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

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

Pat: I'm Pat McClain. Thanks for being with us.

Scott: Yeah. Glad you are part of our program, both myself, my co-host, both financial advisors, helping people throughout the week, broadcasting our podcast and radio program on the weekends, with the end goal of being your financial advisors on the air, and...

Pat: Or in person.

Scott: If they want.

Pat: Fair enough. If they want it.

Scott: And full transparency. We have an investment advisory firm, with a few hundred employees and thousands of clients, and, independent fiduciary advisory firm. And yes, we do care about [inaudible 00:01:13].

Pat: But nonetheless, we...

Scott: But hopefully, if you listen to this program, you'll find that we're not sitting there trying to promote our firm the whole time. We're just trying to...

Pat: Yes.

Scott: ...help people make good decisions.

Pat: In fact, we're gonna play a segment from a call a couple years ago, where someone called us and was receiving some advice that we considered harmful to them, and to the community at large. And...

Scott: We'll tell you where it all went.

Pat: And we will share with you how it ended up for this particular advisor. And quite frankly, I was glad that the outcome was the way it was, so no more damage can be done.

Scott: Yeah. And we have an interesting business we're in. As Pat McClain likes to say, if we were the food industry, we'd all be dead.

Pat: It is a terribly...

Scott: I mean, there's a lot of...there's some really great advisors out there.

Pat: And there's really great products, including, by the way, some annuities. Some annuities.

Scott: Sometimes.

Pat: Sometimes.

Scott: The world might be better if they were never created, because they're so misused and mis-sold.

Pat: That is correct. And the difference is they're sold.

Scott: Yep. Anyway, we will hear from that later. And we'd love to take your calls. We'll take some calls today. If you'd like to join our program, you can be part of it. 833-99-WORTH is the number. Again, that's 833-99-WORTH. And before we get to the calls, if you are within two years of retirement, and you have a pension from your employer that can be converted to a lump sum, and you're thinking about taking a lump sum, you might wanna consider retiring now.

Pat: This year?

Scott: This year. Maybe this month.

Pat: Maybe this month, depending upon how your...

Scott: Depending on your employer.

Pat: ...your employer structures their pension.

Scott: So, and if this doesn't apply to you, our apologies, but it's a really... You could see a 30% decline in the value of your retirement dollars between now and next January.

Pat: Lump sum.

Scott: Correct.

Pat: Not the monthly pension, but the lump sum.

Scott: And the reason is, interest rates have risen dramatically this year. So, Pat and I, when we started in this industry, 30 years ago, we did a lot of work with Pacific Bell retirees at the time.

Pat: Which then became AT&T.

Scott: Was AT&T, then spun it off...

Pat: Then it's Southwestern Bell, and then it went to...

Scott: Whatever.

Pat: ...AT&T, and back again, and then again.

Scott: And again. And AT&T is actually SBC, that took the AT&T brand after they bought AT&T. But that's another story. In any case, they had these windows of time for people to retire. They came out with a lump sum of the pension for the first time. But it was dependent upon where the interest rates were. And whether you were a salaried employee or one represented by the union, hourly employee, there were different rules that they had to follow, based upon, one was on an annual basis, the other was on a quarterly basis. And as interest rates changed, the value of one's lump sum pension would change. Maybe 15, 20 grand up one quarter, 15, 20 grand down the following quarter. And we became experts at really figuring out the net present value and the current situation, and helping people figure out, should you retire on July 31st? I'm sorry, June 30th, or July 1st, those sort of things, right?

Because it can make a difference, $20,000, $30,000 sometimes. Well, we're seeing this played out in the most dramatic fashion right now, because interest rates were almost at zero, and they've risen dramatically this year. And a lot of companies will use an annual rate, which is the first date of your retirement. Many cases, they will use the first date of your retirement. So, if you're going to retire this year, then you want to be off payroll by the 30th of December. And there was an article in one of the, maybe it was "The Wall Street Journal," recently. They highlighted a woman, 60-year-old... I'm sorry, a Mr. Actually, I don't know what they choose to identify as. Sixty-year-old gentleman, worked at Ford, and his lump sum pension, currently valued at a million dollars, would drop to $700,000 if he waited till after December 1st.

So, on Ford, apparently, according to this article, December 1st was the cutoff date for using the new interest rate.

Pat: And so, what happens is there's an internal calculation that takes place with these pensions. And the internal calculation is based on some interest rate. So, some use the PBGC rate, some might use the treasury, some might use a different interest rate.

Scott: IRS first-tier segment...

Pat: The lower the interest rate, the higher the lump sum. Think about it. What they're trying to do is figure out actuarially, based upon someone's life expectancy and an assumed rate of return, how much money they need to put aside in that person's name.

Scott: As an example, let's say there's a 60-year-old individual. Let's just assume a life expectancy is 30 years. Let's assume the payment's $10,000 a year, and interest rates are zero. We assume we earn nothing on it. It's pretty simple. It's $10,000 a year, times 30, it's $300,000, the value of the lump sum. Now, if we can start assuming we can earn something on some net present on some money today, that 300,000 starts to drop.

Pat: So, if they say 5%, the lump sum...

Scott: Maybe you only need $180,000 to generate $10,000 a year for the next 30 years.

Pat: So, the lower the interest rate, the higher the lump sum. And because there's direction as to where interest rates are, and where they were, based upon whether they're using the quarterly rate, semi-annual, or annual rate, if you have a pension lump sum, quite frankly, and you'd think that you were gonna work two more years, or three more years, you may be better off leaving now and taking the lump sum. And, by the way, taking advantage of what we believe to be a down...

Scott: A good buying opportunity as well.

Pat: We believe that.

Scott: Well, it's clearly better today to invest than it was six months ago.

Pat: That's correct.

Scott: Eight months ago.

Pat: Yeah. Even the yields on the lump sum that you're taking out, even if you were to buy bonds with it, you might be able to actually...

Scott: I would bet in today's environment, for most people, unless you're really old, you could take a lump sum, buy treasuries, and get a similar payout, and have your lump sum to boot. I remember that happened during the '90s. Remember I had a client, didn't want any risk. Fine. We used 20-year treasuries. Still had his lump sum.

Pat: Yep. And that way, what happens if you pass away, then there is something to go on to your heirs. Interesting.

Scott: So, look. If you were getting, nearing retirement, and you're thinking about taking a lump sum, look into the stuff now. Because odds are by the end of next year, by the end of this year, in some companies, by the end of this next month...

Pat: That that option will no longer exist.

Scott: Yep. So, all right. Let's take some calls here. Starting off with Mike in Georgia. Mike, you're with Allworth's "Money Matters."

Mike: Hi there.

Scott: Hi, Mike. What can we do for you?

Mike: So, my situation, I'm 61. And I see, in retrospect, I've been pretty conservative with my allocations. And part of it is in an annuity. I know now that those aren't always the best option. That's what I chose. And then part of it's in equities and real estate and whatnot. And so, right now, I'm at $620,000 in my savings. And I'm a little concerned about how the future looks with who knows what taxes and inflation and social security and all that are gonna do. So, I'm planning to put some more into another account, a 403(b), and I'm wondering, in a situation like that, where I like my job, I'll probably go till 70, so, a little time on my horizon. Do I continue my conservative stance with how these are invested? Or do I get all wild and go all equities? Or what would you say?

Scott: There might be somewhere in the middle there, Mike.

Pat: So, let's dig into this 403(b). The annuity, is it offered, is it a 403(b) or a 403(b)(7) that's offered through your employer? Is that where the annuity is that you have now?

Mike: Yeah, it's through the employer.

Pat: And is it fixed, or is it a variable, where you have investment choices internally?

Mike: I don't believe I do, but I haven't asked that question.

Pat: And do they give you multiple in annuities or investment choices? So, here's the...

Scott: It's the strangest thing the way school districts work.

Pat: Yeah. It's either a school district or a non-profit of some sort, would be our guess. Right?

Mike: Yeah, that's right.

Pat: So, oftentimes they have many, many slots available in their...

Scott: Is it a non-profit or a school district?

Mike: It's a college.

Pat: College. Okay, okay. So, they have many, many slots that are available in those. And some might be, like, Vanguard, or Fidelity, or Charles Schwab, or an annuity company. Annuities have two different types of annuities. They have 403(b)s, which are typically fixed annuities, and 403(b)(7)s, which are, you can get a little bit more variable in there, which means you can get more equity. You may not have a surrender charge on your fixed annuity, and that's the... On your annuity. So, the first thing I would check is, do I have a surrender charge on my annuity, and what is the cost associated with that annuity? And by the way, because you're 61 years of age, there's a good chance that you can move all that money away from...

Scott: [inaudible 00:11:55]

Pat: ...your employer, into an IRA, and build any portfolio you want, without any of the restrictions associated with what your employer puts on this plan.

Scott: Because you're over 59 and a half.

Pat: Because you're 59 and a half or older. So, we'll just start with that premise, that you've got free reign to invest the existing dollars any way you want, and then we'll take a direction on the new dollars.

Scott: Now, if your plan is to work, at least the plan, is to work till age 70, right, nine more years, at age 70, when you retire, my guess is you're not gonna spend your entire life savings the first year of your retirement. Right?

Mike: Right.

Scott: You'll structure it in some way that it can provide an income designed to last you to your dying day, and maybe having some left over for estate planning purposes thereafter. That right? So, your time horizon is not nine years.

Pat: It's probably 25. Right?

Scott: You're 61. Are you married?

Mike: Yeah.

Scott: Okay.

Pat: Then it's even longer.

Scott: Yeah. Because joint life expectancies are longer, assuming everyone is in good health today.

Pat: So, tell us about the rest of your financial situation. Your house? Paid for? Will you be eligible for social security? What else is going on? And will you be receiving a defined benefit pension from your employer when you retire?

Mike: The house is almost paid for. Early 2024, it'll be paid for.

Pat: Awesome.

Mike: Yeah, I'll get social security, and when I look at my monthly expenses, I should be able to meet those just fine, using the projections that my, I don't wanna say their name, but my savings person has organized. That...my expenses are about $9,000 a month, and between my current savings, the social security, and my wife's retirement, we'll be right at that number, 9,700, give or take. So, we meet those. They just...

Scott: Okay. And what percentage, ballpark, would you guess of the $620,000, what percentage are in equity stocks?

Mike: It's 44.

Scott: Forty-four percent?

Mike: Yeah.

Pat: Oh, you're not that... You're okay. You're all right.

Mike: Okay.

Scott: You're not that conservative.

Pat: You're not that conservative. You're okay.

Mike: Okay.

Pat: So, how did you react in the last market downturn at the beginning of the lockdowns?

Mike: I was a little worried, but I thought, "Well, things will get better."

Scott: Okay.

Mike: [inaudible 00:14:45].

Scott: Do you still feel the same way?

Mike: [inaudible 00:14:46] rock? Well, yeah. Give or take what Russia is doing.

Pat: Yeah. Well,

Scott: And China. Or, or, or. They're just different problems.

Pat: I think you could easily move this portfolio up to 60%.

Scott: Yeah, I would agree.

Pat: Easily. And you probably won't even notice it.

Scott: Now would be a great time.

Pat: Now would be a great time.

Scott: But it might be a better time two months from now, but nobody knows.

Pat: But I would go back to your... Look, even if there are annuity salespeople at the school that you're actually purchasing this through, my guess is they have access to lower-cost, fee-based asset management programs that may make more sense for you.

Scott: Rather than an insurance contract.

Pat: Rather than an insurance contract. And you might have to use the insurance contract for new deposits, but there's nothing that's stopping you from...

Scott: And I would put the new deposits a hundred percent in stocks.

Pat: A hundred percent. But I...

Scott: Because you're not gonna pay... It's a small balance. You're not gonna pay that much attention.

Pat: So, we often use the CoC if you're my dad or my brother. Now we're saying, if you are my son or my daughter...

Scott: [crosstalk 00:15:48] grandson.

Pat: You are my great, great-grandson. I've been doing this radio show for 80 years. If you were my brother, I'd say, "Okay, what we're gonna do is we're gonna take this bulk of the $600,000, we're gonna put it into an IRA, and then we're gonna manage it, and we're gonna run it through a screen on a weekly basis, to make sure that we're within tolerance, which is a 60-40, or 65-35, or whatever the number is. And because there's no transaction cost or tax friction in that portfolio, you can rebalance it and make sure that it's appropriate. And it's hard to believe that I can actually even have this conversation. Whereas 20 years ago, we'd be saying, you're gonna just buy it, buy these things, and you're not gonna move around a lot because of the cost associated with actually buying and selling. But those have all gone, The cost of...

Scott: That's right.

Pat: ...investing has come down considerably. There's no reason in the world that you should continue to use the products you're using. My guess is you could probably cut 50 basis points or a half a percent off the cost associated with your portfolio. That all goes back to you. And, by the way, my belief is it would be better managed in that. And whether you wanna find a new advisor or ask your existing advisor to do exactly that, the line between financial planners, insurance salespeople, annuity salespeople, people that are providing 403(b)s in the schools...

Scott: They all call themselves the same. Well, I'm wealth manager.

Pat: It's all...

Scott: Financial advisor.

Pat: We all, if we choose to, have access to very, very similar platforms.

Mike: Mm-hmm. Okay.

Scott: All right.

Pat: Alrighty?

Mike: Thank you.

Scott: Yeah. Good luck, man. Appreciate the call.

Pat: And Mike...

Scott: And hopefully, but people have different business practices, different philosophies. We believe in fee-based advice. Get rid of the commission product sales.

Pat: Yeah, yeah. We try to align ourselves... And holistic financial planning, not just about that.

Scott: I had breakfast with a friend of mine this week, and he says, "How are things going?" And he said, "Oh, how's work going?" I said, "Oh, it's rough right now." He goes, "Oh, a lot of clients calling?" I said, "No, that's actually not..." I said, "The reality is, we have a large organization. Our revenues are tied to the assets we manage. When things go down..." And he said this, he's like, we're talking about it. He said, "Well, that must be really difficult." I said, "It's what I love about the business." He says, "What do you mean?" He says, "The way we're designed, we do well when our clients do well. And when our clients suffer, we suffer along with them. We are fully aligned."

Pat: Yeah. It is fully aligned.

Scott: It is fully aligned. And I think, really, that's a preferable way to have a relationship with an advisor. You don't have to ever worry about are they making this recommendation because it's in my best interest or in their best interest? Let's continue on here. We're in Ohio with Melanie. Hi, Melanie. You're with Allworth's "Money Matters."

Melanie: Hi, guys.

Scott: Hi, Melanie.

Melanie: Appreciate your time. I recently inherited a small sum of money, a little over a hundred grand. I'm 60 years old.

Scott: Was this from a parent, or an aunt and uncle, or?

Melanie: I lost both my parents, unfortunately.

Scott: Oh, I'm sorry. Okay.

Melanie: And I'm on track to have my mortgage paid off by the time I retire in seven years. My interest rate's only 2.37%, so, extremely low. I don't know how to put the inheritance money to work for me. The best way, at this point, I think, continuing to keep my mortgage and pay that off offers some tax advantages as far as write-offs. But I'm just not sure what direction I should go.

Pat: Are you employed?

Melanie: Yes.

Pat: And are you married?

Melanie: No.

Pat: And how much do you make?

Melanie: A little over $90,000 a year.

Pat: And are you putting the maximum into your 401(k)?

Melanie: Not the maximum. I plan to, now. I have a 403(b) through my employer, and I think my contribution at this point is 15%.

Scott: And how much do you have in retirement savings?

Melanie: I think my balance is down to about $70,000.

Pat: And you'll be eligible for social security when you retire?

Melanie: Yes.

Pat: Do you owe anyone else in the world money?

Melanie: No.

Pat: And do you have any money other than this 403(b) money?

Melanie: Yeah. I have a cushion in savings, and I've got... Well, I did a cash-out refinance a year ago. And so, I have that money... Well, I have the cash-out refinance money set aside in a money market, to pay for some of the repairs and upgrades to my home that I'd like to do. And the inheritance money is also sitting in the money market for now.

Scott: How much is the cash-out refi?

Melanie: Fifty-five thousand.

Scott: And the plan is to use that to do upgrades on the house?

Melanie: Yeah.

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

Scott: It's all one loan, right? You just did a refinance, pulled some cash out?

Melanie: Oh, no. The actual refinance amount was... I think my balance is $106,000.

Pat: Okay. So, you have seven years to pay off the first mortgage, and then you have $55,000 on top of it. Is that what I heard?

Melanie: No. No. I have a single mortgage. It's a 15-year mortgage.

Pat: Okay. Thank you. Thank you. Oh, thank you. Got it. Thank you. Thank you.

Melanie: I'm doubling up on payment, so I'll have that paid off within seven years.

Scott: I like the concept. I don't think you're getting a tax write-off for two reasons, though. One is, you can't take cash out of a house to use for remodel and still get the tax deduction. That changed a few years ago.

Melanie: I'm sorry?

Pat: There's limits on that, though. What's the limit?

Scott: The home equity line...it used to be a hundred grand, but they got rid of it.

Pat: That's right.

Melanie: This is not a home equity line of credit.

Scott: I understand that.

Pat: It's a refinance.

Scott: But you can't pull...

Melanie: It's a refinance.

Pat: Understand, understand. It's all...

Scott: But regardless, my guess is your standard deduction is greater than your itemized deduction. Because standard deduction is, like, 12 grand.

Melanie: It hasn't been greater, the last several years I itemized.

Scott: Okay. Well, there's a good chance that part of that mortgage is not tax deductible.

Pat: You can itemize, but you could be barely over the standard deduction as well.

Melanie: Right, right. I understand that. And I'm not sure where I'm gonna be this year as a result.

Scott: Okay. Regardless, I like the concept of you keeping the mortgage and paying it off till the time you retire. One, you've got a low interest rate. Two, you've got a plan in place, you're doing it out of your current cash flow. Frankly, a concern would be that if you paid that off, you'd have more cash flow coming in the checkbook, and your standard of living could actually start creeping up in the last decade before you retire, which could make retirement even more challenging. So...

Melanie: I'm trying really hard not to do that.

Scott: I know [crosstalk 00:23:09]. That's wise. I like the concept of, over the next couple years, putting the maximum you can into your 403(b), which, next year's, like, 20...

Pat: [crosstalk 00:23:25] increasing.

Scott: ...28 grand. So, put as much as you can there, even if it means drawing down on the savings a bit. And then, the rest, really invest in it for retirement down the road.

Pat: Yeah. So, I agree with Scott a hundred percent, which is, what I would do is maximize the 403(b) to the maximum, and you're like, "Well, I won't have enough to live on." Figure out the after-tax difference, put that $100,000 into a high-yield savings account or money market, or even treasuries, and just have that supplement your income on a monthly basis.

Melanie: Okay. The hundred thousand is in a money market currently.

Pat: Okay. So, if you...

Melanie: I'm sorry, go ahead.

Pat: So, if you move your maximum in your 403(b), you're gonna turn around and say, "I don't have enough money to live on." Would be my guess. And what we're saying is use that money from the money market to supplement, and that way, you're moving money into the market slowly on a tax-advantaged basis.

Melanie: Okay. Okay. So, you don't think it makes sense for me to put any into a Roth IRA at this point?

Scott: I would not, because you're at a pretty high tax deduction.

Melanie: Okay.

Pat: Yeah.

Scott: And odds are you're gonna be in a lower tax rate at retirement, because you're making $90,000 a year right now.

Melanie: Right.

Scott: So, do it pretax.

Melanie: Okay. That was my thinking. But someone else had advised me to go the Roth IRA route, and I thought, "Well, I don't know if that makes sense," but...

Pat: What was the reasoning behind...

Melanie: ...I don't know everything, so [crosstalk 00:25:02].

Scott: Well, it's tax-free in the future if you don't, but I would use the traditional if I were in your situation.

Melanie: Okay.

Scott: And, by the way, home equity loans, as long as it's used for improvements on the home, it's deductible. You just can't do it to buy a new car or whatever, like you used to be able to. That was the change, though.

Melanie: Yeah. This isn't home equity.

Scott: I understand.

Pat: I understand. But there, but in a sense, it all gets to the same place.

Scott: Yeah. So, hopefully...

Pat: But you're fine. So, I would just do that. Just lower... put the maximum in 403(b), and then make up the difference for the after-tax, not the pretax. The after-tax difference in your paycheck out of that money.

Scott: Yeah. Only that amount. Save the rest.

Pat: Save the rest.

Scott: Don't take it out. Anyway, appreciate the call, Melanie. Hope that was helpful. We're taking a quick break. We'll come back, take some more 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: And Pat McClain.

Scott: Okay, let's give a little...

Pat: Do a little background on this.

Scott: Yes.

Pat: So, Scott Hanson and myself have worked together for almost 30 years. And prior to...

Scott: Actually, I'd argue longer than, that because we were at a different firm and we worked together.

Pat: Okay. Fair enough. So, prior to us being Allworth, we were Hanson McClain, and we have a fairly decent size presence in the Sacramento area, which is where we started the business.

Scott: And we've done a radio program since 1995.

Pat: So, we have visited with lots and lots of clients over the years in Northern California. We have offices in many states now, but at the time, when we started, it was just in Sacramento.

Scott: And every once in a while, there's someone in the region who defrauds investors.

Pat: Yeah. And we see the outcome of that, because we've seen firms come and go, where they....

Scott: So, I remember one, it was a gentleman who, if you just looked up the background on him, he owed the IRS $400,000. And then he was touting that he did these uncommon investments that weren't correlated to the stock market.

Pat: Yes.

Scott: He's finally, he's gone. There was my neighbor, that lived down the street for me when my kids were little. He's in federal prison now. Maybe state prison. Whatever. He's, like, 20 years sentenced to prison for bilking seniors. And if you went and looked to see his regulatory background, you would've seen that he had had some complaints, and then dropped his licenses altogether. So, he wasn't even licensed with anybody when he was...

Pat: And how do you check the background?

Scott: There's a...it's called BrokerCheck. If you just google BrokerCheck, you could put in the name of an individual, put a name of the firm in. It gives you background of that individual, how many years they've been in the industry, gives you background on the firm, and what issues might there be. Have there been a lot of customer complaints? Have there been lawsuits? How have those turned out? Has any of the regulatory bodies come down on these people?

Pat: Yeah. And it's not unusual to see someone that's been in the business for 20 or 30 years to have one complaint, or two complaints. It's not unusual at all.

Scott: Yeah.

Pat: That's just life.

Scott: And I don't know if the medical profession has the same sort of thing, but just like there's quack doctors out there, is bad advisors too. But it's pretty simple. This, what's called FINRA, the Financial Industry Regulatory Authority, along with the SEC, maintains these broker checks. And so, just google BrokerCheck, and it'll pull you right up there, and you can enter someone's information.

Pat: And so, we're gonna play a call for you that took place...I don't know when this took place. Years ago. Years ago. And in this call, fair warning, I get a little mad, because we had had people coming in our office with investments that were non-liquid, weren't pricing...

Scott: But what we saw often...

Pat: ...couldn't get out of...

Scott: ...often with this person, this, well, Springer Financial Advisors, and Keith Springer, people would go to see him because he would tout himself as a fiduciary. And then he would sell them an insurance product, a fixed annuity, with sometimes 15-year surrender charges. I'll never forget a retired physician came in to see us. He had 11 annuities, his entire life savings, about three million bucks, in 11 different annuities, with two different companies, all sold by the same individual.

Pat: And many of them were index annuities. And, again...

Scott: Long-term.

Pat: Again...

Scott: Long, long high commission...

Pat: Again, there is, at times, very rarely, but at times, there are places that annuities make sense in someone's portfolio, but... Anyway. So, we're gonna play this tape, and then we're gonna come back and actually tell you what happened to this gentleman.

Scott: I'm not sure it's a tape. Although we've been doing it long enough, I do remember when they would splice the tape together.

Pat: It might be.

Scott: Then they had the eight-track-looking things for years.

Pat: It might be tape. But we're gonna play this to you and then we're gonna tell you what the Securities and Exchange Commission, how they rolled on this particular gentleman's...

Scott: Yeah. So, this is a call from one of our earlier radio programs.

Sarah: I have some money that is invested with some advisors, and because I wasn't comfortable with what they were doing, I had the money, the stocks or whatever it was, sold and put into cash. And I was told there would be no fees on the cash in my account. Well, I got a statement recently that showed that there was a fee charged for, I guess, for management or something.

Pat: How big is the account?

Sarah: It's $300,000 in this...

Pat: And what was the fee?

Sarah: It was $1,400.

Pat: Holy smokes. Okay. So, they are continuing to charge you a management fee on these dollars, even though they are sitting in cash.

Scott: $1400 for what period of time?

Pat: Was it three months?

Sarah: It was for three months.

Scott: Wow. That...

Pat: Listen, not only should they not be charging you a fee, even if they were fully invested, that fee...

Scott: Is high.

Pat: ...is high.

Scott: So, if you call them and said, "Look, you shouldn't be charging me this fee. I've been in cash." They should reverse that.

Pat: And you should get that money out of there.

Sarah: I did actually call them, because I had called... The money is money that I received from a life insurance policy. So, it's a real emotional tie to the money. I don't know what [inaudible 00:32:09] to do with the money as of yet. So I just wanted the money someplace where the principal would be secure. And that's what I explained to them going in. And they had some changes in their employees. And so, I turned it to cash, is what I had done. I talked to the gentleman that owns the company, I guess, and he told me that he can't reverse the...

Scott: He's lying. He's a liar.

Pat: That's law. Come on. Get the... That's wrong. That's wrong.

Sarah: He said he has to charge me a fee.

Pat: No, he doesn't have to.

Sarah: Oh, okay.

Pat: Just flat out, Sarah. He doesn't have to. He can charge you off a fee?

Scott: You're welcome to mention the name, by the way.

Pat: Yeah. Say the name.

Sarah: It's Keith Springer.

Pat: Oh, gosh darn it. Listen, [inaudible 00:32:57].

Sarah: Everything...

Pat: This guy. This guy.

Sarah: ...was they took part of the money and put it into an annuity and...

Pat: He's [inaudible 00:33:09]

Sarah: ...and they told me after 10 years that it would double its money, and I would be able to cash it out.

Pat: Sarah, come and see us. Come and see us.

Scott: We're not gonna charge you anything.

Pat: We're not gonna charge you a dime.

Sarah did come and see us, and...

Scott: By the way, we did not know who she was talking about, and when she brought up the name, you were ticked because this wasn't the first time you saw this.

Pat: We had seen it at least a half dozen times, where people had come into our office after the damage was done, and asking us how to repair this. And, quite frankly, after this, we aired this at the time, god, this has gotta be eight or nine years ago. But we aired it at the time, and we received a letter from Springer Financial's attorney, saying that they didn't appreciate us...

Scott: Cease and desist, [crosstalk 00:33:57]

Pat: Well, they threatened a cease and desist. They never went to court with it. So, because I am Irish, I called him, and wanted to see exactly how he was going to justify this sort of behavior for this lady, who, by the way, her son had died in a motorcycle accident, and these were the proceeds of a life insurance policy. Young...

Scott: Was it an accident, or was it military service?

Pat: He had been in the military, but he didn't die in the military. He died when he was at home. And so, Keith Springer, I called him, and we talked. And I said, "What you're doing is just, it's flat-out wrong." And he said, "Well, explain it to me." And I said, "Would you invest your mother's money like this?" And he did not answer me. He didn't answer me. And so, this was a person... And here's what the sad thing about it was, is anyone that had invested money with them, if they had done a little bit of research and gone to BrokerCheck...

Scott: They would've seen he had a bad background.

Pat: Yeah. At one point in time, he lost his privileges. I believe it was with the New York Stock Exchange...

Scott: For two and a half years.

Pat: For two and a half years, which is not an easy thing to do. So, this goes on and on, and he is around the Sacramento area. And then finally...

Scott: And the hard thing is... So, he was securities licensed. There's different regulatory bodies in our industry. So, if you're licensed to sell securities, you register through what's called FINRA. But if you're not licensed to sell securities, you just wanna act on a... Just wanna be an advisor... This is how crazy this... When they start speaking, it sounds crazy. Then you're registered by the Securities and Exchange Commission. So, what he did, he says, "I know, I'm gonna drop my securities license, so I don't have to worry about those regulatory, like the NYSE," which merged with FINRA. "I don't have to worry about them on my back anymore. And the Securities and Exchange Commission, they're so busy, they're not even gonna pay attention. Because I'm not gonna sell securities. I'm going to advise on some money I manage, and then I'm gonna sell insurance, fixed insurance products, that are not securities, that I only need a California insurance license."

Pat: And that's what he did. So...

Scott: So, no one was really overseeing... If the Securities and Exchange Commission...he was essentially saying he's an advisor, and he only has to report on his advisory business, and the California Department of Insurance, I've never seen them come down on anybody. So, I don't know what they do as far as regulatory enforcement.

Pat: Well, I have seen them come down on people.

Scott: All right.

Pat: So, they...

Scott: Unfortunately, it usually takes years.

Pat: It's not an easy process. So, in December of 2019, the Securities Exchange Commission acted. And...

Scott: Which was a pretty big deal, because not that often did they make an in-public enforcement like this on somebody.

Pat: Yeah. So, on December 19th of 2019, they basically shut him down, and said, "Look, you're under investigation. We believe you have done some very bad things by holding yourself out as a fiduciary and then selling commissioned products, which is engaging in deceptive practices while soliciting new clients, including falsely claiming they did not receive any incentives to recommend particular investments, when in fact they had received compensation for recommending certain products." They breached their fiduciary duty by failing to disclose these arraignments and the conflicts of interest. So, he is now, as of October 14th, 2022, no longer in the industry. He's been barred from the industry, and he agreed of settlements of $400,000 in penalties. Now, this is not...

Scott: I don't know what litigation he's got against him.

Pat: But there will be a slew of litigation from clients to follow. But the saddest part about it is, we would see people after the fact. And just go to BrokerCheck and do some background check on...

Scott: Before you hand someone your life savings.

Pat: Before you hand...

Scott: Or an inheritance.

Pat: Yes. Or even financial advice. And by the way, I've been doing this a long time. Fortunately, what's called my U4 is clean.

Scott: I believe mine is.

Pat: Mine is.

Scott: Last I looked, there was nothing on it.

Pat: But I have a number...

Scott: I would be... I mean, odds are I should have a couple...

Pat: Yeah. Which is...

Scott: Not every customer is a hundred percent happy.

Pat: ...someone just gets mad at you for some reason, and it's easy to file a complaint. Doesn't mean that it was settled or anything was ever come to... But we disclose all complaints that are justified. So, the point behind this is...

Scott: Whether they're justified or not, you disclose the complaint.

Pat: That's right. Yeah, but it's not...you don't have to disclose, like, my check was late. Like, oh, my distribution arrived three days late. Would that be a complaint?

Scott: I never got my dividend.

Pat: Yes. That's not...

Scott: All right, fine. So, there are a couple takeaways of this. From Pat's point, when you're hiring an advisor, use someone who's a fiduciary. They work within a registered investment advisory firm. They have a legal obligation to put your interest above their own. Legal obligation. If not, the Securities and Exchange Commission will come down [crosstalk 00:39:27]

Pat: But he was a fiduciary, but he was then selling commissioned products under the guise of being a fiduciary.

Scott: That's right.

Pat: Right? Any time a product has a surrender charge, like an annuity or a life insurance policy...

Scott: Or non-traded real estate investment trusts.

Pat: Question it.

Scott: And ask, "Are you receiving any commission on this?"

Pat: But before you do that, just check their background. Go to their BrokerCheck.

Scott: Yeah. Because this one, you would've seen he was...

Pat: Yeah, you would've never... In fact, someone was in an office with one of our advisors and said they were gonna go visit Keith Springer. And I said to the advisor, "What did you do?" He said, "No. I just went over to the computer, I pulled up their record and showed it to him."

Scott: Have fun. This was before all this, right?

Pat: This was before this. Because he had four major marks on his, what they call U4. So, just be careful. But this was a good outcome, that, finally, it was a good outcome that he is no longer in the industry and barred from the industry for good.

Scott: Yeah. Yes. I's just... And second takeaway on this, Pat, by the way. When there's some sort of tragedy or major change in your life, and you've got some new money, take time before you do anything with it.

Pat: There's no hurry.

Scott: So, oftentimes, when someone's widowed, we will try to do as little as possible for the first six months to a year. Literally. As little as possible. Because your world is so turned upside down and so foggy, it's hard for you to see clearly. And your own future is now in question, because you'd built this life upon something, whether it's a spouse or a child, they're suddenly gone, and you're trying to envision your own future, which is not clear at this time.

Pat: Yes. You might not even see any future for yourself.

Scott: So, it's best just to sit and take some time. Look, if money's sitting in cash somewhere...I don't mean cash, cash, but in, like, a savings account or a money market account, if it's sitting there, and the stock market rallies and you miss out, so what? So what? Like, just give yourself a chance to grieve, to get some clarity, to start having a, see a path for your own future forward. Then you could start making some financial decisions.

Pat: Yes.

Scott: And definitely do not buy an annuity within days, weeks, months of a loved one passing away. Like this situation. I mean...

Pat: Well, we knew what the ultimate outcome would be for this guy.

Scott: We did.

Pat: We did.

Scott: Well, but there's others, around there, similar.

Pat: Oh, yeah.

Scott: Do your background, BrokerCheck. Google BrokerCheck. All right. Well, that, now I'm a little depressed.

Pat: It had a good outcome. And I met with that lady, with another advisor. The first time she came in, I met with her, and I apologized.

Scott: For our industry.

Pat: For our...yes. That she had to go through that.

Scott: All right. Well let's go back to the calls here. We're in California, talking with Carla. Carla, you're with Allworth's "Money Matters."

Carla: Hi, Scott and Pat.

Scott: Hi, Carla.

Carla: I always enjoy listening to you.

Pat: Well, thank you.

Scott: Thank you. We do as well.

Pat: No, we don't. No, we don't.

Carla: I know.

Scott: I'm sorry. What can we do for you, Carla?

Carla: Well, I'd just like some information on how my income affects my Medicare Part B premium.

Scott: All right.

Carla: And, just, my background. I'm 79, a widow, and retired. I have no debt, and my home is paid off. My income is $8,100 per month, from two pensions and social security. And they all have COLAs. And that's more than enough to maintain my standard of living. I always have some left over.

Scott: Okay.

Carla: I have my investments with Vanguard. I have a traditional IRA, that's currently $400,000, all in bond funds. And my trust brokerage account is about $1,066,000 in stock ETFs. Also have a Vanguard annuity at $445,000.

Pat: So, on the trust brokerage account, before we get on to the annuities...

Carla: Yeah. Okay.

Pat: On the trust brokerage account, how is that allocated?

Carla: So...

Pat: Stock versus bond? So, you said mutual funds and ETFs.

Carla: I've got an FTSE All-World ex-US. I've got Total Stock Market, and Extended Market.

Pat: Okay. Okay. Good enough. And then tell me about...

Carla: And then a money market [crosstalk 00:44:37]

Pat: How much is in the money market?

Carla: $161,000. I've been not reinvesting my dividends and capital gains. I've been letting them roll into the money market.

Pat: Okay. And then, tell me about the annuity.

Carla: The annuity was a Vanguard annuity, and it got transitioned to Transamerica last year. It was my husband's annuity, which I assumed on his death. I'm not planning on taking periodic withdrawals from anything.

Pat: And what's the Transamerica value?

Carla: $445,000.

Pat: And is that all fixed?

Carla: It's variable.

Pat: So, you have stocks and bonds, both stocks and bonds in there.

Carla: Right, right.

Pat: And, is that a qualified annuity or non-qualified annuity? Is it inside of an IRA, a 403(b), or is it outside?

Carla: No, no. It's outside.

Scott: Okay. So, it's called a non-qualified annuity. Okay. And what's your...any other thing that we need to know about to help make this decision?

Carla: Well, I think that's all that you need to know about.

Pat: Okay. So, you have a question.

Carla: Just control my...

Scott: Yeah. So, and...

Carla: My Medicare part B premium.

Scott: And what happens is, this is essentially a way that the government has given you your benefits that you've contributed to, in one hand, and then taking them away in another hand. Right? So, if you're single, and your modified adjusted gross income, this is essentially the bottom page of your first page of your tax return, plus a little modification. So, your modified adjusted gross income, if you're single and it's $91,000 or less, you pay the standard premium. Well, if you're married, it's $182,000.

Carla: So, I was, like...

Scott: But if it goes above that...

Carla: ...$92,000 last year.

Scott: Yes. And so, you suddenly have to pay an additional $170.

Carla: Correct.

Scott: Right. And then it gets worse than that. If your income starts going even higher, it can get as high as you paying an additional $408 a month. Your income has to be about $500,000 at that point, but...

Carla: Yeah.

Scott: So, it can be quite substantial. And so, you're probably sitting there thinking, "How do I juggle my finances to keep my income below these thresholds?"

Carla: Right. And I have a couple ideas, so I wanna...

Scott: Okay. Share them with us.

Carla: ...get your opinion. Okay. So, for the last couple of years, I've been taking my entire RMD as a qualified charitable distribution. And that was a little over $23,300 this year.

Scott: And is that what your plan's gonna do going forward?

Carla: Yes.

Scott: And you feel good about the organizations you're contributing to?

Carla: I do.

Scott: Fantastic. I think that's great.

Carla: So, I'll continue that.

Pat: Okay.

Carla: Then I have a related question.

Scott: And that definitely helps you, because otherwise, someone said, "Well, you get a deduction anyway." But if you took that withdrawal, that would be reported on your tax return, it would be included in your modified adjusted gross income, and then you'd be able to take a deduction as an itemized deduction. But so, it would be detrimental to you in this situation. So, the way you're doing it's the right way.

Carla: Great. I also have a charitable remainder trust with UC Davis, and I'm considering a partial surrender.

Pat: What's in the CRT? Have you funded the CRT yet? I guess is the question.

Carla: Yeah. It's been going on since 1995. And we donated some stocks.

Pat: Okay. And you've been taking income from that?

Carla: Yes.

Pat: Okay. There you go. All right. And your idea is to waive that income and let them keep it this year? Is that what you're saying?

Carla: Right.

Pat: Okay. And how much income is that?

Carla: Well, this year it was $13,000.

Pat: I love that idea as well. Okay, keep going. You're hitting...

Carla: Okay. Okay. So, my [crosstalk 00:49:01].

Pat: Are you looking for work?

Scott: The question I've got, are you being penny-wise and pound-foolish? And I love your charitable intent here, and this might be the exact thing you should be doing, might be the right thing for you, but when we're looking at trying to save 170 bucks a month, like, is it...that's not that much...

Pat: But Scott, they funded this charitable remainder trust. When did you fund the charitable remainder trust?

Carla: In 1995.

Pat: That tells you a lot about who she is.

Scott: Life change. That's right.

Pat: Right? That was 27 years ago. You and your husband...

Carla: I hate to tell you how much it's paid out in total.

Pat: Understand.

Carla: [crosstalk 00:49:40] out $270,000.

Pat: And when you pass away, where will these dollars go? Where will your estate go when you pass away?

Carla: So, I've designated the IRA and the annuity, and half of the trust, to go to UC Davis, and the other half of the trust to go to the family.

Pat: And your home?

Carla: My home is in addition to...yeah.

Pat: Okay. So you...

Carla: It'll go...

Pat: There's obviously big charitable intent here.

Scott: Yeah. By the way, my kids are not getting the majority of my estate either, so...

Pat: And so, tell me... So, this $13,000, which is to waive the distribution, what else do you have on your calendar too? Are those the only two things?

Carla: I'm sorry, for income?

Pat: Yeah. Well, you said you had a couple ideas. Were these the two ideas, or do you have more?

Carla: Oh, so, those were the two ideas. Those are the two ideas. I'm gonna get... When the interest rates went down, I had some CDs, which I just converted to cash. And now I'm laddering back in, now that the rates are going back up.

Pat: And by the way, go between treasuries and CDs, you don't care the difference between the two.

Scott: We were talking about, we were kinda bashing annuities. You might actually be a good candidate for an annuity if your plan is to leave those dollars to a non-profit, because the taxation's fully forgiven.

Carla: That was my thought.

Scott: Let's say you have the total stock market index in an ETF. That's kicking off dividends that you don't even want. It's taxable to you.

Carla: Right, right.

Scott: If instead, that was inside of an annuity, most of the times, I would say that's foolish to do, because now you're earning what could be capital gain, and qualified dividend income, into ordinary income. If the plan is to leave it a hundred percent to non-profit, they pay no income taxes. That actually might be a preferable way to go.

Carla: To put the taxable income...

Scott: Well, you don't wanna sell anything and trigger tax liability on a capital gain by repositioning.

Carla: Right.

Scott: So, you might not even have a lot of options, because you probably have some built-in gains in some of those things.

Pat: But she's got $161,000 in cash. I like what you're doing, and...

Scott: I don't know if I'd really be... I don't know if I'm really recommending buying another annuity.

Pat: No. But look, they have a place in the marketplace, if they're used correctly. So, I think... By the way, this $161,000 in cash, I'm glad you said that you were going back in, and I would look at one-year treasuries, two-year treasuries. I wouldn't make a differentiation between bank CDs, and I'd just take the highest yield, whatever's available on that. And I think you're doing great. I gotta ask you a question, though. What did you and your husband do for a living, just outta curiosity? Were you engineers, professors, teachers?

Carla: My husband was a professor at UC Davis in the school of medicine. He was a surgeon. And I'm a nurse.

Pat: Okay. I did mention, were you doctors or professors and you were both. Your husband was both. You're...

Carla: I play with numbers, though.

Pat: Yeah. This is picture-perfect.

Scott: No, you're obviously good at what you're doing.

Pat: This is picture-perfect. This is picture-perfect. We can't help you. I can't. I like everything you did. I can't.

Carla: Well, I like hearing you say it.

Scott: Yeah.

Pat: Yeah. What a great job. And I trust your kids are well-versed in this stuff as well?

Scott: Your children?

Carla: My...

Scott: How much control do you have over your adult children?

Carla: I have stepchildren. I have stepchildren.

Pat: Oh, got it. What's that? How much you have...

Carla: They're all good.

Scott: If you asked me, "I'm assuming your kids are well-versed in it," and I'd say, "No. No, they're not. One is...one..."

Pat: Okay. Well, you've done a marvelous job, Carla. Marvelous job.

Scott: Yeah.

Carla: Thank you. Well, I do have fun with my Excel spreadsheet.

Pat: Okay. Good.

Carla: Which is almost as old as the charitable remainder trust.

Scott: There's some pretty cool financial planning software programs out there you might wanna take a look at. I don't know which ones are free and available to the broad public. But even if you paid a small fee for something, as much as you do planning, you'll probably yield some benefit from one of those out there. Yeah.

Pat: Great job. Great job.

Scott: Wish you well. Hey, we're out of time. It's been great being with you. Feel free to go to our website, allworthfinancial.com, and while you're there, we've got tons of different educational stuff, on a variety of different topics. So, if you're thinking about learning more on a particular topic, odds are you'll find a webinar of some sort, or an article or a white paper, because we have a lot of education there. We're big on education. And, by the way, if you are one of our podcast subscribers, we've hit over two million downloads. We're quite happy about that. I think Joe Rogan has a hundred million regular listeners, so we have a long way to go. But with two million downloads, it's pretty good. But would love for you to give us a review.

Pat: I'm gonna stop you right there. I could not do Joe Rogan's job. I've watched him a couple times.

Scott: Oh, my gosh.

Pat: First of all, half those people he talks to are...

Scott: Three hours?

Pat: ...just completely nut jobs. Anyway.

Scott: I would agree with that too. I don't listen to him very often. If I find that he's got a guest that I find really interesting, then I will. Because it's so long. He has a way to get people to open up on stuff they wouldn't otherwise.

Pat: He just bores them into submission.

Scott: Well, he has an uncanny ability to be interested in everything, which is why...thinking is...

Pat: Which is why I can't do a podcast that lasts more than an hour.

Scott: Its okay. Forget about him. But give us a review. Wherever you're getting your podcasts, if you wouldn't mind, just take a moment and give us a review. It helps us, and if you think this is good information, pass it along to a friend. And, if you're thinking maybe I should talk to an advisor or see what an advisor can do, reach out. We'd love to have a conversation with you, and see if we can be of any assistance. See you next week. This has been Scott Hanson and Pat McClain, with Allworth's "Money Matters."

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