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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-WORTH.

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

Pat: Pat McClain.

Scott: Glad you are with us as we talk about financial matters. Both myself and my co-host here are both practicing financial advisors, certified financial planners, certified financial consultants. And we meet with clients like you during the week, we meet with individuals like you, families like you, and then broadcast on the weekends and via podcast. I'm glad you are with us. We talk about lots of things financial.

Pat: Money, savings, that sort of thing.

Scott: Yeah, money's a funny thing.

Pat: It is. I've had this conversation with many clients. To think about money in today's modern society, for most people, the retirement savings is a store of labor. It is how they stored their labor.

Scott: You've used that statement ever since we've been working together about roughly 30 years, and that doesn't resonate with me. I don't understand it.

Pat: Well, because if you think about how relatively new...

Scott: It can replace labor.

Pat: Well, that's what it is.

Scott: Okay. It can mean, so I don't have to use my own labor...

Pat: Correct.

Scott: ...to generate the revenue?

Pat: Correct. But the idea of retirement and being self-sufficient in retirement is a relatively new concept in the history...

Scott: Yeah. And for most of the world, it's out of touch.

Pat: It's really a first-world...

Scott: One hundred percent, yes.

Pat: ...economic model. But so, like, my great-great-grandparents moved in with my grandparents when they quit working.

Scott: What, they didn't have a retirement community, and a fifth wheel, and stuff? No?

Pat: They were in a walkup in downtown Pittsburgh.

Scott: A what?

Pat: A walkup.

Scott: What's a walkup?

Pat: Oh, you'd go up the stairs, and then there were three stories. You know, the people that had the poorest health lived on the first floor, and then the...

Scott: There were three different units?

Pat: Three different units. You could combine them. But each of them had their own kitchen, and so they all...

Scott: That's pretty nice.

Pat: Essentially, three generations could live in the same building. And they weren't like, you know, 1,500 square feet. I mean...

Scott: So we're going down a different path.

Pat: There we go.

Scott: So my point is. I think what I'm getting at it. If the pursuit of wealth, in and of itself, is the goal, you're never really gonna achieve that goal because that financial security can be somewhat elusive.

Pat: Yes.

Scott: If it's just the finances. I mean, financial security and the piece with having financial security is not necessarily based upon a number, the size of your savings.

Pat: It's the confidence you feel in the money you have.

Scott: That's right.

Pat: That's what it is, correct.

Scott: More than anything.

Pat: Yes.

Scott: Well, first you need some money saved. After that, it's having that confidence. And the confidence, oftentimes, comes from the right kind of planning, and the right kind of portfolio construction and monitoring.

Pat: Which is, in retirement, why you want a portion of your portfolio in fixed assets. So that when there's downturns in the market like you're...

Scott: Like we're experiencing now.

Pat: You don't sell off those assets, which are normally appreciating. They're mostly appreciating, but it isn't a straight line of appreciation. And so you want safer assets in the portfolio just to sell when you need that income, so you're not selling those assets that are beaten down a little bit.

Scott: Yeah. Anyway, we should probably take some calls. If you wanna be part of our program, we would love to hear from you, 833-99-WORTH is the number, 833-999-6784.

Pat: And that's the same number you could call if you wanna join us on March 29th, where we're just gonna open up the phone lines and take calls from 3:00 to 5:00 Pacific.

Scott: Yeah, March 29th and 3:00 to 5:00 Pacific. And you can also schedule time by emailing questions @moneymatters.com. We're in Tennessee talking with Ken. Ken, you're with Allworth's "Money Matters."

Ken: Hi, guys. Thank you for taking my call. And I initially had a question on IRAs, but I'm gonna call it a stored labor question. [crosstalk 00:05:02]...

Pat: Oh, thank you. Before your question. You're in Tennessee. Are you a native of Tennessee, or are you a transplant to one of the hot markets in the country, Tennessee?

Ken: I left the Golden State and came to Tennessee, and so then the retirement stuff, it's all gonna tie together here.

Pat: When did you move to Tennessee, just out of curiosity?

Ken: Just this summer, I retired from working in the state... I'm sorry, in the state of California. And then I retired, and then moved out.

Pat: And what part of Tennessee did you move to?

Ken: Right into Nashville.

Scott: What's Nashville?

Pat: Nashville.

Ken: And, yes, the market is just as hot as you would think that it would be here.

Pat: Yeah. I have a number of friends that have moved to Franklin.

Ken: [crosstalk 00:05:42].

Scott: Franklin is like the... I was in Franklin for the first time in like a year and a half ago. I felt like I was in Yountville, or St. Helena or something in Napa Town. It was a...

Pat: It's where the Natchez Trace Trail ends is in Franklin.

Ken: That's correct.

Pat: On my bicycle, I rode the Natchez about five years ago, but we can't go through all that. Anyway, what's your question for us?

Ken: I am 60 years old, I just got married for my second time. I have a pension from the state of California, and that pension meets my financial needs of my monthly obligations. I can live within my pension, and I actually end up having a couple of dollars left over from the pension. But during my career, I did the things, and stored my labor, and had a 401 and a 457 with the state. And then in December of this year, I rolled those all over into an IRA. And that's where my...

Pat: What's the amount in that account?

Ken: One million 500.

Pat: And what's your question for us?

Ken: I wanna know when I could and should ever access that money or do Roth conversions with it. I'm 60 years old, and I'm wondering if I ever can touch this money? Because I don't really need it, and I don't wanna make mistakes with it. Because I would think that a strategy might be, "Why would you ever wanna pay tax on money that you don't need?" But I figure that I have these 12 years between now and when somebody else is telling me when I take it if I should begin a distribution of it.

Scott: Well, let's pretend like you don't do anything until your required minimum distribution, right?

Ken: Yeah.

Scott: That's 12 years from now. Let's assume it doubles over that 12 years.

Pat: Which would be a 6% annualized return.

Scott: Okay, so that's fairly realistic. Now we're at $3 million. Your required minimum distribution, based upon current rules, would be about $120,000 your first year.

Pat: So how much is your monthly pension that you're receiving from the state of California?

Ken: About $8,000 a month.

Pat: So $96,000 a year gross.

Ken: That's true.

Pat: And does your new spouse have a job?

Ken: She does. And she's gonna retire as a teacher, but she can suspend her pension. Her pension is the STRS Program, and it works a little bit more like Social Security. So she can defer it, wait for it for a little while, and then activate it. And that's why I thought I might have the window of opportunity where our income will never be lower than it is with just this pension. And Tennessee is a no-income-tax state.

Pat: Yup, yeah. And how old is she?

Ken: She is 49.

Pat: Okay. And she can defer until age 62, is that correct?

Ken: I thought it was 60, but it could be 62. And her first eligible age would be 55, and we were gonna defer right through that one.

Pat: Got it. Were you married before you retired?

Ken: I was not, so my pension dies with me.

Scott: Got it. So, I mean, from a planning standpoint, I really look at that 401(k) is designed to... Well, you're a newlywed still.

Pat: And so how much would her pension be if she deferred till age 55?

Ken: I'm guessing it would probably be about $3,000 maybe as much as $4,000 a month.

Scott: Okay. From a financial planning standpoint, you clearly have a great window of opportunity between now and the time Social Security kicks in. And really what you're already thinking about is having her defer her pension. She retires, there's no income coming in from her on that portion, and you can start converting some to a Roth. The thing is that if I were her financial advisor...

Pat: Yes, I'm thinking the same. Scott, go on.

Scott: ...my concern would be like what protection is there in the event of a future divorce, or that sort of thing.

Pat: Or death.

Ken: And I do understand that. I understand those risks, but I was looking at just the risks I could see right now. And so I do understand that, and that was something that we really had to work out as she's leaving her job earlier than her full retirement age. But for either of us, our Social Security is likely to be $0.

Scott: Because of the offset?

Ken: That's correct. So I'm looking at that to be about $0. And my tax rate is about... I don't know if it's 24%, but I do know my next dollar earned is currently at about 17%.

Scott: That's right. So...

Ken: And so I thought I had some opportunity.

Scott: So you know exactly what to do. So just assume that you are going to actually... When is she gonna retire, or when could she retire?

Ken: She is leaving the job, so she's gonna separate rather than retire at the end of this school year.

Scott: Okay. So I would do some serious consideration of converting some this year, and then probably convert more in 2023 and beyond. So the kind of thing, you can do the planning every year, and you've got until December 31st to do the conversion. I would wait till later in the year, early December, late November, or whatnot, to do the conversion. But I think if you run the numbers, I mean, the odds are in your favor that it's gonna be to your benefit to do some Roth conversions just based on the size you've got in your 401(k).

Pat: Yeah, the question is, "How much?" And the answer to that is, "Whatever the numbers tell us." But you want to...

Ken: Until it hurts?

Pat: Huh?

Ken: Until I get into a next tax bracket or something where my 16% to 20% additional dollar tax...

Pat: Thank you.

Ken: ...might jump into like a 35% bracket...

Pat: Thank you.

Ken: ...I'm guessing?

Pat: Thank you, thank you.

Scott: And they're hard brackets. It goes from 12% to 22%. So you said that 17% number doesn't quite jive with the tax rates, but, yeah.

Ken: That was my incremental. And so I think I'm in that 22%, whatever that bracket is. But each additional dollar, if I take my taxable income, and divide my taxes by it...

Scott: Well, that's your average tax rate?

Pat: That's the average tax rate.

Ken: My average tax rate.

Pat: That's the average. And so what you're looking at is the incremental.

Scott: Which is 22%, which is the tax bracket. You said incremental earlier, and I think you meant to say average.

Pat: But that's what you wanna do, is the math, and determine what you wanna do there. And I trust that you and your wife have a living trust?

Ken: Well, we're getting all of these things situated because we just got married. And so we're just doing the move, and we are trying to put all of the smart moves.

Scott: And you both have kids from previous marriages, or does she still have kids at home?

Ken: Of course.

Scott: Or the kids are grown?

Ken: She has a high schooler right now who is graduating, which is the wait for the move. And so, yeah, it has to be as complicated as possible. I have one, she has two children.

Scott: Yeah, this is the right kind... I mean, some serious planning needs to go on here because there's a lot of moving parts. But the answer to the original question was, yes. The Roth, you wanna do it, figure out how much. And then the other things that you wanna do is make sure that you actually have a living trust with protections for both you and her for the house, and maybe even some income needs at either of your death.

Ken: I was using beneficiaries right now. Because, basically, all assets, with the exception of the house, which is just a simple downpayment, just beneficiaries on the type of accounts because I have taxable accounts and tax-deferred accounts as well.

Scott: How much...

Ken: And so I was trying to go through those.

Scott: Yeah. Yeah, you need some high-level estate planning here.

Ken: High level?

Scott: Yeah, high level. You need to think through all the various scenarios.

Pat: You're not gonna get the estate plan that if you pick up the Franklin Gazette and see 995 is living trust. You do not want that.

Scott: Well, no. I think the issue. I mean, if I were your wife's brother, I would say, "Look, are you out of your mind? You're retiring at 50, you're gonna take a less pension. You just married this guy, like, what happens if it doesn't work out? What happens four years down the road and he leaves you? Like, and then what happens, now you're stuck on this lower pension for the rest of your life because of this? Like, you need some assurances before you do this." That's what I would be advocating and advising if I were her brother. So it's those sort of issues, I think, is what you're pointing towards, Pat, right?

Pat: And in case of death.

Scott: And in case of death.

Pat: Right? If something happens. So if you name...

Scott: And you don't wanna disinherit your kids either.

Pat: That's right.

Scott: That's my point. So having individuals listed is probably the wrong thing. You probably wanna a separate trust, maybe a trust that only exists for the purposes of being the beneficiary on that retirement account. That would provide income while your spouse is still around and whatnot, and then the main coffers goes to the kids when she eventually passes, or at some age, or whatever.

Ken: And I do understand that. I mean, we did just get married, but we did not just get together. We'd been together for a very long time, and so we just did the knot-tying situation here.

Scott: Okay.

Ken: But again, it wasn't like a whirlwind romance where there was no history.

Pat: Okay.

Scott: I wasn't saying that. It's easy when a young couple are both broke, and they get married when they're 25, right?

Pat: That's not the [crosstalk 00:14:59].

Scott: But this isn't like the 90-day-fiance thing where you met her online, and then you get married in 90 days because they're coming from a foreign country. It's not one of those, right?

Ken: Nope.

Scott: That's what I heard.

Ken: It was not.

Scott: All right, good.

Ken: We've been doing some of the plans along the way, but it sounds like it needs to get a little bit more [inaudible 00:15:17] up now.

Pat: Ken, you know what you're doing.

Scott: Yup, you know what you're doing.

Pat: You're thinking the right way to be thinking about it, yup. So I appreciate the call.

Ken: [crosstalk 00:15:27] consider. Thank you.

Scott: Thanks, Ken. And look. For second marriages, this is a big deal, having things structured properly. Because you take a situation that's just like somebody we spoke to, right? Your beneficiary, your largest accounts, probably your company retirement account.

Pat: $1.5 million.

Scott: You list the kids as beneficiaries should you die. You die, and suddenly there's not any money there to provide for your new spouse. You say, "Well, I don't wanna do that." So you list your new spouse and you die. So the new spouse inherits all the dollars. Might really love your kids and all that, but they're not required to actually give them any of the money. Time goes on, years go by, beneficiary designation gets changed or perhaps a remarriage. It gets transferred to somebody else now.

Pat: So sometimes you just say, "Seventy percent is gonna go to the spouse, 30% will go to the kids." Sometimes you set up a trust that actually owes the money out of...

Scott: I mean, I think of a personal experience I had years ago where somebody... Second marriage, spouse passed away, and the surviving spouse was doing everything in that individual's... And I can't even say this. Everything in their power to see to it that these kids would get as little as possible. Everything in that person's power. And they're a client, I had a fiduciary interest to act on their best interest, but part of me would, like, cringe inside like. But, yeah, it just happened. And I'm thinking they had the right documents been set up, to begin with, and had it structured properly. And to your point, not doing, like, the free estate plan, making it as simple as possible.

Pat: Yes.

Scott: When I say events...you want...

Scott: Just think through all those scenarios.

Pat: Well, oftentimes, people don't know what to think through. So the good estate planning attorney will actually say, "Here's the six options, let's talk about 'em. Oh, and then, by the way, it doesn't have to be one of the six, it can be a combination of one, three, and...

Scott: That's right.

Pat: "...five"

Scott: And you're probably not gonna ever have a perfect solution either.

Pat: No, so...

Scott: All right, we're continuing. We're talking with Curtis. Curtis, you're with Allworth's "Money Matters."

Curtis: Hi, thank you for taking my call.

Scott: Thank you.

Curtis: My question is kind of a two-part question in relating to my son. Actually, I have two sons. One is on the way, so we're not quite two kids. But so we have two kids soon.

Scott: All right.

Curtis: And we're wondering about how to gift them money, leave them money. But also not just for us. The grandparents want to be giving them money every year, and we wanna figure out what the best way to go about that is. Right now, we did put $30,000 set aside in a 529 for the first one.

Scott: Wow, how old is your first child?

Curtis: Two.

Scott: Wow. Okay.

Curtis: And then we have another $30,000, kind of, earmarked for the second child. We just don't know if that's the best way to start it, or if we should put that towards paying down our house. We don't have any other debt except for our house.

Pat: What do you owe on your home?

Curtis: I'm, kind of, wondering... About $500,000.

Scott: What's the value of the home?

Curtis: About $950,000, maybe $1 million.

Scott: And what's the family income you and your spouse?

Curtis: It's, kind of, changed a bit with all that's going around, but I think we're still over about $130,000. We were a bit higher, but then there's been some changes where...

Scott: And how did you manage to save $60 grand for kids' college costs already? How old are you?

Curtis: 39.

Scott: Okay, all right.

Curtis: We're good savers, we've had good income. And then this money was actually an inheritance from my grandmother. And we just didn't need it, so we just rolled it over to...

Scott: All right. I think, particularly for those dollar, the 529 works fantastic.

Pat: Yeah.

Scott: And I would continue to fund the 529 with any excess dollars. I'd make sure that I had a big life insurance policy on both you and your spouse. Like in excess of $1-million-term insurance policy.

Curtis: Okay.

Scott: Here are your options, okay? These are your options for having money set aside for the kids, 529 plans work great because they grow tax-deferred. If the money is used for education expenses of a variety of sorts, it could be plumbing school or whatever, the money comes out tax-free. So all that growth has been tax-free. If it's not used for education expenses, and once it gets spent on some other means, then there's taxes that are due on that gain plus there's a 10% penalty on it. So it's not great for money that you wanna earmark for other purposes. It's great for education, and also you can change the beneficiaries in the future. So there's excess money after your kid goes through college. You could say, "I'm just gonna wait. When I've got a grandkid, I'm gonna list them as the beneficiary of this account." Or whatever, it gives you a lot of flexibility there.

But the downside is it must be used for education purpose. So if you're saying, "All right. Well, I wanna have something set aside just for the benefit of my kid regardless." Well, you've got a couple of options there. One is you can set up what's called a Uniform Transfer to Minors Act or Uniform Gift to Minors Act, UGMA. And with these, your first... What is it, 800 bucks a year, 900 bucks a year in interest is tax-free, second 800 bucks or whatever is...

Pat: It's been indexed. So I don't actually remember what the number is.

Scott: The second is taxed at the kids rate. And then after that, it goes taxed to the parents rate. It's a way to get money into the kids' name. When the child reaches age of maturity, it's different in different states. But it's 21, maybe it's pushed to 24. The dollars are there is regardless, okay? The dollars are the kids' regardless. I can think of a personal...

Curtis: That's all still taxed at the parents' tax rate?

Scott: Part of it can be.

Pat: Only the interest above 800 or...

Scott: ...double that is taxed at the parents' tax rate.

Pat: Yeah, they call it kiddy tax.

Scott: They try to get you. But any gain later on is not gonna be... Once they're of age of majority.

Pat: But I wouldn't use that, I would only use the...

Scott: The other way is to set up a separate trust, which if you're gonna give hundreds of thousands or millions, then it can make sense. Otherwise, it's probably not worth it. So the best thing for you to do is use the 529 plan. The best thing for your parents to do...

Pat: The 529 Plan.

Scott: ...is the 529 plan. In fact, they don't have to be the same 529 plan. Your parents can be the owner of their own 529 plan, and put money in it for the grandkids.

Pat: Or can use the one you've got, either/or.

Scott: I mean, how much are they talking about giving on an annual basis, is it 500 bucks, or 10 grand?

Curtis: Probably 10 grand.

Pat: Annually?

Scott: Okay.

Curtis: Annually.

Pat: Are you maximizing your 401(k)?

Curtis: Yeah. So we are. My wife and I are. My in-laws, they don't really have a retirement plan, they have houses and another business on top of that.

Scott: Okay.

Curtis: So they do make a good amount of money every year, and...

Scott: Are they gonna give to each grandchild $10 grand a year?

Curtis: I think that's their plan, yeah.

Scott: Okay.

Curtis: So they were, kind of, asking me some of these questions, and I was like, "I don't know."

Scott: All right. If that's the case, I would probably set up a separate trust. You could probably set up one trust for the both of them.

Pat: I wouldn't, I wouldn't.

Scott: What I would tell you to do, Curtis, is...

Pat: Just put some in the S&P 500, and keep it in your own name.

Scott: A separate account.

Pat: Keep it in your own name, don't put it in the kids' name, and have your parents fund the existing 529 plans you have set up for the kids. That's how I'd do it. We don't have to make it super complicated...

Scott: Over the short term.

Pat: Correct. And if there's a ton of money that shows up at some point in time, you can change it. You can always gift that money in a separate account to your kids at any point in time in the future.

Curtis: Okay.

Pat: Right?

Scott: Unless you think you're gonna inherit more than $10 million bucks worth of assets.

Curtis: Okay. Well, what would we do in that case? [crosstalk 00:24:23]

Pat: Well, first of all, you thank your in-laws for all their hard work. Unless they sat down and shared their estate plan with you, I wouldn't count on anything. I'm just telling you.

Curtis: Correct, we aren't.

Pat: Okay. So if you wanna set aside money for your kids to gift them at some point in time, just set it up in a total market. Use the Vanguard total market, set it up, fund the thing on a monthly or annual basis. Have the 10 grand that the grandparents are pushing down go into the kids' 529 plans. And then I'd revisit it in three years.

Scott: You'd put $10 grand a year into the 529 plans for each one of the kids?

Pat: Yeah.

Scott: They're gonna end up with $300,000 by the time [crosstalk 00:25:00].

Pat: That's what I just said. And then revisit it in three or four years. You can always stop funding the 529 plan, but you should take it now. The younger they are, the more tax advantage it has.

Scott: And it's not subject to the estate tax the way it's set up like this too.

Pat: Correct. And so that way, I would do that, and revisit it in three or four years. So grandma, $10 grand each kid. You set up a separate account in your name.

Scott: I agree with you.

Pat: Thank you, Scott.

Scott: That's what I would do, and revisit in two or three years.

Pat: Yeah, revisit in three or four years.

Scott: All right, I appreciate the call. All right.

Curtis: Hey, thank you guys very much.

Scott: And good luck on that new little guy that's...

Pat: How exciting.

Scott: ...coming out quickly. But if the grandparents were gonna give him a couple of hundred thousand right now, you'd probably set up a separate trust today.

Pat: Oh, 100%, yes.

Scott: Because there are some benefits. They're just extra work.

Pat: A little cumbersome.

Scott: Yes, and the tax rates don't work well on 'em. Anyway, we're taking a quick break. This is Allworth's "Money Matters." Stick with us.

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Man: Can't get enough of "Allworth Money Matters?" Visit allworthfinancial.com/radio 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 through the break. But if you're a podcast listener, you can join us on the 29th of...

Scott: Well, even if you're not.

Pat: ...you can join us on the 29th of March, where we just open up the phone lines for two hours between 3:00 and 5:00 Pacific, and just take your calls on any financial topic. So it's 833-99-WORTH. And that's, again, March 29th between 3:00 and 5:00 Pacific.

Scott: That's right. And we'll be sitting in the studios smiling, and taking your calls.

Pat: Scott, I wanna talk briefly about it hasn't been in a lot of the headlines, but I thought it was quite interesting, which are U.S.-listed Chinese stocks. Some are dually listed, and some are just listed in the U.S. China has its own stock exchange. And so sometimes, in order to get to the broader capital markets, they will list the same stock in both China and the U.S.

Scott: The Chinese governance is much different than just about the rest of the world. So if you are, as a non-Chinese, an owner of a Chinese company, you don't really own the company.

Pat: Yeah.

Scott: You have some rights, but not like you would a typical common shareholder.

Pat: Yeah, you're tracking the share value.

Scott: You have, like, an interest in the profits.

Pat: So the securities in the last couple weeks...

Scott: That wouldn't sit right. Anyway, it gets a little complicated.

Pat: It's like a shadow stock.

Scott: Yes, that could be canceled. It's like, "Oh, we decided that we didn't want you to have the shadow anymore.

Pat: I almost said, "Chairman Mao's gonna take it back," by the way.

Pat: You're a little bit out of date. The Securities Exchange Commission named five companies that have failed to hire auditors that could be inspected by the U.S. regulators. So the SEC, essentially. So what happens is in order to be listed in the U.S. stock exchange, there's gotta be some confidence about the numbers that you're actually reporting. And so you have to actually hire a recognizable firm to audit the books, and come back and say, "It's clean." Or, "We have some concerns." That's what the auditors do. Or they'll put in a footnote.

Scott: You need to account for it a little differently.

Pat: Yeah, "This is a problem." And so that the investors can make an informed decision about whether the books are clean.

Scott: And, typically, the larger the company, the more astute. We use one of the big fours accounting firms to do our audits.

Pat: But 10 years ago we didn't.

Scott: Ten years ago we did not.

Pat: We used a small little auditing firm, and now we have to use big ones as you get bigger, and bigger, and more regulatory burden, if you will. So there are five companies that look like they're going to be delisted from the U.S. stock exchanges just because they have not allowed the U.S. regulators to look at their books or the books that [crosstalk 00:29:41]...

Scott: That's weird, Chinese companies are not letting us inspect the entire books of the companies?

Pat: Right. And so what they're saying is part of it is because some of these companies are big tech, and it's proprietary information that cannot be shared with regulators or auditors.

Scott: Was this proprietary information that they developed, or stuff that they stole from us and then repurposed?

Pat: Well, you know, it's one of them, but this one isn't. Yum China is one of these companies that may be delisted, Yum China.

Scott: Yum brands.

Pat: Yum brands.

Scott: KFC.

Pat: There's Yum Russia too, right? So Yum is all over. You know, everyone loves fried chicken, let's just go with that.

Scott: Yeah. It's like the antithesis of healthy food, the Yum brands. Probably, right? But they were spinoff from Pepsi, which is a nutritious product in and of itself.

Pat: And, actually, at one point in time, it was all under Pepsi, the Doritos, the Taco Bell.

Scott: More nutritious foods. Taco Bell. My point. The Pizza Huts, the KFCs. Yum brands. Is that all under that? That's pretty funny. Pizza, chips, sauce with a extra Big Gulp, the 64 ouncer. Anyway, interesting.

Pat: I thought it was interesting. So delisting because... This is political and regulatory risk in an investment.

Scott: I mean, when I first had the opportunity to invest directly in China, I was suspect to this time. I remember years ago, a client goes, "Scott, what do you think about China?" Like, "What do you mean what I think about China? Like, it's a huge market, there's, you know, 1.4 billion people."

Pat: And you have no idea what they're doing with your money.

Scott: That's the problem, right?

Pat: They could just report anything they want.

Scott: I was in China, how many years ago was this, before the Beijing Olympics. This was 15 years ago or whatever, a little longer than that. And talking to this Chinese businessman, I toured this factory. And so this guy says to me. He says, "Yeah. Well, if you set up a business in China, you always set up two businesses." "So what do you mean?" He says, "Well, the first business you'll set it up, you'll staff it, and you'll have things going. And one day you show up for work as an American, and no one is there. And you found out that they set up shop across town. All your workers and all your intellectual capital just all went across town. That's what happens to your first go around. The second go, because you've learned the first time, you know what roadblocks to put in place so that to prevent that from happening."

Pat: But think about this. So it's hard enough in the U.S. where you can audit these books. That we could go through a list of companies that have cooked their books, and blown up, right?

Scott: Yes. And it's been good. It's been public, very public, when these things have happened.

Pat: Yes. And so to go to a place like China. So I actually see this as a really good thing that the SEC is de-listing these stocks, saying, "We have no confidence in their financials."

Scott: Which tells other companies, "Look, if you wanna be listed on the United States, a U.S. stock exchange, NYSE or the Nasdaq, you need to abide by these rules, and allow auditors to audit your books, and provide certain files of information.

Pat: Yeah, you can't just say, "We think it's proprietary information that the U.S. government shouldn't look at."

Scott: Well, you can, but it's not... You're gonna be delisted.

Pat: Yes, and less access to one more capital market.

Scott: Yeah, China is one interesting place for lots of reasons.

Pat: Yeah.

Scott: Anyway, let's take some calls here. Let's start in Iowa, and talk with Dave. Dave, you're with Allworth's Money Matters."

Dave: Hello.

Pat: Hi, Dave.

Dave: Yeah, I was calling with questions. I guess probably similar questions as a lot of people have is, you know, can I retire and things like that in a few years.

Scott: And the answer is we don't know, let's talk about it.

Pat: Like a lot of callers. How old are you today, Dave?

Dave: Fifty-one and my wife is 52.

Pat: Okay. And tell us about yourself in terms of... If you want, ask us the question. Do you have a specific question, or do you wanna know generally are you on the right track to retire at some age in the future?

Dave: I think probably generally is the question.

Pat: Okay.

Dave: We've got I guess right at I guess 2.2 saved. And, basically, we both would have a pension, and actually starting I guess at 55 or 56. And I guess right in there is when we would intend to hopefully retire. And I guess the pensions would be between the two of them right at 90,000. And just, kind of, I guess part of that other dollars is some Roth money also in there. Most of it is 403.

Pat: Okay. And so but the $2.2 million is all the assets. Is your house paid for?

Dave: It is not.

Pat: Okay.

Dave: The equity in the house is not included in that.

Pat: I understand. What's the value of the home today?

Dave: Right at $400,000.

Pat: And what do you owe on it?

Dave: $140,000.

Pat: Okay.

Scott: And what's your annual income right now?

Dave: $150,000.

Pat: Between the two of you?

Dave: Right.

Scott: You have no problem.

Pat: You'll be retiring comfortably.

Scott: Very, very comfortably.

Dave: Okay.

Scott: Here's why we dislike, and don't even need to be talking about it. So your gross income is $150,000 for the family. I imagine it's grown over the years, but you've managed to live beneath your income level and save $2 million bucks, right? So it's not like you've been spending $150,000, you're spending something less than that.

Pat: And you're gonna receive a pension of $90,000 a year.

Scott: So you wouldn't need to supplement much to get to your same stand of living. You might be at it even with the pensions.

Pat: Yeah. You could probably retire today if you had the $90,000 a year in pensions. If you had the $90,000 a year. Because what you're just asking to do is to replace less than three... If I took the $2.2 million and I did a 2.7% distribution, I'm gonna make you up to 100% of what your income is. And remember that $150 grand in income, you're taking some of that, and saving it towards retirement, so you're not even living on all that. You are more than fine.

Dave: That's wonderful. And I guess as far as asset allocations. I guess most of that is probably 75, 25...

Pat: Perfect.

Dave: Or 70. Because I guess I'm figuring the pension is somewhat of a fixed or bond.

Scott: I totally agree.

Dave: I guess...

Scott: That's a great way to look at it.

Pat: Ideal. Ideal way to look at it.

Scott: And if you look at it that way, I mean, you might need $2.5 million bucks to generate $90,000 bucks a year in income. At least a couple of million.

Pat: On the fixed income side of the [inaudible 00:37:06].

Scott: So you could look at it saying, "You already have half of your asset in fixed income."

Pat: And so how much money do you have in bank accounts, or in cash? Money outside of IRAs or 403(b)s?

Dave: Forty thousand.

Pat: Okay. The only thing I might possibly do differently quite frankly is I'd be okay.

Scott: With what?

Pat: Lowering my contribution to the 403(b) in order to pay that home off in six years.

Dave: Well, that was my question. Or, you know, one of the things I, you know, was like, okay, so in theory, the house should be paid off currently, I guess it'd be eight years. But yet sometimes I go, "Well, maybe our income might be lower, and we can pull more out."

Man: You know what? It's a...

Man: It's a moot point, actually.

Scott: Look, that pension, literally, it's gonna be worth about $2 million bucks. You've got over $2 million saved. You've got over $4.5 million in assets with a $140,000 mortgage.

Pat: When it left my lips, I thought, "This is, kind of, stupid."

Scott: I mean, if you cannot have the mortgage, it'd be better. It's one less payment.

Man: But it's not gonna make any difference. Not gonna make any difference.

Dave: Wonderful.

Scott: You know, if you were retiring today. So if you were retiring today, one thing you'd do, so look, let's have an additional amount come out of my 401(k), or IRA, or whatever to make that mortgage payment.

Pat: This payment is gonna be paid off in eight years anyway.

Scott: You're perfect.

Pat: You're a poster child.

Scott: Just make it till you're 55.

Pat: Is there such a thing as posters anymore, do kids use posters?

Scott: Yeah, they have posters.

Dave: Yeah.

Pat: Oh, they do. Like, they put posters in the room? You have teenage kids. Do they put posters in the rooms, or are they memes?

Man: Yeah.

Man: Non-fungible tokens.

Man: Thank you for the call anyway, Dave.

Scott: So my younger kids, 14 and 11, they share a room.

Pat: Oh, they do.

Scott: But there are two other guest rooms in the house now because the older two are out of the house. And for whatever reason, my wife, she likes them sharing a room, but they're at the age they don't like sharing a room. And so they want me to, you know, help arbitrate this situation.

Pat: Lobby on their behalf?

Scott: But I always remind myself that I'm gonna live with this one the rest of my life.

Pat: That one being my wife?

Scott: Yes, correct. She's with me for the rest of my life, these just a few more years. So I'm thinking I'm siding with my wife, right? The reason I'm bringing this up is my 14-year-old said that she had these posters that she was looking forward to when she gets her own room to put the posters up. I guess she's got posters up for concerts or something.

Pat: You can't really let 'em put those posters in the empty rooms because then they will naturally occupy.

Scott: That would frustrate their mother, and probably not work well.

Pat: Scott, do you remember, before we sold the reverse mortgage company, we owned... Scott and I had started and owned a reverse mortgage company, and we ended up selling it to Genworth years ago. But we had these conference rooms that were just supposed to be meeting rooms, and the people kept moving their offices into 'em. Do you remember this?

Scott: I do remember that. Because we only had like four or five physical offices, the rest was just cube fields or whatever.

Pat: Yeah, yeah. And we really only needed HR to have their own office because of the personal confidential things that they have to do.

Scott: We wanted to people to be collaborative.

Pat: Yeah. But these offices would stay empty. And then a week later, you'd come into the office. Scott and I weren't working there every day, but I'd come into the office. And the next thing you know, these empty meeting rooms were now someone's offices. And you're like you'd have to go in there, and throw 'em out constantly. So you can't really let your kids put the posters in the other bedrooms because then they're gonna start moving the rest of the stuff in.

Scott: Well, and the other bedrooms looks like a hotel room now or something.

Pat: Yeah, because you filled 'em up with IKEA furniture.

Scott: My son's was the last one we cleaned up. It was full of his posters all over. And he had, like, the black lights and, like, some sort of weird paint in bright colors, and then he'd turn the lights on. And then when friends would come over, they would write things on there, and there were a few things that were a little inappropriate.

Pat: But you could only see it in a black light?

Scott: No, you could see it when the lights were on, so...

Pat: Really?

Scott: ...when he left for college, we quickly we painted that room to hide anything that might not be appropriate on the wall.

Pat: It's funny, that's funny.

Scott: Now we're in California talking with Gary. Gary, you are with Allworth's "Money Matters."

Gary: Hey, guys. Thanks for taking my call, I appreciate it. Your banter is as excellent as your advice, and I appreciate your time.

Scott: Well, thank you.

Pat: Maybe, I don't know. Anyway, what can we do for you?

Gary: Well, so I'd like you guys to kind of drill down a little bit on that Reddit GameStop short squeeze that occurred last year. You know, shorts have been going on for a long time, and short squeezes is nothing new. And a big hedge fund that would short a particular stock could have been squeezed by another big hedge fund. And that could have just, kind of, squashed that short market. But what specifically did that hedge fund mess up on that allowed crowdsourcing and Reddit to crush 'em? The details are escaping me on that.

Pat: Okay, for the rest of the listeners, let's explain, kind of, what happened. You know, we could use GameStop as an example, or we could use another of the meme stocks out there. But, primarily, the vehicle that they were using this crowd or social influence in order to actually press the stock one way or the other.

Scott: Yeah. "The Wall Street Journal" had like a four or five-series podcast on this very topic, which is pretty interesting. I think you'd probably find it on their website somewhere still. But when somebody shorts a security... If you wanted a short a security, Gary, essentially, you borrow that security from somebody else, which there's a cost there, then you go out and sell it in the marketplace. And what the hope is...

Pat: What that means is if I open up a brokerage account, and inside of that brokerage stock account, Fidelity, Charles Schwab, TDU, you name it, Merrill Lynch, Morgan, and I own GameStop, I wittingly or unwittingly give them the ability to actually take that stock out of my account, and lend it to someone else.

Scott: Yeah, so Pat owns GameStop, let's say. I go to borrow it with the same brokerage firm. I borrow the stock, now I've got it for a period of time. I have to put up collateral. And there's certain requirements I have to meet. Otherwise, the brokerage firm is gonna say, "You've gotta give us the stock back. We're not sure you're gonna be able to cover this position if the price goes up." So you would sell short a stock betting that the price was going to go down because then you could buy it back in the market at a better price, a lower price, give it back to the original owner of it, and you make a profit.

Pat: So Scott would borrow this GameStop from me at $10 a share. And then hope the price drops, and then return it at something less than that at some point in the future. So this is a short position. By the way, I just remember this was always fascinating to me in getting the securities exams years, and years, and years ago. That the exposure in a short play.

Scott: Unlimited.

Pat: Technically, it's unlimited. It could be infinity if the stock would only go up forever and ever and ever, but it's unlimited.

Scott: So but if a stock rises rapidly, what happens is the borrower may not have enough capital, I mean collateral at the bank. So the bank says, "Hey, look, the price is going up. You had some equity here. You no longer have equity, it's been wiped out. You need to put some more cash in here to maintain your gambling."

Pat: Or, "We're gonna start actually selling off this position. Oh, and any other position you have in your portfolio that may not be related at all to GameStop." So what happens is... It was a bizarre thing. In this meme world, you know, all of a sudden, it looks like there's a bunch of shorts on it. And these bunch of guys get together on Reddit, and they're like, "Let's mess with these short sellers."

Now this has happened for years, and years, and years among hedge funds or large institutional investors where they will squeeze each other in a trade just to see, you know, how much hand they could pull on someone else. But this was the first time that we had ever seen where they actually used social media, Reddit, in order to actually get people to buy more of it, more of it, more of it. And all of a sudden, these guys were getting short squeezed out of the positions. Which means they were either unable to post any more collateral, or unable, or did not want to post any more collateral against those positions. And then, all of a sudden, those stocks are actually bought back at a higher number than what they borrowed it at, and then returned it to the original holder of the stock. Does that make sense?

Gary: Yeah, I totally follow that. I just wondered what the Reddit people saw, or the opposing hedge funds missed that drove this engine? Or if it was just completely random and [crosstalk 00:46:37].

Scott: Well, I think the hedge funds missed...they missed that there's this whole underground world where people are talking on their computer screens all day long and banding together, and saying, "Hey." Because from the outsider's perspective, like, the company is like, "How is this?" Games are all distributed digitally, like, who goes to these games these local stores anymore?"

Pat: The retail thing, right?

Scott: People thought they were on death's door. And I think even the people who were buying the stock might have believed that.

Pat: And so what happened is they did a technical analysis of that position in the stock and said, "There's no way in the world that this is worth what they're saying." Try to do the technical analysis of the earnings of Bitcoin, and tell me what it's worth.

Scott: Who knows?

Pat: Right? It doesn't earn anything, right? And this GameStop was just nothing but a substitute essentially for Bitcoin. All the Reddit people. And when you say Reddit people, I'm gonna include my kids in this, my children. Because two out of my four children played the GameStop. They played the games. I'm like, "How do you play the GameStop and how do you play these meme stocks?" And they're like, "You've gotta watch it really, really, really close, the Reddit. And the first whiff of anything negative."

Scott: I'm just laughing because I think it was last week you said that your daughter, who has a bunch of index funds, outperformed the three other. She's the only one that doesn't have a degree in business too.

Pat: Anyway, so that's what happened is the hedge funds or the institutional investors didn't give any credibility that the stock could move based upon a social posting and influencers, they were only looking at the fundamentals of the stock. And by every account, they were right, the GameStop fundamentals did not support the price, but it didn't stop the price from going higher either. That's why "The Wall Street Journal" did a... It's a great podcast, the, like, four or five series podcast. Because what it is, it changed investing fundamentally forever.

Gary: Well, that makes sense. They're gonna have to start looking at an area that they hadn't. Because, you know, one hedge fund, like you said, could squeeze out another. You know, billionaires having fun amongst themselves.

Pat: That's right.

Gary: But, you know, if you've got all these other guys. [crosstalk 00:48:59].

Scott: Yeah. But who knows what kind of group...

Gary: ...across [crosstalk 00:49:01].

Scott: Right, a bunch of people gather together. And, "Let's take these guys on, hold the line." And they just kept bidding the stock up, "And don't sell, hold the line." And, like, they're fighting the hedge funds.

Pat: And, by the way, it was good for them too, the guys that were that were screaming, "Hold the line, hold the line." Because what they wanna do is be the first guy out when the trade... Right?

Scott: Yeah, right.

Pat: The guys that are actually promoting it. What they're doing is they're trying to hype the stock. In fact, there was a stockbroker that was charged because he was licensed, and you can't do that if you're securities license...

Scott: Was he the deep effin value guy?

Pat: Yeah.

Scott: I'm not gonna say his whole name, but that's what...

Pat: Yeah, that's what he went by.

Scott: Anyway, I appreciate the call. Bizarre. You know, those are short-term wins not long-term.

Pat: It is no way to build a retirement plan.

Scott: No.

Pat: As evidence by my daughter, who I talked about a couple of weeks ago, who buys index funds. Actually, her portfolio's outpaced her two brothers. And not like a ton of money. It's not like my kids are buried in money, but they're good savers.

Scott: All of 'em?

Pat: Oh, yeah.

Scott: Not this side, I can't say the same.

Pat: They're all different. Well, they're good savers for now. I mean, things could change.

Scott: Yeah, my oldest daughter... It's amazing.

Pat: Were you that way?

Scott: No, not at age 26. I wasn't a good saver... You know, it's interesting. In high school, my dad told me he was gonna... One summer, he said, "I'll match dollar for dollar, or 50 cents on the dollar, or whatever you have saved in your savings account."

Pat: By the end of summer?

Scott: I had nothing, not a dime. Not one dime.

Pat: It was a pretty clean bet for your dad, he knew what was gonna happen.

Scott: So, obviously, I've changed a bit.

Pat: Yeah.

Scott: I didn't have that much money in high school. I don't know how I became a saver.

Pat: I had a stockbroker when I was in high school.

Scott: You traded? You'd be in class, "Excuse me. Can I have a hall pass please?" You'd go and use the payphone, "I'd like to buy 100 shares."

Pat: His name was Wayne Gillum.

Scott: Wayne Gillum.

Pat: I don't know why he took up my little account though.

Scott: Because it probably was entertaining for him, "Here is some high school kid who wants to open an account." Old-school brokerage firm.

Pat: I was a senior.

Scott: It was back in the what, the '70s?

Pat: Yeah, '81.

Scott: Okay. You're hilarious. Anyway, I appreciate the call, Gary. Well, unfortunately that is about... We only have a minute. Oh, God. It just seems like these hours go by too quickly. But if you haven't been to our website in a while, I strongly encourage you to do so, allworthfinancial.com. Mainly because if you find that this podcast, this radio show is informative on certain topics, and you wanna go a little deeper on one of the topics that we speak about, we've got some great tools and resources on our website. We've got white papers, we've got webinars, we've got... I don't know, a bunch of different things. All kinds of lots of...

Pat: Yeah, videos, explanations that we produce in-house.

Scott: Yes.

Pat: It's our voice.

Scott: Yes, it's our opinion, our biases woven in [inaudible 00:52:12] with all those things. I'd encourage you if you haven't been there in a long time, allworthfinancial.com. And I think you'll find...

Pat: And if you've liked this podcast, please do us a favor and go and rate it, please.

Scott: And you can review it at the same time. So we'll see you next week. This has been Allworth's "Money Matters."

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.