Feeling Ready to Retire, Am I?

Summary

Podcast Summary: "Feeling Ready to Retire, Am I?"

Podcast: Jill on Money with Jill Schlesinger
Host/Author: Audacy
Release Date: December 19, 2024
Duration: Approximately 20 minutes

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Introduction

In the episode titled "Feeling Ready to Retire, Am I?", host Mark and financial expert Jill Schlesinger, CFP® engage with callers to provide actionable retirement advice. This episode features a detailed conversation with Joe and his girlfriend Carolyn from Buffalo, New York, who are contemplating early retirement.

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Guest Introduction: Joe and Carolyn from Buffalo

At 04:00, Mark introduces Joe and Carolyn, highlighting their enthusiasm and setting a friendly tone for the discussion. The conversation quickly shifts to their financial situations and retirement plans.

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Financial Profiles

Joe's Financial Overview

Joe, aged 62, provides a comprehensive breakdown of his financial assets:

• Taxable Account: $337,000
• Inherited IRA: $6,000
• Current Retirement Account (Pre-Tax): $526,000
• Rollover IRA: $1,036,000
• Roth IRA: $132,000
• Cash in Bank: Approximately $110,000
• Home: Owned outright, valued between $350,000 and $400,000

At 05:36, Joe confirms his retirement accounts are primarily pre-tax, except for his Roth IRA.

Carolyn's Financial Overview

Carolyn, aged 52, shares her financial standing:

• Annual Income: $125,000
• 401(k): $125,000
• Savings: $50,000 to $60,000
• Debt: None
• Living Situation: Recently sold her own home and moved in with Joe

At 08:26, Carolyn highlights her financial position, complementing Joe's substantial retirement savings.

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Retirement Plans Discussion

Retirement Timeline and Goals

Joe plans to retire early, targeting the end of 2025 or beginning of 2026. His strategy includes:

• Final Year of Alimony: Paying off his ex-wife within a year
• Maxing Out 401(k): Continuing contributions for one more year

At 09:07, Joe mentions having approximately $170,000 in annual income.

Monthly Expenses

Joe and Carolyn estimate their joint annual expenses at around $60,000, accommodating lifestyle choices such as travel and leisure.

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Financial Analysis and Advice

Income Streams in Retirement

Mark outlines Joe's expected income sources:

• Pension: $16,764 annually starting at age 65 (09:44)
• Social Security: Approximately $45,000 annually at age 67 (11:59)

Total guaranteed income is projected to be around $5,100 per month.

Withdrawal Strategy

Mark advises Joe to begin withdrawing from his retirement accounts to avoid mandatory distributions that would occur by age 75. He suggests:

• Early Withdrawals: Starting from age 62 to 70, leveraging lower tax states
• Roth Conversions: Converting portions of his traditional IRA to Roth to manage tax liabilities

At 15:17, Mark emphasizes the importance of withdrawing to prevent compounded tax issues:

“We're trying to get the money out of your retirement account before you are forced to do so by the government.” – Mark [16:00]

Tax Optimization

Joe considers converting some of his 401(k) to a Roth IRA for tax efficiency. Mark supports this by explaining:

“You could do a combination of using the money to live on and converting both.” – Mark [16:23]

Estate Planning

Mark highlights the necessity of estate planning, especially since Joe and Carolyn are not married. He stresses:

“If you're not married, then you have to be able to tell the government where your money goes.” – Mark [17:20]

Joe acknowledges having a will, while Carolyn plans to work on hers soon (18:32).

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Key Takeaways and Conclusions

1. Diversify Income Streams: Leveraging pensions, Social Security, and retirement accounts provides a stable financial foundation in retirement.
2. Early Withdrawals: Strategically withdrawing from retirement accounts can minimize tax burdens and prevent large mandatory distributions later.
3. Roth Conversions: Converting traditional IRA funds to Roth can offer tax-free growth and more flexible inheritance options.
4. Estate Planning: Essential for non-married couples to ensure clear directives for healthcare and asset distribution.
5. Relocation Considerations: Moving to lower tax states can significantly impact retirement savings and tax liabilities.

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Notable Quotes

• Mark on Withdrawal Strategy:

  “We're trying to get the money out of your retirement account before you are forced to do so by the government.” – Mark [16:00]

• Mark on Roth Conversions:

  “You could do a combination of using the money to live on and converting both.” – Mark [16:23]

• Mark on Estate Planning:

  “If you're not married, then you have to be able to tell the government where your money goes.” – Mark [17:20]

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Final Thoughts

Joe and Carolyn are in a commendable position with substantial retirement savings and a clear plan for early retirement. By implementing Mark and Jill's advice on strategic withdrawals, tax optimization, and estate planning, they can enhance their financial security and achieve their retirement goals with confidence.

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For more insights and personalized financial advice, visit jillonmoney.com.

Transcript

[Jill Schlesinger]

Hey, gang, it's the holidays.

[Mark]

And I know that means you're going.

[Jill Schlesinger]

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[Mark]

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[Jill Schlesinger]

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[Mark]

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[Jill Schlesinger]

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[Mark]

Learn [e-mail] AmExBusiness welcome to the Jill on Money Show. It's Thursday, December 19th, and this is the program that attempts to take the mystery out of your financial life. And we do that not by giving you these, like boring old rules of thumb, not by telling you that you can't do something by trying to hear what you would like to do and then giving you options for how you might achieve whatever those goals are. So if you've got a big picture question that is weighing on you or even a small thing, get in touch with us. Go to jillonmoney.com, click the contact us button. Of course, check the box if you want to join us on the air live while you're on the website. Don't forget we've got a free weekly newsletter which comes out every Friday. And we've got our subscription service called Jill on Money Live. That is where you have access to quarterly live webinars, four of them for the next 12 months, and the back catalog of everything we've done so far, all for $35 for the next 12 months. But not for long. I feel like one of those ginzo knife people like, not for long. You got to do this right now because on January 1, Mark, who is really, he's just a money grubber, he's going to raise the fee for Jill on Money Live. I tried to get you all set, but no, he said, no, we got to raise the fee. We do kind of have to raise the fee.

[Joe]

Put it on me.

[Mark]

Right, right, Absolutely. Because, you know, whatever. It's. We're putting a lot of effort into all of this. So if you join now, before the end of 2024, you'll get locked in for $35 for the next 12 months. Wait till January. And you're going to want to join because we're going to have all these great guests and you're going to want to be part of it. If you wait till then, it'll cost 45 bucks. So do it today. It's so easy to do. All right. Right now let us go to our friends in the happiest small city in America, Buffalo, New York. It is Joe and his girlfriend Carolyn, who are joining us today. Are you Bills fans or is that a silly question to ask anybody who lives in Buffalo?

[Carolyn]

Oh, it's a silly question. Of course. We are.

[Mark]

So exciting. It really is. And I think your guy is absolutely mvp. So we wish you luck, but I don't know how much luck you'll need in your financial life. What's going on? How can we help you out?

[Joe]

Well, I'm 62. I'm looking at trying to retire early. I've still got. Still got an ex wife to pay for another year. Kind of figuring on paying her off and maxing out my 401k again. Work for another year and then try to call it quits.

[Mark]

Okay, so you've got one more year of alimony, and then. Are you saying when that's done, then you're going to max out your retirement account or you're already maxing out retirement?

[Joe]

Nope, already maxing it out and planning on maxing it out again next year.

[Mark]

Okay, great. How much money is in that retirement account, Joe?

[Joe]

Well, it depends on which one? You're looking at all of them put together, including my current employer and taxable account and an inherited ira.

[Mark]

Wait a minute, wait a minute. Just. I want to do it. I want to have it separated a little bit. I'm sorry to be a pain in the neck. So taxable account. What's in there?

[Joe]

Taxable account, 337,000.

[Mark]

Okay. Inherited IRA only 6,000. Okay. Now, current retirement account, my.

[Joe]

From my workplace account, 526,000.

[Mark]

Okay. And what else?

[Joe]

You got a rollover IRA from a previous employer. That's at 1,036,000.

[Mark]

Okay, very nice.

[Joe]

And then a Roth IRA at 132,000.

[Mark]

Wow. Got a lot of moolah, dude. And the current retirement account is pre tax, right?

[Joe]

It's. Yeah.

[Mark]

Okay, so that has not worked. So the Roth 132. So you got basically $1.5 million that hasn't been taxed yet.

[Joe]

Correct.

[Mark]

In retirement assets. And then we got the taxable account, we got the inherited Iraq. Wow, that's great. Money in the bank.

[Joe]

Yeah, about $110,000 in the bank.

[Mark]

Okay. How about a home? Do you own your home?

[Joe]

Yes, I do. And it is paid for.

[Mark]

How much is it worth?

[Joe]

Probably about 350 to 400. Somewhere in that range.

[Mark]

Once you retire, are you going to stay in this house or are you going to move?

[Joe]

Actually, well, considering the New York state of tax.

[Mark]

Calm down with that. We're the ones who pay for you guys upstate. Quit your griping. Gosh, if I heard. If I had a nickel. For every upstate person who complains about taxes, we pay the burden. Thank you very much. All right. I love you. Come on, Joe. Come on. So you're gonna move, is what you're saying?

[Joe]

Looking at it as a definite possibility to some place that's a little more tax friendly like, and. And a little nicer weather wise.

[Jill Schlesinger]

So what does that mean?

[Mark]

You're gonna move to Florida? You too? You sound too cool for Florida.

[Joe]

No, no, Maybe, you know, targeting places like, maybe West Virginia, Tennessee. Actually started looking at areas in Mississippi.

[Mark]

Oh, my God, you're from New York. Are you sure you can do this? This is like a big culture shock.

[Carolyn]

It's a stretch.

[Mark]

It's a stretch. You know, I'll tell you what, you're not gonna get in any of those places. You're not gonna get Buffalo wings. I'll tell you that right now. Oh, you have the answer, girlfriend. Carolyn, are you on board for this move?

[Carolyn]

I am on board for this move, yeah. I can work remotely. I'm fully remote now, so that's not an issue for me.

[Mark]

So you're not planning, Carolyn, you're not planning to retire anytime soon or are you?

[Carolyn]

I'm not sure. I'm not sure. I think it kind of depends on, you know, where we land financially, whether or not it's a one person retirement or a two.

[Mark]

Okay. And Carolyn, can I ask you lots of annoying, probing questions? How much do you earn?

[Carolyn]

Right now I earn about $125,000 a year.

[Mark]

Okay, that's great. And how about your savings? What have you done for retirement or non retirement? What's squirreled away in your world?

[Carolyn]

Not nearly as much as Joe.

[Mark]

Well, that's why he's a good catch.

[Carolyn]

Yeah, exactly.

[Mark]

I mean, that's the only reason.

[Carolyn]

Yeah. I have about $125,000 in my 401k.

[Mark]

Okay.

[Carolyn]

And I have probably about 50, $60,000 in the bank and you know, different, different forms of cash just earning 5%.

[Mark]

So. Good, that's great. That's good.

[Carolyn]

No debt though.

[Mark]

No debt. And do you guys live together or do you own your own home also?

[Carolyn]

I sold mine and we moved in together about a year ago.

[Mark]

Oh, nice. How's it going? He's on the line, so be nice.

[Carolyn]

Very good.

[Mark]

Okay, so for you guys.

[Joe]

Oh, by the, by the way, Buffalo Joe has a pension.

[Mark]

Oh, Buffalo Joe. Wait a second. What's the pension situation?

[Joe]

Okay, so what I got left of it after the divorce.

[Mark]

Oh my God, the crying. Oh, it's high taxes. You're happy. You got the greatest girl in the world. She's on board for you moving to frickin West Virginia, for God's sakes.

[Joe]

It's a nice motorcycle country down there. All right, so pension, if I stick, I have to take it. I have to start taking it. At age 65, it would be worth $16,764 per year.

[Mark]

All right, so it's like, it's a nice thing. That's great. Right? All right, that's good. How much do you guys spend together?

[Joe]

I know personally myself, in the house, just about 34, $35,000 a year.

[Mark]

Okay.

[Joe]

If you tack on her expenses and the like, probably another 15. 15 to 20.

[Carolyn]

Yep. That's about, that's about.

[Mark]

Yeah, let's say that sounds right. Like, so let's say it's, let's say 60 grand because you guys are going to live, you know what I mean? Like you're young, you're healthy, you're happy, you want to travel, you have all that stuff right?

[Carolyn]

Absolutely.

[Mark]

Okay. Joe, you're 62. Carolyn, how old are you?

[Carolyn]

I'm 52.

[Mark]

Oh, a younger gal.

[Jill Schlesinger]

I love that.

[Mark]

All right, very good. Make sure he stays in good shape.

[Carolyn]

Absolutely.

[Mark]

Do you guys have kids from your previous relationships?

[Carolyn]

So, I do. I. I have children, but they are grown up and.

[Mark]

And they're okay?

[Carolyn]

Yep.

[Mark]

Okay, that's wonderful. So you, I mean, what's the ideal scenario here for you guys? So, meaning would it be if in the next couple of years, let's say that you. Not this year. So we're talking the end of 25, right, Joe? To be done, or is it the end of 26?

[Joe]

It would be the end of 25, beginning of 26, or anytime thereafter. Probably hang around and get my year end bonus and stuff like that.

[Mark]

Okay. So, I mean, and you're squirreling away quite a bit of money, I imagine, because you don't have very high expenses and you guys make a bunch of money together. Joe, what's your income right now?

[Joe]

A little over 170.

[Mark]

Yeah. So, I mean, you are. You're making a lot of money. So we need to generate for you $5,000 a month or $60,000 a year. Right. So let's think about this like, sort of methodically.

[Jill Schlesinger]

You will get.

[Mark]

At age 62, you will get. I'm sorry, 65. You will get $1,400 a month. That's the pension. What's your Social Security benefit look like, Joe? Do you know what it is at age, say, 67 or 70?

[Joe]

Yeah, at age 67, it'll be 44,784 per year.

[Mark]

Okay, so $45,000. Why are you making me work so hard? And what about 70?

[Joe]

I do not have that.

[Mark]

All right, don't worry. I'm going to just use the 45,000. Okay, so we got you at 37, 50amonth. Okay. So just to kind of make this nice and easy for you, between Social Security and your future pension, when you're 67 years old, you will have pre tax. I understand this is taxable, but about $5,100 a month in income that's guaranteed between Social Security and your pension. And, you know, I know that we probably need a little bit more money than that because you have to pay taxes on it. But you're there, so you're in great shape. It really is. It's a. You're in a fantastic situation. I think that, Carolyn, if you were like, you know what? I want to be done when he's done, or, you know, you can choose to work basically, if you'd like, you know, you can basically say, let's move someplace, I'll keep working till we get settled, let's see. Because you don't know, maybe you want to, maybe you want to have something to do while you are moving to a new place. But to me, there is like a great staged process here for the next couple of years. So next year, let's say you finish off the alimony, you max out your retirement, you then have this million and a half dollars. So from age 62 to age 67 or 70, but basically 62 to 70, 63 to 70, rather, you'll start pulling money, this is important, Joe, out of your retirement accounts. This is a, kind of a tricky thing because you hate paying taxes. But especially if you're living somewhere else where the tax, if there's state income tax is lower, this is just a great idea for you because your income will be really, really, you know, you'll be, have no income until age 65 at least, and you'll be in a lower tax state and you'll start pulling money out. And you could pull money out. You could pull out, I don't know, like you're used to paying tax at a 24%. You could pull out 150 grand a year and take that out of your retirement account that hasn't been taxed yet and do that until you claim Social Security. And I would encourage you, unless you have bad health, but it, you might want to wait till you're 70, but you'll pull that money out, you'll pay the taxes on it and you're going to live on it. And then as time goes by, you're going to have to keep taking this money out. Right? We're trying to get the money out of your retirement account before you are forced to do so by the government. Because if you don't take any money out between now and age 75, your distributions that will be required of you will be massive. So just to put this in perspective, Mark, could you do me a favor while you're there eating your bon bons, Take a million and a half dollars and grow it at a very modest 6%. 5, 6%. And then tell me in 13 years how much money will be in that account.

[Joe]

That would be $3,200,000.

[Mark]

Okay. Which is so much fun, right? Okay. So Joe, what happens? Let's say you're at 75. And this is not an exact science, but I'm going to tell you what it looks like to me. Is that if you do nothing with these accounts, you will be forced to pull out about $130,000 in that very first year when you're 75. And that money has to be taxed. So what we would like to do is make sure that the three it doesn't grow to 3%. We want to start pulling money out now when we know that you're not collecting Social Security even before the pension such should get the money out so that we're not compounding this problem. Does that make sense to you?

[Joe]

It does to some extent. I guess one of my thoughts was, and maybe you can provide your thoughts on this. If I'm showing little or no income, does it not make sense to convert some of that from the 401k into a Roth?

[Mark]

Sure, you could do either, but we got to get the money out.

[Joe]

Right? Right.

[Mark]

And so one way or another, you have. We need money that you going to live on.

[Jill Schlesinger]

Right.

[Mark]

So that is one part of why we want to take the money out. You could essentially, you know, again, you're saying you need about 60 grand a year. If you pulled out 100, let's say you pulled out 80 grand from the account and then converted the rest. You know, that brings you up to the top of the 24% or the 24% bracket. Right. Which would be about 200 grand next year. I guess you're single and so, yeah, I mean, you could do a combination of using the money to live on and converting both. Either one and both could work. But all I do know is we need to get that money out of that account.

[Joe]

Right. And would it not make more sense to try to stay in even a lower bracket and spread that Roth conversion over a number of years?

[Mark]

You may be able to just, you know, because you're single, if you MARRY this lady, Ms. Carolyn, it'll change. But if you're single, the 22% bracket, it stops at 100 grand. Any combination of that is fine. But I do think that 24 is about as good as you're going to get. And I would try to either pull out or convert as much as possible. I mean, look, the converting is nice because then it's a Roth asset. And it's just you guys are not going to spend all of your money if you decide that you would, like, prefer, like if you're going to get married or even if you don't get married and Carolyn is the beneficiary of your Roth. That is a much better asset for someone to inherit than a traditional ira, because Then the tax is already paid. Right. I feel very comfortable about this plan. Have you guys done estate planning for one another? Meaning that it's one thing that is not problematic but challenging, is that if you're not actually married, then you have to be able to tell the government where your money goes and you have to plan it very, very specifically for both of you. So have you done that yet?

[Joe]

I myself have a will.

[Mark]

Yep.

[Joe]

I believe that Carolyn is going to be working on one soon.

[Carolyn]

Yes.

[Mark]

There you go. Exactly. You just have to put it down on paper and, you know, make sure, you know. It's also weird sometimes I am not a. I'm not a person who's like, I don't want to be an alarmist, but sometimes it is weird if you're not married, like making a healthcare decision. Like if Carolyn, you said to me, oh, you know what, I want him to pull the plug. And you have children, you got to put that down on paper because otherwise they're going to have that choice. And if you don't think they can really do it because it's too emotional, put it down on paper.

[Carolyn]

That's a very good point.

[Mark]

Yeah, I know. Think about those. Yeah, exactly. So good luck in West Virginia, Tennessee, but mostly good luck to your bills. We are rooting for you.

[Carolyn]

Thank you.

[Mark]

All right, if you like, our very in love, Joe and Carolyn would like to talk through some plans for retirement. What you're considering, whether you can afford to stay in the high tax state of New York or California or wherever you reside. Give us a Holler. Go to jillonmoney.com, click the contact us button. Just write us a note if you want to join us live. Check that box and don't forget to sign up for the free weekly newsletter and check out all the content that lives on the website. You can subscribe to us on the Odysee app or wherever you find your favorite podcast. Please leave us a rating and review wherever you listen. And of course, put your hands metaphorically on someone's back or give someone a hug. Get permission. Some people don't like to hug. I just hugged the owner of the New York Islanders and I was very happy to be hugged by him. Change. Change your work. Change your wealth. Change your life. Thank you for listening. We'll talk to you tomorrow.

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[Jenna Fisher]

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