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 being with us.

Scott: That's right with myself, my co-host. We are both financial advisors, certified financial planners, chartered financial consultants, practicing advisors for three decades. And we come here on our podcast on the weekends to help you with your financial future as you are dealing with things. And...

Pat: It's hard to deal with. These markets are rough.

Scott: What's been particularly challenging, Pat, about this year, it's that not only has the stock market fallen but just about everything has fallen. And bonds, this is the worst year for bonds we've had in decades. So typically, in a portfolio, a well-balanced portfolio, you've got areas of the portfolio that are, if not at least holding their own, but growing in times when the stock market is falling.

Pat: So you're trying to create negatively correlated asset classes...

Scott: That's right.

Pat: ...in order to actually get a smooth upward line.

Scott: Yeah. If you look at historical returns, you can kinda graph them out and you can see where the efficient frontier, all that other stuff. Right? But the challenge we've got this year, it's that just about everything has fallen in value.

Pat: Yeah. Bonds, especially, fixed assets. We haven't seen it in some of the assets, right? Oil prices...

Scott: Although they're down from where they were.

Pat: Yeah. They are. But not nearly as much as the rest where you're really seeing it...

Scott: Gold. I mean...

Pat: ...is down. Tech is way, way, way down. And further headwinds, forget the fact that, you know, they're borrowing money to build operations, which drives up their cost of operating the business, 58% of revenues come from outside the United States.

Scott: For tech companies.

Pat: For tech companies.

Scott: Fifty-eight percent

Pat: Fifty-eight percent. So what happens is as the dollar soars in value against other currencies, unless they've hedged those positions, it's very, very difficult.

Scott: So you're still getting the same amount of Euros.

Pat: But it's not worth nearly as much.

Scott: Or Pounds even worse.

Pat: And completely outta your control. Completely outta your control.

Scott: And the thing that's so strange, you've got... So the Fed is increasing interest rates to try to tame inflation, right?

Pat: Essentially to say, it is their break, "Hey, look, we're gonna make it a little bit more difficult for you to actually expand in this environment." Businesses especially, right? So there's a cost of borrowing money. We're raising interest rates so that we're gonna dampen real estate. They know exactly what the outcome is going to be, right, by raising these interest rates.

Scott: Well, they have some theories on where they believe it's going to be.

Pat: Historically how the economy...

Scott: The question is how bad are they gonna...

Pat: Well, how much are they gonna overshoot?

Scott: ...how much damage are they gonna do?

Pat: That's right. That's what they worry about.

Scott: Because you've got the Fed raising interest rates to slow the economy, and then you've got the congress and administration... I mean, how many bills were passed in the last two years...

Pat: Yes.

Scott: ...of trillion dollars here?

Pat: Money giveaway. Right? Here, here, here, here.

Scott: All kinds of things. I'm not saying if they were good or bad, I'm just saying the challenges when you've got the federal government printing money, at the same time the Fed's trying to slow the economy, they're at odds with one another.

Pat: Yes. And then you put behind that the backdrop of oil prices and what's happening in the Ukraine, Saudi Arabia, which by the way, look, I get the green energy thing. I am for it, 100%, over time. But it's really difficult to actually make yourself captive to other countries in terms of a product that you actually need where they know you're not gonna go in and get it yourself.

Scott: You mean like OPEC saying they're gonna reduce...now it's called OPEC Plus, they're gonna reduce oil production by what? A couple of million barrels a day.

Pat: Yeah. That's what they say. That's what they say. It's really difficult for them. They're all sitting...

Scott: And we're saying, "No, you guys are bad for doing that. Why are you doing that to us?"

Pat: Yes.

Scott: When the reality is we have opportunities in the United States so we're not dependent on 'em. It's strange as the times.

Pat: It is strange. It is strange. And by the way, they say, Scott, that they're gonna... OPEC Plus sits around in a room and pretends like they're friends for the day.

Scott: They're not yet.

Pat: They're not. They're competitors.

Scott: Well, look, we broadcast outta California. Actually, we just had our two millionth download of our podcast. So thank you, podcast listeners. But we know we have many people in other states. So this morning, I went to Costco to get gas.

Pat: As I did yesterday.

Scott: Okay. It's just, I either go to Costco or Safeway, they seem to have the best prices. And I paid, in California, $5.95 a gallon.

Pat: Yes.

Scott: Which is almost double what it is in most other states.

Pat: I was in other states two weeks ago and I was amazed.

Scott: And it is in large part because of the restrictions that we continue to put in place on the refineries and the kinda fuel blends they require.

Pat: And taxes.

Scott: And taxes.

Pat: California taxes.

Scott: The taxes are only...The bigger issue is...And then, like...

Pat: So what was your point with this? Like, you went there, that's slowing the economy down in California.

Scott: Well, we started talking about oil. That's right.

Pat: Yeah. It is expensive.

Scott: And it's a crazy time this is, I think.

Pat: It is a crazy time.

Scott: And this raising of interest rates, it is a real impact on real estate.

Pat: We haven't seen it yet. In fact, we haven't seen it in the unemployment numbers yet, which really, really surprised me that the unemployment numbers are still as low as they are.

Scott: And housing is starting to cool off in some markets more than others. And I just saw a thing this last week, of course, I know how to run the numbers, but it was a $500,000 house, someone in January, $2,000 a month it would cost 'em if they put 20% down to finance that. That same $2,000 a month with 20% down will finance a $340,000 house.

Pat: Yes. So about a third reduction in your purchasing...

Scott: That's right.

Pat: ...power because of these interest rates.

Scott: I was talking to a long-term friend of mine, he sells new homes in another state. And he says these big home builders, they've got all kinds of inventory. So, he says they're still gonna be selling a lot in the next coming months, it's just a matter of price. And I said, "What are cancellations like?" So we've had a number of cancellations. One, because there's the same models coming online, a little lower price. Like, why I'm gonna pay you $620,000 when you're selling now for $575,000 or whatever the case may be? And the interest rates, he says it's mostly interest rates. He said people when they first put a deposit on the house, they're like, "How much can I afford to borrow?" I mean, one of the advice that we often give people is if you're, like, trying to figure out what you can afford, talk to a mortgage broker first, figure out what your payment's gonna be, and if that's gonna work for you. And so, you're in a situation where we've got interest rates have risen so much that what was gonna be a $2,900 a month payment is now a $4,100 a month payment.

Pat: But this too shall pass.

Scott: Of course, this shall pass.

Pat: This too shall pass. As painful as it is, and we know it's painful, we have thousands and thousands of clients. It is painful. Very, very painful.

Scott: But this is not the time to be selling out of a diversified portfolio. If anything, some great buying opportunities right now.

Pat: Yes.

Scott: I mean, if you're a long-term investor, there's lots of areas. And even on the fixed income side of things, interest rates are up so much that there's good opportunities on very conservative type investments, that we didn't say.

Pat: Yeah. Here a year ago.

Scott: Granted, inflation needs to come back down because otherwise our real purchasing power...

Pat: Well, inflation will come down. I mean, the Fed is as aggressive as they've ever been in history trying to...

Scott: That's right.

Pat: ...tackle inflation. And will they overshoot it? Probably.

Scott: Probably. Because what happened in the '70s, they were aggressive, then they peeled back a bit and they got "Oh-oh, maybe we've overshot." Then inflation just got even worse and they went...

Pat: They went all in.

Scott: Yeah.

Pat: At that point in time. But, you know, Scott, this balance between government spending and the federal reserve all it's doing is prolonging the pain. It's all it's doing, you know. In the state of California, if you have a certain income, you get a check from the state. They called it the Inflation Protection Act or something along those lines.

Scott: I don't know what they call it, inflation rebate check.

Pat: Yes. But one of the reasons we're here is because there was so much cash in the system.

Scott: You mean you can't just print trillions of dollars and pay people more in unemployment than they would normally make in their jobs?

Pat: And people left the workforce because they didn't have to work. I believe in people's personal fiscal responsibility. I think that people should own their financial life. Look, I get it, it's harder for some than it is for others. There's lots of headwinds in life.

Scott: But three decades, Pat, of meeting with people in life and you realize that 95% of the time their wealth came not because they inherited it or got lucky, it's because they were disciplined in their saving. They were frugal. They paid attention to their debt. They lived below their means.

Pat: That's right. And...

Scott: And 95% of the time...

Pat: ...20% or 25% of the population lives paycheck to paycheck, and they don't care where that money comes from. And if they've got a lot of money, they'll spend it. And if they have a little bit of money, they'll spend it.

Scott: You know, it's interesting. Typically, on an annual basis, I go down to Tijuana, Mexico to build homes. And there's an organization, they're the most basic rudimentary shelter you can imagine. Right? Just a concrete floor, two little tiny bedrooms, and a room that could be used as a living room or kitchen or whatever. It's very small. No running water, electricity, it's basic shelter. So the guy who runs the organization's been down there 30-something years building, they built thousands of homes down there. And most of them, frankly, are migrants who have come north and got stuck in Mexico. But the first thing they warn, don't give anyone any money. And he says, "You might think that you're gonna be helping someone, you slip 'em 200 bucks because to you it's no big deal, 200 bucks." He says, "To them, they may quit their job that day."

Pat: Because...

Scott: Their mindset. It's that...right? And to your point, like, there's a certain...

Pat: Percentage of the...I just read this week, and then we're gonna move on to the calls. But I just read this week where a third of the people in the United States have missed some bills in the last 12 months. And I thought to myself, "Huh, that's interesting. What's our base for comparison? What was it...

Scott: I have no idea.

Pat: ...two years ago, three years ago, five years ago? And does this third of the population miss payments on a regular basis?" Because you have friends that do that on a regular basis.

Scott: I had a friend...Can you still bounce checks like you used to? I don't know.

Pat: I don't know.

Scott: He paid hundreds of dollars a year in overdraft fees.

Pat: And probably...

Scott: I said, "The bank must have loved you."

Pat: And probably made...did he make a decent living? He did okay?

Scott: He did okay. He did all right. He would've done much better had he just slightly on top of things.

Pat: Maybe. That is life. People change, but not a lot. So, anyway, if you'd like to join this...

Scott: You're not sounding very charitable here, Pat, like the universal basic income needs for people and stuff.

Pat: I think motivation to work is really important. I think not only financial but for...

Scott: Psychological.

Pat: ...self esteem.

Scott: You mean that you're a contributing member to society?

Pat: That it's more than about, it's more... Look, I raised four children, and thankfully, all of them work. But I...

Scott: I'm grateful my kids work too because I know I have friends whose kids are...

Pat: Yep. But I remember one of my children saying, "Well, I'm just gonna take the summer off. I'm not gonna work this summer." And I said, "We actually don't do that."

Scott: Like, when you're on your own and you can figure out and you can save enough and you wanna take the summer off, you can take the summer off.

Pat: Yeah. I said, "But we don't do that. We don't do that. We don't just take time off. If you wanna go on a trip and you can afford it, then go on your trip. But this is not an open-ended we're just gonna not work." And forget the money issue, I just think it's...yeah, anyway.

Scott: Let's go to the calls. We've got a...

Pat: We've got a new number. We're having problems with our toll-free number as if you cannot afford a regular phone call. So our number to call into the show is 916...

Scott: Is there even a cost for long-distance calls?

Pat: I don't think so. I don't know. I don't know.

Scott: I have no idea. I know our business phones now are all Zoom phones.

Pat: Yes. But...

Scott: I don't think there's [crosstalk 00:14:47] there.

Pat: ...I think my cell phone is on a plan that they don't differentiate between where I'm calling. I'm not calling my grandmother on Sunday night after 8:00 like we did as a kid. (916) 473-5459. (916) 473-5459. You know what, before we go on, think about what I just said, about calling, when we were little, we'd call my grandparents after...

Scott: Yeah, yeah, yeah. We're both what? I'm 56, you're...

Pat: I turned 60 this year. Don't get me anything.

Scott: I'll get you the same thing I got to the last couple of years.

Pat: Thank you. Why did that change and why did that change in phones? Why...

Scott: Deregulation and technology.

Pat: That's right. And what caused the change in there? Southern Pacific Railroad actually had excess capacity in their own internal lines.

Scott: Innovation, technology.

Pat: And then going back to the government and asking them to deregulate it because it was regulated before. As was airlines, utilities, telecom, and a couple of other industries as well. But that's a side note. (916) 473-5459. (916) 473-5459.

Scott: We're gonna start here with Terry. Terry, you're with Allworth's "Money Matters."

Terry: Yes. Hi, how are you today?

Scott: Great. How are you doing?

Terry: Fine, thank you. I'll tell you kind of what I'd like your thoughts on is when I should take my SSI. I'm one of those people who will need my SSI income and my retirement. So I've been delaying it in order to max out my future monthly payments. But that's always been the plan. But now I'm not quite so sure. I'll tell you a little bit about...

Scott: And, you know, the funny thing about this is for those that didn't save well... I had a conversation this morning with my wife as were going for a walk regarding a family member and I said, "They're gonna have to work till they're age 70 because they don't have any money saved. And they're gonna be reliant upon social security." So those who have not saved, well, the answer is so clear, you wait till age 70. If you've saved well, then it gets a little more complicated. So tell us about your situation.

Terry: Okay. So here's why I think I'm gonna get it sooner now, or possibly sooner rather than waiting, but not sure. My wife and I are both 67 years old, we retired 5 years ago at age 62. And most of what's kept us busy is we put 20% down on down payments on kids' houses in Sacramento, which was good for them, the houses appreciated a lot, and they're at low-interest rates, 275 to 30. But it's been bad for my wife and I in that we've depleted about $400,000 out of our brokerage savings in the last five years.

Pat: Okay.

Scott: Can you afford that? I mean, are you making...

Terry: Well, that's what I'm gonna tell you right now. I thought I could. Our current annual expense is about $150,000, that includes all income tax and property tax. And our house is paid for, we have no debt. We fund these expenses with three sources of income currently, my wife's SSI of $25,000. I've got a pension of $35,000. And the third one is we take distributions from our IRAs or brokerage savings of about $90,000. So that funds the $150,000.

Scott: And how much do you have in your IRAs and brokerage account?

Terry: Yeah. The $90,000 we take out of the brokerage or the IRAs is about 4% of our net worth. Our net worth, not including our home equity is 2.2 million. The way that breaks out is 2 million is in qualified retirement accounts, and $200,000 is in after-tax brokerage accounts about...the way the 2 million breaks out is 70% of that is in my old company's 403b plan, I left it in it about $1,400,000 because it's in a fixed income account of three and a half percent, no fees. And I've left it in there the last five years. And I realize I've probably given up a little opportunity, but...

Scott: Are you thinking about making a move into some equities now with the market being down?

Terry: Yeah. Maybe. Kind of the challenge I have with that is this fund was discontinued in 1989, and once you take money out of it...

Scott: Yeah, I get it. But 70% isn't fixed income of that old 403b. Is the other 30% invested in longer term?

Terry: The other 30% is invested in all 100% equities, about $600,000 in equities. And it's about 35 stocks that I would call them, you know, dividend kinda stocks. So that's that. And so, again, the $90,000 we're taking from either the IRA plan or the brokerage is about 4% of our net worth. If I were to activate my SSI now, it would approximate $45,000 a year, which would allow us to reduce our retirement net worth distributions to about $45,000 or about 2% of our net worth.

Scott: Got it.

Terry: And so, I guess my question is, is now the time for...

Scott: Well, yeah. I mean, you can also say that you can spend a little more than you're spending right now. If your argument is I'm gonna wait on my social security till I'm 70 so it can provide larger income in the future, one could argue that you're actually sacrificing a bit of lifestyle today to make that happen.

Pat: How's your health, you and your spouse's health?

Terry: We're both in good shape. I...

Scott: I mean, you're right on the bubble. I can make arguments both ways.

Pat: I know exactly what I would do.

Scott: And what would that be?

Pat: I'd start the social security. I'd move that 403b into an IRA. I'd reallocate at least 50% equities and then 50%... Because you can get this 39, you've got these old gig contracts.

Scott: You can get 'em in treasuries. Short-term, two-year treasuries right now.

Pat: Yeah. And not worry about it. So I would use this as an opportunity in the marketplace and recognize that it's gonna actually push a little bit more risk in the portfolio. But I don't believe it is a long-term issue over the next 15 to 20 years. So I would actually put the whole thing in the... The 403b into an IRA. I'd reallocate.

Scott: Get your fixed in...You could actually do a little bit better than that rate on...

Pat: That's right.

Scott: ...Triple-A rate.

Pat: And then I'd push my equity position from 30% to 50%. And I'd lower the distribution by that $45,000. So now you're down to about a 2.2% distribution, and you've used this downturn in the market to...you know, could it go lower? Sure, it could go lower. Could it go higher? Sure it could go higher. Which one are we the closest to? My guess is that...

Scott: All we know is the further goes down, the less risk there is investing, not the more risk.

Terry: Yes. Yeah, I hear you there. I think that's an excellent thought. I was just kind of waiting till I felt like the market bottomed out.

Scott: Well, I mean, it's impossible to know when that is. And one strategy is to say, I'm gonna move in over a period of time, kind of a dollar-cost averaging strategy. It's not designed to increase returns. It's a mis-gritted mitigation. And frankly, it's a psychological ploy more than anything.

Pat: I wouldn't do that. If you were my brother...

Scott: You also have pretty high-risk tolerance, Pat. I've worked with you for a long time.

Pat: I may. You know, the funny thing is I don't see that myself. I don't see that in myself. I don't think it actually is a high-risk tolerance. I think it is calculated based upon when I need the monies.

Scott: Fair point.

Pat: Right?

Scott: You're probably right, Pat. You were able to set your emotions aside and you realize, like... I just remember during the financial crisis, some of the things you were like...

Pat: Yeah, it was great.

Scott: Great. It wasn't great.

Pat: I mean, it was...that sounded terrible.

Scott: It did.

Pat: It sounded terrible. It was a great...

Scott: Buying opportunity.

Pat: ...buying opportunity. So what happened behind us is behind us, and we can't change that. But I just see this as an incredible opportunity for you right now, you know, and remember these...

Scott: And by taking the social security, it just takes so much pressure off what you have to produce from your portfolio.

Pat: That's right.

Scott: I mean, actually, you could probably increase your overall lifestyle.

Pat: I would say.

Terry: Yeah. Yeah. Let me ask another question when I've got you on here about Roths. We started doing Roth contribution last year with an initial deposit, kind of the back door of 20% or of $20,000.

Pat: Do you have income?

Terry: Well...

Scott: Or you're talking about a conversion?

Terry: A conversion.

Pat: Okay, thank you.

Terry: Yeah. So what I thought about doing now that I know how to do it. Doing that conversion, taking about $75,000 beginning of next year and $75,000 in '04, paying the taxes on 'em, and putting that into a Roth. And then hopefully, you know, by the time I hit the RMDs in about five years, it will at least have made back up the tax money so that I'm kind of setting back even at that point.

Pat: I'd be okay with that. I think that's secondary.

Scott: I don't think I would do that in this...

Pat: Really?

Scott: No.

Pat: Why?

Scott: Because just the way the tax rates work, you'd be locking in at a fairly high tax rate, maybe one could argue more in the future. Your required minimum distributions are based upon your account value. So if we end up having a prolonged downturn, your requirement distributions aren't gonna be that great. And if we have a phenomenal bull market the next 10 years, like...

Pat: We're not talking about that much money. We're talking about 20...you said 75 grand?

Scott: Seventy-five grand.

Pat: I don't know if I'd go that high.

Scott: I mean, you gotta run the numbers.

Pat: I would certainly go through it. But that is secondary. Look, that is icing on the cake to what we're talking about, which is a long-term strategic change...

Scott: Your biggest impact, Terry, is not whether you're going to...

Pat: Convert Roth.

Scott: It's are you gonna keep 70% of your portfolio in an area that's never gonna keep pace with inflation?

Pat: Or am I gonna make a couple of bold moves in this market environment?

Scott: That would have much greater impact long-term. There's no question about that. So, hey, Terry, appreciate the call. Glad you called. We're taking a quick break here and when we come back, we'll continue with calls. This is Allworth's "Money Matters."

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

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

Pat: Pat McClain.

Scott: Hey, we set aside some time, by the way. As I think most of you know, we pre-record these shows during the week because we...

Pat: Because...

Scott: Twenty-something years we did live on the radio on the weekends and...

Pat: Yes.

Scott: ...at some point in time we said we need a little more sense of balance.

Pat: And it actually makes it more convenient for people to get in touch with us because we put something on the calendar weeks in advance. And so...

Scott: So we've set aside two hours just to take calls, take your calls regarding whatever's on your mind financially. Monday, October 24th from 10:30 a.m. to 12:30 p.m. Pacific time. 1:30 to 4:30 Eastern, 10:30 to 12:30 Pacific. Monday, October the 24th. And you could send us an email at questions@mondaymatters.com.

Pat: And we'll get you on the calendar.

Scott: And schedule a time. Or you can simply call in (916) 473-5459. Again, (916) 473-5459. And we'd love to take your call during that time. So there we go.

Pat: Yes.

Scott: It...

Pat: We'd like to take your call.

Scott: What?

Pat: We'd like to. I'm trying not to use love unless it really, really applies.

Scott: I'm like, I don't know what you're talking about.

Pat: I know. I'm trying to reserve the word love for what it was intended for. We wouldn't love for them to call our show, Scott. We would like for them to call our show.

Scott: That's fair. That's fair.

Pat: I'm trying to reserve...

Scott: There are days I love doing this recording and there are days...most days I like it. Some days I don't like it.

Pat: Yeah.

Scott: Okay. Fair enough. We might love it.

Pat: We might like your call. We might love your call, we're not gonna love all of 'em.

Scott: Fair. All right, let's...

Pat: Right. It's just...

Scott: We're done with this discussion.

Pat: I know, but I just remembered the shirts that came out years ago with a guy that's like, "Life is good." Life is good. There'd be a guy, like, driving his...you know, his car, his convertible, or playing volleyball, and it was like a stick man that said, life is good. And I always thought, "I wanna come out with a line of shirts that says life is okay." Because life isn't always good.

Scott: Is it not what you make of it?

Pat: Yeah. And sometimes...

Scott: You know what I found...

Pat: ...okay is enough.

Scott: You know what I found? And watch this in yourself. When I'm sitting there complaining about something with somebody, we're talking about whatever, or complaining about politics, complaining about something. Nine times outta 10, I step back, I'm in some cool place with cool people. That's right, people I enjoy being around and someplace I enjoy being. And I'm like, "Really? Am I complaining about this?" I could be out digging a ditch somewhere.

Pat: Yes.

Scott: Hoping that I could plant seed to feed my family. Like, this is what I'm complaining about?

Pat: Scott, there are three things I will not complain about anymore. Air travel...

Scott: Your business partner.

Pat: Air travel. I'll put that to the list. I'll put that to the list. That'll be a big change for me by the way.

Scott: Your wife will hold you accountable.

Pat: I know.

Scott: Pat, there you go again.

Pat: So the four things I won't complain about. My business partners, air travel, cellular phones, or microwaves, ovens. I'm just not...

Scott: Why would you complain about a microwave?

Pat: They're not cooking fast enough. I'm just not gonna complain about those things anymore.

Scott: All right. Good, Pat. I'm glad you've got your priorities straight in life. Let's head back to calls here. We're in California talking with Matt. Matt, you're with Allworth's "Money Matters."

Matt: Hi, Pat and Scott. Long-time listener, first-time caller.

Scott: Oh, good. Thank you.

Matt: Thanks for taking my call.

Scott: Thanks for joining us.

Matt: I'm 48 years old. My wife is also 48. We're looking to retire in about 12 to 14 years. And we're in a position where we've got some money that we can set aside in a taxable account for retirement. And we're just trying to figure out kind of, or at least I'm trying to figure out, do I do something, invest in like a dividend-focused ETF or something that's more growth-oriented? And just wanted to get your thoughts on what you would do in our situation.

Scott: Is this for additional money in retirement, 12 to 14 years?

Matt: Correct. Yes.

Scott: And where'd the money come from?

Matt: Savings.

Pat: And how much is it?

Matt: About $100,000. $100,000 to $110,000.

Pat: And how long did it take you to get that $100,000?

Matt: Maybe four years.

Pat: Okay. And...

Scott: Are you maximizing your company retirement plans that are available?

Matt: Yeah. Maxed out on everything and thanks to your advice, this year I'll start doing the Roth conversions.

Pat: Okay. Or the non-deductible contributions to an IRA and then conversion.

Matt: The back door Roth.

Pat: And I assume that you only owe money on your home. Is that a fair statement?

Matt: Home is paid off.

Scott: Okay.

Pat: Okay. Ah, you're great.

Scott: And your 401ks, company retirement plans, IRAs, or whatever, how are those dollars allocated, ballpark?

Matt: Eight percent, basically Vanguard total stock market index, 20% bond funds.

Scott: And how much do you have saved in your retirement accounts?

Matt: IRAs, 403bs about 1.5. And then I've got another 80 in a Roth account. And I should say that that Roth account is part of my 401k. I can...

Pat: Okay. All right. So remember when you... You had mentioned doing the non-deductible contributions and then converting to a Roth. Remember that any IRAs could be affected in terms of taxation by doing that, just gonna throw that out there because you've mentioned that. We've talked about that on our show before. And your whole portfolio is in the S&P 500, is that what this...

Scott: No. Total market.

Matt: Yeah. Either the S&P or the total stock market. It really is kind of between those two.

Scott: And you have no international whatsoever?

Matt: Well, I do have a little international in my 401k. I have about 10% allocated. My 401k is about 1.1.

Pat: Okay.

Scott: Okay.

Pat: That's the right answer.

Scott: I mean, one could probably make an argument this wouldn't be a bad time to increase that exposure a bit, but that's a secondary thing. If I were in your situation, I'd be looking at not what's gonna provide income, but what's gonna provide the least amount of income.

Pat: That's right.

Scott: Because you already have enough taxable income coming through the family. You're not looking for an extra income source to provide for your current lifestyle.

Pat: I'd buy the total market.

Scott: I would probably buy a index of the mid and small-cap. And if I needed to tweak my total market fund to a little more S&P and less total market.

Pat: I like that, Scott.

Scott: Because you're gonna have less dividend.

Pat: Yep. Yep. I like that. I like that. And not only that, let's remember too, you're a relatively sophisticated investor and saver. I mean, just from what you have told us so far, you're like, check...

Scott: You take a simplified approach to investment, that's not necessarily a bad thing.

Pat: Yeah. But, Scott...

Scott: No argument with me.

Pat: Everything that you've shared, Matt, everything you've shared with us so far, you're like, check that box, check that box, check that box. I agree with Scott.

Scott: Or growth.

Pat: Which an aggressive growth would have more mid and small in it.

Scott: Yeah. I mean, to try to make this thing as perfect as you can, either use ETFs or mid and small index funds, mid and small growth-oriented. And then if you need to rebalance it, carve out a little from the total market and put it in mid and small value-oriented.

Pat: Yep. And...

Scott: And that way the taxation spinoff of it is gonna be negligible

Pat: And the kids around the house...

Scott: And if you could view your portfolio as one, which isn't always that easy to do because people tend to look at it as a horse race and you're like, "Well, I just bought this growth..." I mean, growth just got hammered. Particularly small-cap growth. It's a good buying opportunity.

Pat: So, children that you're supporting?

Matt: Yes. I have a freshman in high school and a seventh grader.

Pat: And you've been saving money for their college?

Matt: Yeah. I opened up 529s when they were about six months old. And I think we've got college pretty much covered at this point for both.

Pat: Check that box.

Scott: By the way, Matt, so it sounds like you obviously take complete control and ownership of your financial life and have done a lot of planning. When my kids were born, I opened up 529s, the first couple of months or so, funded them, and I got it dialed down almost to the penny on what their college needs were gonna be. I didn't factor in the travel because my one kid went to Boston College. The travel, the expense of going back and visiting him, number one. And then my wife wanted to stay in somewhat nicer hotels, not in the lowest-cost hotels. Because there's not a lot of shopping in the Sacramento region, she wanted to go shopping. So I had a big miss in my planning.

Pat: Okay. Everyone sheds a tear for you, Scott.

Scott: Did that sound...?

Pat: No, it's fine. It's fine. It's fine. And I assume you have decent term-life insurance policies on you and your spouse, correct?

Matt: Yeah. I think we've got about $1,500,000 on me and I forget what we have on my wife, about a half a million.

Pat: Check, check, check. What a great job.

Scott: So we're gonna talk now with one of our partner advisors. So Allworth, we've got...what do we have? Roughly 100 financial advisors. I don't know, 90 to 100 financial advisors. Many have been with us for years. We've got a whole track that come out of college with a degree in finance or certified financial planning designation. They're on a career track working with other advisors on a support role and then eventually they've become an advisor. We've had some that have been...that's how they started with us, they've been with us 20-some years.

Pat: Yeah. Right outta college.

Scott: And then we've also grown by partnering with other quality firms, like-minded firms. We've grown quite a bit in the last number of years. And we partnered with a firm in Albuquerque, New Mexico, which has been great for us mainly because there's some really great advisors, and one of 'em has joined us today. Matt Keller. Matt, thanks for taking a little time to chat with us.

Matt Keller: My pleasure. Thank you, Scott. Thank you, Pat.

Scott: Matt, how many years you've been practicing as an advisor?

Matt Keller: I have been an advisor for nearly 21 years. I had a prior career before jumping into this industry.

Scott: And the office in Albuquerque, you guys have several hundred clients or whatnot, you help out?

Matt Keller: Yes. Over 200.

Scott: And what's the number one concern you and your team are hearing from your clients right now?

Matt Keller: From retirees, it is asking the question, if I'm gonna be able to make up the loss. And for people who are working, the number one concern is, is this gonna delay my ability to retire on the schedule that we've chartered for them?

Scott: And how are you answering those questions?

Matt Keller: Yeah, actually, we answer this in two ways, primarily anchoring around the retirement plan that we've built for the client and showing them that while this is a very painful year, this type of experience is something that we've accounted for. And that the plan shows that we're gonna get through this. And then moving them to historical events and the fact that we've endured some pretty tough situations in the past. I can recall 2008 we were down 37% for the year in the S&P, and the pandemic, as we all know, it was about a 35% drop in a six-week span. And I recall, you know, watching that month after we hit bottom on March 9th, 2009, seeing the S&P rally 25% in that next 30 days. And some called it a head fake, but only those who were invested were able to participate in that rise. And it turns out it wasn't a head fake.

Pat: You know...

Scott: You can tell by listening to Matt that we're like-minded, right?

Pat: Right. Which is, you know...

Scott: If you've been listening to the program for a while.

Pat: And a great partner firm. So I hear all the time, "History repeats itself." And I actually say to clients, "History doesn't repeat itself identically, everyone is different. Every decline in the market is different. Every rise in the market is different. But what we do is we look for patterns, right?" Because you're not gonna be able to get an identical scenario, but you can get something that has an 80% to 90% correlation in the pattern and the reaction in the marketplace. Fair enough?

Matt Keller: Yes. Absolutely.

Pat: So when the clients come in and they're like, "Ah, what, what, what?" You point back to the plan. But no financial plan could actually have a sequence of events in it that can be timed because they're unknown.

Scott: Well, if so, you wouldn't have a diversified portfolio. You'd have one asset class, and Matt would just move that one asset to wherever the thing was gonna be the best next.

Pat: That's right.

Scott: It's obviously not possible.

Pat: So are people delaying retirements? Are they lowering their income distributions from accounts?

Matt Keller: You know, we've explored it. In some cases, I think people are being conservative. But, you know, to your point about you can't predict or no plan can accurately, you know, predict history, I do point to a couple of examples for clients. I heard it said from a mentor of mine from long ago, he had heard this phrase that "Roller coasters and stock markets are alike in that the only time you get hurt is when you get off at the wrong time." And, you know, secondly, I remember, like, right after 2008, 2009, I attended a conference and they had a behavioral finance expert speak. A person, a consultant who worked with Fidelity and Schwab and some others. And I remember him saying that the part of our brain that processes, for instance, like, a bad investment statement as you're sitting there on your couch looking at it or looking online, is the same part of your brain that processes a physical threat. And he likened it to someone throwing a rattlesnake on your lap, you know, when you're looking at your investment statement. And that our goal as an advisor is to move people outta that reptilian portion of their function, or brain function if you will, and go to a cerebral rational part of the brain that can reason and can process. And that we as humans do a lot better once we're, you know, shown that markets do come back and we can, you know, kind of get people off of their initial emotional natural reaction.

Scott: And it is. I mean, it is spot on. I mean, we are designed to avoid those things that are going to cause us pain or death, right?

Pat: So that's why we have a fight or...

Scott: Whether you believe that a creator created you that way or you evolved to that or whatever, right? Our natural response, our first response is to fly to safety. And it feels like when we own these investments, when they're falling, like, I need to find a safe place to hide.

Pat: So it's fight or flight, right? And flight means just I give up on everything, I'm leaving. And fight says, "I need to make some change in the portfolio in order to actually counteract this."

Scott: And, Matt, are you seeing many people feel like they need to do something? Like, "Matt, we gotta do something."

Matt Keller: I've had a few. And, you know, I'll first talk with folks just about, again, you know, seeing when we do finally come out of this, the oftentimes quick and rapid ascension in the markets when we do finally hit bottom. And that trying to, you know, park money into cash thinking that we'll put money back in later once things are, you know, "safe" you often miss out on the big increase. And I was asked by a teacher to speak at the high school my three kids graduated from, they, for the first year this year are offering a financial literacy class. And I did this on Monday, and that was an adventure. It was a great time. I spoke in front of two different sections of classes for about 75 minutes, went through a bunch of presentation slides.

And one of the students asked me, "What's the one thing that, you know, in your 20-plus years of doing this, if you could distill down the one thing that would really benefit this person as an investor, what would it be?" And I said, "Well, assuming a properly diversified portfolio, if you can just stay invested through thick and through thin, you're gonna get where you wanna go." But, you know, unfortunately, investors aren't able to do that or make the decision not to do that.

Scott: And it's interesting, Matt, is our...I shouldn't say our industry. Wall Street, let's just call the financiers Wall Street, for lack of a better term. In times like this, they tend to prey on people's fears and start creating products to raise capital, to sell them some new products that really are contrary to what you were just stating. Right? Like, it's different. Like, let's get your money out of this and we're gonna put it in this particular product. This is gonna be the solution. This alternative.

Pat: So inverse funds so that you can make more money when the market falls, you know, or highly leveraged inverse funds. I agree. By the way, that student that asked that question, keep track of them.

Matt Keller: You bet. They're all really smart, I'll tell you that.

Scott: Yeah. Maybe they'll be our next Allworth advisor if he goes through our career track.

Pat: Correct. Keep track of the... Someone that can ask that articulate of a question in high school, you're like, "He'll be fine."

Scott: And let me ask you this other question, Matt, in the last month, have you ever had a moment where you were thinking, "Why am I in this industry?"

Matt Keller: Oh boy. Actually, it's interesting. So, my son...I have three kids, my wife and I, and our middle child turned nine on March 8th, 2009. And the market as we, you know, now know, it bottomed out back then on March 9th of 2009.

Scott: But it didn't feel like a buying opportunity that day, did it?

Matt Keller: No way. And then that Saturday night when we went to bed, I remember the next morning we were gonna be taking him and some friends to this go-kart thing for a birthday party. And it was the first time in my life where because of financial, you know, reason I laid in bed and could not sleep the whole night. And just kept thinking, "Is this market ever gonna stop going down?" And sure enough, you know, a day or two later it did. And then like I said, it just started to roar back. So, short answer to your question, Scott, yes, I've had moments and it's painful for our clients and I know that. And we're just trying to work with them to get them through to the other side.

Scott: Yeah. And you used the word guidance earlier, and part of our just cause is providing straightforward retirement and financial guidance so people have a rich and meaningful life. And I'd like to talk about our team. And the guidance is both external factors like the markets as well as internal factors. Things happening in your life. But right now it's clearly one of those external factors. And I think that sometimes clients who work with a great advisor like yourself, Matt, like the value you provide is...sometimes the greatest value is keeping them from making mistakes from which they cannot recover. And you've been in it long enough, you probably have some people in your mind that didn't follow your advice during the financial downturn and maybe sold out on March 8th or whatever, and their lives were never the same financially.

Pat: And it's up. So, Matt, thank you to you and the whole team in Albuquerque for being part of the Allworth team. And...

Matt Keller: Absolutely.

Pat: ...we are proud to call you a partner.

Scott: Yeah.

Matt Keller: Thank you.

Scott: Very much so.

Matt Keller: This is great. I appreciate your time.

Scott: All right. Thank you, Matt. We've got such a great team of advisors. We really do. I mean, I guess we did pick 'em over the years.

Pat: We have been doing this for 30 years, Scott. So...

Scott: Hey, we're gonna take one more call before we wrap up today. Let's talk with Betty, California. Betty, you're with Allworth's "Money Matters."

Betty: Hi.

Scott: Hi Betty.

Betty: Hi, how are you?

Scott: We're wonderful. How are you?

Pat: What can we do for you, Betty?

Betty: I'm doing fine.

Scott: How can we help you?

Betty: Okay. So, I'm planning to get my social security next February. I'm 69 now and I have retired, but my husband is still working. So, my question is I heard that if I apply for social security benefits, my husband can get half of what I'm getting.

Scott: That's correct.

Betty: This is the first question.

Scott: Once a spouse applies for their social security, they're entitled to, assuming their other spouse has receiving benefits, either the greater of their own benefit or 50% of their spouse's benefit assuming that they filed at their normal life expectancy. If they file younger than that, then it's gonna be reduction from that. And if they defer beyond that date to push it toward age 70, it could be higher than 50% of the normal amount.

Pat: So, how old is your spouse?

Betty: 67.

Pat: Okay. And what's your question for us then?

Betty: Okay. So, first of all, I wanted to confirm that if I apply for my social security benefits my spouse can get half of what I'm getting. The second question is...

Scott: It's 50% of your full retirement benefit at your normal retirement age. Then adjust it for how old he was when he decided to start applying, because he's not gonna receive anything until he applies for benefits.

Betty: Okay. So, my question...

Scott: In other words, when you sign up, it's not gonna trigger his benefit automatically.

Betty: Okay, good. Okay. So my second question is, so when it is his turn to apply for social security benefits, will it affect his benefits because he getting half of what I'm getting? So when he apply his social security when he turns 70, he will get his...

Pat: Oh, see.

Betty: ...normal social security benefits...

Pat: Yes. Yes.

Betty: ...right? It will not affect him...

Pat: No, well...

Betty: ...because he's getting mine. So, he will get less of his full retirement.

Pat: No. Betty, excuse me. How much money will you receive a month under...you get that from them every year, it tells you what the estimated social security you would get at age 70. How much is that dollar amount for you?

Betty: So I check it this year. If I apply for social security benefits on next year when I turn 70, I'll be getting about 30 to 60 a month.

Pat: Your husband received that same statement. How much did his say he was going to get?

Betty: I don't know how much will he get when he turns 70.

Pat: Okay. Is your husband work full-time?

Betty: Yes.

Pat: And how much money does he earn?

Betty: He earn maybe about $45,000 a year.

Pat: Okay. And has he earned that much forever and ever? Long time?

Betty: I don't quite follow your question. What is there again?

Pat: Okay. Has he always earned about $45,000 a year?

Betty: Roughly. He would just get his pay raise regular every [crosstalk 00:24:53].

Scott: So if you apply at age 70, he waits till age 70, he will receive 50% of this 3260 or his own benefit, whichever's greater.

Betty: Okay.

Pat: That's how it works. Yeah. So, that's how it works, and hopefully, that was helpful. Thanks for calling.

Scott: Well, that's all the time we have in the program today. It's been great being with you. As always, if you wanna learn more about Allworth, go to allworthfinancial.com. We've got a great bunch of information there and guidance and whatnot.

Pat: And if you wanna join us by asking us a question, it's Monday, October 24th, between 10:30 a.m. and 12:30 p.m. Pacific. And just call (916) 473-5459 or go to questions@moneymatters.com and you can be part of the program.

Scott: Yep. We'll see you next week.

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.