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November 18, 2023 - Money Matters Podcast

Two times when it might make sense to tweak your portfolio, plus questions about a reverse mortgage, Social Security, and Roth conversions.

On this week’s Money Matters, Scott and Pat explain the instances when changing an investment portfolio could be the right thing to do. They revisit a caller who asked back in May whether he should do a reverse mortgage. A 57-year-old woman who loves being retired wonders whether she should take Social Security at age 62 to help her pay for health insurance. Finally, hear why Scott and Pat believe a great planning opportunity is in store for a woman who called with a question about a Roth conversion.

Join Money Matters:  Get your most pressing financial questions answered by Allworth's co-founders 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 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-WORTH.

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

Pat: I'm Pat McClain.

Scott: Glad you're with us today as we're talking about financial stuff, same stuff we talk about all the time.

Pat: Is that right?

Scott: Before I...

Pat: Wow, Scott, that's an opening. Just stay tuned. We're just going to talk about the same stuff we talk about all the time.

Scott: Okay, fair enough. My guess is there's probably some people that are new to the program, their first time listening. We're trying to build an audience here. Okay, that's...we're doing this for...anyway, we're gonna have fun today talking about financial matters, and our goal is to help, like our goal is to help people have more confidence with their finances, to have financial independence, and not make poor choices.

Pat: Yes, that's a goal. Different topic.

Scott: Already. Sorry.

Pat: No, it just it I'm looking at some notes in front of me. Did you watch any part of the Republican...

Scott: Debate?

Pat: Debate.

Scott: A week ago?

Pat: Yes.

Scott: No.

Pat: You watch any part of it? I've been thinking, I watched,...

Scott: We try to stay away from politics, by the way, so...

No, no, this, I'm not, I'm not, I'm not saying...

Scott: Well, take your MAGA hat off, would you?

Pat: Oh no!

Scott: I'm joking, badass no MAGA.

Pat: So what was, you know, I'm not commenting on the debate. What I'm commenting on was the question about social security. So the question to...I don't, you know, a number of them up there was, what, what are you going to do about social security? And I thought. This is now coming to the forefront. This is a...Republicans.

Scott: It's less than 10 years and it's going to be broke.

Pat: And so they said, that's exactly what they said. You know, it's estimated that it will be by the year 2030 and this fund.

Scott: These politicians, they're not going to answer honestly.

Pat: It was all over the board. It was all over the board. It was, some of them said, won't touch it, made the promise. Some of them said, we're going to have to change it for younger people. We're going to have to move the retirement age out, which quite frankly, just based on life expectancies would make sense. And then, many of them said, we're going to have to cap it at income levels and I don't...forgot which one it was, I think it was Chris Christie talked about how the fact that we pay into social programs through our taxes and we don't all receive money from those.

Scott: Chris Christie's been a proponent of capping, having means testing. He mentioned that a number of years ago.

Pat: Years and years ago. So I thought it was interesting that the question was asked and how many different views of it. And I thought, this is, you know, this is an... This is up until the last couple of years, this was the third rail topic that no one ever wanted to talk about.

Scott: And probably, so it's, they say the Social Security Trust Fund's gonna go broke in about 2033... 2032 to 2034, depending on which one they, you know, let's call it 10 years from now, maybe slightly less than 10 years from now. And if no changes are made, there's gonna be across the board reduction, roughly 22%, is what they're saying right now.

Pat: Which will not happen.

Scott: That's what...that's what's, right, because there's, for years they had more money coming in than they were paying out, now they're paying out more than what's coming in and they've got this supposed surplus sitting in the lockbox, wherever it is.

Pat: Lockbox. It's a giant box, Scott, with a lock on it.

Scott: So when you think about it, Pat, it was... Presidential cycle. A year from now the president's gonna get elected. Now we're nine years away. It's a four year...they'll probably do nothing in four years. The next thing it's five years away from that. That's when it's gonna have to...I don't think anything's gonna be addressed until we get really close to it. So I think.

Pat: What I thought was interesting is that it was asked in a primary debate. I thought it was... I thought... at least someone's paying attention to it. And I had this conversation with my brother this last week about social security.

Scott: And how old's your brother?

Pat: Sixty four, I think.

Scott: He still works?

Pat: No, I don't think he has any wage income. He might...he might do some consulting but I don't know how much wage income he has but the question was which he said to me. Well, I did the math it makes sense for me to wait until I am of this age to start it and I said well, that that's just math.

Scott: Why is it so nice family members think, "He's my little brother. What the hell does he know?"

Pat: No, no, he listened to my answer. He did. I said, you've got to look past that. And you've heard us talk about it if you've been a long time listener on this show, that... But I thought... in watching this debate and they asked the question, I thought, finally, finally. And then you just told me it's not finally that they're not going to address it. They're just going to talk about it, but no one's going to address it.

Scott: I don't think anything's going to be addressed.

Pat: Not until two years before, three years before. It's not going to be...

Scott: One year before.

Pat: You're not going to go to, you know, Martha, who's 81 years of age, who gets a $1,100 a month and say, we're going to reduce this by 22%.

Scott: It would be interesting. And there's also talk about increasing... So right now you pay social security taxes on the first what? One hundred and fifty thousand of wage. Hundred and four. I forget.

Pat: In Medicare tax is unlimited.

Scott: Yeah. And they're talking about lifting the cap on social security as well. But it's a lot. I mean, it's 7.65... No, 6.2% for the employer and the employee.

Pat: That is just, that's around the edges. I mean that is just around the edges. It's going to make everyone feel good that the rich guy, rich lady, the fat cats.

Scott: Yeah, but they're already capped at their... They're already capped at how much they can receive. It's not like they put in twice as much, they're going to get twice as much back.

Pat: Well, of course that's the way it works. Naturally, but what I'm saying is it's easy to pass this, but most people that make lots and lots of money don't make it on wage income.

Scott: Well, particularly when wage income is taxed the way it is. Find other ways to do it.

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

Scott: Yeah, so anyway, hey, let's get off social security because I get sick of that topic.

Pat: This show's all about you, not the listeners.

Scott: We discuss it too often.

Pat: Okay, fair enough.

Scott: We discuss it too often. And look, if you're 63, it's an interesting topic for you.

Pat: If you're 40?

Scott: If you're 50, 40, who cares? If you're 40, I wouldn't even plan on Social Security. And I've been doing this a long time. And so, look, I remember literally 30 years ago, people said, well, I don't wanna plan on Social Security. And I would make the argument, no, I think you should plan, here's why.

Pat: But not now.

Scott: But not now. Now I'm like, if you do a good job saving your property, you probably won't get it. So I had...There's a company called DALBAR. I don't know what DALBAR even stands for. But they do, they do research and surveys and they did this. This is 2021, the quantitative analysis of investor behavior report. So what it looks at is how we know what the markets have done. We know what mutual ETFs have returned and we can look at all those things. But how did the individual investor do? How did the average investor do? Okay. They looked at a 20 year period. The average investor earned 5.96% while the S&P, this is equity investor, stock investor, earned 5.96%, while the S&P returned an average of 7.47% over that same year period. The average investor only earned about 80% of what they could have earned by simply buying and holding an S&P index fund. Okay.

Pat: So what are they doing? Are they in and out? What time period was it?

Scott: Twenty years.

Pat: Okay.

Scott: Ended in 2021.

Pat: Okay.

Scott: Yeah, and the reality is, and they've got a big report that talks about lots of things, but, and Pat, we've seen it, people think... Look, some people still think the job of a financial advisor is to be able to predict when to get in the markets, when to get out of the markets. Like you've got some sort of crystal ball that can tell the future.

Pat: Pension plans don't manage money like that.

Scott: No, nor do trustees. The ones that have a fiduciary responsibility.

Pat: They don't manage money like that.

Scott: No. It's probably foolish to ask that.

Pat: They manage a well-balanced portfolio over the long term and rebalance when appropriate.

Scott: It's just amazing when you...when looking at these the investor returns are so different than what the markets could do.

Pat: Twenty percent less than had they just bought in whole. Because of their...because of their biases.

Scott: Yes, and if you're thinking about, if you look at like, I'm going to check my fund's doing and people think that there's been this huge shift to passive. I question that because there may be a huge shift to using index funds, but it doesn't mean that the average investors just buy and hold.

Pat: That's an excellent point.

Scott: So they own the S&P 500 index fund for a while, ETF, then they move out of that and they say, well, I think I should have a little more in emerging markets, or maybe I should have in some growth stocks, or maybe some tech stocks. And so...

Pat: So they're actually using passive investments, but actively moving them into sectors, probably based on that information at the wrong time.

Scott: That's exactly right. And so I think even for yourself, you should really take a good look at your last decade or so and the investment decisions you've made and ask yourself, were those the right decisions?

Pat: When should you make changes in your investment portfolio?

Scott: When there's two things. One is a change in the time horizon, your circumstances, when you might need the money. And two is something that's changed where your risk tolerance has now changed because of a life event. My spouse suddenly has terminal cancer. My future's different. I don't know my time horizon anymore. I'm worried about the markets and I'm already worried about my spouse. Maybe not, right? So that would warrant a...

Pat: At least to consider a change. And it's all based upon the psychology of that person. Right? Because if they're ones that worry about the portfolio anyway, a life change will cause them to focus more on that.

Scott: Yeah.

Pat: So Scott, how've been doing this a long time. How many...what percentage of your clients actually come to you and say, I'm retiring, so I should have a completely stable portfolio with no fluctuation?

Scott: Well, I don't know if it's completely...everyone wants that.

Pat: Yes. Stable growth.

Scott: I want high return without a lot of fluctuations in a short period of time.

Pat: Got an email from a friend of mine say, hey, moving advisors, we want to talk to Allworth, just looking at stable growth. Like, ah, that'd be a great name.

Scott: Let me write that down. Stable growth.

Pat: Like, what does that mean? What does stable growth mean? Stable, what is growth? What is that?

Scott: Stable growth, it's the CD.

Pat: That's right.

Scott: Four and a half, five percent. That's stable growth. It's not very much growth barely keeping place with inflation, post taxes you're actually going backward.

Pat: But it's stable.

Scott: And it's an interesting time now with interest rates higher. Oh, you see people reacting because look, a year or two ago, you couldn't, it's like, well, I can get my money out of the markets, but I'm going to earn nothing.

Pat: What are my alternatives? What am I going to do?

Scott: Now you're like, yeah, I could take money out of the stock market. It looks crazy. Look what's going on in the Middle East. Look what's happening here and there. And with the presidential election coming next year...

Pat: And I can get 5% in a bank CD, so I'm just going to take it out of this. That's a whole different set of problems you've created for yourself, which is keeping up with inflation. And then are you going to move back in if interest rates go down? No.

Scott: They move back in when things are more expensive, because that's what people do. Because no's the funny thing about financial markets, it's the one market no one gets excited about when things go on sale. If I need new tires for my car and I suddenly see they're all 30% off for the next week, I'll go get my tires now because I can get them 30% cheaper or whatever.

Pat: But stocks.

Scott: People don't get excited when they go down price.

Pat: Well, yes. We're talking about broad markets. Let's not confuse individual equities.

Scott: Yeah, company could be blowing apart and it's a piece of garbage company and you shouldn't own the stock.

Pat: That's right.

Scott: Yeah. And the stock's never going to recover.

Pat: That's right.

Scott: Yeah, I'm talking about the broad markets.

Pat: Yeah. Broad markets, broad markets. Individual equity is a completely different story.

Scott: Yeah, anyway. Well, it's time for our "Money Matters" house call segments where we check in with the caller. We've had someone in the past and it was...Pat, I think last May, we spoke to a California man named Matt. He had been listening to our show for more than 20 years, which not a lot of people listen for 20 years. He's not an Allworth client. He wanted to know whether he should take out a reverse mortgage. Here's a clip from that call.

Matt: We've got a house that's worth 800 and we've got about 600,000 in equity, over 600,000 in equity. Not a tenant savings, not a tenant 401(k) because of medical issues and this and that. I'm not going to bore you with all the details. The bottom line is my goal is to get the house paid off. Because our house payment right now, we still have six years to pay on it, it's about 70% of our income. So we have our Social Security plus we have a small pension. And we live fine and we don't have too much house. We don't, I'm okay with living here the rest of my life. That's not a problem. But I talked to the guy about reverse...this particular individual about reverse mortgages and he's telling me that FHA has got to guarantee the loan. We've got to pay $16,000 in fees to FHA to guarantee the loan. And then on top of that, there's closing costs, this and that. He says he'll be out probably at least $20,000. And I'm thinking. I've got $600,000 in equity in this home. Why would I give up $20,000 of that?

Pat: So let's step back for a second.

Scott: And I don't know what the exact fees are anymore.

Pat: So let's step back for a second. So the size of a reverse mortgage, and by the way, this is from memory, the rules have changed over time, but the general concept is the same. The size of the reverse mortgage is based on two factors. One is the value of the home. Forget what the equity in the home is, but the value of the home, and then the age of the individual or the couple that is living in the home, the people on title.

Scott: If you're 91 years old, you can get a reverse mortgage for almost what your home is worth.

Pat: Right. So when they quote you that number, my guess is they quoted you to the maximum that you would actually be eligible for in a reverse mortgage, not for just the $200,000 that you want to pay off the mortgage. And I'm not saying whether you should do it one way or the other, but my guess is that those numbers are wrong because you're probably, they quoted it, you being able to borrow 300, 400, $500,000 of the home based upon your age and the value of the home. And then that's the number. What you do with those proceeds, obviously is the first thing they do is they pay off the first lien holder, which is the primary mortgage. And then the rest will oftentimes go either as a lump sum to you or as a line of credit. So let's not get hung up on that $20,000 because we...unless you know the answer to that, what was the loan amount?

Matt: They wouldn't tell me exactly what the loan amount would be, but all they would tell me was... once the loan was closed, they would pay off the first, which is $197,000.

Pat: Okay.

Matt: And they would provide me with a line of credit of $91,000.

Pat: Okay, that's the answer. That's the answer. So it's about $300,000. So what you were talking about at $20,000 is approximately 6.5%, which doesn't sound that unusual. Reverse mortgages are not cheap. They are more expensive than a primary mortgage. There's no question about it. You have six years left on your mortgage.

Scott: I mean, one other way to tackle this, and if we were having the conversation a year ago, it would have been different, right? So a year ago, we might have said, why don't you just refinance it into a 30-year mortgage? Let's forget about... Thirty-year fixed mortgage. Let's forget about getting it paid off.

Matt: I agree.

Pat: And not worry about it. And that's how I would have addressed it.

Scott: And it still may be today.

Pat: And it might make sense for today. You shouldn't worry about paying off this mortgage.

Scott: What do you have in savings?

Matt: Probably only have a couple hundred thousand.

Scott: Oh okay. So you're my brother, Matt. Here's what I'd say. If you have a couple hundred thousand... Yeah, well you have a couple hundred thousand in savings.

Pat: How much are your payments a month?

Matt: Thirty two hundred which includes principal, interest, taxes and insurance.

Pat: And you're not pre-paying any of this?

Matt: I'm not pre-paying any of it. Thirty two hundred and it's only a 3% loan.

Pat: Yeah, this is a rough one. I can see where you're actually...

Matt: I did a refi to get to 3%. I think I did it three years ago.

Pat: What's your savings look like then?

Scott: Wait. Stop it, stop it. When you did a refi three years ago what was the length of the loan?

Pat: Was it 10 years?

Matt: Ten years. It was a 10-year loan. So I still got six years left.

Pat: Yeah, that's why. See, yeah.

Scott: Yeah, I don't like your structure Matt because...

Matt: I know.

Scott: Right? None of us get out of here alive. We're probably, at some point in time, we're all going to get sick or injured, right? Like you're 69. If you're in reasonably good health, you might want to enjoy life a little more now, instead of waiting six years in your home span.

Pat: Yeah, and quite frankly, for the rest of the listeners, the counsel, our counsel back then was, look, the difference between a 10-year loan and a 30-year loan back 3 years ago was about 0.5%. And by the 30-year loan and pay a little bit higher in interest and then decide where we are. So here's where we're at.

Scott: What do you have in savings?

Pat: Two hundred.

Scott: And are you generating income from that?

Matt: Well, it's in 401(k)s and I manage my own.

Scott: Okay, so 401(k)s. So it's not just cash.

Matt: No, no, no, no. But you know what? When I...if I was to withdraw some of that, I do my own taxes and I understand finances to a degree that I could technically withdraw some of that and not pay tax on it because of where we're at tax-wise and income wise, because I generate about $5,000 a month. So like I said, the payment, our house payment is about 70%.

Scott: Yeah, yeah, yeah.

Matt: That's too much.

Scott: How long do you plan on being in the house?

Matt: Forever.

Pat: This is really tough.

Matt: This is the dilemma I've been going through.

Scott: Oh, and look, here's where, like here's where reverse mortgages make the most sense. So one of our early employees, his mother-in-law came to him, she was 84 years old. She had been losing weight. People just thought she was just aging and losing weight. She says, can I talk to you about this reverse mortgage, how these things work? Now she had been widowed a handful of years, did not want to leave her house. She had racked up credit card debt of what, 38,000, 42,000, somewhere in that neighborhood. And she got to the point she couldn't get any more credit. So she literally was cutting back on her caloric intake because of cash flow.

Pat: But she had plenty of equity in her home.

Scott: She didn't want to be a burden on our home, like reverse mortgage changed her life. Right. So like that's the perfect situation. The complete opposite end is someone who's turned...on the day they turn 62, takes out as much equity as they can from their house so they can go blow it. It's kind of like the last trip to the well. Right? So you're, you're still relatively...

Matt: That's not me.

Scott: Yes, that's not you. I gave you two extremes, right.

Matt: I understand.

Pat: So this is a really... I mean, so what's the downside in waiting?

Scott: It's too much... He doesn't have any money. He knows in six years from now the cashflow is gonna be fine.

Pat: When you pass away, where's the money gonna go? Where's the equity in the home gonna go when you and your spouse pass away?

Matt: It goes back, it goes into the trust and my son is the trustee.

Scott: You have one child or how many kids?

Matt: Just one.

Pat: And how's he doing?

Matt: Oh, fine.

Scott: Look, my dad got a reverse mortgage when he was like 75...

Pat: Yeah, I gotta tell you. I gotta tell you.

Scott: ...from some guy who cold called him and asked me later, told me how great they worked, which I thought was hilarious.

Pat: Your dad didn't realize you owned the...

Scott: Oh yeah, I guess I was still little Scotty.

Pat: I gotta tell you, I think I would probably bite the bullet and do the reverse mortgage.

Matt: Really?

Pat: Yes, yeah, I mean...

Matt: That is not...

Pat: What's that?

Matt: Not what I expected you to say.

Scott: Well, look, if you said my goal is to die with as much money as possible, then I would say keep getting this thing paid off and just tighten your belt.

Pat: But what...but to what end? The first thing I would say was look you should move out of the house, sell the home.

Scott: I mean, that's one thing.

Pat: Sell the home and downsize to a 600,000 house.

Scott: I mean, that would be the simplest thing.

Pat: That would be the best thing financially. Right? This is what you got to do.

Matt: But this is our lifestyle.

Pat: That's right. That's why I didn't say that because you said we are not moving, right?

Scott: Same reason as an 84 year old didn't want to move.

Pat: So then you're like, what is the other alternative? You know, you're surrounded by water with nothing to drink. You've got $800,000 in net worth. And you just can't access it.

Matt: Well, and what brought this to mind, one of the reasons why, well, I really respect you guys immensely. And I even told the mortgager, I'm not doing anything like talk to Scott and Pat because you're the guys, the only ones I trust.

Scott: Thank you. By the way, any advice we give is not really advice. Go consult your own advisor.

Matt: Thank you.

Pat: So where did you think we would go?

Scott: Not a client engagement.

Matt: Well, over the last couple of years, you know, we've had things break. So, you know, we would not owe anybody any money other than our mortgage, but, you know, the washer dryer goes out.

Pat: No, no, no, no. Homes are expensive.

Matt: So I have, I put out a couple of grand here. The air conditioner goes out. There's 13,000 there. So I'm finding myself capping my retirement, my 401(k) money a little bit at a time, a little bit at a time. I'm thinking I need more access, if I do reverse mortgage, I need more access than $91,000.

Pat: Well, you're not, you're going to have a lot more access than $91,000 because you no longer,'ve got taxes and insurance. So the 3200...

Matt: I have about $2,500 a month.

Pat: Yeah, correct. And that $2,500 a month is $30,000 a year. So anything that is broken breaks down. You have one automobile or two automobiles in the family?

Matt: Three.

Pat: Okay, well, look, one's gotta go. I mean, really, one's gotta go. And I would make an argument that you should probably possibly share an automobile in the next few years. But, you know, money is a tool to get to your ends. It's not to die with the most money.

Matt: I agree.

Pat: Right? I mean, if you do it right, like my dad always wanted to, like the last check he wrote, he wanted it to bounce. Like, he's going to end up there.

Scott: And you said, "Dad, I think your current checks are bouncing."

Pat: I'm not going to speak ill of my father, but...

Scott: And I didn't mean anything derogatory.

Pat: Oh no, I get it. You knew my dad. I would go with the reverse mortgage and the cost is gonna...that cost is gonna bother you, but the alternatives are... What are the alternatives? Continue your current lifestyle. Get to six years from now. You're 75. You've now got excess cash flow. Perfect. You can enjoy it.

Matt: Take that 2500 in savings every month and bank it for...

Pat: Just stop taking the distributions from the IRA.

Matt: Yeah, I think you're right.

Scott: Or convert a little to a Roth each year.

Pat: Or convert a little to a Roth. But I would look at that line of credit, the 91,000. Don't touch it. And I think it grows every year if you don't spend it, doesn't it?

Matt: It does. He said it does.

Scott: I would ignore it for a decade. Let it just keep growing. It's gonna be worth it. Maybe you'll never need it, but I would use that for...

Pat: Look, it is...the 20 grand, it would bother me as well.

Scott: I don't like the thought of you spending the next six years having the majority of your money paying down a loan.

Matt: I know. You're right. That's why I called you.

Scott: If you were 49, I'd be like, well, you're gonna have to figure it out. But like...

Pat: And you're not buying a motorhome or blowing this frivolously. It's your current lifestyle.

Matt: Yeah.

Scott: Yeah, well, Matt's with us now and looking forward to having a conversation with Matt. So welcome back to the show, Matt.

Matt: Well, good morning. Thank you very much.

Scott: Yeah. So what did you end up doing?

Matt: I took your advice. Scott and Patti, my wife and I took your advice and we entered into this exercise of a reverse mortgage, we really didn't have any choice in so far as expenses were closing in on us. So I'm certain that happened to our shavings. As you and I, as we discussed back in May, I really didn't have any choice.

Pat: Because one of the qualifiers was you were staying in that house. So I've got to believe you, you and your wife love the house, love the community. It is part of your life and that...

Scott: That's my wife in our house. We've been in 17 years. She has zero desire to ever leave that house.

Pat: That's...I'm the same way about my house. I've been there 25 years and so, you know, in listening to that clip, it brought back some angst for me because until I listened to that clip, I didn't... I had forgotten about the call and, but it, when I listened to it, I remember how I felt in the moment when you were telling us the story, which was this was...that there was no easy way out. There was not a quick decision. There was some deliberation that went into that.

Matt: There was quite a bit of deliberation. We've been in the house for 22 years and we're both 69 years old and we've put so much into this house when we bought it and it's in a great neighborhood. It has all the amenities that we want. It's nothing fancy. It's a 2200 square foot house but it's on a half an acre and it's got all the amenities. It's got everything that we want to make us happy in our lifetime. Yes, so I don't know what else I can say. The only thing that I really had a hard time with was understanding the finances behind what it was going to cost us.

Scott: Yeah, well, I did that on shake out?

Matt: I'm sorry.

Pat: How did it shake out? What did you end up doing? What were the numbers behind it? How much?

Matt: Rough and dirty. It was pretty pricey kind of cost us over 20,000 in equity, but that comes down to how much of that equity was... was fake equity, I call it fake equity, based upon inflation. The house has been going up steadily all along. So we did have to pay a 2% origination fee. And then we have to pay a monthly of a hundred something dollars to FHA to guarantee the loan.

Pat: To ensure the loan.

Matt: To guarantee the loan. But we get to stay in the house the rest of our lives.

Pat: Lent. You know, so did you get the $197,000 to pay off and how much money did you get on the line of credit?

Matt: I got the equivalent of about $100,000 in line of credit.

Pat: Okay, pretty close to the numbers that you know, I'm...

Scott: And that line of credit that'll continue to grow every year that you're not using. Does it is still work that way?

Matt: Correct. It does still grow. It grows at 8% right now.

Pat: Really?

Matt: Yeah.

Pat: Wow.

Matt: Yeah, I was surprised. I just got the statement yesterday. I was looking it over and so although it costs us a lot to initiate it, and they wrap all the closing costs into the loan. You don't have anything in the pocket but before I forget to tell you, they sent out an appraiser and the appraiser came in with the house value, which was accurate. Well, the underwriter didn't like that number because it was too high. So they said they sent their own appraiser out and came in with a lower appraisal. So we decided on a number in between.

Pat: Oh, so, you know, I've done this with some people that have called the show before, where I suggest that you actually deal with a couple, but that was prior to, they've tightened up the landing. You know, I'm going to share something with you. look at these commercials on television and any other stuff.

Scott: Do they still have commercials for reverse mortgages?

Pat: I don't know about reversal, but in retirement in general, and they show people traveling. And my wife and I were having this conversation. I said, that is not reality. That is so far from reality. That if you were to, if...and I've been doing this for 35 years, and at one point in time, I had over 300 clients that I worked with myself. And if I were to survey those clients and ask how many of you plan on traveling in retirement, internationally, outside of the U.S., that number would come in at less than 10%.

Matt: I believe it.

Pat: Right. And then if you ask how many have want to travel? Get on a plane, visit New England. If you're coming from the West coast or if you're coming from the East coast, go to Hawaii, that number would be about 35%.

Matt: Yeah.

Pat: And the reality is a my estimation and talking to the clients, a good 50% of my 300 plus clients didn't want to travel at all. They didn't want to leave the house. They would, I go...they go to visit the relatives because the relatives...

Scott: Well, life's about relationships mostly.

Pat: That's right. It's not about that. And when you say it's really important, right. And I got that when we talked back in May, that it was really important for you to stay in that house. You were going to do anything you could to stay in that house. And this was the best option you had.

Matt: It was the best option we had in my opinion, but make sure you're not planning to move.

Pat: Oh, that's right. Oh, that is 100%. If you do a reverse mortgage, it is done. That's complete. Yeah, well, good for you.

Matt: We've been taking some of our money that we've been getting and saving and putting it back into the house and finally doing things to improve the house. Our son is in complete agreement. He's the one that would inherit the house at our death and he's looking to fix some of the things we're doing. So, fine with me, it sounds great. Yeah, building up your master bedroom, doing the things we wanted to do 20 years ago, but just didn't find the time or the money.

Pat: But even that isn't really spent money because it adds value to the home, which means that the equity value would increase faster than it would normally.

Scott: My guess is your son would rather see you, his mother, have a good quality of life in retirement than to have a big inheritance.

Pat: Well, you'd hope your children would want that.

Scott: One would hope. One would hope.

Pat: I would hope.

Matt: I think you hit the nail on the head.

Pat: One would hope. One would hope. I'm glad you went through the deliberation process you did, because what you don't want is cognitive dissonance after the fact where you were questioning, did I do the right thing? Right? You did enough research on the front end and you had enough discussions with your wife and you weren't sold, by the way, you weren't sold a reverse mortgage, you bought one.

Matt: That's correct. Our agent, and he even told me, you know, I'm an agent. I work for different companies. Your loan will be sold and I will no longer be a part of it. He was not high pressure at all. I talked to him for months. And I always initiated the calls. Jim, can I ask you a question about this? Absolutely. And he would take the time at any time, he'd take calls, emails.

Scott: Perfect.

Matt: There was never any high pressure because you don't wanna go through that. By the way too, you do put your counseling on this.

Pat: Oh, absolutely. Independent, independent counseling, independent counseling. Did we? Yeah, yeah, so anyway, we do have a background and understanding of reverse mortgages.

Scott: I'm glad this all worked out. Because it's that upfront cost is like, it's shocking. And if that's all you focus on, if you don't focus on the benefit and only focus on the cost, you trip up and you can...

Pat: But without the cost there wouldn't be the program.

Scott: I understand. You can't compare it to regular mortgage.

Pat: Yeah, because they can come and take your home in a regular mortgage.

Scott: We gotta make the payments.

Pat: And here they can't take your home unless you miss the tax payments. And by the way...

Scott: Don't miss the tax payments.

Pat: Don't miss the tax payments.

Matt: I have not.

Pat: Don't miss... Make sure that there's taxes and insurance paid.

Matt: Absolutely.

Pat: Well, good for you. Thank you. Thank you for coming back and telling us how it worked out. I'm... we've been doing this show for so long. I always wonder, do people ever take our advice or...?

Scott: Yeah, so thanks man. I'm glad you took the time and it's interesting Pat like, so we've started to add these house calls in periodically to revisit a call we've had. And as I'm thinking about it, if someone in our organization reaches out to these people, I have no idea which ones say, oh no, I didn't take any of their advice. So maybe Matt's an anomaly.

Pat: Maybe we should talk to the producer of the show and see why don't we get people on the program that didn't take our advice and why? And we didn't get comments like, well, I thought you guys were a couple of idiots. And so I wasn't going to take your advice.

Scott: That might be more entertaining.

Pat: I hadn't thought about that. All right Jason, Jason our producer is listening. Consider that Jason.

Scott: Well, let's take some more calls here. Let's talk with Marie in California. Marie, you're with Allworth's "Money Matters."

Marie: Hi there. This is Marie. Thanks for taking my call.

Scott: Hi, Marie.

Marie: How are you guys doing?

Scott: Good. Good, good.

Marie: So I have a kind of maybe simple question, but kind of generic question. So I'm 57. And last year, my company decided to let me go and I've had, you know, some health issues anyway, so I decided I'll just, you know, retire early, I have enough savings and kind of deal with my health for a little bit for a few years and see what happens. Fast forward 10 months later, I actually love being retired.

Pat: Okay.

Marie: So I'm not sure if I'm going to go back, but aside from having enough savings and just living within my means, are there any other things that I need to worry about? Like, you know, retiring early, like, you know, I know that one of the things is health insurance is really expensive because I'm not 65 yet. But are there other things that I...

Scott: Where do you get your health insurance?

Marie: I'm doing COBRA right now from the company, but I might switch over to, you know, the Affordable Health Care Act maybe.

Pat: Okay, okay, okay.

Marie: And that might help me because I...

Scott: Do you receive a pension at all?

Marie: No, no pensions. I'm just living off of my dividends and my interest and know whatever the market appreciates in my brokerage account.

Pat: And how much do you have in your brokerage accounts?

Marie: My brokerage account about $800,000. And it's like more or less like maybe 70% stocks and some 30% like in treasuries and some bonds and stuff.

Pat: And how much in the IRAs?

Marie: IRAs, around 800 as well. I have about 30 in a Roth IRA and about, you know, close to 800 in the regular 401(k).

Pat: Okay. And you said you went out, you've had some health issues. Are you applying for Social Security Disability?

Marie: No, not that kind of sick. Not sick enough to file for anything.

Pat: Okay. Yeah, so I would not wait. I would not wait.

Scott: you Well, you're going to want to manage your taxable income in such a manner that you can continue to qualify for the Affordable Care Act at a low rate.

Pat: That's correct.

Marie: Correct. Correct.

Pat: So you need to manage for that. But I don't know why you're waiting to apply for the Affordable Care Act.

Marie: Oh, because online it says that I can't just stop COBRA. It needs to be during the open enrollment.

Pat: I did not know that.

Scott: That is why. Yeah. That makes sense.

Marie: Yeah. So I kind of missed out last November. Yeah.

Pat: Yeah. No, no, you're fine. You're fine. There's nothing else you need to worry about.

Marie: I'm thinking of also taking Social Security early, like at 62, kind of to help offset some of the health insurance costs.

Scott: Well, if you have...

Pat: You might not want to.

Scott: I mean, if you think your health issues are such that you have a shorter than average life expectancy, then yes.

Pat: I would...certainly wouldn't make that decision today. You're 57. How much money do you need a month to live off? What are you spending?

Marie: About $4,200 a month. That includes health insurance right now, about $1,000 of health insurance.

Pat: 1.6 million. All right. Yeah.

Scott: Yeah, you should be able to make this work. Yeah, you'll be alright. Even without Social Security which will be coming in.

Pat: You'll be all right.

Scott: And the thing that... Don't worry about social security till you get closer to social security, because you may not, you may decide not to take that and stay on Affordable Care Act till Medicare actually kicks in.

Marie: Oh, I see.

Pat: Yeah, but we're not going to borrow trouble. We'll worry about that when we get closer to it.

Marie: Okay.

Pat: All righty?

Marie: Okay. Thank you so much.

Pat: All right. Good job. Appreciate it. Thanks.

Marie: Thank you. Bye.

Scott: We're talking now with Jen. Jen, you're with Allworth's "Money Matters."

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'm not really, really into tracking my portfolio, and but I've learned a lot listening to your program. And a couple things, something I've heard multiple times, kind of at least in passing is something called Roth conversions. 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: Neither do most Americans. So first of all, IRAs, 401(k)s, these retirement plans, right? They've got special tax considerations. So like a traditional IRA or your 401(k) 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 401(k), 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 of retirement when you withdraw money, those dollars then need to be added on your tax return and they're taxable at that time.

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: Yeah, and your 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 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 some existing dollars that we have today, typically in an IRA or sometimes even a 401(k), 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 couple examples. You're unemployed for six months. You retire at age 62 and your...

Scott: 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: We...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 get 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: Yeah.

Scott: But it's typically if you have a really good size IRA every time. If you've got a couple million bucks or something or more.

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

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

Pat: How old are you?

Jen: Fifty four.

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 saved.

Scott: It depends how much you've been living off.

Pat: What have you been living on?

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

Pat: Okay.

Scott: You're good. You're good. You've got this, so you're perfect. You're like to be the perfect candidate to do some Roth conversions.

Pat: And so 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: I know. 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, I know.

Pat: Okay, so here's...

Scott: But she's got nothing outside dollars, there's no...

Pat: I understand, but maybe she starts the 72T at the same time for a lower amount in order to access the [crosstalk 00:48:03] Roth IRA until fifty nine and a half.

Scott: Yeah. You've got a phenomenal opportunity for Roth conversions.

Pat: Yeah. This is like...

Scott: You're like the poster.

Pat: You see, Scott and I are arguing over the different techniques and you're probably thinking what are they talking about? Right? Yeah, so you've got phenomenal opportunity. 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 I...

Pat: Well, listen, if they give 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: She might not have the planning opportunity for the Roth conversion.

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

Scott: Yeah.

Jen: Okay. All right. Thank you very much.

Pat: Hire a good, hire a good advisor.

Jen: I do have an advisor.

Pat: Oh, you do?

Jen: And I like him.

Pat: Good. To have this conversation. Do you have stock in the company, stock in the 401(k)?

Jen: Some, not a terrible amount but yeah, I definitely want to get off that road.

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

Scott: Which company is it?

Jen: Intel.

Pat: Don't know how they have it.

Scott: I can't remember. But I know a number of people that get it. I'm... It's units.

Pat: It's units. It doesn't work. But I know a number of people that have gotten those packages.

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

Pat: All right. Thanks Jen.

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

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

Scott: Unfortunately, we're nearing that time in our program when we are running out of money.

Pat: Money. We're running out of money?

Scott: I've got to tell you, I'm going to be very transparent here. See, we have callers sometimes, like the ones that are always a little concerned about money, and so they tend to be good savers. I still worry about money. I'll wake up sometimes in the middle of the night and I start thinking about running out of money. Do you? And I'm fine financially. I don't have any mortgages, like, no debt.

Pat: I have dreams about it that I'm a waiter again, which by the way, there was nothing wrong with being a waiter. I enjoyed being a waiter. It was part of my life that I enjoyed but that I'm a waiter and I've got these four kids.

Scott: A little tough to feed four kids, yeah. Unless you get a really good job, some sort of. And again, if you want to be a guest on our program, send us an email, questions at, questions at We'll schedule a time for you to call, and you can get our advice, whether it's good or bad, or you can take it or don't. We'll see you next week. 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 a state planning attorney to conduct your own due diligence.