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

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

Pat: Pat McClain. Thanks for joining us.

Scott: Glad you're with us. Myself and my co-host here, we are both financial advisors, certified financial planner, chartered financial consultant, been helping people for the last few decades with their financial futures and been doing this program for the last few decades as well. Helping you with your finances.

Pat: You know, Scott, I'm excited and I don't say that often about our show, but we have a guest, which we don't have very often, from outside our organization.

Scott: And I've had the opportunity to have conversations with, you have not.

Pat: I have not. I'm meeting Joe for the first time. And Joe specializes in working with the psychological aspects of retirement.

Scott: Yeah, I mean, as financial advisors, we spend a good chunk of our planning with people is about retirement, right? It's the number one, it's really about financial independence.

Pat: It's actually being able to retire, having the ability to retire. And whether you want to exercise that option or not is entirely up to you.

Scott: And for most people, that's a pretty high financial goal.

Pat: That's right.

Scott: Getting your kids through school.

Pat: Yeah.

Scott: Some of those other things. But then it's really about retirement. But that transition when you go from the workplace, particularly if you're a high-powered exec. I'll never forget years ago, I had a client of mine, she'd been a client a number of years. She was a single woman, CEO of a company with a couple hundred employees. So pretty hard driver. The company was doing well. She loved her job, loved it, always loved it. And without having a lot of other things in her life, that was her primary thing. And of course, she wanted to make sure she had money for retirement. So every time we got together, we'd look at her financial life and she was more than set for retirement. And she came in again for kind of annual once a year, she'd drive, come to the office, would sit down, kind of talk through things. And she asked about retirement. I said, you know, I said, Stacey said...

Pat: Can I interrupt for one second, Scott?

Scott: I'm pretty accustomed to being interrupted by you.

Pat: What percentage of the time... I know the percentage for me when people are in that situation, does the conversation veer off of the finance and then to the...

Scott: That's where I'm going with it.

Pat: Okay. Well, what percentage?

Scott: So I said, Stacey, I said...

Pat: 70, 80?

Scott: Yeah. Well, finances are designed around what the person's, what you want to, the goals of the individual that you're working with, or the couple that you're working with. It's a tool. And you end up learning more about them I have in conversations than...

Pat: Around the finances that lead to the personal stuff.

Scott: Yes.

Pat: Okay, keep going.

Scott: So I said, Stacey, I said, "Last time we looked, you were fine financially. Things have only been better this last year. So you're more than fine financially. Instead of looking at the finances," I said, "let's talk about your retirement." She said, "What do you mean?" So well, she said, "You said I was set." I said, "Yes, but let's pretend like today is your last day at work. What's your next few weeks look like, next few months look like, next few years look like?" And she says, "I don't know. I haven't really given it much thought." And I said, well, I said, "Instead of thinking about the money, we're fine here, why don't you give that some consideration over the next coming weeks or whatever?" And she sent me an email like a week later. She said, "Your questions haunted me."

Pat: You want that? I kind of like that when a client starts an email, your question...

Scott: No, but she says, I realize I have a lot of work to do to prepare for retirement. And which is why we've got Joe Casey joining us here in just a moment. Joe Casey, he's an executive coach and he really helps people design their next life, he calls it after they graduate from full-time work. And what's interesting about Joe, he had a long career at Merrill Lynch, 26-year career at Merrill Lynch. And he decided to do something different. So now he spends time helping coach people. Business Insider has recognized him as one of the 23 top innovative coaches who are making a difference in people's lives. And he hosts the "Retirement Wisdom" podcast, which I was a guest of a few weeks ago. Thank you, Joe. He's also the author of the book "Win the Retirement Game: How to Outsmart the 9 Forces Trying to Steal Your Joy".

Pat: And Scott, I do want to point out, when he was at Merrill Lynch, he wasn't what they used to call stock jockey, right? He was the senior vice president and head of HR, Human Resources. So I assume that you weren't in the trenches in the pit, different pit. Joe, welcome to the show.

Joe: Thanks. Great to be with both of you. Scott, great to talk to you again. And I was not in the pit. I had worked in HR my whole career there in different parts of the company, starting with wealth management. And at the end of my career as head of HR for the institutional side of the business, Investment Banking, Sales, and Trading. And really what I do is help people with exactly as you were talking about, that other investment decision. How are they going to invest their time? And with your help, people can assess how much money they have, but we all never know how much time we have. And so I help them figure out a direction. What are you going to do with that time and how do you get started? They use a process that I'm trained in called Designing Your Life, created by two Stanford professors, Dave Evans and Bill Burnett, that brings the principles of design thinking to help you experiment and lay out some possible alternative paths. And so you're prepared for that question. So it's not so haunting, but you actually know the answer.

Scott: And so I would... My guess is that in a perfect world, people meet with you years before retirement and start planning this. How often is that the case or how often are you meeting with people after they've retired and they realize they're kind of stuck?

Pat: How often is it proactive versus reactive?

Joe: For me, it's mostly proactive. Usually the most common is about two years out. But I also work with people six months out. They have a little bit of a different look in their eyes. It's kind of that look you get when you look in your side mirror and objects may be closer than they appear. And that's what six months away from it looks like. I do work with some people who have recently retired or want an upgrade because it hasn't turned out to be exactly what they had envisioned.

Scott: What do you mean by upgrade?

Joe: Really a reset because they hadn't given it much thought. They drifted into it and they're past the honeymoon period where it's great to not have to think about that boss anymore, not have to worry about the alarm clock. But I don't know if you've ever been on a vacation where two weeks in you said, "I'd really like to get back now."

Scott: Yes. Oh, yes.

Joe: They have that feeling where I'd like to get back to something different. And so they're looking for something that they know could be better. They have some vague ideas, but they need some help to figure out what that could actually look like. And so I help them bring some imagination to the planning process.

Scott: And how often does someone end up going back to work at some point?

Joe: More more often than you think. Usually, I know that pre-COVID there were a couple of studies, one by the RAND Corporation found that 25% of people were going back to retirement within the first 5 years and not often for financial reasons, but for collegiality, social connection, and wanting to stay sharp and really being bored in retirement. That's changed a little bit post-COVID, but a lot of people are on retirement. But I tend to work with people more on the front end than they are retiring.

Pat: So, Joe, two questions, and then I'm going to ask you to walk me through the process. Do you often do this if it's a married couple with both or is it one-on-one or is it a combination of the both of those things?

Joe: Sure. Great question. So I usually work one-on-one, but usually, if they are married or in a relationship, the partner is always in the background and often doing some of the same exercises along with them and I encourage that. I have worked with couples, but I'm not a trained marriage counselor. The only thing I bring to the table has been married 43 years, going on 44 in a few months if I play my cards right. But that's always a year-to-year proposition.

Pat: So, Joe, I come to you. I'm two years from retirement and I'm a financial advisor and I'm like, "Hey, I'm hanging it up and I'm fine financially." What are you going to give me that I don't have or what are you going to show me? What's the process you're going to bring me through?

Joe: Absolutely. So we're going to start the conversation first about two very simple topics. What are your hopes about this next period of time and what are your concerns? Let's get into those two things that are on your mind. And then we'll talk about the process that I'll use in coaching, which is really three phases. Phase one is what's most important to you now. What are your priorities? Because they may be different than they were during your career. If you've achieved financial independence, you may have a different list. So we're going to get clear on those before we start designing anything. And then we'll move into the second phase. And this is where the bringing more imagination to the process really helps. And that's what's possible. What are the different alternative things you could do? What directions could you take? We're going to map out three alternative paths for the next three years. And we're going to examine those because there's an infinite number of things you could do. We're going to examine three and we're going to look at those in detail. And then third, we're going to find out what more information do you need to know before you discern which path is right for you. And we're going to do that through a process called prototyping, which is talking to people who are doing those things that you might want to do. So if you're thinking about, for example, taking up some new endeavor, some new pursuit, in my case, it was writing a book, starting a podcast. Well, I talked to people who've done those things and you learn a lot and you get started faster. You might even talk to people who have retired and what did they learn. What do they know now that they wish they knew when they were at your stage? Or it might be in some cases, I've had people go back to school and I did that myself and what's that really like? Can you do it? How hard is it? So you really go into making those decisions with a more informed base. And then finally we implement the plan where we come up with the roadmap and we make it, make it happen.

Pat: And then do you measure to that plan with key performance indicators or goalposts?

Scott: Can you forget about those things every time?

Joe: Well, definitely with a timeline that you set.

Scott: Daily scorecard.

Joe: But the primary OKR is a smiley face. What's your level of satisfaction? If there are other people in your life, what's the level of their satisfaction with it? But certainly, the timeframe, which can be flexible, but you want to have some milestones you want to hit before making some decisions and timeframe to experiment with some things. Age Wave had done a study that showed that it takes people two and a half years on average, and we all know what averages can do and how deceiving they can be. Two and a half years on average to figure out what they wanted to do next after they retired and back to what I said earlier, if you don't know how much time you have, that's probably not a resource you want to waste too much with. So I can help people get, get off in the right direction a little bit faster than that.

Scott: And you said you went back to school. Just out of curiosity, what did you study?

Joe: So I went back to school and did a, did a master's degree. It was my third one in gerontology, which is a study of the aging process at the University of Southern California. I did it for two reasons. One, because I had never been old before so I figured it might come in handy. So I got to finish the degree at age 60. But the main reason, all kidding aside, was that if I was going to start advising people and coaching people on the rest of their lives, I wanted to make sure I was steeped in the research. And that's how the podcast started was being able to share some of the research that I'd learned there and some of the work that's going on, because there's a lot happening in the field of living longer and living better. And then there's a lot to keep in mind, a lot to avail yourself to.

Pat: And you only have three masters. Slacker. You really need to get it together, Joe.

Joe: Well, that's because my wife kept telling me I still have so much to learn.

Scott: And your book is, "Win the Retirement Game: How to Outsmart the 9 Forces Trying to Steal Your Joy". What are some of those nine forces that are trying to steal our joy in retirement?

Joe: Sure. So they all came from an analysis I did of the clients I was working with. I started to notice that they were coming up against the same challenge or the same obstacles and being a sports-minded person, they felt like you were coming up against a new opponent and they weren't always the same nine, but people are usually dealing with two or three. And the first one that came up was boredom. People were afraid. They would tell me I'm really afraid of retirement. I hate to admit it. I've never admitted it to anybody else, but I'm a little concerned and I'm scared. And I'd ask them, what are you scared about? They said, "Well, I've got this interesting career. Every day it's been dynamic and challenging. And I'm afraid that once I retire, golf won't be enough. I'll be bored."

Pat: I've heard that. I've heard that many, many, many a time.

Joe: Absolutely. And it sounds great. Play golf every day or play tennis or pickleball, whatever you want to do every day. But that may not be enough for many people. And so boredom being the first one. And I started to look at, well, what's the antidote to that? How do you defeat boredom and found out there's actually a lot of research on boredom, which I had no idea about, but I've read it so you don't have to. And then I've discovered that the way to avoid boredom is to be curious. And if you have enough curiosity, you'll never be bored because you can't be bored and curious at the same time. And so curiosity of course leads to lifelong learning. And there's so many benefits to that, as you know. And then the other ones to start to come up were really social connectivity. A lot of research on this with loneliness, really being an academic sort of general of the U.S. has weighed in on this and written extensively about it. But people who are coming out of a workplace, particularly we men may have a lot more of our social relationship tied into work than we realize. And all of a sudden when you retire, those loops you were in, you're suddenly out of the loop. Those emails, those calls don't get those texts, don't get returned as quickly as they once did.

Scott: And there's a loss of status.

Joe: Very much so. And really you have to really change your mindset, especially if you've been one to keep up the Joneses, maybe time to lose that and come up with a new scorecard.

Scott: So Joe, maybe you can talk about, obviously change the names as a circumstance, but a client that had these same fears, maybe a high power career, did this very well and what their life looks like, and then maybe that same kind of individual who is still struggling and hasn't figured out how to have a good retirement.

Pat: Explain to us the ones that don't work. Yeah. Well, one of each.

Joe: Well, I'll tell you one that did work. It was with a doctor. I worked with a number of doctors right, during, and after COVID who wanted to leave the field of medicine and this particular one was very interested in doing something to give back. He decided to take his own personal experience. He had a health challenge and he had really gotten into lifestyle medicine, really eating better, etc., all these things that we know we should do, doctors know they should do. Sometimes they don't practice what they preach. So he ended up through this process, ending up creating a health coaching business with his wife focused on underprivileged of residents of the city they've lived in and others, and to really educate people about that. And he didn't have that idea when we started, but it evolved throughout it. He was looking for something where he could give back, something he could do, something with meaning purpose, but also something that took advantage of his own personal experience and his training.

Scott: Skillset.

Joe: Ones that don't...

Scott: So he's working. How much time has he spent into that?

Joe: It's a part-time endeavor. So it gave him a chance to do some other things in terms of flexibility. Most of my clients end up doing a portfolio of things. They're not going on to a second career. Some do, but most don't, but they keep work in the middle, in the mix. And that's because one thing that people end up missing that they are surprised about when they stop working is challenge, not the overwhelming type of challenge, but the type of challenge that makes you better, keeps you interested, and makes you a better professional, a better person each year. And so they find a mix of things that help provide that for them. Ones that don't work, I think are frankly, sometimes unwilling to experiment, unwilling to step out of their side, their comfort zone. As an executive coach, I've had a lot of great experiences being trained by great people in the field. And one of them who unfortunately passed away last year, David Peterson, was the head of leadership development at Google and said to me one day, I've never forgotten this, "There's no growth if you stay in your comfort zone and there's no comfort in the growth zone." But I think that's true after you retire too. You don't stop growing once you retire. And so it just, the mix changes.

Scott: I've got a little thing in my office at home. "View comfort as your enemy, risk and uncertainty as your friend." Just to remind myself that we all, we do everything. Seems like human nature is to try to make life as comfortable as possible, but it's not a place for us, it's not a very healthy place for us to sit too long.

Joe: Absolutely. And you have to come up with new ways to keep yourself growing, challenging. And I think that's where curiosity comes in as a start. Keeps you learning, keeps you trying new things. And those who experiment, are willing to try new things, I think are the ones who excel. One that didn't work and it was a valuable lesson for me. I'll share two of them. They were valuable lessons early. One was with another doctor who we were talking about this doing new things and he was having a hard time with it. I noticed a number of them were. And I asked him one day, so explain the reluctance. Why is this challenging? He said, "Well, you have to understand we're the best in our field. We're really experts in our specialty and don't take this the wrong way, but I haven't been not good at something for like four decades." And I said, "I can understand that." Now, we have to take a different approach. I said, "I will remind you that we're talking about trying pickleball in this case. You don't have to be an expert in your first game." The other one though is more a learning experience for me. Yeah. And you think...

Scott: Let me just cut... Like, someone who's a, let's say a highly skilled specialty surgeon. You think how many years they spent just on that, developing the skillset before they even operated on the first patient, right? And then...

Pat: And then a couple of decades doing it, but being surrounded by peers that look up to them and a whole army of resources in the operating room where everyone is doctor this, doctor that, you throw them out on a pickleball court. And the guy is like, he's tripping over himself. It's gotta be a little bit like a blow to the ego, especially if look, look, what makes you good makes you bad, right? And if you're competitive to be at the top of your field, you do not want to engage in something where you're not, right? You're more like that than anyone I've ever met. Scott.

Scott: What?

Pat: You're highly competitive.

Scott: I don't feel that way.

Pat: Are you out of your mind?

Scott: Okay. Whatever.

Pat: Anyway, okay.

Scott: But this isn't about me.

Pat: Joe, let's make it about Scott though. Joe, what do you think's wrong with it?

Joe: But you did raise a good point though about it becomes who we are in this case with this particular doctor. I've never met a doctor with an ego, but I guess they're out there. This particular doctor, he just didn't want to look bad. And it was something that could have been fun, but it actually was torture for him until we worked on reframing it and he got to see...

Scott: So even like starting something by its very nature, when you start something new, you're going to be clunky at it. You're not going to be proficient, right?

Joe: Absolutely.

Scott: And so for him, that was really challenging, even like going out to the pickleball court.

Joe: It became part of his identity on the best and he hadn't really taken that down to, well, I may not be the best at everything, especially something new, but there was a good end to story. He did try it. He did let go of that and it went forward. The other one was a learning for me as a coach. I was working with an engineer who had retired and he said, "Look, I've been all in on my career for 40 years and I'm embarrassed to tell you this, but I have no interest outside of work, no hobbies, no interests." His wife had actually called me and said, "My husband needs you. He just doesn't know it yet." I ended up coaching her later too, but he really was struck by that. He said, "I just don't have any interests. I've been all about work and I don't know what I'm going to do." And so I took him through some possibilities and it wasn't working. And so finally I realized I'm trying to go forward and look forward, but maybe I should be looking back. So we actually went back to his earliest days, childhood, decade by decade. What did you like to do then? Felt like that scene in Jerry Maguire where he said, "Was it always about the money? Wasn't it for fun once?" And he gets a blank stare. But we went through childhood, teenage years, college years, early professional years, things started to come back in that he liked and he was willing to try those again. So being a wise person, he started with date night. That was a big hit. But he also realized that when they were raising their son, he loved reading to him. And so he ended up doing some reading pro bono in a volunteer program, reading to underprivileged youth in the city in which he lived. And that was a start. But he ended up bringing back the things he used to like, some of them exercise-related, and that's what it was. So I had to go backward to help him go forward.

Pat: That's awesome.

Scott: And in your book, "Win the Retirement Game: How to Outsmart the 9 Forces That's Try to Steal Your Joy", do you lay out some of these processes? So you're a coach. You can only work with so many people, right? But so some people hire you. Other people will read the book. Is the book kind of help people down this path?

Joe: The book is a do-it-yourself guide. It can give you a roadmap because at the end of each chapter, there's a set of questions and exercises that you can do. And one person who wrote about the book said, there's a roadmap here. And so you can take the book and do it. It's helpful to, I think sometimes have someone, if not a coach, someone else in your life who can, who you can talk through some of the things with, but you can follow the step-by-step thing in there. And not all of these nine are things people are dealing with. There's usually two or three. So you can go right into the book and say, this is the one I'm dealing with. For me, it's not boredom. It might be, for example, it might be uncertainty and that might be a place to start. So find the two or three that you're dealing with and go from there.

Pat: Joe, before we leave, I have one question for you. Is this your next chapter, what you're doing now? Do you consider this part of your retirement?

Joe: Yes. I do two things. For 15 years, I've been an executive coach, a very active practice working with, with large companies and get to work with a lot of talented people. Halfway through, I was coaching a great person who was going to be the successor to the CEO of an investment management firm. And he decided he didn't want to do that. And he said, "Can you help me figure out what to do to retire at 55?" And so I said, "I can't cause I'm conflicted, but let me give you some resources." And so that led me to research a second one. So I do both retirement and executive coaching. And this is my, definitely my second chapter and I'm lucky to do it. I work with people and help them create a new future.

Pat: And what do you do on your spare time? Like what's considered leisure for you?

Joe: So I was a runner and ran marathons, like Scott, and I ended up reaching my goal, reaching my dream really. I'm from Boston originally, and I qualified for the Boston Marathon, which was great, but then I got injured and rehabbed myself, got back. And with a half mile to go in the Boston Marathon, I broke my left hip at a stress fracture.

Pat: Oh, my gosh.

Scott: Oh, no.

Joe: It took me 12 marathons to qualify. Finally did and got there, but I still, I still run indoors on a machine called the zero runner. And the other thing, we have four grown kids, and two years ago, we had our first grandchild. So she's a big part of our life as all our kids are.

Pat: I'm happy for you, Joe. I'm happy for your clients.

Scott: Wait a minute. A half mile to the finish line.

Joe: Literally a half mile. I couldn't...

Scott: You couldn't finish?

Joe: I took a step and I couldn't move. So two cops came up on a bicycle and said, we've been tracking you for the last three miles. And they thought it was heat. But I said, I just can't move. They wheeled me into a medical tent. This great doctor came in and said, said to the people working on me, because they, these two young Boston University trainers said, "We can get you back out there." And I said, "Do whatever you need to do." And she said, "I don't think that's a soft tissue injury." And I said, "Well, I've never had a stress fracture, but I imagine this is what it feels like." She got the head of orthopedics trauma surgery to do the surgery the next day. And that was key. And so I had physical therapy for seven months, three days a week. I was in crutches for four months. It was a bad break, but lucky to have done it.

Pat: Joe, I'm happy for you. I'm happy for your clients. And the name of the book is "Win the Retirement Game: How to Outsmart the 9 Forces Trying to Steal Your Joy".

Scott: And Joe Casey's podcast is the "Retirement Wisdom" podcast that you can get anywhere you hear your podcasts. So thanks, Joe.

Pat: Thanks, Joe.

Joe: Thanks, Pat. Thanks, Scott. Big fan of what both of you do. Thank you.

Scott: Thank you.

Pat: Appreciate it.

Scott: Well, I think he was quite interesting.

Pat: That was great.

Scott: But let's, let's go to the calls now. We're in California talking with Jen.

Jen: Hello. Thanks for taking my call.

Scott: Hi, Jen.

Jen; Hello. Hello.

Scott: Hello. Hello.

Jen: So my question is kind of just a general education thing for me. I am not really, really into tracking my portfolio and but I've learned a lot listening to your program and a couple of things, something I've heard multiple times, kind of at least in passing is something called Roth conversions. And I've heard it mentioned and seems to be that people think it's a good thing, but I don't really understand in general when and why someone would do Roth conversions.

Scott: Yeah. Neither do most Americans. So, first of all, IRAs, 401Ks, these retirement plans, right? They've got special tax considerations. So like a traditional IRA or your 401K through your employer, when you put dollars in, when you choose to contribute to them, the dollars that you put in, you get a tax deduction. So if your household income was $100,000 you put in $10,000 into your 401K, your tax, just like you only earn $90,000. And you'll notice the difference on your W-2, your taxable wage is different than your social security wage. The money grows tax deferred. So as years go on, you're not receiving anything that you have to report on taxes. And it's only at the time of retirement when you withdraw money, those dollars then need to be added on your tax return and they're taxable at that time. Okay. With a Roth...

Jen: Are you taxed on the growth? So say you put in 10 and it turns out to be 100. So when you take out 100, you're taxed on the 100.

Scott: Yep. And you're taxed at ordinary income rates, even if you bought some stock that went up tenfold and you would be taxed as ordinary income. With a Roth, when you make those contributions, you don't get a tax deduction. So you get no tax deduction going in. It all grows tax deferred. And when you pull the money out, it's tax-free. So you're making a, you're making a choice and saying, you know what? I'm going to forgo a tax deduction today, the tax break today in exchange for a tax break in the future.

Jen: Okay.

Scott: So that's how Roth works. A conversion is when we take up some existing dollars that we have today, typically in an IRA or sometimes even a 401K, and we move those into a Roth, some of those dollars. And when we do that, that is called a Roth conversion. We're taking money from a traditional, we're converting it to a Roth. And when we do that, we pay tax on the dollar amount that we chose to convert in that tax year.

Pat: So when do you do this, Scott?

Scott: You do this when you are in a lower income tax bracket than you believe you'll be in the future.

Pat: So a couple of examples.

Scott: You're unemployed for six months. You retire at age 62 and your pension starts at 65 and you're going to have very low income for three years. When you're living off your basic income and you've got your required minimum distributions on your IRA kicking in at age 73.

Pat: So they are great planning techniques.

Scott: But you're only going to do it if you believe you're going to be in a higher tax bracket in the future than you are today.

Pat: I had this discussion... I will give you a perfect example. I have a daughter that has saved, has worked as a school teacher for the last three years, has put the maximum in every year and gets some money back from her defined benefit pension plan. And she's going to law school. And I said, well, now we will start converting this money that was deductible into a Roth IRA over the next...

Scott: No income.

Pat: She'll have no income.

Jen: Okay. So as an older person, does it make sense that like RMDs would be something that would put you in a higher tax bracket in the future?

Pat: Yeah, but these don't, you want to do these before your RMDs kick in.

Jen: Right. Right. Right. But that's why you would do it now.

Pat: That's right.

Scott: Typically if you have, it's typically if you have a really good size, IRA retirement, right? Like you got a couple million bucks or something or more.

Pat: And money on the side to actually pay taxes on the conversion. Are you, are you in that situation?

Jen: Well, I don't have much of an IRA, but I have a 1.4 401K.

Pat: Okay.

Scott: And how old are you?

Pat: How old are you?

Jen: 54.

Pat: And how much do you earn?

Jen: Well, I'm about to retire, but like 230.

Pat: And what are you going to live on once you retire?

Jen: Hopefully my brokerage account.

Pat: How much is in the brokerage?

Jen: 1.8

Pat: $3.2 million. You make 230 a year. You don't have enough money.

Scott: Well, it depends how much she's been living off.

Pat: What have you been living on?

Jen: I've been tracking it pretty well. And that's about, I would say 110, 120.

Pat: Okay. All right. You're good.

Scott: You've got this. So you're perfect. You like to be the perfect candidate to do some Roth conversions the next few years.

Pat: Let's step back a minute. How old are you now?

Jen: 54.

Pat: And when do you retire?

Jen: Yeah, it's bad timing. Unfortunately, in November, I had an opportunity to get a pretty good package from my company.

Pat: No. The reason I ask is will you be 55 or older in the year in which you retire?

Jen: No. I wish I were. I know...

Pat: Okay. So here's...

Scott: She's got enough in outside dollars. There's no...

Pat: Understand but maybe she starts a 72T at the same time for a lower amount in order to access where the taxage is the...

Scott: No. I'd use the Roth conversion...

Pat: The Roth IRA until 59 and a half.

Scott: Yep. You've got a phenomenal opportunity.

Pat: You have, this is like...

Scott: You're like the poster...

Pat: Scott and I are arguing over the different techniques and you're probably thinking, what is he, what are they talking about, right?

Scott: Yeah. So you've got phenomenal opportunity.

Pat: You've got an unbelievable opportunity for planning. Unfortunately, if you had been 55 or the year...

Jen: I know, I know, but I just got this package and it seemed like the right time for me...

Pat: Listen, if they gave you a package, it's hard to deny a package. No, you've got some great planning opportunities ahead. And do you think you'll go back to work?

Jen: Possibly. I'm going to take at least six months and who knows and see how I feel and what I think about it all. And I'm not against it, but I...

Scott: Then she might not have the planning opportunity.

Pat: Yeah. It's hard to say. Yeah. It's hard to say. It's hard to say. Well, congrats.

Jen: Okay.

Pat: Yeah. Hire a good advisor.

Jen: I do have an advisor, I do, and I like him.

Pat: Oh, you do? Good.

Scott: Just have this conversation.

Pat: Do you have stock in the company stock in the 401K?

Jen: Some not a terrible amount, but yeah, I definitely have one. I'll get out of that probably.

Pat: Oh, no, no. Well, because there's another planning technique called a net unrealized appreciation, depending upon what the company stock is.

Scott: Which company is it?

Jen: Intel.

Scott: Don't know how...

Pat: I can't remember, but I know a number of people that get...

Scott: I'm 99...

Pat: It's units.

Scott: It's units.

Pat: It's units. It doesn't work.

Scott: Never mind.

Pat: But I know a couple of people that have gotten those packages.

Scott: All right, Jen. I wish you well.

Pat: All right. Thanks, Jen.

Scott: And just talk to your advisor about these planning opportunities. Say you listened to these really smart guys on the podcast.

Pat: And you listened to Allworth's "Money Matters" too.

Scott: Let's head now to Colorado and talk with Hillary. Hillary, you're with Allworth's "Money Matters".

Hilary: Hello. Well, first of all, I would like to tell you, I'm a little starstruck. My son and I have listened to your show for years and years and actually, you both have inspired him to study finance.

Scott: Oh, wow. That's exciting.

Pat: Good. Where's he going to school?

Hilary: He is studying at Metro State in Colorado.

Pat: Oh, good for him. Good for him.

Hilary: Yes. He's loving it. He wants your job.

Pat: Oh, he does? All right. Well, that would be one of us. What can we do for you?

Hilary: All right. So I have a question for you. My husband and I are both part of the school system, school teachers. And we actually are part of a pension program here in Colorado. And so the way it works, obviously, as you know, you get a guaranteed portion of your salary every month once you retire with the years of service. And so my husband and I outside of that have been doing some investing and we have about $300,000 in Roth IRAs, about $350,000 in 401Ks.

Pat: I'm sorry, is it a 401K or... I'm sorry, Hillary. Is it a 401K or is it a 403B?

Hilary: So it's a 401K because 403Bs, we just didn't want to have another stream of payments. We wanted a lump sum account we could access. And then we have a 457 as well, and that has about $50,000 in it.

Scott: How old are you?

Hilary: My question... Forty-three. Do I have to tell you?

Pat: Yeah, yeah, you do. And your spouse is of similar age?

Hilary: He is. Okay. And so our house is basically going to be paid for in six years. And so yeah, we're kind of...

Scott: You guys are in great shape.

Hilary: Yeah. Like I said.

Scott: Do you have more children? Do you have other kids coming up still?

Hilary: I have three children and so we've actually paid for their college with 529s. Actually, my middle son is in high school, and my daughter is in middle school.

Pat: Okay. So your question for us is what?

Scott: Am I perfect with my financial planning? That's what it sounds like.

Pat: Yeah. You're great at this. We should be calling you.

Scott: I mean, come on. You're 43, your house is almost paid off. You've got a great amount of savings.

Pat: Kids have perfect teeth.

Scott: And it's not like you guys are killing it salary-wise, you're school teachers for crying out loud. You're doing fantastic.

Hilary: No, no. Yeah. Well, thank you. Well, my question for you is I get different advice and so investing this money. Sometimes I will do calculators that basically determine risk tolerance and say, "Hey, put, you know, 20% or 30% of this into bonds." And so my question is, as I think about it, if we're guaranteed a pension that's going to cover all of our expenses plus some should I really be looking at it or should I just be looking at it as more of a risk portfolio where...

Pat: Oh, Hilary, Hillary, Hillary. I was hoping you were going to ask that question. That was truly the question. When you started going around this of my pension and it's guaranteed, I'm thinking, I hope she's going to ask, should she look at this as a portion of the fixed income portion of portfolio for your overall portfolio? And that's the question you have is how do I actually look at the stream of income as a percentage of my portfolio? And if in fact, let's say my risk tolerance was moderate, shouldn't I do a net present value of the stream of income and figure out what it is? And then compare that as a percentage of my overall dollars in order to determine the final diversification number. Now, if you understood what I just said there...

Scott: But here's another way to...

Hilary: I do.

Scott: Here's how to think about it. We've got pretty good data back to 1925 as far as returns on markets. Since that period of time, there's never been a 15-year rolling period where stocks have not outperformed bonds. So if you bought right at the very top of the market before the stock market crash in 1929, 15 years later, you were on the positive side. If you bought right before the dot com bubble...

Pat: Positive above bonds, not just positive.

Scott: Correct. That's correct. Same thing if you did right before the financial crisis, right? So right now you're 43 years old. You're not going to need these dollars.

Pat: Are your pensions vested for both you and your husband or are they non-vested yet?

Hilary: No, it's vested.

Pat: They're both vested for you and your husband?

Hilary: Mm-hmm. Correct.

Pat: And so what do you think you should do with the portfolios?

Hilary: Well, I'm a risk taker. Figure what's the worst-case scenario if I lose everything?

Scott: I don't actually view it as risk. I don't view it as risk. I view it as risk to be too conservative in these dollars.

Pat: So what do you think you should do with the portfolios?

Hilary: Well, I trust you all. And I also was thinking of the Warren Buffett strategy, which most of it's invested in an indexed fund, you know, and just follow the market, follow the S&P 500.

Scott: I'm going to go with you.

Pat: I don't know if I put it all in the S&P 500.

Scott: I'm 55, a hundred percent of my 401K is in stocks.

Pat: But it's not in the S&P 500 and you're not a hundred percent indexed.

Scott: A big chunk's in the S&P 500 and it's mostly indexed.

Pat: And there's other stuff in there too.

Scott: But it's all stock.

Pat: Yeah, I'd be very comfortable putting all of this stock. Yeah, because what do you... So without, we'd have to think like, how much is the net present value of your annuity payments or pension payments now?

Scott: But that's just an intellectual exercise. I mean, here's the challenge. Here's why it's hard to be all in stocks. Because at some point in time, whether it's this quarter, this year, next year, 3 years, 5 years, 10, who knows when, there will be another horrible patch in the stock market when the markets are going to fall and they're going to fall and they're going to fall and every news story, it's going to be just like COVID, right? Every news story is the worst news ever, right? That's what we've been having for two years. It'll be the same thing, but this time it has to do with your investments. And it's going to try to scare the snot out of you. And it's at those sort of times when it's good to look back on the, from an intellectual standpoint, say, wait a minute, what's the real risk here? What is actually going on? Markets have always come back. They've always hit new highs going forward. Sometimes they take a while.

Hilary: Right. Right. They're just on sale, right?

Pat: They are. But the way you're thinking about it is the right way, which is, look, I've got this guaranteed income that's going to come in at retirement. Shouldn't I look at that as a portion of my bond portion of the portfolio?

Scott: Even if she did it at 43, you'd argue that it should be highly...

Pat: I would argue that anyway, but that's not what she, but that wasn't the question she posed to us. The question is, should I pay any attention to these risk calculators based on the fact that I've got all this other assets here that's hard to measure? And the answer is don't pay any attention to the risk calculators.

Scott: Or if it says have 30% bond, say, gosh, I actually have more than that because with the net present value of that future income stream of that pension is going to be.

Pat: Yeah. I like, I like what you're doing.

Hilary: Oh, sure. Okay. That's such a great way to think about it. I really appreciate it.

Pat: And then selfishly when your son graduates from college, right? And we hope that he actually, he can go to a school, he or she, children could go to a school where they actually get all the coursework done for the certified financial planner, have him contact us.

Hilary: Oh, absolutely. Okay. I will do that.

Scott: It's a great, I think it's a great...

Pat: And they start at the bottom at our firm. I mean, really the bottom. There's no question where they're doing like the most menial tasks, but there is a...

Scott: Well, they're not the bottom. That's like they're mopping floors for crying out loud. They're being analysts and they're helping out on teams, but it's obviously it takes quite a while before they're at a point where they can meet with clients one-on-one and have their own...

Pat: That's right. We're not having them waxing my car. I guess it's not the bottom.

Scott: Waxing your car. Who waxed my car, you punk?

Hilary: He'd probably do that for you.

Scott: When I was your age...

Hilary: He'd probably do it.

Scott: When I was your age, we didn't even have a wax. We had to polish these cars with just elbow grease.

Pat: Anyway, I appreciate the call, Hilary.

Scott: Thanks, Hilary. And we're talking now with Carla. Carla, you're with Allworth's "Money Matters".

Carla: Hi, guys. I love your show. Listen to it every Saturday. So my question is, actually I'm speaking on behalf of my husband. It's regarding IULs and what do you guys think about them? Good, bad?

Scott: What's an IUL?

Pat: Indexed universal lifestyle.

Carla: The indexed universal, yeah.

Pat: Well, like an IA is an indexed annuity, this is an IUL.

Scott: I've never recommended them. I don't own one.

Pat: I would not purchase one.

Carla: You would not purchase one.

Pat: No, no.

Carla: And what would the reason, like what are, what are the reasons why you would say no?

Scott: I think they're gimmicky.

Pat: Well, first of all, the first question you should ask yourself is do you need permanent insurance or not permanent insurance, right? Let's not even talk about whether it's IUL or UL or whole life or variable universal life, VUL. Let's, we'll leave that all behind. Let's just say it was the greatest product. It was a permanent product. It was the greatest product in the world. The first question you ask is do I need permanent life insurance, which means do I need life insurance for my whole entire life?

Carla: No.

Pat: Do I need it for 20 years, 30 years, 40 years? You need that. So what are you trying to insure against? Do you have children at home?

Carla: No, they're all adults.

Pat: Okay. And so are you retired or close to retirement age?

Carla: My husband just retired from his main job and he's working like a part-time job now. So one of our friends or family friend was talking to him about maybe thinking about doing an IUL just for saving on taxes when he starts to withdraw some money.

Pat: Okay. And so here's the pitch behind this is this IUL.

Scott: Lemme back up. So what ends up happening, there's a lot of people... It doesn't take much to get an insurance license at all. You could do a week class, Carla, and you go down and you take the test and you're an insurance license and now you can go out and go to your friends and say, "Hey, I've got this great product. Let me tell you all the wonderful things it's going to do," which they believe. But what they don't know are the other 99 other products that exist out there that maybe are even better because they haven't really been trained on them.

Pat: Like the alternatives, right?

Scott: Like a Roth IRA first.

Pat: Right? Or a S&P 500 fund, right? So that's why you start with the premise of do you need insurance at all. And if you do need insurance, how long do you need it for? So in your situation, the kids are out of the house. Your husband's retired. Did he retire with a pension?

Carla: Yes.

Pat: Okay.

Scott: Are there survivor benefits on the pension?

Carla: Yes.

Pat: So that if he passes away, some money goes to you.

Scott: Okay. If you said no, then we're like, whoa.

Carla: I'm sorry. He actually took a lump sum and invested and has rolled it over into an IRA...

Pat: There you go.

Carla: So he's a beneficiary on the IRA.

Pat: There you go. Right. So that all that money has been earned.

Scott: He didn't invest with the friends who were selling him the equity index annuity.

Carla: No, no, but there are pitches that he can withdraw that money tax-free if he puts it in the IUL. And, you know...

Scott: But you gotta pay tax to get it out of the, you gotta pay tax to get out of the IRA.

Pat: Yeah. Yeah. You would never use money from an IRA and put it into one.

Scott: You can't.

Pat: I guess you could, you could pull it all out, pay taxes on it, and put it in there. That would just be...

Scott: Idiotic.

Pat: Worse, maybe worse than that.

Scott: Yeah. Malpractice or...

Pat: Yeah. So there is, there's no conceivable world that I live in financially where you would even try to make that argument.

Scott: And I could see time when a variable life insurance might make some sense or a fixed life insurance, but the index, you know, it makes no sense to me.

Pat: Well, that's because of...

Scott: I understand the mathematics. I understand how it all works behind the curtain.

Pat: The market cycles and the whole bit. So what they're selling is what they're selling, Carla, to you is how life insurance policies are structured, which is they go in FIFO and they come out FIFO, which is first in, first out. Which means that you put your deposits in, you draw those out, then any amount remaining there, you can borrow against the policy contracts, as long as the contract's in place on the day to death, then it's magic. It's all tax-free.

Scott: How about the cost of insurance along the way?

Pat: Without, if you lived in a world without cost, right, then...

Carla: It would make sense.

Pat: And then it would... Much like it would make sense for us all to travel private jet if it wasn't for the cost. Is that a bad analogy?

Scott: Yes, I think it is.

Pat: Okay.

Carla: I get it though. I get the point. I was just...

Pat: Yeah. You have no need for this.

Scott: Not only is most people not flown private, but most people don't know anyone who flies private unless they have a little Cessna or something.

Carla: Okay.

Pat: I watch this...

Scott: You're watching too much Netflix.

Pat: I watch the...

Scott: You watch Billionaires...

Pat: Showtimes "Billions", right? So, and you would never use the money in the IRA. Never ever.

Carla: Okay.

Pat: So your husband's portfolios should probably be 60% equities, 40% bonds, and cash, and then a monthly distribution set up so you can retire comfortably. That's all you need to know.

Carla: Perfect.

Pat: All righty.

Carla: Thank you. That was my question.

Scott: All right. Thanks, Carla.

Pat: Glad you called. Take care.

Scott: You know, it's funny, Pat. I was thinking, I was thinking this... Was it earlier today? I don't know why I'm thinking about these silly products, the insurance company comes up, insurance industry. Like in this situation, if the, if having like an index. On the securities market works so well, why wouldn't the insurance company do that with their own portfolio, right? You think they're taking any of their portfolio and say, we're going to spend this on options in case the markets do well to hit? No, no. Cause long, long term, you're not going to make money that way.

Pat: That's an excellent point. And it ignores dividends that are paid in the underlying index.

Scott: Well, the way they're structured they'd return...

Pat: Well, actually the fact that they create their own indexes now, which is really amazing.

Scott: But I'm just thinking if that strategy, I understand how they go and invest once for that pool, but if it works so well, why wouldn't they do it in their own...

Pat: In their own pool?

Scott: Yeah.

Pat: The risk.

Scott: Right. I understand all that.

Pat: Yeah. Well you do, but I think you're doing that for the benefit of the listeners. Just how that was pitched that you take your money out of an IRA, pay taxes, and put it into an indexed universal life just shows, what it shows is lack of experience of the person trying to sell the product.

Scott: I remember as a college student, I went to A. L. Williams.

Pat: Did you? Is it the coach?

Scott: Yeah. It was multilevel marketing. It was my pastor from our church had somehow he left the church and it became a multilevel marketing guy with A. L. Williams. And I went and they said, basically how you can be a part-time financial advisor. And I think it was a gardener was sitting next to me and somebody else, right? And, and they were pitching me on being a financial planner.

Pat: You decided to finish college instead.

Scott: Yeah. And it was all on a part-time basis. But I remember my pastor looked at me and he's trying to get us all pumped up. And he said, "Scott, if you could drive any kind of car, what kind of car would you drive?" And I remember looking at him like, "You're like my pastor. You're supposed to help me to stop thinking about those things. Those come naturally." Like, come on, buddy. The lust of the eyes are part of life and all that stuff. I don't need help with that. I was born with that. I was born with that. That's my first thought.

Pat: So I'm guessing you didn't sign up with A. L. Williams?

Scott: No, I didn't sign up. No.

Pat: Well, before we wrap up a quick reminder, we come in on, what is this kind of about once every five or six weeks and just take, you know, a couple of hours of phone calls. So we find that, and we promote this through our workshops, through our, not our workshop, but our newsletter that we send out every week, which you can sign up for at allworthfinancial.com. But we are having one of these call bank programs on Friday, May 31st from noon to 2:00 p.m. Pacific time.

Scott: Yeah. So we'll just be in the studio taking calls. If you've got a question for us, and you'd like us to answer it, we'd love to. So we're in the studio during that time. If that time doesn't work for you, we can schedule a time when we're in the studio just doing our normal recording. But you'll want to send an email to questions@moneymatters.com. Again, questions@moneymatters.com or you can call 833-99-WORTH. All the time we have, it's been great being with you. This has been Scott Hanson and Pat McClain of Allworth Financial.

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