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September 2, 2023 - Money Matters Podcast

Why retirees return to work, the current state of the economy, and a mortgage payment puzzle.

On this week’s Money Matters, Scott and Pat discuss why so many people who voluntarily left the workforce want jobs again. Allworth Chief Investment Officer Andy Stout joins the show to examine whether the Federal Reserve will raise interest rates for a 12th time in 18 months. Then, Scott and Pat help a caller create a strategy for taking distributions from several retirement accounts. Finally, a retiree and great saver asks whether she should be making extra mortgage payments.

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

Download and rate our podcast here.


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

Pat: I'm Pat McClain.

Scott: Glad you are with us today as we're talking about financial matters. Both myself and my cohost here, we're both practicing financial advisors helping people like yourself throughout the week, broadcasting this program on the weekends. Yes. Although taping it, I don't know why we call it still taping, but we tape at midweek. Yes. The studio, in the Allworth studio.

Pat: Yes.

Scott: In beautiful Folsom, California.

Pat: That's correct.

Scott: And, anyway, made famous by Johnny Cash playing one concert here at the prison.

Pat: Where was I? I was out of town somewhere a few weeks ago. I went into some of Folsom. Isn't that where that singer, the guy who always wears black, I couldn't remember his name...

Scott: That's Johnny Cash.

Pat: Oh, yeah. Wasn't there a prison there or something? I said, "You have no idea how much the city of Folsom was capitalized on his three-hour stopover at the prison."

Scott: Forty years ago or whatever it was. Early this morning, I was bicycle riding on the Johnny Cash trail. So, if you're a listener somewhere in the United States, Folsom is a suburb of Sacramento. It's a beautiful little town. Was little at one point in time and now a sprawling suburb.

Pat: That's right.

Scott: But it's along a river 25 miles where gold was first discovered in California. But Johnny Cash played at the Folsom Prison here, and now his name is... In fact, here in our office, not our studio, but we have office with lots of employees here...

Pat: We don't have a Johnny Cash office.

Scott: ...we have a Johnny Cash room.

Pat: We do?

Scott: Yes, it's the conference room in the far back.

Pat: It's got... Does anyone ever use it? It's like an oversized closet.

Scott: Yeah, but it does say that Johnny Cash has got a... Johnny Cash. Anyway, let's move on to finance.

Pat: Anyway, we're... Yeah.

Scott: We are off-topic already, and we just got started.

Pat: Yes.

Scott: At least there's energy.

Pat: What's the program so far?

Scott: Someone this last week said they enjoyed our program. He says, "You know what? I like the fact that you guys laugh because most financial programs are so serious and stodgy and all that stuff." Well, it is a pretty serious subject, but it does...

Pat: It's a highly serious subject because the implications it has in your life. It's not like we're just talking about money. But you could be two things at once. Well, I hope so, right? You can be serious and then still enjoy it. But let's talk. Let's do this. So, anyway, we have a great program. Andy Stout is gonna be joining us in just a little bit. He's our chief investment officer. We're gonna kind of talk about what's happening currently with the economy and what he sees going on in the next few weeks or months. Not that we're asking to make predictions because that's...

Scott: I always do. Almost every time he's on the show, I try to get him to actually make some sort of prediction. Well, it's like people ask me, "Scott, where do you think the stock market's going? One of three directions." And I say, "I might have an opinion, but my opinion's not gonna have any implication on how I'm gonna build a portfolio."

Pat: Yes.

Scott: Because I might be wrong.

Pat: Yes.

Scott: There's a good chance I'm wrong. Yes. Timing any market is very, very difficult. I'll tell you what to do. Go back and look at headlines from other periods of times and financial publications before the financial crisis. Go two years before the financial crisis. You see what most of the headlines were, how bullish everything was. You look even in the early days of the lockdowns, I'm sure there are plenty of, "Get your money out of the market now," and all that stuff. You don't know. No one knows. But we do know it goes up more than it goes down.

Pat: That's why it works.

Scott: And as long as... We do need to have growing companies in order to have a profitable economy.

Pat: Yeah.

Scott: And time in the market is more important than timing the market. It is. It's that simple.

Pat: I think you learned that line the first week of training in 30-some years ago by Kyle Meitzner.

Scott: People don't plan to fail. They fail to plan.

Pat: That's right.

Scott: Okay, let's go on. So, I came across this article, which I thought was pretty interesting, which is almost half of retirees want to go back to work, but it's not always about the money. And what I thought was interesting about it is it really focused in on, you know... We do a workshop called, "The Art of Retirement." It talks about four things, right? Financial stability, health, people, and purpose.

Pat: Yep.

Scott: And the studies show that if you concentrate on those four things, that you are more likely than not going to be happy in retirement.

Pat: And it's not necessarily stability of finances, is having some confidence in your finances.

Scott: So, it's not the most amount of money.

Pat: No.

Scott: It's the fact that you have confidence that the money will do what you need it to do over time.

Pat: That's right. A reasonable degree of confidence.

Scott: And health is pretty much what it says. But people on purpose is why most people, 44% of retirees have turned to work or consider doing so. Why? Fifty percent cite intellectual stimulation, and 36% say they're wanting a bigger feeling of purpose. So, they feel that they lack purpose without that. And I have worked with hundreds of retirees, and I have seen people do...

Pat: Thousands.

Scott: I probably have, actually.

Pat: Over 30-some year.

Scott: Yes.

Pat: Particularly if you want to count people call the program and everything else, but...

Scott: Yeah. But me directly interacting, at one point in time, I had 335, 350 clients myself that I dealt with on...

Pat: As did I.

Scott: ongoing basis. This is the deal. And you see people do it brilliantly. And you see people do it terribly. In fact, in our "Art of Retirement" workshop, I tell the story of a gentleman that I asked him to go back to work. And he wanted to know if his money was okay. And I said, "It has nothing to do with money." And he went back to work. And he loved it. He went back to a work at a job where it wasn't as stressful as his old job, but he had lots of interaction with younger people. He was in his late 50s at the time he retired the first time. Lots of interaction with people in their 20s and early 30s and didn't have all this responsibility at corporate America. And he did it for four or five years. And he said it was one of the best times in his working career.

And where did he go to work? He went to work at Target of all places. And I said, "I think that's a good place for you because it's hard to bring retail home with you," right? And I said, "And limit yourself to 30 hours a week or 25 hours a week. They will push you for more, but you've got to stand firm." And he loved it. He said it was some of the best out of his 40-year career working. He said it was some of the most enjoyable.

Pat: I think of a client of mine, he was 71 or 72. It was either Facebook or Google he worked through some sort of a contract he had with them. So, it wasn't necessarily an employee, but he was there every day. And he was, like, the old sage, right? Because, I mean, there was no one even close to his age. They're all of his grandkid's age practically, but it was such a meaningful experience for him. He really enjoyed it. And the younger people really enjoyed working with him. Maybe he didn't quite understand some of the current technology, maybe even the social media appeal to the younger people, but he had a lot of wisdom in lots of other areas that it was really valuable too.

Scott: He probably brought a sense of calm over the organization, right? That is one thing with age, right? I've got a 16-year-old right now. Everything is so,'s so permanent in her mind. Like, whatever happens, this is how our life's going to be forever, right? Whether it's good or bad. And the older you get, you've lived through enough cycles, like, whatever it is, like, yeah.

Pat: Yeah, yeah, yeah. Yes. Yes.

Scott: It'll be interesting to see over the next 10 to 20 years. Because we've been doing this industry a long time, Pat. And you think about in the '90s, it was all about retiring as soon as you could.

Pat: Yes.

Scott: I don't know if you remember a lot of the ads, was a great bull market for the stock market and people wanted to retire early. It was a kind of a cool thing if you were 52 and retired. That's shifted in part because of the economy. But, also, I think a lot of people are saying retirement might be great. And I think it's having the ability to quit working. Being in a position where you can quit if you want to quit, it's your call. But you don't hear much about the FIRE movement anymore, Financial Independence Retire Early. You don't hear much about it at all. In fact, I read an article three weeks ago that said...basically, the premise of the article was we think FIRE is dead, that people actually...

Pat: The whole concept of I'm going to save as much as I can in my 20s and 30s so I can quit working and never work again. Like, if you're gonna retire from something, what are you retiring to? Right? So, if you're going to be 40 years old and quit working, well, then what? Is it just going to be, "What do I do?" Pure hedonistic pursuits, because that's probably not gonna yield in much satisfaction in life. And the commercials that show people on these luxurious islands and all this...

Scott: How long can you sit on the little island?

Pat: Scott, the reality is, out of all the clients that I worked with over the years, if you asked 50% of them, "Tell me truthfully, do you like to travel?" If you asked all of them, "Tell me truthfully, do you like to travel?" Fifty percent would say, "No. No, not at all." Twenty-five percent would say, "Yeah. I'll drive somewhere or fly short distances." And maybe only 15% to 20% would say, "You know, I'm gonna get on a plane to Europe or Asia or Africa." Anyway.

Scott: Anyway, there's where we started.

Pat: But it's not a failure to go back to work.

Scott: Of course, not.

Pat: Well, I think some people view it as, if I retire and then go back to work...

Scott: It's a good point.

Pat: ...a year later, then, obviously, I did...

Scott: I failed at retirement.

Pat: I failed at retirement. And people will think it's money.

Scott: Look, if you wanna be retired, that's good. Like, whatever, right? Figure out what is valuable to you and important to you and your loved ones and do that, like, whether that's in the workplace or not in the workplace, charities or not charities. And we're gonna talk to Andy Stout here in a moment. But I remember years ago, I had a client. She was a CEO of a 300-employee company, 200-employee, somewhere right in there. So, you know, medium-sized company, pretty high-pressure job. Most of her life she was single. Never had children. And she would... Of course, Patt, one of the things we would talk about when she'd come in about being ready for retirement. And so, she was in kind of our annual review of looking at things. And I said, "Yeah. You can retire today and..." So, we talked about, "When do you wanna retire?" She says, "I think two years from now." I said, "Okay." So, we did a plan saying two years retirement. And I said, "Tell me this, Vicky," her name wasn't Vicky. We'll call her. "Tell me this, Vicki, today is your first day of retirement. What are the next several weeks look like for you?" "Like, what do you mean?" "Well, what are you gonna be doing with your life?" She sent me an email two weeks later and said, "Your questions haunted me."

Pat: Good question then.

Scott: I realized I have a lot of work to do between now and retirement. This was number of years ago. She's still not retired. She just couldn't redirect the energy, whatever, right? It's her life. You write your own script.

Pat: Yeah.

Scott: All right. By the way, if you wanna be a caller to our program, we'd love to hear from you and help you with whatever you're dealing with. Maybe you want a second opinion or you're just trying to figure out some planning issues. You can send us an email at, or you can call 833-99-WORTH. We'll set up a time for you to join Scott Hanson and Pat McClain. Right now, let's talk with Andy Stout. He's the chief investment officer of Allworth Financial. Andy, thanks for taking a little time out of your busy day.

Andy: Of course. Thanks for having me.

Scott: Yep. So, was it this last week, the last couple of days? The Feds were hobnobbing and Jackson Hole and I don't know if anything came out of that shindig thing. But, yeah...

Pat: There was some...

Scott: ...good photo ops, the Grand Tetons in the background.

Pat: So, what happened with that? It seemed to be ambiguous statements by Jerome Powell.

Andy: Well, I'm sure they got some fly-fishing in. I mean, that was a whole reason that Jackson Hole was set up in 1981 when Volcker did the first Jackson Hole symposium there.

Scott: Really? How do you know that?

Pat: How do you know that?

Andy: I don't know. I just thought everybody knew it.

Pat: Okay. Okay.

Scott: No, Paul Volcker, that's why the Fed meeting went to Jackson Hole.

Pat: Was Paul Volcker a big...

Andy: Yeah. He wanted to do some fly fishing.

Scott: Fed chairman.

Pat: Back in the high inflation days.

Andy: Yes.

Pat: Those are real intentions.

Andy: And here we are again.

Pat: That's just plain funny.

Scott: Maybe we had to get Jerry out to fly fishing a little bit more.

Pat: Okay. All right. So, what came out of that?

Andy: Well, it is one of the, probably the most important economic event of the year. But it was really more of the same in terms of what Chair, Powell, was mouth-piecing for the rest of the Fed, where they were essentially saying, "Expect higher interest rates for longer," which is what they've been trumpeting all year long, and saying they will be prepared to hike interest rates more if they have to, if they can't get inflation or control flow. So, from that perspective, markets weren't too pleased about it.

However, there was also some other comments that were more encouraging, at least, for investors, where he, Chair Powell, did not rule out rate cuts in the future, and he did describe the drop in inflation as an encouraging. And when we look at where we are, right now, in terms of what the market expects, in terms of rate hikes or rate cuts compared to where we were on Thursday of the last week before Powell spoke, we're, basically, at the same spot. There's essentially a 50% chance that the federal hike one more time by 25 basis points or 0.25% by the end of the year. So, basically, nothing changed.

Pat: And who attends this industry? Who attends the Jackson Hole deal?

Andy: It's gonna be the members of the Federal Reserve and press.

Pat: That's it?

Andy: Yeah. Pretty much. I'm sure there's some other people there, but it's really just intended to be for the Federal Reserve.

Pat: And right now, what's the market pricing in, as far as where it expects inflation to be a year from now and interest rates to be a year from now?

Andy: Well, in terms of inflation, if you're thinking about CPI, which is consumer inflation, really for all of next year, about 2.5%. So, that's obviously materially lower than where we are now and where we have been.

Pat: That's what the market is predicting by next year?

Andy: That's what economists are predicting. So, if you look at the average economist forecast, it's right around 2.5% for CPI and for all of the year of 2024.

Scott: We'll see how accurate they are, but that would be pretty...

Andy: Usually, not too accurate. Just to give you a little bit of a, you know, inside baseball. I was looking at the economist average forecast for GDP, which is our Gross Domestic Product, which is a measure of our nation's total output. Essentially, how much our economy is growing. And for the first quarter of this year and the second quarter of this year and the third quarter of this year, every single time, a few days before the quarter actually started, the average economist had a negative GDP growth rate expected. So, where did we actually end up at? Well, 2% growth in the first quarter and 2.1% growth in the second quarter. So, economists, I mean, take that with a grain of salt, right?

So, in terms of interest rates, which you were asking regarding the Fed funds, right? Which is the overnight rate banks can borrow at each other. I know that sounds esoteric and just kind of a weird, but really every other interest rate in the world is based on it.

Pat: And that's what they control when they say they're increasing rates or decreasing rates, right?

Andy: Yeah. And effectively, that's also what they control when you think of the prime lending rate from your bank because that's the rate that banks could lend to their, you know, most credit-worthy borrowers. And that's, mathematically, it's a formula. It's just the Fed funds rate plus three percentage points. So, it does all tie together. Now, when we look at what the market are expecting right now in terms of rate hikes, rate cuts. Now, remember, we're at a 5.5% upper band as far as the Fed funds rate. And there's a 50% chance that the hike by their November 1st meeting. But when we look out, essentially this time next year, the market's pricing in almost two to three quarter-point rate cuts. So, the market's expecting the Fed to really just loosen to the reins a little bit.

Pat: And the market, you're looking at the contracts that are a year out, and that's what people can bid the price on the contracts. And that's what it's all pointing to, right?

Scott: It just seems so whipsaw to me.

Andy: Well, and talk about economists being wrong, the market has been wrong multiple times already this year. I've been watching these interest rate probabilities, they've been... If you go back six months, they were pricing in rate cuts this year. Haven't even been close to having a rate cut. And we're still talking about 50% chance of another rate hike. So, when you look at all this, it really just makes you scratch your head and really want to say, "You know what? Maybe I shouldn't rely on these so-called economists or what the market thing. So, I'll just focus on the long run."

Pat: To that point, Andy, I've always been baffled why large banks all have economists, even some large corporations have economists. I guess, a large corporate, you'd want someone to dig deep into your particular product or service line. All right, so let's put that one aside.

Scott: Yeah. Or currency hedges or...

Pat: But look at the large banks, they have their economists, and their economists come out and make these predictions on what they think is gonna happen in the market. And I, for the life of me, don't understand what's the point.

Andy: Well, I mean, I think the point to really pretty much anything that anybody does is they can get some money off of it, right? They're selling something one way or another. And what they seem to be selling is inaccurate predictions. What was the famous quote? Economic forecasting exists to make cosmology look credible.

Scott: Yeah. That's interesting.

Pat: What do you think about the labor markets? I read an article this week about, you know, that used to be quiet quitting and this one said quiet firing.

Scott: I saw that. Yeah. Quiet firing.

Pat: Quiet firing.

Scott: "Oh, by the way, you no longer have this job. We're gonna see if we can find you another one within the company, but hold tight here for a bit."

Pat: Yeah, you've got to apply for somewhere else in the company, but if you can't find one, you're going to have to leave.

Scott: Yeah.

Pat: Is the labor market changing to the point that it's actually helping slow inflation?

Andy: Yeah. There are cracks emerging in the labor market. I mean, you can look at many different indicators. From an overall standpoint, unemployment rate still at 3.5%, and that's still really close to a 50-year low. So, overall, it's tight. But if you look under the hood a little bit, look where employers are adding jobs or not adding jobs in different industries, it suggests there are, certainly, some weakness on the horizon. For example, temporary help workers, the number of jobs that's been added there has really been decreasing. And if you think about that, that's a leading indicator for the broad labor market, because if you're an employer, who are you gonna let go first? A temporary help worker, part-time worker, or someone that is full-time? You're gonna usually let go of the part-time workers first. Another red flag on the job market has been new trucking jobs. That's starting to decline as well. And that does move before the broad economy. Again, because if you're selling a lot of things and you're placing a lot of orders, you're gonna have a lot of transportation, a lot of freight moving, but now we're seeing less demand for truckers. So, that's a sign that there's some weakness emerging from the job market.

Pat: Which should put some downward pressure on inflation.

Scott: Yes. That's the whole idea about that.

Andy: Absolutely. Absolutely.

Pat: And then what about oil and gas? I try to get my gas at Costco if I'm close to it, just because it's usually 50 cents a gallon cheaper or so. But it was the other day I was in Reno a couple last week, and I tried to get gas at the Costco in Reno, and the line...

Scott: No, I tried there once before too.

Pat: It stretched out into the street and probably...

Scott: Yeah. I'm not doing that.

Pat: Yes.

Scott: And my time's worth something, too.

Pat: I did pay more. Yeah. I'm not gonna sit in the end of this massive line. But there's one near our office. And if you go in the morning, there's no line. You just pull right up. But, anyway, my point is...

Scott: The line.

Pat: ...not where you buy gas. Well, I'm wrenching Costco because most people know it's, like, probably the cheapest gas you can get. But it's $4.99 a gallon. So, it's five bucks a gallon. And I was just thinking, like, you know, fortunately, I could afford to fill up without, like, oh, crud. Like, maybe I better stop at 8 gallons or something.

Scott: But I know there's a time in your life.

Pat: There was a time. Oh, yeah. There was a time in my life. And sometimes I see people that's still their time. Like, there's a lot of families still... I mean, it's a meaningful impact on family budgets. And so, I guess, my question to you, Andy, is, like, what impact is this having on families, the cost of energy, particularly, gasoline? And where do we think this is going?

Andy: Well, if we talk about where we think, you know, gas prices are going, certainly, had to think about the Russia-Ukraine war, and that really hasn't had the impact that a lot of people were thinking that it would have. The oil right now, it's around $81 a barrel. A lot of that's due to, I would say, stockpiles falling, where if you look at the strategic petroleum reserve with the government controls, they've really been biting into that to try to keep gas prices low. But at the same time, you're not really seeing any sort of friendly policies for the oil drillers, which is what it is. It's just the state of the society that we live in. Now, when we think about how it's hurting consumers, yeah, I mean, you'll only have so much to spend.

And there's a lot of data out there...some data, I should say, that shows that consumers may be starting to, you know, pinch their wallets a little bit more, specifically the amount of what is called revolving credit, which is basically credit cards, 80% of that's credit cards. For the first time since 2020, it actually fell. So, it fell slightly, but nonetheless, it is still a move in that direction. Consumers only have so much to spend. I mean, they've been the ones who have lifted the economy. They do represent 70% of the overall U.S. economy. But if you got gas prices, you know, rising, you got to take it from somewhere else. Then where you would take it from is going to be those discretionary areas. So, that's something to keep an eye out.

Pat: Yep.

Scott: Well, as always, every time I talk to Andy, I feel stupid.

Pat: Well, sometimes you get really useful information, and sometimes there's, like, this useless trivia, like, of algorithm.

Scott: How they ended up going to Jackson Hole.

Patt: By the way.

Andy: Well, we can talk about missing the 10 best days if you want.

Pat: No. Thank you.

Scott: Oh, okay. I think everyone knows that story. But what about missing the 10 worst at the same time? I haven't seen that study.

Andy: We don't publish that, Scott.

Scott: Oh, okay. Thanks. Thank you, Andy. As always. Andy was referring to some, you know, in our...

Pat: In our industry, they publish these charts. And so, if you miss the 10 best days in the market, this is what your return would be.

Scott: And, like, yeah, okay. And?

Pat: And what about if I miss the 10 worst? You know, like, no one knows that data.

Scott: All right. Well, thanks, Andy, for taking some time. Hey, we're taking a quick break. When we come back, we'll take some calls. This is Allworth's "Money Matters." Can't get enough of Allworth's "Money Matters," visit to listen to the "Money Matters" podcast. Welcome back to Allworth's "Money Matters." Scott Hanson.

Pat: Pat McClain.

Scott: Let's talk with Ron in California. Ron, you're with Allworth's "Money Matters."

Ron: Hi, long-time listener.

Pat: Okay.

Ron: First-time caller.

Scott: Thank you. Glad you're part of the program. By the way, we wouldn't be here without long-time listeners. So, thank you.

Pat: What can we do for you?

Ron: I have a total of four annuities, and two of them are ready to be turned on next year. I'm age 72, and my wife is 67. And one of the, let's see, on my Roth, I have a Roth that's greater than 5 years old, so turning on my annuity is not a problem. However, my wife has a Roth that's less than 5 years old, so I want to know if there's going to be a penalty on turning hers on.

Scott: Okay. So, let me just try to get a little more clarity here. So, when you say they're ready to be turned on, you basically want to start taking some income from this. Is that right?

Ron: Yes.

Scott: Okay. And you've got a Roth IRA that is invested with an annuity. And your wife has a Roth IRA that's invested with an annuity.

Ron: Yes.

Scott: Okay, so..

Pat: And then what are the other two annuities then? Are they IRAs? Or are they TSAs?

Ron: They're in the process of being converted to Roth IRAs.

Scott: Why?

Ron: Because I didn't want to pay taxes...

Scott: The distribution?

Ron: ...on the funds that they come back. Yeah, the distribution.

Pat: How big are these IRAs? So, you've got two in irregular IRAs. How big are those?

Scott: So, just the fact that they're invested in annuities is irrelevant to any tax consequences. So, let's...

Pat: Correct.

Scott: Because we have retirement account umbrellas over them. So, we've got the IRA umbrella and the Roth IRA umbrella. So, we're gonna unwrap these two different ways, right? We're going to unwrap Roth IRAs versus the regular IRAs, and how you should be taking distributions from those. And then we're gonna unwrap whether you really need an annuity inside that or don't need an annuity inside that. So, tell me how much money is in your name in your Roth IRA, Ron.

Ron: In my Roth IRA.

Scott: Yeah.

Ron: In my Roth annuities or my Roth IRAs?

Scott: Well, the annuity is inside of an IRA, is it not?

Ron: Yeah. Well, they're both inside of a Roth IRA.

Scott: Okay. So, what I wanna know is, your name that's on that Roth IRA, how much money is inside of it?

Ron: Okay, $739,000.

Scott: Okay. And you converted that five years ago to a Roth.

Ron: Yeah.

Scott: You also have a regular IRA in your name. How much money is inside that?

Ron: That one has $440,000.

Scott: Okay. And you said you were in the process right now of converting that to a Roth IRA, correct?

Ron: The...

Scott: The $440,000.

Ron: The $440,000, yeah, we're in the process of converting those to a Roth.

Scott: Okay. I want you to stop that. Just flat out.

Pat: Well, let's get the rest of the information.

Scott: I know what the answer is gonna be, but we want you to... Okay, so your wife has a Roth IRA?

Scott: Yes. And how much is in hers?

Ron: That one probably has about $70,000.

Scott: Okay. And then her regular IRA, how much is in that?

Ron: That's the $440,000.

Scott: Okay.

Ron: All of mine has been converted to Roth.

Scott: Okay. Thank you. So, we've got $440,000 in her IRA.

Pat: You have three separate retirement accounts or four separate retirement accounts? Because we've got your Roth, her Roth, and her traditional.

Ron: Yes.

Pat: And do you have any traditional in your name?

Ron: No.

Pat: Okay.

Scott: Or do you have another annuity that's not a retirement account?

Ron: Sure, we have a total of four annuities, but all of my annuities are already under a Roth.

Scott: Okay. And you have two Roths annuities?

Ron: Yes.

Scott: Okay. Thank you.

Pat: Okay. Thank you. I just wondering...

Scott: Thank you. Thank you. Thank you.

Pat: ...because that makes it easier for planning.

Scott: Okay. Thank you. Thank you.

Pat: Now, we find this.

Scott: Now, what income do you have coming in? Social Security, pension, that sort of thing.

Ron: My total income is from social security and PERS retirement.

Scott: And how much...

Ron: And it's a net of $12,550.

Scott: What's the gross?

Ron: You know, I don't know. I don't have the gross.

Pat: Okay. Let's call it $15,000 or $16,000.

Scott: We're gonna call it 15 or 16. Yeah, so $16,000. We'll call it 16.

Pat: And how much have you been converting on an annual basis?

Ron: For the last four years, we've been converting about $190,000.

Pat: And who told you to do this?

Ron: Well, the income tax was so low that we decided to do it now. And it was our advisor.

Scott: And...

Pat: So, basically, you have been doing converting, keeping things in a 24% federal tax bracket. Because the way the tax brackets go, they're highly progressive.

Ron: Yes.

Pat: And so, you could have about almost $390,000 of gross income and still be in a federal tax bracket of 24%.

Ron: Yes.

Pat: And above that it goes to 32%. So, you've been converting, keeping it right at that level.

Ron: Yes.

Scott: I don't see any value in...

Pat: But now you wanna take money from your Roth?

Scott: Yeah. Why would you take money from your Roth now? Why not just take money from your regular IRA? I don't understand the purpose of, actually, converting this last bit over. When you take the money out of the IRIS, do you plan on spending it?

Ron: No. We've been living off of our retirement. We haven't spent any of our retirement funds.

Scott: So, why do you want to turn these on?

Ron: Well, at age 72, I have to start turning stuff on.

Scott: Not your Roths?

Ron: No, not my Roths, but the ones that are IRAs.

Scott: Yeah, I wouldn't...

Pat: Well, it's just one IRA. Your wife, she's 67, right?

Ron: Yes.

Scott: Yes. But you don't have any money in a regular IRA, only your wife does. Your wife, she has a way.

Ron: Well, I have a problem with... I figure I've only got about 20 more years. So, you know, I wanna deplete as much of that annuity as I can.

Scott: Why?

Pat: Why?

Ron: Maybe that's the problem.

Scott: Why? What do you have in the bank?

Ron: In cash savings, I have $92,000. In my brokerage account, I have $760,200.

Scott: I would not take one dime from that Roth. If I were in your shoes...

Pat: Yeah, you're gonna die with those.

Scott: ...that Roth IRA, I'd probably...

Pat: You're gonna die with them.

Scott: Or it'd be the last account I tapped.

Pat: He's gonna die with them. He needs to spend what he's making now, Scott. Just cause the tax benefits are so good, it grows tax-deferred, comes out tax-free. Yeah. I mean, if you take that money out, then you...wait, you gonna invest in your brokerage account? Let's say you invested in S&P 500 fund. It's got dividends that kick off each year. There's a capital gain. Yes, maybe there'll be a step-up basis if you hold it to your death. That's subject to change, I suppose.

Scott: But, you shouldn't be thinking about taking any money out of anything or converting any more money into a Roth.

Ron: Okay. That's good to know.

Pat: I would not, if I were in your situation. And I've got my spouse... The only money in traditional IRAs left is $440,000 for my 67-year-old wife that we don't have to worry about distribution for another, what? Six years or so? Yeah.

Ron: Okay.

Scott: And now, why do you own the annuities? So, we've solved that question. So, I said we're gonna to take this in two parts. Why annuities and what kind of annuities are they?

Ron: They're fixed index annuities. And, you know, I bought them about nine years ago in a period of weakness.

Scott: I wouldn't, but...

Pat: That's hilarious.

Scott: So, you don't have to keep them in the... I assume the surrender charge is probably up or close to being up on them.

Ron: Yes. Another year and they'll be up.

Scott: Okay. If you were to leave this... First of all, in a period of weakness, did you buy these or were you sold these?

Ron: I guess, I was sold them.

Scott: Let me ask you this, when you've been converting to a Roth, have you had to pay any surrender charges to do that?

Ron: No.

Scott: Okay. That makes me feel a little bit better about this advisor.

Ron: It just converts to a Roth.

Scott: What's that?

Ron: It just converts to a Roth.

Scott: And you were paying the taxes with money outside of the IRA.

Ron: Right.

Scott: Okay. So, how have you been able to take so much out of these annuities without paying a surrender charge on them to convert to a Roth?

Pat: He didn't. He just converted the Roth and then paid the taxes with the money that he had in his brokerage account or cash.

Ron: Correct.

Scott: And the insurance company enabled... So, did the Roth IRAs have any surrender charges on them or just one year?

Pat: They just retitled, right? No?

Ron: It just got retitled from an IRA to a Roth IRA.

Scott: Okay. So, the surrender charge on your Roth is only one year, just like on the traditional IRA. Is that right?

Ron: Yes.

Scott: You're sure.

Ron: I've only got one more year of surrender charges, then I'll be 10 years. So, after next year, I'll have had it for 10 years, so there's no surrender charges in the Roth.

Scott: Why do you have two Roth IRAs in your IRA versus one?

Ron: Because we're still converting the last one for my wife.

Scott: That didn't answer the question. But your IRA, you told us earlier in the conversation, you have two Roth IRAs inside of your...

Pat: We're just trying to get some clarity.

Scott: Yeah. You said you have two annuities inside your Roth IRA.

Ron: Yes.

Scott: Why?

Ron: And my wife also has two.

Scott: Yeah. But she...

Ron: Well, we bought it at separate times.

Scott: Okay.

Ron: We bought two of them about nine or ten years ago, and then we bought two more about three years ago.

Scott: Okay, so the ones that are bought three years ago, there must be surrender charges more than just one year.

Ron: Yes. So, we're not doing anything with those other than converting them.

Scott: Understood. Well, we hope you're not converting anymore. Ron, I asked the question, did you buy these or were these sold?

Ron: They were sold.

Scott: And you said they were sold to you, right? And you said you did it in a period of weakness about nine years ago.

Ron: Yes.

Scott: Here's the reality of the situation. You were not well served by that decision. And the reason being is, you know, if you listen to the beginning of the show, we talked about time in the market, and this is a perfect example where you weren't going to touch this money for years, and years, and years, and a financial plan would have told us that. In fact, my guess is that you will live most of your life, and well, probably not spend the bulk of this money.

Ron: Okay.

Scott: You haven't spent it. You've got big pensions and big Social Security coming in. I assume your home is paid for. I assume there's no consumer debt. Would those be fair statements?

Ron: That's correct.

Scott: Okay. So, you said at the time...

Pat: You know, by the way, Ron, you're in a great financial shape.

Scott: You're fine.

Pat: Yeah. You've done a lot of good things. So, we're not trying to beat you up here. We're just...

Scott: Yeah. We're trying to help. You could have buried this money and you'd be fine.

Ron: Okay.

Pat: You really could have. I mean, you could have put it in...

Scott: Unless the gophers got away with it.

Pat: So, I think you should step back for a minute and think about when these surrender charges come off that you, actually, need to go back to build a well-balanced portfolio that will serve you well at a much lower cost.

Scott: And I wouldn't talk to the person who sold you these equity index annuities. Not even. And the reason is, although the equity-index annuities appear to be free, they are far from free. Because just because you don't see the charge, doesn't mean the charge...

Pat: The internal expenses are a tremendous drag on your return.

Scott: And you could manage this money at...

Pat: All the weird caps they have.

Scott: Like, in 2022, when it was a massive year for the stock market, your account went up fine, but not nearly like it would have if it was in the market. So, I think you need to kind of step back. And I question whether this Roth conversion was probably...I think it was probably overboard, significantly overboard. I probably would have discouraged that sort of a... And the fact that you're still in the process, I would stop all that. I would just say, just stop it. I've never seen anyone convert this much money from an IRA to a Roth IRA in such a relatively short period of time.

Pat: Well, it's such a huge percent of the retirement account.

Scott: And a huge percent of the retirement.

Ron: It costs quite a bit of my personal savings, but, you know, I was able to do it.

Scott: Oh, I understand. I mean, like, I said at the very beginning, you're fine. This didn't affect your lifestyle, but you could have been a better steward of this money So, my recommendation is, actually, go get a real qualified advisor, not a salesperson. You have a salesperson. They earned a fat commission, probably like an 8% or 10%t commission when they sold you that product. And you don't need that. You need financial advice. Someone that's gonna hold your hand through up markets and down markets. They're going to get paid a small fee on an annual basis based on the size of your account. That is a fee-based fiduciary. You don't have a fiduciary advisor. You have someone that calls themselves an advisor that is a commission salesperson.

Ron: Okay. Thank you.

Scott: So, when that surrender charge comes up, you should expect that you're gonna rebalance that into a low-cost portfolio, and don't do another dime of conversion. And don't worry about converting your wife's $440,000. Who manages your brokerage account?

Ron: Well, that one's under myself. I manage it myself. It's under Schwab.

Scott: Okay. You should look for tax efficiency in that as well. And I don't know if you're getting that from Schwab or not, but it's a significant amount of money that you should make sure is distributed as little capital gains in income as possible. When I say little, it doesn't sound right. But what I'm saying is that if you manage the money tax efficiently, you could still have growth without having to pay a big tax bill every year.

Ron: Oh, okay.

Scott: All right, Ron. Appreciate the call.

Ron: All right.

Scott: We wish you well.

Ron: Thank you. All right.

Scott: You know, Pat, I think, like... By the way, if I sounded a little harsh there, to the rest of the listeners, I apologize. We were just trying to get the information out. It was a little difficult.

Pat: Yeah.

Scott: And, like, the thing about a new...there's a place for annuities at times, okay? Because at its core, it's some sort of insurance. And there's a place for insurance at times. I think our beef with some of these annuity products out there, are the way that they're sold. First of all, they can be sold by someone that has no experience in securities markets. They don't have to pass any securities tests. They don't have to know the difference between...I mean, they don't have to have a college degree. They don't... All you need is an insurance license. So, you've got that. But it's not like getting your certified financial planner designation, or even taking a securities exam like a Series 7 or 65 or whatever there's out there, right? So, you've got people out there that they might spend a week or two at training from the insurance company. And the insurance company teaches them everything about the product. But they don't know all the rest of the solutions that exist in the marketplace. So, like, to protect your portfolio, there's a number of ways you can structure things. You can use some options. You can put a bunch in treasury bills. You can use options for a tiny bit, which is what the insurance company does to build this, right?

Pat: That's all they do.

Scott: I mean, there's a variety of different things you could do. And, I mean, when someone's got a lot of pension income and they're not planning on...they don't need the retirement savings for their current income, some of it is just being able to counsel somebody, and developing a plan, and showing them in confidence levels mathematically, like, you're going to be fine regardless of what happens. And it gives people that confidence to take on, you know, the kind of investment portfolios that they don't know they should have. But they end up getting sold an equity-index annuity because it seems like an easy solution. And that oftentimes the... These commissions can be 8%, 10%, 12%.

Pat: And, Scott...

Scott: And the surrender charges go forever.

Pat: What really hurts the index annuities is the caps they put in the market participation as a percentage. That really hurts. And they ignore dividends on the S&P 500. You're not going to get S&P returns. You'll get some return linked, but nowhere near S&P returns.

Scott: Not anywhere close. And by the way, if you bought an annuity with a 10-year surrender charge, you're probably going to be able to...if you just had a portfolio of S&P 500 or any stock...

Pat: Ten years is a long time.

Scott: Ten years is a long time. You could weather two. Maybe three market cycles.

Pat: That's right.

Scott: Ten years is a long time. There's a 10-year surrender charge. Yeah. Most marriages don't last that long.

Pat: Oh, my God. Come on.

Scott: Okay. Let's continue on. We're talking with Ann. Ann, you're with Allworth's, "Money Matters."

Ann: Oh, thank you. Thank you for your show.

Scott: Thank you.

Ann: Yeah. So, I'll start with my question first and then give you my background. So, I'm 69, and I've been retired for 7 years. And I had paid off my previous home a couple of years prior to retirement. And then COVID sort of caused me to reevaluate things. And I made a big move to get closer to my adult children...

Scott: Oh, nice.

Ann: ...and their families in 2021. So, I was able to sell my house for close to what I bought the next one for. And I was able to transfer the tax base...

Scott: Excellent.

Ann: ...because of Prop. 19. Yeah. So, I did need to take some of the proceeds from the first sale to put improvements into the new home. And so now, I'm trying to map out a plan for, you know, eventually, paying off the mortgage. I did take a mortgage out.

Scott: How much do you owe on it?

Ann: So, well, right now, I probably owe about $500,000. And I have half of that still left over from the sale of the house. And so, I'm looking at having to close that.

Scott: Wait. Wait. Okay. One second. One second. So, on the existing home you have $500,000 mortgage on the house, correct?

Ann: Correct.

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

Ann: 3.25.

Scott: Okay. And then, you had $250,000 from the proceeds of the last home that you did not roll over into this. So, that is sitting in an account somewhere. Is that correct?

Ann: Correct. That's sitting in an account.

Scott: And that $250,000... And where is it sitting?

Ann: It's split between a money market fund and some of it's just in the bank right now, just to make sure I'm completely done with all the home improvements.

Pat: Okay.

Scott: You haven't any high-yield CD or anything like that?

Ann: Not yet.

Scott: Okay.

Ann: So, I'm waiting to have this call with you.

Pat: Okay. Yeah, yeah, yeah, yeah.

Scott: Oh, this is brilliant. Okay. So, keep telling us the rest of the story.

Ann: Okay. So, that's mostly the question. And so, I can give you my, my background financially, so, you know what I'm working with?

Scott: Yeah, please.

Ann: So, yeah. So, I actually decided to take Social Security at 69 this year instead of waiting, I figured I didn't need to do another year of spreadsheets. So, between Social Security and a small pension, I have about $82,000 coming in on fixed income, is how I look at it. So, that's my income. And then in my traditional IRA, I have $2.1 million. And in my Roth IRA, I have about $500,000. And I have about $100,000 in an emergency fund. So, both my IRAs are in index funds, and the traditional IRA is about 40% stocks, and the rest bonds, and cash. And the Roth is 80% stocks because I kind of look at that as passing on to my kids. Like, once they eliminated the...

Scott: You want a job?

Ann: No, no, no,no.

Scott: She could be a third host with us.

Pat: I know. What did you do for...

Scott: I mean, the fact that... I mean, you want the Roth to be much more aggressive because it's the last dollars you're going to spend, which is exactly the right thing.

Ann: Well, right. Because once they eliminated the stretch IRA after I retired, so I first...

Scott: What's your question for us?

Pat: Wait. What did you do for a living?

Ann: I was in healthcare administration.

Pat: Oh, all right. Were you in the finance side of it?

Ann: No, I was kind of a combination of clinical and administration.

Pat: Wow.

Ann: It was a nebulous kind of job.

Scott: What do you think? And what's your question for us then?

Ann: Okay. So, I just wanted to run my strategy by you to close that gap with the kind of other $250,000 I have to take out. So, I don't have to do RMDs until 2027. And so, for the next four years, counting this year, I'll probably be in the lowest task tax bracket I will be for the rest of my life, right?

Scott: Yeah.

Ann: So, I thought rather than try to somehow pull out $250,000 over the next couple of years, just use the existing $250, 000 I have sitting there to pay the mortgage as well as maybe pay down a little bit of the principal. And then once my RMDs kick in, it would probably take me a couple of years after that, I think.

Scott: What's the rush to pay off your mortgage?

Pat: You're not putting a lump sum against that mortgage, right?

Scott: That's what she was talking about, taking the savings.

Pat: No, no, no, no. I don't think so.

Ann: No, no, no, no. I'm not talking about... I'm just talking about making the mortgage payments with the $250,000 that's sitting there in a non-taxable account.

Scott: Yes.

Ann: And then if I want to pay a little extra principal every year, I could do that.

Scott: So, I wouldn't pay any extra principal at all.

Ann: Okay.

Scott: I would take the spread and rates today. I would take that $250,000 and put it in a high-yield savings account or...

Pat: Like CD.

Scott: ...or even a high-yield CD. I'd start taking distributions from my IRA right now.

Pat: That or convert some to a Roth.

Scott: Or convert some to a Roth.

Ann: Well, oh, yeah. So, I've been doing small Roth conversions ever since I retired, you know, up to the top of the tax bracket. I tried not to go over 24. So, that was another question. You know, do I spend these next four years...

Scott: I wouldn't go over 24 either.

Ann: Yes.

Scott: Yes?

Ann: Doing more Roth conversions and worry less about the mortgage.

Scott: I wouldn't worry about the mortgage at all. Even a little.

Ann: I hear you. And it's a different proposition to pay off the mortgage when you're still working. I've discovered that.

Scott: Well, the idea is get as much flexibility when you're retired. That's the whole concept. So, we'd like to talk about getting your home paid up. That's just so you got a lot of flexibility in retirement.

Pat: And you've got it.

Scott: You've got plenty of assets. You have done an incredible job saving. So, I think it was a very wise move that you decide to move closer to the family, even though you've got a large mortgage on your house. Yes. And so, put that money in a high-yield or even buy six-month treasuries, and roll them over. Either start taking money from the IRA or do the Roth conversions on an ongoing basis. And if it's helpful, like, have money in an account that pays your mortgage payment. Because you don't have... The mortgage payment's high for her cash flow.

Pat: I understand. But she gets it intellectually, Scott.

Scott: Yeah, you're perfect. Yeah, perfect.

Ann: Okay. Okay.

Scott: Perfect.

Patt: You're in great shape.

Scott: It's unbelievable.

Ann: Well, a lot of things feel unbelievable this day and age, but...

Scott: This is unbelievable good.

Patt: I hope that's what you meant by that. Life is a blessing.

Scott: Congrats. Yeah. Enjoy. Enjoy your family. Appreciate the call. Oh, we're out of time. It's been great being here with you. This has been Scott Hanson, Pat McClain with Allworth's "Money Matters." This program has been brought to you by Allworth Financial, a registered investment advisory firm. Any ideas presented during this program are not intended to provide specific financial advice. You should consult your own financial advisor, tax consultant, or a estate planning attorney to conduct your own due diligence.