November 12, 2022

Rebalancing your portfolio, questions about Social Security, and where to allocate income.

On this week’s Money Matters, Scott and Pat explain why rebalancing a portfolio is such an important matter right now. They advise an 84-year-old Arizona woman who wants to know whether she should worry about her investments anymore.  You’ll hear why an Ohioan with real estate holdings needs more cash. Finally, guidance for two California callers with questions about Social Security.

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

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Man: 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 833-99-WORTH. That's 833-99-WORTH.

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

Pat: And I'm Pat McClain.

Scott: Thanks for being part of the program. As we talk about financial matters, both myself and my co-host, we're both financial advisors that help people for three decades helping them make wise choices with their savings and investments and design their portfolio for financial independence.

Pat: And I owe an apology to the podcast listeners and the radio listeners. Last week, I said at the beginning of the show that we were going to talk about the importance of rebalancing a portfolio.

Scott: Right afterwards, like oops.

Pat: I never got around to it, I got tied up on a long conversation about someone inheriting money. And anyway, we dug in. So we do promise. In fact, we're gonna start off talking about rebalancing the portfolio. And if that doesn't want to make you listen to the rest of the show...

Scott: I mean, the funny thing is, look when you're younger, 30s, maybe even 40s, you can be over-concentrated in a company, and it's not gonna impoverish you if things go sideways because you have many years ahead of you. Right? I mean, if you owned Apple 30 years ago, and you said, "I'm gonna sell it as soon as more than 5% of my portfolio," obviously, that would have been a very poor strategy to build wealth.

Pat: Yes. But it was hard to own it through all the years. It was really, really, really, really hard.

Scott: Tough times.

Pat: Yeah.

Scott: So of course during that time, there's many other Apples that never survived, right, went out of business. So you are lucky enough to be in the right company, as opposed to one of the wrong companies. As we get older. And more of our working years are behind us not ahead of us. It's more important at that point, to make sure that we are not over-concentrated in a position where things go sideways, it can derail our financial lives. As an example, Facebook, in this last year, Meta its called, went from roughly $350 a share to under $100 a share. Now, if you had your retirement savings, a million dollars in Meta. It's now a third of that. MCI, WorldCom. Let's go on and on and on and on and on and on about the number of stocks that have. And we've seen as advisors firsthand...

Pat: Air touch.

Scott: When people come to see us. And sometimes after the fact that we've had people argue with us, "Well, you don't understand Scott, my company is different." And sometimes it is, for a while. Go look at the S&P 500 what it made up in 1970, what companies were in there. You tell me if just buying hold of those companies was the right thing to do. So when you look at a portfolio to make sure it's properly diversified, one of the first things you want to look at is what is my concentration of individual holdings or sectors, right? Do I have too much in one sector? So a sector would be technology, energy, consumer durables, consumer staples, right, we could go on and on about the sectors. If you went into this downmarket overly weighted with technology stocks, you most certainly have felt it. So that's the first thing you want to do. If you went in under... let's say even neutral, you're probably underweighted today.

Pat: That's right. That's right. And then the second thing you want to look at is so am I overweighted in the individual stocks. Now, what is my overall stock weighting relative to bonds, cash, real estate? And what is my target? Is it 60%, Is it 70%, is it 50% of my total portfolio that includes all your investable assets, other than emergency liquid cash. All of it, doesn't include the value of your home, but it includes your investable assets. What is your target? And then where do you stand against your target? So my guess is if you went into this and you rebalanced your portfolio, went into this declining market. And your portfolio was 60/40 at the beginning of the year, 60% stocks and 40% bonds in cash and other assets, you are nowhere close to that today. And what's the appropriate thing to do, Scott, to rebalance, which forces you to sell the things that have held up well and buy the things that are down right now. And it's hard. The nice thing about a rebalance is you can say, well, this is a discipline that I decided before this happened. And it takes some of the motion out of of when it happens when you see the headlines. Oh, we're only a third of the way through this bear market. Oh, it's gonna get much worse. Oh, it's armageddon this time, and oh, other stuff. And if it bleeds, it reads, right? So it's the same stuff in the financial markets.

Scott: It's a disciplined approach to asset management.

Pat: Yes, it is. All right. Let's, let's take some calls, and to join us we'd love to take your call 833-99-WORTH. Let's start out in Arizona, we're gonna talk with Karen. Karen, you're with Allworth's, "Money Matters."

Karen: My question is what should I do next? I am 84 years old. And I have always invested in real estate. And over the last seven years, I bought little condos and rented them out. And at the end of all that, I actually realized about a 100% ding in the money that I had invested in just five to seven years. And now about, let's see, it's been two years now that I hired a financial advisor who put all my money in ETFs. Well, not all my money, I still had one more to sell.

Scott: Did sell all your real estate?

Karen: I've sold all my real estate except the roof over my head. And the urgency for it suddenly occurred to me that it no longer makes sense to own the roof over my head if I could get $300,000 for it. Because I might not live long enough to spend $300,000.

Scott: Okay, how much money do you have in addition, so you own free and clear the roof over your head. How much money do you have in addition to that?

Karen: Let's see, about $350,000.

Pat: And your monthly income that you've got coming in now, where's that coming from?

Karen: Oh, wait, 400,000 I forgot about one check.

Pat: Okay, $400,000...

Karen: My income is coming from my husband was a teacher and I get a very small amount of money from his having been a teacher for 40 years. And I get Social Security. And that income is, let's see, about $2,200 a month. And I'm frugal and I can live on that.

Scott: So you own your own home outright. You have $2,200 a month in income and you have $400,000 invested with this financial advisor, who you said it's in ETFs. Do you have any money in the bank?

Karen: No, I don't. I'm very frugal.

Scott: Do you want to be very frugal?

Karen: I can be very frugal.

Scott: No, that's not what I asked. Do you want to be? Would you like more income?

Karen: I would like some income.

Scott: Would you spend it if you had it?

Karen: I probably would because I still like to travel.

Pat: Okay. And have you had this conversation with your advisor?

Karen: Well, I'm trying to talk to different advisors. I talked to a different advisor who said that probably what this person did is not dumb. It's mostly in ETFs. And I've lost about 30% in value over the past couple of years.

Scott: In the last couple of years or the last six months?

Karen: The last couple of years.

Pat: You didn't make money last year?

Karen: No.

Scott: You didn't make any money last year, 2021?

Karen: No, I did not.

Scott: Okay, you need to go see another advisor.

Pat: And down 30%.

Karen: Actually, at this point in my life, you know, I always made money in real estate. I sold real estate for 32 years and I bought real estate with my husband and he's good at fixing things. But I had about...what did I have? I had about 300,000 in annuities and that's the money that I took and put into ETFs with an advisor.

Scott: How long ago did you take the money out of the annuities and put it in the ETFs, like two years ago, three years ago, four years ago?

Karen: About three, four years ago, and I was drawing income from them. I was getting like 2% or something like that.

Pat: Here's how I would approach this, Karen. So my mother is 83 so I'm pretending you're my mother. Okay? I would look at it backwards, like, all right, how much income do we really need to come to the household to accomplish the things that you would like to do, knowing that no one gets out of here alive, right? And you're 84, right? And you say you want to travel. If you've got the health, and you still have the youth to travel like, now's the time, right? Because you might not at age 94.

Karen: Well, you know, I don't plan to live that long. I, I think there are worse things than dying. And I might, actually, I'm checking in to checking out.

Scott: Okay, so here's what we would probably do. Make the portfolio much more conservative. So you don't need to worry about that. And then I started distribution of $20,000 a year, at least, and tell you to go out and have a good time. And that's a 5% distribution on this.

Pat: Maybe be as conservative as possible. Like, who cares about the growth?

Scott: Maybe you just buy 10-year government bonds and not worry about it, if it's bothering you at all. Why do you need growth? Why do you need growth in your portfolio? You just said, "I'm not long for this world." And you need to spend it, look who would this money go to when you pass away?

Karen: Well, my son's a lawyer, my son's a doctor, and my daughter, the entrepreneur.

Pat: So they don't need your money.

Scott: They don't need your money. And they probably want you to spend and enjoy it would be my guess.

Karen: You're right.

Scott: Then spend it and enjoy it. I mean, what's the point at this you know, we could invest this thing in a well-balanced portfolio of stocks and bonds to do what?

Karen: Oh, you're so smart.

Pat: No, really, but truly to do what. What's the point? You know, you have to have direction with your money. And the money is a tool in order to improve your life or you own the money. It's your money. So the best thing to do is design this.

Karen: That train has left the station for me.

Scott: How can these dollars benefit Karen, you saved these dollars, wasn't easy to save them. You're at a stage in life. And you're worried about the way things are structured. I totally agree with Pat, what for?

Karen: Okay, so where should I put my money into?

Scott: You don't think you're gonna live to 94. Sounds like you might find a plan. So you don't...

Karen: Nobody in my family has ever lived this long for God's sake.

Pat: Yeah. Well, most family can say that today as well.

Karen: Yes.

Pat: Just because of the advancement, just because the advance in medical care. So this ETF portfolio, and by the way, when people say ETFs, there's a...

Scott: Who knows how it's invested?

Pat: Yeah, there's 800 different flavors of ETFs. It's just another form of mutual fund, if you will.

Karen: Right. Well, I did take this portfolio to a different advisor who said that it's probably...he probably wouldn't change very much. Now, my question is, if I wait a little while, will I get more money to put into property?

Pat: Karen, who cares if you have more money?

Karen: You're right I don't need more money.

Pat: It's just like saying, you know...

Scott: Go when you're done with this call. Go figure out what next trip you're gonna take and which friend.

Pat: Yeah, and make the portfolio a little bit more conservative and send yourself that money. At least monthly, right, $800 or $1,000, $2,000. I'd start at $2,000 a month so that you're comfortable spending it. What's the point?

Karen: Okay. You're so right. Oh, God, you're making so much sense. I love you.

Scott: Maybe you say you know what, let's take this 400,000. Let's take half of it. And let's have it earmarked in case I lived to 94 and let's take the other half and spend it down.

Pat: Scott, I would say that if she runs out of money she could do a reverse mortgage on her house. The last check you write should bounce. Your kids are fine. You're not helping them. If you were my mom I'd say, "Mom, no sense dealing with the stress. Let's just stick the money in CDs right now." Right, rates aren't too bad and go live your life. Just spend it don't worry about it.

Karen: What are the rates on CDs?

Scott: Three and a half, four.

Pat: The person that you invest your money with, anyway. You're not buying for growth, right?

Karen: No, I don't need to grow anymore.

Scott: You don't, Karen.

Pat: I had a gentleman that lived across the street from me was 95. And he's like, "Man, this is great. I mean, I'm just really enjoying myself." I'm like, "What are you doing?" He goes, "Well, I went to cooking school, I didn't go for the whole thing. But I went for two weeks at a cooking school in France, just because that's something I always wanted to do."

Scott: At 95?

Pat: At 95.

Scott: Wow.

Pat: Right. At 95.

Scott: Not many 95, well, most don't make it to 95. Not many 95-year-olds and the kind of health they can go to travel to France.

Pat: Yeah. So anyway, the advisors that you've talked to got confused about what the money is about. The money is about you. It is yours to spend.

Scott: And you're at a stage in your life that growth, that's not... you've already won the lottery as far as age goes. Right, you've already lived more than most of your friends.

Karen: And really, I've hit the jackpot when it comes to real estate.

Pat: You would have done fine. You're a hard worker and a good saver. And the asset classes is just a part of hitting the jackpot. You could have done it in a dozen other asset classes too. So remember, if the situation changes, it's okay for the portfolio to change. I wouldn't go buy a bunch of annuities. Because your money's all locked up. Do not buy an annuity, either buy U.S. Treasuries or at least take half the money. Take at least half the money that you got with the other advisor and do that to start. It is a good start.

Scott: What, CDs?

Pat: Yeah, at least that.

Scott: I mean, you just take it out, go around some banks.

Pat: She could put it in a Folgers can pull the money out of it if she needs it, Scott. She'll be fine too.

Scott: Unless someone steals the Folgers can. Then we've got a problem.

Pat: I said she could that would not make that right.

Scott: Bury it in the backyard.

Pat: I had a client that did that. Put it in the freezer. He said when he dug it up, it was all moldy. He had to bring it to the bank and they exchanged it.

Scott: You also tell a story about in high school like getting in your friend's freezer. It's a good story.

Pat: Oh, yes. Yes. I'll tell that story now. Since we're there. Anyway, thank you for the call, Karen.

Scott: And by the way, before we tell that story, I know there's some listeners right now that are disagreeing with us. They're like, what are you crazy.

Pat: Oh, because you should always be invested for growth?

Scott: Yeah. I know there's some out there thinking that because I've had arguments with people like that. The reality is, and look, Karen might be your mom, you listening, this might be your mother. And there comes a time in life, particularly when you're in your 80s now, really, people can do whatever they want with their want invest it for growth? Awesome, that's great. But if you're sitting in a portfolio, you're now suddenly finding yourself I better scram. I'm pretty good about being tight with the dollars because like I'm losing money in my investments. To what end? For what purpose?

Pat: And it wasn't that she was losing the money in the investments. It's when she said she was losing money in investments and I would look at those statements to figure that out.

Scott: And my guess was she didn't lose 30% either.

Pat: That would be my guess. I worked in this restaurant and there was a busboy, he came from a... he's dad was a doctor I think came from a well-to-do family. But hard worker, smart kid busboy. He goes to work one day, just like, "Oh, it's the worst day ever, was terrible day." I'm like, "What happened?" He's like, "My parents went on vacation." And for two weeks. And this was you had to remember this is in the '80s. So the phones weren't like cellular, wasn't easy to talk to someone. And he said the freezer broke down in the garage and all the food went bad. And so I emptied it out and dumped it all in the garbage can and then bought it to the street and they hauled it away while my parents were gone. I'm like so that sounds all right. He said, "Yeah, but my dad had been hiding gold, wrapping it as beef and hiding it in the bottom of the freezer." So apparently I threw out tens of thousands of dollars worth of barred gold. That's not funny.

Scott: I've heard this story a hundred times.

Pat: And I thought oh no. And I said, "So what did you do?" He said we went to the dump trying to... He said, yeah, we went to the dump trying to find it. And I'm like...

Scott: How in the world are they gonna find it?

Pat: You know, there's always hope, I guess. And I always thought to myself, if you hide anything in your house, anything in your house, especially if you're hiding something in your freezer, that is of great value.

Scott: Get a safety deposit box.

Pat: You could do that. Or if you're hiding stuff in your house, tell one or two other people where it's at in case something happens to you or...

Scott: A big fire can be problematic, too.

Pat: Yes.

Scott: I suppose it would be recoverable at that point. So they have one of those deep freezers.

Pat: Yeah, yeah. The chest freezers.

Scott: Because you buy like a quarter of a cow or something.

Pat: Yeah. And then what would happen is that you'd stack stuff on top of it and your parents... Well, then you'd put stuff on top of it, like a box or whatever, and your parents would yell at you can't put anything on the freezer. I don't know.

Scott: I never got that one. I had other issues, but that was not one for the Hanson household.

Pat: We'll dig into it later in the show with the other issues in the Hanson household.

Scott: That'll be a long show.

Pat: It is a podcast, so it can be as long as you want when we dig deep.

Scott: Let's talk now with Jen. Jen, you're with Allworth's, "Money Matters."

Jen: Hi, thanks for taking my call.

Pat: Yeah. Hi, Jen.

Jen: My husband is retiring early next year, he's going to be 62 in December. And we're trying to figure out when he should take his Social Security. His first pension is worth 1124. And that includes me if he goes before me. And that comes with an annuity with a 20-year payout at a payment of 998. And then his second pension is worth 2750. And that includes me. And then we have a rent, which we're getting right now at 1750.

Scott: A rental?

Jen: Uh-huh. And his Social Security at 62 is gonna be 1850. He wants to take it at 62 because he says he's leaving too much money, you know, without taking it.

Pat: And Jen are you retired, working?

Jen: Well, I work really part-time. I made 10,000 last year. My Social Security's worth 700 and I'm 56.

Scott: You're 56 okay, big difference.

Pat: So you named off five different sources of income, right? 1126...

Scott: It's about six grand a month? That kind of Social.

Jen: Right. Right.

Pat: Okay. Not counting Social Security.

Scott: Little less than that, but almost that.

Pat: And what's he making at his job now?

Jen: About in the 82,000 range.

Scott: Okay. And is the home paid for?

Jen: Yes.

Pat: And the first pension is already coming in now I'm imagining, right?

Jen: No, he hasn't retired from either place.

Scott: Okay, and how much money do you have saved for retirement outside of these pensions, like 401(k)s, IRAs?

Jen: In his 457 he has 224. In the carpenter's annuity, there's 176. But that's that 20-year payout at 998.

Pat: Okay, So they can't count it twice.

Jen: Okay. And then at Edward Jones, we have 32,000 in a Roth for me, and we have 75,000 in stocks.

Scott: And how much money do you have in the bank?

Jen: Sixty-seven thousand.

Pat: I'd wait.

Scott: I'd wait, particularly because of the age differences between you two.

Jen: How long do you think he should wait?

Pat: I'd probably visit it at age 66, he's got enough money to retire comfortably without this. He doesn't have so much money that he's exposed to what we call legislative risk, which is them taking away the benefit.

Scott: Well, we don't know. But I don't think so.

Pat: Okay, fair enough, Scott.

Scott: Your income is gonna be less than 100,000. I don't think if your income was 300,000 at retirement, then I'd be like, take it as early as possible.

Pat: And if you had millions of dollars in savings, you want to take it as early as possible. I think he's gonna live quite comfortably with the income that's coming in without Social Security.

Scott: And with the spousal benefit, you want the highest benefit possible.

Pat: That's right. Assuming that her benefit will not be...

Scott: Seven hundred bucks a month or benefits 700 bucks a month. So you're gonna be half of his benefit. And then I hate to say it statistically, he's gonna predecease you, obviously. And then your benefit would bump up to what his was.

Pat: So I wouldn't visit this again until I was full retirement age. Which is for him as you probably almost 67 I might even kick this thing to 70 depending upon my [crosstalk 00:24:53]

Scott: If you were my sister I would say, Jen, I'd sit him down too I'd say, "I think you'd be crazy to take it early."

Pat: Assuming you have a normal life.

Scott: Yes, it's a good point. And if not, then i'd still run through the numbers based upon...the greatest benefit from this is gonna be the survivor benefit. And I hate to say it, I'm just kind's what we do as planners, right? That would be the greatest benefit way down the road.

Pat: Yeah. So I wouldn't revisit the decision. Unless there's a change in either your or his medical situation where you believe either or both of you have a shortened life expectancy, then I would revisit it. Otherwise, I'd kick this thing off until age 66, 67. Then revisit it again.

Jen: Okay. Great. Thank you so much for your time.

Pat: I appreciate the call.

Scott: Thanks, Jen.

Jen: All right. Bye.

Pat: We're taking a quick break, stick around. We're gonna talk about government insiders and buying stocks it's just kind of amazing. Anyway, stick around for more Allworth's, "Money Matters."

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

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

Pat: Pat McClain.

Scott: Thanks for sticking with us. All right. We've read and heard about our civil servants in Washington, and the Congress and Senate on making stock trades.

Pat: Quite a bit in the last couple of years.

Scott: Yes. And there's been some rules to try to stop. And then we saw some reports on judges. Many cases are gonna have to be retried because judges were conflicted, they were ruling on either normally civil but sometimes criminal. Normally civil though normally civil, but that they had...

Pat: Can you imagine if you've got a suit against a company, and the judge that you're talking to is a shareholder, like a significant shareholder, a significant amount of that person's net worth in that one company and not disclose anything? Not recuse himself, herself.

Scott: Yeah. That's pretty bad.

Pat: So it's not right. So I came across this, it was some excerpt from a Wall Street Journal investigation.

Scott: Wall Street Journal did a massive investigation. Periodically, they do them on certain things. This was on all the people within the government.

Pat: At the beginning of COVID and the amount of stock trading that took place above and beyond what was normally. So I just wanted to share a couple of... And then I wanted to compare it to another industry and what they actually do for their clients that are conflicted. So Health and Human Services. At the beginning of the pandemic, the government's reaction to the COVID, Health and Human Services reported 60% more sales of stocks and funds in January than the average was over the previous 12 months. And then...

Scott: All of a sudden, even though the World Health Organization said lockdowns don't work, China started locking down, and suddenly you've got these government officials thinking we might be locking down so they increased the sales by 60%.

Pat: Yes. And this isn't a comment on whether we handled COVID right or wrong. I don't want to go there. I just want to point out the fact that there needs to be tighter rules around this. Transportation Secretary Elaine Chao purchased more than $600,000 in two stock funds, while her agency was involved in the pandemic response and her husband, Republican Senator Mitch McConnell was leading negotiations over a giant market-boosting stimulus bill.

Scott: I'm sure they didn't have any discussion about that at home.

Pat: So they know that the markets are down, you know, what did the market fall, 31% in the first couple of weeks?

Scott: Few weeks. Yeah, it was quick.

Pat: And then all of a sudden there was like, oh, there's gonna be a stimulus and the markets turned around. And this is Senator Mitch McConnell and Elaine Chao. Oh, I couldn't imagine Senator Mitch McConnell having a discussion with him over anything. That was meant to be funny, not political.

Scott: There are definitely people in the Senate on both sides of the house that you think and, you know, it might be time for you to step aside.

Pat: Yes. The journal's analysis of financial disclosure forms of about 12,000 officials spanning from 2016 to 2021. Federal officials reported 11,600 trades in the month that we're talking about, March at the beginning of the pandemic, which is 44% more than any other month in the analysis. So this goes over a five-year period, and it's up by almost 50%. This is not good. This is actually terrible. And these are elected officials as well as bureaucrats that are actually making these trades. If I worked at a large auditing firm, I have what's called a do-not-buy list, where I am not allowed to buy a particular stock, because my firm is conflicted in the auditing of that.

Scott: Yes. Otherwise, you might buy or sell short, right?

Pat: Yes. You learn something about it internally.

Scott: Or you actually just say to these bureaucrats and policymakers, "Hey, here's what you can buy. This is how you can buy it. These are the windows that open." So they stop this sort of day trading based on this is inside information. If you don't think this is inside information, this isn't inside information about a particular company.

Pat: These are how to go into purchases from senior Treasury officials. You work for the Treasury.

Scott: Yes. Yeah.

Pat: It's crazy. I mean, I understand why you're mid-level manager at one of these organizations, you need to have your own investments. But can we not have some restrictions that you stick with index products or something along those lines, or you can't trade any more than 20% of your portfolio in a single period, something around some parameters that actually say you cannot take advantage of these market fluctuations based upon information that you and your cohorts, your coworkers, are the only ones that actually have access to the information. It's quite disgusting. We talk about oligarchs in Russia, I don't know.

Scott: That's a bit of a stretch.

Pat: Yeah, it's a little bit. I'm not gonna go there. Yeah, anyway.

Scott: Yep, disheartening. Let's go now, we'll take calls, go to Ohio talk with Janae. Janae, you're with Allworth's, "Money Matters."

Janae: Hi, thank you for taking my call.

Scott: Yeah, glad you're joining us.

Janae: My husband and I own a construction business. And all of our investing is in real estate. So I'm wondering what else we should do for our retirement?

Scott: Construction, individual homes, is that primarily what you guys do?

Janae: He does just about anything. So commercial or residential.

Pat: And how many employees?

Janae: One.

Scott: And is that you or just him?

Janae: Basically, it's just him and somebody, one other guy he works with.

Pat: And they're on payroll, they're not 1099 where they're considered an employer or contractor.

Janae: They're actually more of a subcontractor.

Scott: Okay. And the reason we ask that is because if you have employees, you have different retirement plans than if you don't have employees.

Pat: And do you contribute to an IRA now?

Janae: We don't.

Scott: And how old are you?

Janae: I'm 49. And he's 44.

Pat: And what's the proximate income last year, not revenue, but income, the money that you actually paid taxes on?

Janae: Around 80,000.

Scott: And how much real estate do your own like in dollar amounts, 100,000, 300,000, 500,000, million?

Janae: Between our house and our property is about 1.1. Then we have four rentals and a church and they're about 800,000 in value.

Pat: And what do you owe on the rentals?

Janae: We own all of our rentals, and we have about 50,000 on the church and about 210 on our house.

Pat: And what's the interest rate on those?

Janae: Oh, goodness.

Scott: You own a church? Is that what you said?

Janae: Yeah.

Scott: The first time I thought maybe you misspoke or I misheard you then you said a second time.

Janae: Yeah, it was a COVID purchase. My daughter was getting married. It came for auction, and he bought it and it will be an event center.

Pat: Oh, okay. He's not a pastor/contractor.

Janae: No.

Scott: So what do you feel your need is? I mean, just looking at what...

Pat: One second, Scott, do you know what the interest rate is on those loans?

Janae: No, they're not super high. I don't know what they are.

Pat: Okay. They were done in the last few years.

Scott: I mean, you've got $2 million in real estate and you've got $250,000 of debt on it.

Pat: I know. Yeah. But I wouldn't count that personal real estate but she said land though too. So that means he is a contractor. He could subdivide it any day. I think you should start putting money into your into a company 401(k) or Uni-K or self-directed 401(k) form.

Scott: We're just IRAs for the two of you simple that's the simplest thing.

Pat: That is the simplest thing and the income is 80,000 and I would go 100% total market.

Janae: Okay, so when you say a 401(k), I thought those were only connected.

Scott: I would recommend doing an IRA for the two of you before I'd set anything else up because you could put 12,000 bucks into an IRA.

Pat: I don't know, though. One second, Scott. Well, you have the 401(k)s are just as easy to implement today as an IRA. Plus, you can borrow out of them if you need to. Not that I'd want them to. How much money do you have in the bank?

Janae: We have 12,000 in our rental account, and then about 9,000 in our business account.

Scott: You don't have enough cash on hand.

Pat: How about in your personal do you have any like emergency reserve? What happens if your husband has a serious illness or breaks his leg?

Janae: We do have disability insurance through Medi-Share. But that's about it.

Scott: You need quite a bit more in liquid reserves, especially for self-employed. And are you working outside the home?

Janae: No.

Pat: What's prompted this call? Because you don't have've done a good job with all these rentals, you don't have a lot of debt.

Janae: We are getting older. And I just start thinking, oh, we should have been putting money in an IRA or something all of this time. I don't really know anything about investing that way. My husband really likes the tangible type investments like property. So I just really don't know what else we should be doing, I guess.

Scott: Well, I like investing. So whether it's tangible stocks, bonds, right? The investment doesn't know you own it. And the more diversified you are in your investment portfolio over the long term, the less volatility that you will have in the portfolio over the long term, I think...

Pat: And I mean, if you continue down the path of rentals, you're gonna go from 4 rentals to 6 rentals to 8 rentals to 10 rentals, suddenly you bought yourself another job, which is okay. She's 49.

Scott: Yeah, if that's what you want.

Pat: But put some money in an IRA or total market index. You're now an owner of the largest companies in the United States. And you're gonna participate with their growth over the long term.

Scott: And it's just good diversification. You need more liquid cash, though. You need more of a safety net there too.

Janae: How much do you think?

Scott: At least 25,000. And you said you have some for the rental set aside. I think you said 12,000, then 9000 personnel. When I say at least 25,000. That's on the personal side, not on the rental side.

Pat: You guys are pretty tight on the rental too. I'd be a little...

Scott: I would too.

Pat: What happens if one of your tenants pulls all the appliances out and takes all the copper piping and... She called from Ohio.

Janae: That's never happened?

Scott: Oh, they're all good people in Ohio?

Janae: No, no, no, no.

Pat: Never happened in Ohio. No, I agree with Scott, that you both if you were sitting in my office, I would say let's get some more money in the bank. Let's do that first on both the rental and then let's go do the IRA.

Scott: I'm a little nervous something happens and you don't have the cash and now your...

Pat: Yeah, if you had called and said there's $50,000 between the rental and I'd say do a Roth IRA and buy the total market but I wouldn't. I don't think I'd worry about the Roth IRA until I got at least $50,000 between those two accounts.

Scott: Yeah. And I'd get that saved up before you go out and buy another rental because it's gonna be tempting. If that's what can really create some havoc in your financial life. That can get short on cash. We're talking now with Nick. Nick, you're with Allworth's, "Money Matters."

Nick: Yes, sir. How are you?

Pat: Hi, Nick.

Nick: Yes, sir. How are you?

Scott: Good. We're very well. Thank you, Nick, having a great day. How can we help?

Nick: So I have a question. I turned 65 in May. And I'm still working. So next year in November will be 66.6, my full retirement age. So I was thinking should I take Social Security on January 1st next year? And then another question is, you know, the CPI, the inflation is very high. They're giving 9%, 10% raise. So if I don't take on January 1st, I take in one, will I still get 10% raise or no?

Pat: Yes, you would, you would. So that basically just says, look, we ratcheted this up for everyone across the board, which means as we've devalued our currency, which means that anyone in the future will get a higher benefit. So you see a lot of it in the press, like, oh, we're gonna get this big increase. It's a compounding increase, right? So it is there to say, I don't know if we ever ran into a deflationary environment, if they would actually lower the Social Security benefits. I can't even imagine the political world. Can you imagine?

Scott: Running for re-election, the Congress.

Pat: We moved your payment from $1,400 a month to $50 a month because it's a deflationary environment. So that's here to stay. So that isn't a driver. How much do you earn at your job, your employment?

Nick: Around 130, 140.

Scott: Yeah, you're not gonna take Social Security full retirement age. It doesn't make any sense.

Nick: Yeah. So I was reading that if I take on January 1st, I can make 54,000, 55,000 before my birthday, and I won't be penalized.

Pat: There's a special monthly rule called the special monthly rule.

Scott: But it looks on a monthly basis too. It looks at a monthly basis.

Pat: How much do you have saved for retirement?

Nick: How much we have saved? My wife and I have always maxed out our portfolio.

Scott: Okay, what do you have saved?

Nick: Maybe four or five million in a retirement account.

Pat: And you make 130?

Nick: Yes.

Pat: Wait, what exact day do you turn age...full retirement age?

Scott: I would take it when I turn my full retirement age.

Nick: I think my birthday is May 22nd.

Pat: Okay, so I would start at July 1st. Every month it kind of ratchets up a bit.

Nick: For me it's 66.6.

Scott: When is that?

Nick: That'll be in November.

Pat: Oh, take it January the following year.

Scott: Take it January the following year.

Nick: Oh, the following year.

Pat: Yeah, the following year. And the reason is, if you took it that year, you actually would qualify. But you're gonna get a letter from social security that says, "Look, we paid you out, you weren't really eligible, you need to pay it back." And then you're gonna have to go back and forth. And it falls under and you're like, look, it's a special monthly rule, and you will be right.

Scott: And every month you wait your check gets larger, right? So it's not just an annual, it's every month you wait, your check gets larger.

Pat: Yeah, so just do it in January. So you don't have to mess with the special monthly rolling the letters back and forth from the... I think it comes from Social Security, the IRS, one or the other. I feel I've helped clients through three or four times.

Scott: That's why we know it.

Pat: Appreciate the call, Nick.

Scott: Well, hey, that wraps up our show for this week. I want to remind our listeners that if you are a podcast subscriber and you like this program, do us a favor, give us a little review of our podcast, wherever you subscribe to it, give us a little review. And if you also think it's pretty good pass it along to a friend of yours. And if you listen to some of these calls you think and I'd like to join these guys, send us an email, with what your question is gonna be on and there's good chance we'll get you on the radio. We'll schedule time to have a conversation. And take your call on the air, you can change your name pretend like it's something different or whatnot. The goal here is just to help people make wise choices. So been great being with you, enjoy the rest of your weekend. This has been Allworth's, "Money Matters."

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.