Can I Throw in the Towel?

Summary

Podcast Summary: Jill on Money with Jill Schlesinger
Episode: Can I Throw in the Towel?
Release Date: February 11, 2025

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Introduction

In the episode titled "Can I Throw in the Towel?", host Jill Schlesinger delves into the complexities of retirement planning, addressing common concerns and questions from listeners. The episode emphasizes making informed financial decisions to ensure a secure and stress-free retirement. Jill, alongside her co-host Mark, provides clear, jargon-free advice, making intricate financial topics accessible to all.

Listener Questions and Discussions

1. IRA Withdrawals vs. Roth IRA Conversions

Listener: Chad
Timestamp: [02:30]

Chad, a devoted listener, inquires about Jill's recommendation for retirees to withdraw funds from traditional IRAs and place the unused money in a taxable brokerage account. He questions why Jill doesn't suggest converting these funds to a Roth IRA, considering the long-term tax advantages.

Jill's Response:

• Pros and Cons of Roth Conversions:
  Jill acknowledges that converting to a Roth IRA is advantageous due to its long-term tax benefits. However, she points out that it requires having the funds to pay the conversion taxes upfront, which might be an unnecessary complication for some retirees.

  "The Roth is by far the best, but for some people, we want them to just beef up their ability to access money. They don't want to burn through money that's available."
  — Jill Schlesinger [04:15]

• Practicality Over Efficiency:
  Jill emphasizes the importance of choosing the path of least resistance for certain individuals, suggesting that not everyone needs to maximize their Roth savings if their financial situation doesn't necessitate it.

2. 401(k) vs. Roth 401(k) and Federal Tax Refunds

Listener: Lisa
Timestamp: [05:00]

Lisa, aged 58, seeks advice on whether to allocate more funds to her traditional 401(k) or her Roth 401(k). She expresses frustration over receiving consistent federal tax refunds despite making substantial contributions to her retirement accounts.

Jill's Response:

• Tax Benefits Overview:
  Jill breaks down the differences between traditional and Roth 401(k) contributions, highlighting the immediate tax deductions of traditional 401(k)s versus the tax-free withdrawals from Roth 401(k)s in retirement.

  "With a traditional 401k, you get a tax deduction today and reduce your taxable income. With a Roth, there's no tax deduction now, but you don't pay taxes on withdrawals in the future."
  — Jill Schlesinger [06:00]

• Recommendation:
  Jill leans towards maximizing Roth contributions for Lisa, considering her income and tax situation. She suggests adjusting withholding to accommodate the lack of immediate tax deductions, ensuring she doesn't overpay the federal government.

  "I like the Roth. You're in a good position to use all Roth because it aligns with your income and tax situation."
  — Jill Schlesinger [07:37]

3. Overconcentration in Company Stock and Retirement Timing

Listener: Gene
Timestamp: [07:50]

Gene shares his concern about having half of his brokerage account invested in his company's stock. With impending restricted stock units (RSUs) and stock options vesting, he contemplates whether to sell some of the stock to mitigate risk and considers shifting investments to municipal bonds. Gene, approaching retirement at 55, fears overexposure to a single asset.

Jill and Mark's Response:

• Risk of Concentration:
  Jill underscores the dangers of having a significant portion of one's portfolio tied to a single company. She advises diversifying investments to reduce potential risks.

  "Having a huge slug of any single asset puts you at risk. If you want to retire this year, consider selling some of that stock to lower your capital gains tax rate."
  — Jill Schlesinger [09:30]

• Strategic Selling and Diversification:
  Jill recommends selling portions of the company stock, especially if retiring soon, to take advantage of lower capital gains rates post-retirement. She also suggests alternative uses for the excess funds, such as funding a donor-advised fund for charitable contributions, if applicable.

  "Maybe use some of that money to fund a donor-advised fund if you are charitable."
  — Jill Schlesinger [10:00]

4. Retirement Readiness and Financial Planning

Listener: Nanette
Timestamp: [10:34]

Nanette, a 65-year-old single woman with nearly 44 years of employment, seeks a second opinion on her financial readiness for retirement. She outlines her substantial savings, pensions, annuities, and current income, questioning whether she should adjust her IRA withdrawals and consider Roth conversions.

Jill's Response:

• Financial Overview:
  Jill reviews Nanette's financials, noting her robust pension plans, significant retirement savings in both traditional and Roth accounts, and additional assets in brokerage and savings accounts.

• Affordability of Retirement:
  Emphasizing that retirement is primarily about managing expenses, Jill reassures Nanette that her projected income exceeds her estimated cost of living.

  "If you're only spending $65,000 a year and have $75,000 coming in, you're good. You're ready."
  — Jill Schlesinger [12:00]

• Roth Conversions and Withdrawals:
  Jill concurs that Roth conversions are a viable strategy for Nanette, given her available cash reserves. She underscores the importance of aligning withdrawals with her spending needs to maintain financial stability.

  "You might consider converting some of your traditional IRA funds, but it’s not necessary if you already have enough income to cover your expenses."
  — Jill Schlesinger [13:00]

• Guaranteed Income Encouragement:
  Highlighting the significance of Nanette's guaranteed income streams, Jill encourages her to feel confident in her retirement plans.

  "You're in a good position with your guaranteed income. Give yourself permission to enjoy retirement."
  — Jill Schlesinger [13:49]

Notable Interactions

• Dynamic Between Jill and Mark:
  Throughout the episode, Jill and her co-host Mark engage in light-hearted banter, discussing topics like blog updates and financial terminologies, which adds a relatable and personable touch to the show.

  Mark: "I don't know about you guys but it has been very chaotic for me in the early going here of 2025..." [01:07]
  Jill: "I will learn something new every day from you guys." [05:45]

Key Takeaways

1. Diversification is Crucial:
   Avoid overconcentration in a single asset, especially company stock, to mitigate risk and ensure financial stability in retirement.

2. Understand Tax Implications:
   Weigh the benefits of traditional IRA withdrawals versus Roth IRA conversions based on individual financial situations and tax implications.

3. Align Retirement Income with Expenses:
   Ensure that projected income streams comfortably cover estimated living expenses, allowing for a secure and enjoyable retirement.

4. Seek Professional Advice:
   Engaging with financial advisors or trusted financial resources can provide clarity and confidence in making retirement-related decisions.

Conclusion

In "Can I Throw in the Towel?", Jill Schlesinger effectively addresses listeners' retirement concerns, offering practical advice and reassurance. The episode underscores the importance of strategic financial planning, diversification, and understanding the nuances of retirement accounts to achieve a comfortable and worry-free retirement.

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Notable Quotes:

"The Roth is by far the best, but for some people, we want them to just beef up their ability to access money."
— Jill Schlesinger [04:15]

"Having a huge slug of any single asset puts you at risk."
— Jill Schlesinger [09:30]

"If you're only spending $65,000 a year and have $75,000 coming in, you're good. You're ready."
— Jill Schlesinger [12:00]

"You're in a good position with your guaranteed income. Give yourself permission to enjoy retirement."
— Jill Schlesinger [13:49]

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For more insights and personalized financial advice, visit jillonmoney.com and consider joining the discussion by submitting your questions.

Transcript

[Jill Schlesinger]

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[Mark]

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[Jill Schlesinger]

Welcome to the Jill on Money Show. It's Tuesday, February 11th and we are here trying to help you make better, less bad, more considered financial decisions. And you know, look, I keep listening to our program. Every single time it airs, I listen to it and I like to hear what's going on for you guys in a different way as you listen to it. And I realize that sometimes it can sound very much like there is somebody on the line who does not actually relate to someone like you. That's okay because it's sort of fun to listen to other people's stories. We're all voyeurs. But I also think if you really want to understand how a particular situation that you're dealing with is or how we think about that situation, why don't you get in touch with us? Just go to jillonmoney.com, click the contact us button and let us know if you want to join us on the air live. And while you're on the website, check out all this stuff. I've been driving Mark crazy updating the blog post about tariffs, for example. How many times did I change that this week, Mark? Four. Four times we did it last week. It's like incredible. You just have to take a deep breath sometimes and know that we're here. We're trying to make sense of it with you. Don't worry, we're all in it together. Okay. But do get in touch with us. It's a lot more fun when you do that. Let's do some emails. This is from Chad who says, I'm a devoted listener and I appreciate your insights. I've learned a lot from your show. And, and Chad says there's a piece of advice that you frequently give that confuses me. You often suggest that retirees withdraw funds from traditional IRAs and place that unspent money in a brokerage account. While I understand the benefit of withdrawing traditional IRA funds at reasonable tax rates, why not convert those unneeded funds to a Roth IRA instead? Given the Roth's long term tax advantages, wouldn't this be a better option than a taxable brokerage account? Yes and no. So yeah, of course, as long as you have the money to pay the tax that's due on the conversion. And sometimes it's just one extra step that doesn't need to be that. We don't have to be that efficient. So Chad, you're right. The Roth is the best. It is absolutely like by far the best. But for some people, we want them to just beef up their ability to access money. They don't want to burn through money that's available. And you know, I'm trying to go for the path of least resistance sometimes. And even Mark, the Roth adherent, the Roth ITE often will say, eh, just grab the money, pay the tax and move on. Because we don't need to necessarily bulk up the Roth savings for some people, and for some other people, it works. So there we go. Here's another 401k versus Roth 401k question from Lisa, who's 58. I make about $96,000 a year with at least $27,000 going into a 401k and approximately 6,600 going into my Roth 401k EE account yearly. By the way, gang, I never knew what an EE a 401k EE. I just had to look it up. I said to Mark, what is this? And Mark said, come on, come on, Mark, say it.

[Mark]

I think that's just the section where the employee contributions go into.

[Jill Schlesinger]

Okay, so I didn't know this.

[Mark]

This is fascinating.

[Jill Schlesinger]

I will learn something new every day from you guys. Okay, so she's got $27,000 going into the 401k and then it's 6,600 going into a Roth 401k, which is her contributions. Okay, what's the difference between a company administered 401k and a Roth 401ee? So it's just the Roth part is what you're putting in to the Roth 401K your contributions. And the traditional is your pre tax going into the 401k, which is probably your contribution. And if they match, that's where their match would go. Also, the tax benefits are that in the traditional 401k, you get a tax deduction today and you take that deduction, so it reduces that $96,000 of income down by that 27,000 going your 401k. Okay, so 96 minus 27, you're taxed on the rest. But when you take that money out in the Future from the 401k, you will be taxed at whatever tax rate you are in the future. With a Roth, like the amount of money that's going into that Roth 401k, there's no deduction today, but when you take it out in the future, you don't have to pay taxes. So that's the big difference. And so Lisa goes on and says, I've also been paying an extra $100 a week to the federal government to get a refund. This year is the first year I've received the same exact amount back from the feds. That's wild. I mean, that's pretty amazing to get the exact same amount. I don't love getting a refund, so I don't love that strategy. The question at the end is, I'm wondering if it's better to pay more towards my 401k or my Roth instead of the federal government.

Of course.

Just don't. I like the Roth. You don't make a lot of money. You say that you've filed jointly with your husband, but he doesn't claim enough taxes yearly. He doesn't have a 401k or an IRA. I am providing all this. I think you guys should be using all Roth. That's what I think. And what that's going to mean is you might have to change your withholding because you won't get the tax deduction right now. Okay, there we go. Here is a question from Jean whose subject is ready, Mark. He who rides a tiger. Hi, Jill and Mark. The whole saying is he who rides a tiger is afraid to dismount. A significant amount of money in company stock has accumulated and has done very well. The value is half of my million dollar brokerage account. It's amazing, right? So half in one company. More is on the horizon this year and beyond as I am due to get future RSUs which are restricted stock units and as options vest. I've been at my job for 30 years. While the thought of retirement seems scary, I'm thinking about it at age 55, even though I would leave money on the table in 26 and beyond. I also wonder if I should sell some of the stock and buy municipal bonds. But I'm not even sure how to do that. Thanks for all that you do. I love your humor and how you how approachable you are with the common sense perspective that you each have and appreciate the content behind the paywall with the experts you pull in. Thank you, Gene. Okay, Gene, here's the thing. When you have half of a brokerage account in one holding, it's scary and to me it's funny. He who rides a tiger is afraid to dismount. What if you get thrown off the tiger and you get trampled by the tiger? Let's keep this analogy going. You got a big bet on the table. I don't know how much money you have in retirement. I don't know whether you do a pension. I don't know anything else about your financial life. What I do know is having a huge slug of company stock or a huge slug of any single asset puts you at risk. If you want to sell it, then I would. And you're going to actually retire maybe next year or this year. Maybe I would consider selling that stock when you are no longer working full time so you can have a lower capital gains Rate. But maybe you don't even need this money. Maybe the money in the brokerage account is just icing on the cake. In which case maybe you take some of that money and you use it to fund a donor advised fund. That's only of course, if you are charitable. So all this is to say I'd be very interested to find out if you're getting a little bit nervous about the tiger ride. Maybe you should get in touch with us because Mark says it's not really the worry about being trampled. Mark's a little nervous you're gonna get eaten by the tiger. He's a little bit more dramatic than I am, but you know, I get the point. Okay, here is a question from Nanette.

I love your shows.

Thank you for the great information provided over the years. It has helped me save and prepare for retirement. Learn to invest and open a brokerage account. I'm too nervous to come on this show live right now. I use the Vanguard Personal Service Advisor and I have a 403B at Fidelity. I'm wondering if you could provide a second opinion regarding to my readiness to throw in the towel. I'm 65 years old plus nine months. So almost 66. I'm a single woman. I'm working full time. I'm hoping to retire in June of this year. 44 year career. I make $200,000 a year. Oh my God. I spend $32,000 a year to commute, park and rent an apartment in the city where I'm employed. Brother. Nice to save that. My home's worth $350,000. There's no mortgage, there's no other debt. I will receive two cash balance pensions from different employers. No COLA. Pension number one. $42,600 a year, which started last year. So she already has that $42,600. The second pension will be. She'll be waiting till the end of 26, $27,000. Then she also has an annuity, $761 a month. So she got a lot of money coming in. You know, as of. Just think like after the next year or so, she's going to have quite a bit of money coming in. She's got retirement savings of about 310,000 in a, in a traditional account and 290,000 in a Roth account. So then there's brokerage account, savings, checking, bonds, all that stuff, which total, let's call it a half a million dollars. Social Security at age 70 will be about $4,700. Okay. Estimated cost of living in retirement, $65,000. Okay, Nanette, I know that you can do math, but here we go. You know that you can retire whenever you want. You don't spend a lot of money. The question is that she poses, should I withdraw from the traditional IRA rollover to reduce the cash amount prior to the start of RMDs in 2032? Would there be a benefit to doing Roth conversions? This is like kind of what we were talking about in the other part of the program. It seems to me that she could do Roth conversions. She's got about 180 grand in cash, so certainly not a problem that she is able to maybe convert and burn up some cash, but it's not tons of money that she has in traditional. It's not crazy. She says she's worried about her income decreasing by more than 50%. What are you worried about? You only spend 65 grand a year. Even if you spend 75 grand a year. Yes. I think you're ready. That's really the end of the questioning, right? I mean, come on, Mark. I think people really do not. I really don't understand why people get in their head so much. It really is about how much you spend. That's what you can control. So if you really are only spending 75 grand a year, and you have 75 grand a year coming in and income in various ways, shapes and forms, you're good. And you got a little extra money. She's got more than that coming in eventually, right? Yeah.

[Mark]

Once she takes Social Security at 70, she's going to have $126,000 a year of guaranteed income.

[Jill Schlesinger]

All right, so let's say she pays. I don't know where she lives, but let's say of that she clears out of the 126. She clears 90. All right, calm down. Maybe even 80. You got more money. You're going to be okay. Give yourselves permission. You guys, if. If all that you want is permission to do the things that are obvious to, like, anyone who has a ability to add and subtract, I'm happy to do that. But many of you are in such good shape. It's about the fact that you've lived within your means and that you are not seeking to really expand your horizons when it comes to, oh, I want to spend twice as much money in retirement. That's when we start to worry a little bit. That's when you hear me become the dream crusher. I'm not a crusher, Mark. I'm a lover, not a fighter. All right, gang, if you've got a question, just go to jillonmoney.com click the contact us button. Let us know if you want to come on the air by checking the box. Don't forget to sign up for the free weekly newsletter comes out every Friday. You can subscribe to us on the Odyssey app or wherever you find your favorite podcast. Please leave a rating and review wherever you listen. Try to put your hands metaphorically on someone's back. Change your work, change your wealth, change your life. Thanks for listening. We'll talk to you tomorrow.

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[Moth Podcast Host]

Every week on the Moth podcast we share stories that are funny, strange, heartbreaking and above all, true.

[Moth Podcast Storyteller]

I myself have been married for 56 years, unfortunately to four different women.

[Mark]

It turns out the people I was looking for all my life is what you people would call nerds.

[Moth Podcast Host]

Follow and listen to the Moth on the free Odyssey app or wherever you get your podcasts.