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. Thanks for joining us.

Scott: Yeah. We're both financial advisors, certified financial planner, chartered financial consultant. We've been doing this program...I don't know, financial advisors during the week, but then we broadcast this program on the weekends. Yes. By the way, if you're listening to the radio, fine, but like everything's moving to podcasts. Like, we have way more podcast listeners than we have terrestrial radio. And you'll notice the format of our show has already kind of morphed away from radio, designed more for podcasts. Cars today, some new cars don't have AM radios. It's not that hard to listen to something portably.

Pat: Oh, yeah. So what you're suggesting, if you listen to AM radio waiting for it every week, go ahead and subscribe.

Scott: I ran into someone at the supermarket this week. That's what got me thinking about it. "Hey, I love your show. I always make sure I have time set aside on Saturday to listen."

Pat: I listen when I'm walking out to pick up the morning newspaper. My neighbors don't get that. We should, I miss it. The paper itself? I do miss it. I do miss, I do.

Scott: I haven't touched a physical newspaper in years. I have no desire to touch one because you get the ink on your finger, you hold it, you try to fold it.

Pat: Oh, I got to tell you, I used to really enjoy like a Sunday morning sitting in the backyard reading "The New York Times."

Scott: I think they still have "The Wall Street Journal" delivered here. I see it in the break room.

Pat: Oh, I checked on that because there's a bunch of them. And I said, who's paying for this? And no one pays for it. They don't actually know. No one in our company is getting billed for "The Wall Street Journal."

Scott: Maybe they just send them automatically.

Pat: Our receptionist actually called them and they said, don't worry about it. We just send it to certain businesses. There you go. But anyway, back to the show. Back to the show. Stock market.

Scott: Holy smokes. What an interesting week. Yes. This last week, first of all, the Dow touched 40,000.

Pat: And as of this taping...

Scott: Which is Friday a.m.

Pat: Right at 9:00 a.m., it's not at 40. Yeah, but it could be by the end of the day.

Scott: I just thought it was really interesting because... It's like a sauna in here. I don't know why it's so hot.

Pat: I know. Can we? Okay, no one knows why.

Scott: It is. Yeah.

Pat: So, yeah, it touched 40,000. But you know, it's interesting is I was listening to another podcast and they were talking about the returns, how not that long ago it was at 10,000, the Dow.

Scott: Right. That's what I was thinking this week.

Pat: Yeah, but do the math.

Scott: It's been a long time.

Pat: It's been 15-plus years. And if you do the math, that's an annualized 10% return from there to there. It seems like a big number.

Scott: It's not.

Pat: But it's not.

Scott: Well, so we've been in this industry a long time. And I remember in the '90s, there was the book. It's like the Dow 20,000. Remember that? Someone came out.

Pat: Harold. Harold...Harry Dent.

Scott: No, he said Dow 1000 or something. He was he was predicting the decline.

Pat: Oh, it was the other economist.

Scott: He was way off.

Pat: Oh, yeah.

Scott: So anyway, maybe I cut the numbers. But at the time, there was a big debate. Oh, that's such a far number. I mean, it's not going to be long before we're at 100,000. A million.

Pat: Well, okay. Not in my lifetime. A hundred thousand most certainly, hopefully.

Scott: Well, one would think. It's not that much of a growth from here.

Pat: Yes, that's right. So it looks like a big number, but it's not. And what is the stock market...let's say the S&P 500, done historically?

Scott: Well, the broad market has done about 10% a year, about 7 percentage points greater than the rate of inflation.

Pat: That is historic, which is why you actually...

Scott: And cash, CDs andstuff, have done about 0.5% better than inflation.

Pat: Which is why you actually own stock.

Scott: Ownership of companies over long periods of time...

Pat: Is a great hedge against inflation.

Scott: But I was just watching the market. It hit and touched the 40,000. And it's always easy when the markets are going up. It's not actually. If you're on the sidelines, it's really hard. If you've pulled out thinking that it's too risky and then you... The pain of being out of the market when it's going up might even be worse than the pain of going through the ride. You think about those that pulled out during Covid.

Pat: Well, Scott, yes, I'm going to agree with you. If they don't have an underlying thesis that isn't emotionally based.

Scott: Yes, if you're getting out because you're going to use the money for a vacation home in three years or kids college.

Pat: But the people that do it on an emotional basis. I met with a client last week and he said to me...actually this week. They said, yeah, "Three of my friends are out of the market because of these reasons." And he listed a couple of reasons. And he said, "What do you think, Pat?" And I said, "Oh, I think that they're creating reasons to justify their actions." I said, "I don't think that any of those reasons..."

Scott: They're out of the market.

Pat: They're out of the market because of the political uncertainty, economic uncertainty surrounding the Ukraine, all kinds of reasons. And I said, "Those are reasons that are justifying...they're trying to justify their emotional reaction to the marketplace."

Scott: So my guess is these guys are probably retired.

Pat: They're retired.

Scott: They probably don't have advisors.

Pat: They do not have advisors. That's right.

Scott: "Why do I need an advisor?"

Pat: That's right. That's right.

Scott: So they've been sitting on the sidelines for who knows how many months. I mean, the market's been...

Pat: Oh, it's on a tear.

Scott: Nine months has been up dramatically. Dramatic the last nine months. And if you're out of the... The challenge is if you miss those big swings like the last nine months...

Pat: Over the long term, that has a radical impact on your returns.

Scott: You might get three years' worth of returns in a six-month period of time.

Pat: Yes. And then nothing down.

Scott: Right.

Pat: Nothing down.

Scott: Correct. That's how it works.

Pat: That's how it works. It's a risk premium.

Scott: Yeah. So I remember when the Dow hit 10,000, that was right in the year 2000, right at the top of the dot com thing, if you remember that. The NASDAQ had touched 5,000 on the way to 6,000, whatever at the time. Of course, then that was a peak. That all fell back. Then we went way past that. Then we had the financial crisis pulled things much lower, below 10,000.

Pat: And you remember back to the financial crisis, it seems like yesterday.

Scott: Yeah, it was 17 years ago.

Pat: Wow.

Scott: A long time ago. But I think the one thing that's helpful, Pat... I mean, we've been doing the show a long time, we've been in this industry a long time. When you live through these experiences...it's one thing about studying history and getting all the facts, right? But then when you've lived through them personally and you've guided clients, navigated through those times... And the thesis is that these are all temporary and they're going to recover and we're going to hit new highs again.

Pat: This too shall pass.

Scott: And when we were young in this profession, we believed that based upon history, empirical knowledge. But today we believe that not just based upon what we've learned from others, but what we've personally experienced ourselves.

Pat: And the emotional turmoil that actually it takes to get through markets. Talking to a person the other day and they said, "Well, what do you what do you think about your portfolios?" I said, "Look, our portfolios are they're designed to do what they're designed to do." I said, "I never worry about the markets of the portfolios. I worry about clients' reactions to the markets of the portfolio. I worry about my own reaction to the markets in the portfolios." Right? Because you've got to... Look, your advisor is a human as well. Your friends are human, they will weigh in and have influenceupon you. Right? So had my client that said, "Oh, my friends are out of the market." And I gave him this kind of, "Well, that might not be a bad idea," which I did not. But if I had said that, the client would be like, "I should probably get out of the market as well," because it has a tendency to move into group think.

Scott: Well, and to push things further, an advisor needs to build the best portfolio, regardless of what you feel about it.

Pat: That's right.

Scott: And I remember as a young man, Pat, it's funny, you get these these experiences. A client of mine was really frustrated about one particular holding in his portfolio. And he says, "Scott..." And he was one of these guys that was nervous all the time. He'd come in every quarter scared. He was a nervous investor to begin with. And I had a really balanced portfolio. Frankly, he passed away early because of a health issue. But his wife's still a client. They've done extremely well following basic financial planning principles, basic principles.

Pat: Nothing too exciting.

Scott: No, no, no. But I remember there was a particular time he comes in and he's like, "Scott, you must not be paying attention. Look at this fund you have in my portfolio. Why in the world do you have this fund?" And I remember I met...

Pat: Because it was doing poorly.

Scott: It was doing poorly. And so I remember doing some research. It was doing poorly for two reasons. One, that particular sector of the market was out of favor at that particular time.

Pat: It happens.

Scott: It happens. And in your portfolio today, you have some things like that.

Pat: You hope to.

Scott: I have things like that. Our clients have things like that, things that just aren't...they're out of favor right now. Small-cap value or whatever it might be at the time.

Pat: The problem is they could come back into favor tomorrow. You just don't know.

Scott: Well, the magnificent seven, which isn't really even seven anymore, do you realize that if you looked at how those returned over the last couple of years, essentially flat because of the big downturn they had in 2022? And it was...

Pat: Okay. So back to your client.

Scott: So I do some research. I'm being very...full disclosure here, right? Because there's a lot of psychology in being an advisor.

Pat: And an investor.

Scott: And an investor. And I look at this fund, it was underperforming because, one, it was out of favor, the underlying sector. Second, the manager. It was an actively managed fund. It was a long time ago. Actively-managed fund. And I thought one can make an excuse for firing this fund manager and replace him with something else. And I realized if I capitulated to my client...

Pat: And it wasn't bad, it wasn't great. It was middle of the road.

Scott: Correct. And so I said, "Bill," I said, "I did the research. I'm not making one change to the portfolio. I stand by this portfolio." And as the years went on, he would come back to me and say, "Scott, I'll never forget the time that I wanted to make some changes and you didn't want to make changes and you risked losing me as a client to do what you felt was in the best interest of me." He says, "It was that moment on that I had full trust and confidence in you. And I no longer looked at my portfolio."

Pat: Which was true.

Scott: Which was true. Yeah. And it was one of those things, it was interesting. And a good advisor, if you're working with...if you're not working with an advisor, I hope you really know what you're doing. Yes. But if you're working with an advisor, make sure that that advisor has a portfolio that they believe is in your best interest, not the one that...

Pat: Makes you happy,

Scott: ...that makes you happy.

Pat: That makes you happy. That's true,

Scott: Because you see people come in here and they're like...someone comes shopping for a new advisor. No one goes shopping for a new advisor because their relationship's perfect.

Pat: Oh, correct.

Scott: There's something wrong. Right?

Pat: Yes.

Scott: They come in...

Pat: Yes, either firing an old advisor or engaging an advisor for the first time. Either they are unhappy with the situation...they're unhappy in the situation they're in.

Scott: But how many times have you seen where you look at the portfolio and you're like...

Pat: "How'd that get in there?"

Scott: Right? "Wow. You're way overweighted in this. You're way underweighted in that." And then you start having a conversation and you realize it was the client that had been driving the relationship and driving the investment portfolio, not the advisor. It was a weak advisor.

Pat: Yes. See it all the time.

Scott: Yeah.

Pat: So. Anyway...

Scott: The Dow at 40. And this last week, Roaring Kitty came back.

Pat: Oh, this... Oh, oh...

Scott: Two names. Roaring Kitty and deep something value. I'm not even going to.

Pat: Yeah. Roaring Kitty. All right. Bring us up to date on Roaring Kitty.

Scott: By the way, if you've not seen...

Pat: This is a serious financial show, but bring us up to date.

Scott: If you've not seen the movie "Dumb Money."

Pat: Oh, you've got to watch it.

Scott: I mean, if you're interested in this sort of stuff.

Pat: So this gets back to actually what goes in favor and out of favor so quickly, Scott, is it's group think. I was thinking, when we were talking about pushing things up, the dot com. Now, if you've listened to this program at all, during the dot com, Scott and I in '99, '98, '99, were like, "This is crazy. This makes no sense." Right?

Scott: That's right.

Pat: "That makes no sense." Well, that was groupthink on the way up. Like, there's no end. But group-think actually, in the short term, can drive markets down. A negative market sentiment that just...

Scott: Absolutely, the same thing.

Pat: ...pervades. Right? This Hello Kitty, Roaring Kitty, whatever.

Scott: Roaring Kitty. So this all comes back to the GameStop.

Pat: Yes. By the way, if you're still buying software at the mall, you might want to reconsider.

Scott: Games. You go in and exchange your games.

Pat: Well, okay.

Scott: I don't know. I just remember my son's 26 now. I wonder if his little kid would go to GameStop because you can sell in an old game and buy a new game and he'd save up his allowance or whatever. And we can get him some new ones. Anyway. But if you've been following the financial markets, you've obviously...a couple of years ago, these stocks were crazy. And GameStop, which looks to me like a company that should not exist, no one would come up with a business model today to go up to brick and mortar for software. But the stock was bid up enormously. And it was hilarious because...

Pat: And there was a theater chain as well.

Scott: AMC. There's a few others actually.

Pat: Okay, yeah, there was a bunch.

Scott: Anyway. So then this thing came crashing down and it was revealed... Someone doxed Roaring Kitty, and it was revealed that he was this guy working out of his basement and he was...I think he worked for an insurance company in the portfolio department or something like that.

Pat: Oh, yeah. Yeah. He had a securities license.

Scott: Correct. Yeah. And so then he went dark. He was subpoenaed before Congress. Then he went dark. He was resurrected this week. He's back. Yeah. He came back. He tweeted. Is it still tweet on X? He Xed a photo of himself leaning in. I don't know if you saw a little cartoon. That's all it was. Midweek last week. And the stock, these meme stocks shot up again.

Pat: Just because he said, "We're going to do it again."?

Scott: He didn't even. He said nothing. He'd been dark for so long. He sends out this meme, this cartoon of him leaning into the computer like he was leaning back. Now he's leaning in. People are excited, like, Roaring Kitty's back. And here goes the stock again. More ways to lose money.

Pat: I've got to tell you, Scott. You used two words in that last story that weren't around. You used the word meme...

Together: ...and doxed.

Pat: And so I was with my brother and...

Scott: I had to use dox. I read it this week. And I thought it's interesting that these words just come out of nowhere. I don't know where they start.

Pat: So I was with my brother and he was reading an article and he looks at me. We were traveling together and he goes, "What's dox?" And I said, "Well, I think it's when you like call 911 on a house and you say that someone else's house is being broken into." And my sister-in-law says, "No, that's swatted."

Scott: Swatted?

Pat: Swatted. Where in order to harass someone, you're calling 911 on someone else's house because in the cell phone, they don't know who it is, right? People use cell phones. So my brother and I are like, what's dox mean? So we had to actually look it up. And dox is...

Scott: Revealing someone's personal information, their home and address.

Pat: Well, for the rest of the old listeners like myself, a meme is a cartoon character, some sort of a...

Scott: It's something that's supposed to represent you something else, right?

Pat: Yes. Okay, well, thank you for that.

Scott: I guess. I mean, I haven't thought about putting a definition on a...

Pat: Meme. Like, a meme is a depiction. Let's go with that.

Scott: As my 16 year olds will say, "Dad, that's not a thing." Or, "Dad, that's a thing. That's a thing." Like,"What?" "It's a thing, Dad." "That is? I've never heard that." "It's a thing. Yeah. Where have you been? It's a thing."

Pat: "It's a thing."

Scott: Anyway, let's go to some calls, by the way. We tend to record during the week and we'd love to take your call. One of the favorite things we do actually is take calls from our listeners and help them through some financial planning. So if you are looking at...maybe you wonder if you got the right kind of portfolio, questioning if you're in a position to be able to retire today, trying to figure out how to have your portfolio designed to keep pace with inflation, or maybe it's an estate planning question you've got, anything related to finance, we'd love to have a conversation with you. And you can simply send...a couple ways. One is you can send us an email to questions@moneymatters.com. And we will schedule a time. So questions@moneymatters.com. Or on Friday, May 31st, we've got a special couple hours just in the studio, a call session. We'll be in the studio just taking calls Friday, May 31st. We're doing this from noon Pacific to 2:00 Pacific. So two hours noon to 2:00 Pacific Friday, May 31st. So we can either schedule it during that time or schedule another time. We're doing it again. Just send us an email at questions@moneymatters.com. And let's go to the conversation.

Pat: Let's actually go to the calls.

Scott: We're in Ohio talking with Betty. Hi, Betty. You're with Allworth's Money Matters.

Betty: Good morning.

Scott: Hi, Betty.

Betty: Hi. I was just calling to ask a question. I have about a little over $50,000. And I have about seven or eight years left before I retire. And I just want to know what is the best thing for me to do with this money to, you know, better prepare myself for retirement. I've been on my job. I do have 401(k). And I just want to know, should I, you know, take out...I mean, pay off personal loans, high-interest credit cards, pay my car off, which I only owe another year or so on just to free up cash and put some money in a Roth IRA. I've kind of read a little bit about that.

Pat: So, Betty, Betty, what was the source of this $50,000? Where did it come from?

Betty: It came from a lawsuit. A payment.

Pat: Okay. So it was a one time. It wasn't saved over time.

Betty: Yes, one time.

Pat: And how old are you?

Betty: I am 59.

Pat: And are you married?

Betty: I am.

Pat: And does your spouse work?

Betty: Yes.

Pat: How much credit card debt do you have?

Betty: Credit card itself, I would say it might be right at...it should be under about $20,000. Well, closer to about $15,000.

Pat: Okay. So here's what here's what I want you to do. Right. So you asked a specific question about this $50,000 and I'll give you a specific answer. But you need a financial plan in order to get to retirement. And one of those things is that you and your husband both max out your 401(k), 403(b), 457.

Scott: What do you have in your retirement plan? What do you have saved in retirement plans?

Betty: Oh, I should have checked before. It might be $259,000. Something like that, $259,000.

Pat: Okay, for you. And how much how much for your spouse?

Betty: Well, it's separate. So I don't know what he has. He, yeah.

Pat: Okay, you run separate.

Betty: He started a new job.

Scott: He just started a new job.

Betty: Yeah.

Pat: But do you run separate financial households?

Betty: No, no, we're in the same household. It's just that my 401(k) is different than what he has.

Pat: Understand. We understand. We understand.

Scott: And do you own your home?

Betty: Yes.

Pat: Is it paid for?

Betty: We would like to... No. We still have a mortgage.

Scott: Will either one of you be receiving a pension at retirement?

Betty: Yes, he will from a previous job he had.

Pat: How much do you own your car?

Betty: $14,000.

Pat: And what's the interest rate?

Betty: 4.8%.

Pat: Okay, and the income between you and your spouse? How much money?

Betty: Probably about $160,000 a year.

Pat: Okay. So here's what I'd like you to do. I'd like you to actually, first of all, increase...

Scott: I would not take any of this and pay off the credit cards. If your income is at $160,000.

Pat: Why?

Betty: Okay.

Scott: What was your income two years ago?

Betty: Well, since he just started the new job, it was probably about $60,000 less than that.

Pat: How long is how long has he been out of the workforce?

Betty: Well, it's not he's been out of the workforce. He's been working. He's just switched jobs. So he's making more money now.

Scott: So you got a tremendous opportunity right now, right? So your family income went from $100,000 to $160,000.

Betty: Mm-hmm

Scott: You're nearing retirement. You're seven or eight years away from retirement.

Pat: You are grossly underfunded for your retirement.

Scott: Unless he's got $1 million in his 401(k) that we don't know about.

Pat: And a large pension. So you're grossly underfunded. So you called about this $50,000.

Scott: You've got an opportunity over the next seven to eight years...

Pat: To fix it.

Scott: Mainly because you got...

Betty: That's what I'd like to do.

Scott: ...you're in that situation. My concern is if you take this $50,000 and you pay off the $15,000 in credit cards, now you only have $35,000, and that you're never going to save that additional $15,000 that you just took to pay off the credit cards.

Pat: I'm going to disagree, Scott. I think that...I've got to tell you. She's 59. She's staring a retirement in the face.

Scott: It depends on how you and your husband want to get about your finances.

Pat: That's right. That's right. And I'm going to bet on...

Betty: Depends on what? I'm sorry, I didn't hear you. It depends on...

Scott: How serious the two of you want to be on getting prepared for retirement?

Betty: What do you mean?

Pat: Your retirement, you don't have nearly enough money saved for retirement, not even close, not even close. Based upon the numbers that you're sharing with us now on this $250,000-plus in your 401(k), even if your husband has a good pension, you're grossly underfunded for retirement. So you called about this 50K and I'm thinking, well, I'm going to answer that question. But you need much, much more than that. Much, much more than that.

Scott: I mean, in a perfect world, we funnel those dollars into the 401(k) by using catch-up. They take that tax savings...

Betty: I tried that. I was told not to do that.

Pat: By who?

Scott: An annuities salesman.

Betty: Well, one of the advisors through our 401(k) was connected to Fidelity, I think it was. And not that he knew what he was talking about. I don't know. But he said that that was not a good idea.

Pat: Well, he's wrong.

Scott: To put more money in your retirement account and you underfunded for retirement?

Pat: So here's what I want you to do. I want you to pay off the credit cards right now. I want you to increase your maximum, the maximum into your 401(k), including the catch-up provision. So you're going to increase as much as that pension plan could possibly take, every dime of it. I want your husband to put the maximum into the 401(k) or his 403(b) or 457, including the catch-up provision.

Scott: Here's what you...if you really care about this, you guys need to sit down with a good advisor, say, "Look, here's what we're trying to accomplish. We want to retire in 7 to 8 years. Here's what kind of income we need. What's it going to take?" And you can work backwards and you can see exactly the path you're on now and what it's going to take to get the path you'd like to be. And then maybe that's going to be somewhere in the middle.

Pat: Correct. But I want you to pay that car off, too. Even though it's 4.8%, it's about what you would receive in a bank account, in a high-yield account.

Betty: Mm-hmm. High-interest.

Pat: I want you to put the rest of the money in a high yield interest account and not touch it. So what we did is we lowered your monthly outflow on credit cards and car. And I took all that money that you were paying towards that and then some put it to retirement and put it towards your retirement

Betty: In the high interest saving.

Pat: No, no.

Betty: Oh, back into my 401(k).

Scott: Maxing out your 401(k).

Pat: That's right. That's right. That's right.

Betty: Okay.

Pat: So write this down. Maximum including catch-up for you and your spouse. Pay off the credit cards in the car, put the rest in a high-yield savings account. Get a financial advisor. Pay a couple thousand dollars for a plan. Stick to it so that you have a comfortable retirement, because I'm telling you...

Scott: You're in a great opportunity because your your family income went...this $50,000 is nothing. I mean, right?

Betty: Yeah, I agree. But yeah, what's what's pretty what's pretty cool is that your husband's got a job. Now, your family income went from 100,000 to 160,000.

Pat: And we want to take that 60,000 and put it away for retirement.

Scott: That's right.

Betty: I understand.

Scott: All right?

Betty: Yes, I did increase my 401(k), but not to the maximum. So I'll go back and do that.

Scott: I would do the maximum with catch-up.

Pat: With catch up. Everything. Both you and your spouse.

Scott: But what we do believe, Betty, isthat if you go through the process of doing a financial plan, you'll see the benefit and how it's going to impact your life,

Pat: Which makes it easier to stick to the process because you know what the outcome will be.

Scott: Yeah, as opposed to, "I think this might be good."

Pat: "It might be. This is what they say."

Scott: "Or should we take that trip that we wanted to do anyway and go..."

Pat: "...to make the Carnival Cruise?"

Scott: All that stuff that competes for your savings. So appreciate the call, Betty. Let's talk with Bob. Bob, you're with Allworth's "Money Matters."

Bob: Hello, gentlemen.

Scott: Hi, Bob.

Bob: Thanks for taking my call.

Scott: Yeah, glad you joined us.

Bob: I ultimately have a social security question, but I think I may have come to it in a kind of a strange or roundabout way.

Scott: All right. Well, fire away.

Bob: I retired last August, you know, thinking I was in good stead, had about 1.6 in retirement accounts, IRAs, 401(k)s, annuities, a whole spread of things. So I thought I was sitting pretty. And the house is almost paid for, only owe about $100,000 on the house. So I went ahead and retired. Well, I just found out we're going to get divorced.

Scott: Oh, gosh.

Bob: So that changes the calculations or potentially changes the calculations dramatically.

Pat: Were you both retired at the same time? Or did your spouse?

Bob: She's five years younger, so she's still working. And I turned 64. I'll be 65 this December. So when I start thinking that I'm going to get half my retirement, you know, and I still don't know the status of...because we both want the house. So I don't know whether I'll have a have a house or have to buy a house.

Pat: How long were you married?

Bob: We just passed our 10-year anniversary. March was our 10-year anniversary.

Pat: Okay. Okay.

Scott: What state do you live in?

Bob: Michigan.

Pat: And why do you think it's going to be half?

Bob: Because that's a marital asset. Well, no, that's a good point. You know, there is a there's a marital asset and there's separate.

Scott: That's right.

Pat: That's right.

Bob: Thankfully, I think I have about 700 of the 1.6 is separate because it came from an inheritance.

Pat: Wait, wait, but look, you should be talking to an attorney first, not us. And the reason is...

Bob: I am.

Pat: Okay. Typically, it's the marital asset that...

Scott: It's only during those years that you were married.

Pat: The years that you were married. So this $1.6 million that you have saved up for retirement, some of that was saved prior to the marriage.

Scott: Which would have had compound growth on it by itself.

Bob: But the growth is considered marital.

Pat: That's right. That's right. That's right.

Bob: So there's about...it's just under $200,000 is the pre-marital account.

Pat: Okay.

Bob: So I have $200,000 and then another $500,000 of inheritance. So I've got about $700,000 that's probably protected. But the other 900 is is subject to, you know, distribution.

Pat: So what's your question for us?

Bob: Well, the thought being is that, you know, my concept that I have in my head is that, you know, you should take social security right away if you don't really need it and that if you really need it, you should wait and maximize the amount. So now I'm going from where I didn't really need it. So I started taking it at sixty-three and a half. And now I'm in a position where I might really need it or might need it. And so I'm thinking, do I...

Scott: Suspend it.

Bob: ...stop it, send it, you know, pay the money back and hold off and, you know, wait to take it.

Pat: Are you going to reenter the workforce?

Bob: No.

Pat: You say that...

Bob: Retiring was the happiest moment of my life.

Pat: Okay. You said that was such certainty, I wanted to test that.

Bob: No, I'm I'm happy to be here. I'm just trying to do the best with what's going to be left.

Pat: Normal life expectancy.

Bob: Both my parents made it to 92, so I'm expecting to be around here for quite a while.

Scott: If I were in your position... It sounds to me like this wasn't you weren't the one who called for this divorce.

Bob: Correct.

Scott: And you're going to end up negotiating something, hopefully, instead of having the attorneys end up with all your assets. So that would be in a perfect world. If I were in your situation, I would suspend Social Security. For one, it's no longer an income you have coming in. Right? I would go with the mindset, look, I'm suspending Social Security. I'm going to wait till age 70 because now my finances are in complete disarray. And I'm concerned I'm going to need higher income down the road. So that's why you've done that. Right? So now your family income, your income is not what it was. So just from a standpoint of now, you're negotiating who gets what and all that...

Pat: Well, how old are you now?

Scott: Sixty-four.

Bob: Sixty-four.

Pat: So we got to worry about Medicare premiums as well.

Bob: Well, I'm paying for medical right now. Being retired, I had to buy medical anyway. So it should wash, I think.

Pat: And does your spouse have a pension?

Bob: No. I have a small pension and Social Security. I've got about $3,500 coming in a month.

Scott: If I were in your position...I don't know your marriage. I don't know, but I've seen enough couples go through this. Right. This is not that uncommon, unfortunately. And look, grey divorce, they call it. Like, it's up dramatically from where it was 20 years ago. And lots of people find themselves in this situation. And it's a 10-year marriage. You're going to do everything in your power to ensure you have as many financial assets and she's probably going to do everything in her power to ensure that she has as much. So just from pure negotiation standpoint, if I were in your situation, I would suspend Social Security. And state, look, "Given what's happened now to my life, I am concerned about having enough money in my old age. So I have to defer Social Security till age 70." Now that is no longer an income source that you've got coming in. It's just part of the negotiations.

Pat: I would agree with Scott.

Bob: Okay. well, that's what that's what the the rule of thumb says.

Scott: And then when you start looking at assets, one thing that's important to keep in mind, different assets have different tax situations. So if you look at $100,000 in a 401(k) and $100,000 in a CD, $100,000 in the CD is worth more.

Pat: You have to bring everything into its liquidation value, which means spendable money, including your house. So that house...and I've seen it, gosh, a dozen times where people come in, even with experienced attorneys.

Scott: The house is $800,000. The 401(k) is $800,000. I'm taking the 401(k), she's taking the house or whatever.

Pat: And the 401(k), the value is the face value, what the value is today, minus the tax liability. The house is the value of the house minus the liquidation cost, which is typically 5% to 6%. So they're not apples to apples. Just keep that in mind when you're going through the process.

Bob: I will. Thank you.

Scott: Yeah. All right. Good luck, Bob.

Pat: Sorry about that.

Scott: Yeah.

Bob: Thank you.

Scott: Yeah. It's interesting. You never know which...

Pat: I'm not in his marriage, so I don't know why I said I'm sorry. Maybe he's happy.

Scott: Okay. I don't think... It sounded like he wasn't part of the plan.

Pat: Yeah, he didn't sound...

Scott: It sounded like something happened to him, not something he was looking forward to. But it's interesting. And as we go through life, things happen. We can have the best financial plans. Spouse leaves us, spouse dies, we end up with a major illness. Life happens. And usually, when life happens like that, it's usually a time when we've got to relook at our financial plans and adjust accordingly.

Pat: The thesis changes

Scott: Because your future changes.

Pat: That's right, the investment thesis changes.

Scott: You had this plan of having retirement with a certain person. They're no longer part of your life. Like, what's retirement look like now?

Pat: Hey, every once in a while, we like to follow up with calls that we've had in the past. First of all, just out of personal curiosity. Like, where did this go? Was our advice taken? If it was taken, was it taken in whole or part? And we like to call these things house calls for whatever reason. But it sounds like a fuller brush man. For those people that don't know what a fuller brush man is, it's a guy that used to come to your house.

Scott: You know, it's one of those jobs I thought, I'd like to do that for a day, just to try what it's like being a fuller brush man. It's a different era.

Pat: So a fuller brush man is a man that would come to your house and sell brushes.

Scott: And that sounds quite sexist. It could be a fuller brush female.

Pat: Okay. But very similar to how Amazon works today. But we like to follow up with these calls. And today we're going to talk to Brian.

Scott: That's right. We spoke to Brian last February. And he was in an interesting situation where you've got a parent is trying to do something, make everything even. And Brian's life was quite... Anyway. Listen to the clip and then we'll have a conversation with Brian.

Have you owned a home in the past?

Brian: No, I've just rented just to keep my housing costs as low as possible so I can put away. You know, eventually, I got to a good emergency savings and then eventually a good 401(k). And by then houses were rather expensive and I'm not married. No kids. And then recently I like to travel. So I'm out of the country could be three to six months a year.

Pat: That changes things.

Scott: Yeah.

Pat: And so when you move out of the country, do you keep your rental or do you give it up?

Brian: Last time I kept it for about three months, but this time I'm thinking it's time to move on anyway and I'm going to get rid of it.

Pat: And you're gainfully employed.

Brian: Yes, I can work remote. And I'm able to kind of do both.

Scott: People are just, "How do I get this lifestyle?"

Pat: Where did I go wrong?

Scott: I know.

Brian: Yeah, it's not bad.

Pat: So you sit down on an island and you actually have like a Photoshop bookshelf behind you when there's really a beach.

Pat: Brian, you said you're 37?

Scott: Thirty-eight.

Brian: Thirty-eight.

Scott: And what's your income ballpark from your employment?

Brian: One hundred and fifty thousand.

Scott: And what do you have saved?

Pat: Everything.

Brian: Everything, $430,000, $300,000 of which is retirement tax advantage and the rest is money market and index funds.

Pat: I hear that you don't want to buy a home.

Scott: Yeah. Why would you want to buy?

Brian: Yeah, I don't. So it's like, do I convince my dad that, you know, this is my strategy? I certainly appreciate the funds. And my thought would be to invest most of the money into a VTI and maybe take those [crosstalk 00:39:48.236] to fund travel.

Scott: How does your dad?

Brian: He's 74 and well... They're pretty well set for their retirement.

Pat: They're not doing this for estate tax purposes then?

Brian: No.

Scott: They want to even out. They've gifted their other kids.

Pat: Yeah, they're going to give to... And what do you think of getting a rental home?

Brian: You know, I think it's kind of like...I work in real estate as an accountant and it's kind of like chefs and restaurants. They don't cook all day and then go home and make elaborate meals. And I think when I get home, I'm just tired of looking at real estate and I prefer my strategies to focus on my time on my career, travel, and then passive investing versus...most people I talk to don't like being a landlord.

Pat: Yeah, I don't like being a landlord.

Scott: I can live with it.

Brian: And then the house...I mean, at my index funds, I don't have to go insuring them. I don't have to pay property tax.

Scott: Two days ago, I'm on a walk with my wife and I said to her... Actually, I'm on a walk my wife and I got a text from a property manager. Can you please call me? And I, "Like, is the house on fire?" And I text back and the washer was broken and he thought it's time to get a new washer and dryer.

Pat: Your mutual fund never calls you.

Scott: I said to my wife...and it's been a good investment. But I said to my wife, "I really love equities." And I said...this is the conversation we had.

Pat: You had this conversation with your wife on a walk.

Scott: She barely tolerated it. But yes.

Pat: How romantic.

Scott: No, well. And I said, one of the benefits about getting a little older...you're still quite young, you don't remember the pain of the financial crisis. One of the benefits of getting older, you've lived through all these cycles. And you see that companies, the values of companies, continue to grow. And when you look over the long-term return, you mentioned VTI, the total stock market index, you look at the long-term return of stocks, it's about six to seven percentage points above that of the rate of inflation. It's hard to replicate that in any other asset class.

Pat: It is.

Scott: Real estate, rental, anything.

Pat: It is.

Scott: And it never calls you and says the washer's broken.

Pat: And there's no leverage in there. So the downside risk isn't as great.

Scott: Correct.

Pat: So just tell your...

Scott: I'd have a conversation with your dad and say, "Look, my lifestyle is a little unconventional..."

Pat: "But I'm happy." I'm assuming you're happy.

Scott: "I would love to take these dollars and invest them for the long term for my own financial security, just like my brother's financial security, but in a slightly different way."

Pat: And I'd take it one step further. I would take a clip of this show and say, "Hey, I talked to these guys that I listen to their podcast. And this is what they said." And quite frankly, your dad may know... And by the way, that's the only way we're gaining listeners is one at a time. But it might change his view of the world enough that says, "Oh, okay, well, my son's taking this seriously and he reached out to these financial professionals that manage, you know, $20 billion dollars, and they're kind of under $19 billion. And they kind of understand it. So here's here's where you go, dad," and see where it lands. But quite frankly, if I had a child like yours that said to me, this is what I'd like to do, I would say, "Okay, makes sense."

Scott: So, yeah. So I have four kids, 28, 26, 16, and 13. Right. Same wife, just a big spread. My oldest daughter, I just helped with the purchase of her first house. And I told my son, who's 26, I said, "Hey, two years from now," maybe sooner, but, "two years from now..." It actually might be the end of next year before the tax laws change. "Two years from now, I'm going to do something similar for you." But I already know he's just a different kind of guy. And for him, he's probably not going to want to buy a house.

Pat: At least at that point in time.

Scott: At that point in time. So I'll probably structure something different for him. Hopefully, it'll allow me to coach him some because this is my profession. But to help guide him in what to do. But I don't think you would be buying a home for him. But I would still feel I still feel the desire to let that...

Pat: Something that has similar economic value to that child.

Scott: Yeah. So he doesn't feel like I'm playing playing favorites. And I don't want to play favorites and I want to help him get launched in life.

Pat: Brian, so that's the answer to the question. I have a couple of questions for you. Of these places you've traveled and worked, what was your favorite?

Brian: Oh, recently, it would probably be Malaga, Spain, although I almost don't want people to find out about it, but that was really beautiful.

Scott: Is that to the Southern tip?

Brian: Yeah, that's in the southern tip. You can take a ferry to Africa just about. But yeah, great weather, has the old town, has the beach.

Scott: I've actually been to Malaga.

Pat: All right. Second favorite?

Brian: Second favorite.

Scott: Where do you plan on going?

Brian: Lisbon was quite good.

Pat: I like Lisbon.

Scott: I've never been to Lisbon.

Brian: It gets a little overcrowded, but it was quite good.

Pat: Yeah, it's quite the American...

Brian: Next stop's Italy.

Scott: So, Brian, you're with us now, right?

Brian: Yes.

Pat: And are you overseas as we speak?

Brian: I am.

Pat: Out of curiosity, are you comfortable sharing where you're at?

Brian: Sure, I'm in northern Italy in Liguria in the Italian Riviera, a small Italian seaside village.

Pat: Yeah.

Scott: That does sound pretty interesting.

Pat: Actually I was in Puglia a couple of weeks ago in...

Scott: Of course you were.

Pat: Yeah, but I don't live like Brian does. So anyway...

Scott: You're like a week and a half.

Pat: I know.

Scott: Once a year.

Pat: Exactly. Exactly. So I assume you're still gainfully employed.

Brian: I am, yeah. So I've been here for a month and it's working out well. And I took your advice.

Scott: Yeah. So how'd it go?

Brian: Yeah, it went good. I simply just shared the podcast with both of my parents. And dad came around pretty quick. So, "You're right. It sounds like it's the right thing for you to do. And it's an investment style that works for you. Plus, you got your travel lifestyle." And I think he asked... So that was the first comment. And the second comment was something about, "Are you going to get the tattoo on your foot?" Because I think you guys said something about your son.

Pat: Okay.

Brian: To send a tattoo...

Scott: He's still waiting for me to send it, but I have not sent it yet.

Pat: So this is a way that we could gain listeners to the podcast, Scott. Is we could have...

Scott: So did they give you the cash?

Brian: I got $50,000 right before I left, which they had already sort of had in the works. I didn't really know. And then a bit more may come in January so they can put it in a different tax year. And so I took the $50,000 and I immediately put $15,000 in a total stock market index fund. And then I'm sitting on $35,000 left over from that because I kind of took...I had a lot of changes going on. I was moving out of the apartment. The apartment's gone now. I have no costs back home.

Scott: Oh, good.

Brian: And I know when when you talk to guests and they have...it's not exactly the same, but when someone has an inheritance, you tell them, don't do anything straight away while you're, you know, going through a recent change or a life change.

Scott: This is a little different situation. We don't...I mean...

Brian: It's a little different, yeah. So I'm sitting on now...I guess the follow up question would be I'm sitting on 100 grand in cash in a high yield money market. And I probably just need to pull the trigger.

Pat: You know what you need to do. You don't need us to answer the question. You're just nervous about doing it.

Scott: It's always hard to invest because if the markets are up, you're like, "Man, it's on a tear right now. I'm going to wait until there's a pullback." And when the markets are going down, you're like, "I don't want to invest right now. Things are going down. I'm going to wait until things are a little lower."

Pat: But you know what to do. You're just nervous about doing it. Just do it.

Scott: Over the long term, it's not going to make...

Pat: Yeah.

Scott: Who knows a year from now?

Pat: or two years or three years? But what we do know is you're...how old?

Brian: Thirty-eight.

Pat: Thrity-eight. Yeah, you've got a long time. So just keep whatever liquid cash you need in the high yield. But that should not... Look, you laid out...in that call we had a few months ago, you laid out your thesis and now you've actually veered from it.

Scott: That's right. Human nature. Right.

Pat: You told us what you should do. And then when you actually came time to do it, you didn't do it.

Brian: I parked it, but yeah. Now, I've got to go.

Pat: Yeah, go do it.

Scott: Because it's not even the whole amount, majority is coming next year, in the future.

Pat: Yeah. So you know what to do. I have a couple of personal questions for you. After Italy, where? Do you know?

Brian: I have no plan. I just kind of let things evolve or develop and ask people where to go. I wrote down Puglia when you said it a second ago. Yeah, I do have like tentative plans to go to Paris in June to catch up with a friend out there for a couple of weeks.

Pat: And when you when you travel like this, do you stay in an Airbnb or do you rent a room or?

Brian: Yeah, I'm in an Airbnb most of the time. And I actually made a little deal on this one. I rented it for a week and then I met the landlord. And then once I tested the Internet and I had to do a lot of work this week. So I had to I wanted to stay put for a while. And then I offered cash for an extra week. You know, it was a pretty good price on the cash price.

Pat: And Italy is relatively inexpensive right now because of the strength of the dollar. So anyway, hey, thank you for doing this house call to follow up. Appreciate it. And continue enjoying. This guy's living life.

Scott: Yeah. And I think there's two... I appreciate the call, Brian. There's a couple takeaways on this. One is if you're planning on leaving money to your kids, like the world's different today.

Pat: It is. And sometimes better from a warm hand than a cold heart.

Scott: Okay, Pat.

Pat: I had a client actually say that to me when they gifted three of his children money because the world is different.

Scott: So the question is, is the money that you're going to be either leaving at your death or while you're still there? Hope their child do what they want in their life or to do what you want them to do. Well, we're going to ramp up the program. But hey, just want to remind you, we mentioned earlier in the show, but want to remind you, we've got our call-in session. So if you want to join us on Friday, May 31st from noon to 2:00 Pacific time, we're going to be in the studio taking calls. Just send us an email at questions@moneymatters.com. Or you can call 833-99-WORTH. This is Scott Hanson and Pat McClain, 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.