the last week of this month and April 1st in those cities we mentioned. For more information and to sign up, go to allworthfinancial.com/workshops. And we will see you there. So, anyway, thanks for taking the time to be with us. See you next 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.