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- [00:00]
A
This message comes from Jill on Money sponsor Charles Schwab. Independent financial advisors focus on building a relationship with you that goes beyond your portfolio. As fiduciaries, they must act in your best interest always. The relationship they have with you will be based on transparency and trust, and they're committed to bringing you advice that fits your values. That's why Schwab is proud to support them. Visit findyourindependentadvisor.com hey gang, here's the thing about wine. Some of the best bottles are not sitting on a store shelf. They're being crafted at small independent wineries. But those wines can be so hard to find. Sometimes I wish I had a personal sommelier to guide me to find the best wines I normally wouldn't be able to access. Where's that handcrafted pinot that I've been craving with well, psalmsation's expert team seeks out incredible wines from top independent producers. These are bottles that you will not find in stores and on shelves. They aren't mass produced wines. They're handcrafted with care, using pure ingredients and meticulous winemaking. Whether you want a single bottle, a guided tasting experience, or an entire wine club membership, psalmsation makes it easy to elevate your wine experience. Shop their wines@psalmsation.com jillonmoney that's somsation.com Jill OnMoney welcome to the Jill On Money Show. It's Wednesday, November 19th and we are here talking about whatever is on your mind financially and it could be almost anything. Really. Anything that's like going on in your big life and also that touches your finances. That's kind of a big category of things you might want to give us a holler. Go to jill on money.com click the contact Us button which is in the upper right hand corner no matter where you are on our website. And then a form will pop up. You send us an email, write us a note if you want to join us live. You check the box. Now. Let me also direct your attention to our subscription service Jill on Money Live. Because tonight at 7 o' clock Eastern Time we are going to dive deep into year end tax and financial planning. But you have to be a member of our subscription Service. So by 3 o' clock Eastern Time today we need you to actually register and subscribe to Jill on Money Live. It will cost you 45 bucks. For the next 12 months. You will be part of our webinar. Tonight you'll get three more. There's all the back catalog of those past webinars there's audio content, video content. That's all behind this paywall. 45 bucks for the next 12 months, Jill on Money Live. So check it out. Okay? Today we are joined by Steve, who listens to us in Southern California. Temperature today, please. Steve, what is it supposed to be?
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B
70 degrees? It's probably only 62 at the moment.
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A
How nice that this is the time of year. You just got to love it. It's great. So, Steve, what brings you to us?
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B
Well, my wife and I have what we thought was a pretty good plan for retirement. And then I inherited, luckily, some money that I now have sitting in CDs. And our financial advisor has suggested that I put that into municipal bonds for tax efficiency. I like having cash on hand and safe cash. The stock market has done well for us and most of our assets are in a mix of stocks and bonds currently. And I just don't know really what to do with this. 500,000 in CDs. That's that.
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A
Okay, so just give us a little bit more of a background. How old are you, Steve?
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B
67.
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A
And your wife?
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B
65.
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A
Trick question, right? Grown kids, everyone okay?
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B
Yep, yep. Kids out of the house, doing well.
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A
Nice. Good. We know you have this half a million dollars in CDs. You also have other money. You said stocks and bonds. Is that in a retirement account right now?
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B
Well, they're, I think we have about $400,000 in Roth. Then we have $1,600,000 in IRAs, SEP.
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A
IRAs and stuff that has not been taxed. Traditional retirement funds.
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B
Correct.
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A
And is this half a million dollars the only money you have outside of retirement?
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B
Yes.
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A
And how are you surviving right now? During your, before the inheritance, what was the source of your income? How do you support yourselves?
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B
Well, I had a small insurance agency that I retired from two years ago and I've got some payout each year on that. And this current year is the last time that that will come out. We, along with that, the 2 million we have in the retirement account, we both are drawing Social Security. I just started mine and we have a lifetime joint annuity that pays us like $1,300 a month.
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A
Okay, and what are the two Social Security checks together? So I can just get a sense of the income.
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B
Right Now I get 3,300amonth and my wife gets 2,000amonth. So.
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A
Okay, so 5,300 is Social Security. 1,300 from the annuity, is that 1,300? Is that a non qualified annuity or a retirement annuity? In other words. Is that 1,300 all taxable or only partially?
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B
No, it's all taxable. We purchased it out of my SEP.
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A
All right, so you got $6,600 coming in pre tax. What is your need? What is the expense that you're trying to cover?
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B
Well, our plan was for like $9,000 a month equivalent through our lifetime.
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A
Okay.
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B
Starting this next year.
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A
And what do you mean your plan? Like you sort of like weird. We want it, but like, is there. Are you rethinking that plan or.
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B
Well, we, we've been frugal people. We don't know what to do with our money anyway. You know, our financial advisor has said, you know, with this inheritance you might try to, you know, could do other things, but even 9,000 is more than our need.
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A
Okay, all right, well that's good to know. So the real need is probably more like eight.
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B
Yes.
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A
Okay, great. So you're pretty darn close when it comes to, I mean, I know we're talking pre tax. I like to just know like nine is fine. I'm just saying, I'm just trying to gauge really, like what is it that you need? So you need kind of like 12 grand a month pre tax. Right. So we have to pay tax on it and then you'll get your nine grand net because you're in a high tax state. Right. So, you know, that feels like pretty interesting. Cause you got almost half of that covered through the Social Security and the annuity payment. Do you guys own a home?
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B
Yes, we do. It's probably worth 1.7 conservatively. We do have long term care each $300,000 of long term care insurance.
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A
Wow, that's great. That must be an old policy.
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B
It is. And I keep my fingers crossed that they don't. They haven't raised our premiums. Knock on wood.
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A
Yeah, it's amazing. Like, and, and you know, of course you keep paying it. You. This is what my mother says, do I have to pay the long term care bill? I'm like, yeah, ma, now's the time. We might actually need it. So, you know, you're probably not going to need it. I hope you never need it. I hope you just threw all this money away. That's always how I feel about long term care. It's like auto insurance. I pay for it, I hope I don't need it. So you got the house? There's no mortgage on the house?
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B
No.
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A
Okay. And that's it? Just one home? There's no rental property or vacation home anyway. You live in vacation land what am I talking about?
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B
Yeah, no, that's. You've got pretty much the whole picture, okay.
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A
Money in the bank, kind of like that. Like just cash on hand. Besides the 500 you inherited probably 100,000. And so right now you haven't had to really dip into any of your assets, right? Because, I mean, you turned on when you gave me the 400 Roth and the 1.6 in the IRA. SEP, blah, blah, blah. You are not including the annuity that's pumping out to you, are you?
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B
No.
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A
Okay, got it. So that's separate and apart from it. Okay. And right now, what. And you're really paying. You're really spending more like 8. Anything big coming up for you guys?
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B
No, we're going to. We have four grandchildren, and so we're going to do. We were thinking of doing 5,000 each, starting at 529, and maybe a. A thousand each year kind of thing.
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A
Okay, well, I mean, I think you're in really good shape. I. I'm not in, like, the. I'm not in any hurry for you to start giving money away and doing stuff, like, in a huge way. So we'll. We'll talk about that in a second. So before you inherited the money, what was the. Was the game plan once your income stopped from these trails, the business income, right, that you were going to. Were you going to pull money out of other. Out of that $1.6 million pot of money? Is that what the game plan was?
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B
Yes, yes. The 2 million that we have put aside, that's the game plan. Was Pull a mix.
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A
No, no, no, no. Wait, wait, wait. No mix. Keep that Roth. Do not touch the Roth. Okay, hyper focus on the 1.6. Okay? Leave the Roth alone. Keep going. He's already paid the tax on it. Let it go. We know that you have to take the money out of the 1.6 pile, right? And so that would be the one that I want to try to pull from initially or even, like, honestly, until you have to make your required minimum distributions because you want to drive that down. You want that to be the dollar amount that goes lower. Essentially, you need to set up a game plan again, forgetting about the inherited money. I would be looking at living on, let's say, another six grand a month from your traditional IRA and SEP ira. I would set something up with the financial advisor. If you like him or her, and you're going to stick around with these people, don't buy another annuity, but you want to set up a way that you can pull out six grand. A month from that ira, okay. From the traditional assets. And I would do that right now, basically, for as long as that money lasts. I would always pull money, money from that before the Roth. Okay. Now that's not going to kill you. You got 1.6 million in there. But you have to talk to your advisor about this because you need to set up this portfolio so that it is generating that six grand a month. So if it's all like in, you know, aggressive stocks, you'd have to know ahead of time, like, how you're going to pump the money out. Maybe you want like 70 grand every January just to come out to you so you have it. But that is absolutely. Would be my focus. And then what I think you're looking at is if you do that for a bunch of years and the numbers might keep going up, like, you might find that your cost of living is getting bigger, or there's more constraints for you, or you need to actually pull more money up, but that's fine. That traditional money will last you for a long time. Okay? And all we're trying to do is fund the gap between the $6,600 that you're currently making, which is pre tax. Right. And we just want to get more money to come out. So if I pull six grand a month out after tax, we've got the money you need that $9,000 a month. Okay. Now if you've pulled out too much money, you're like, oh, Jill, I only spent 7,500amonth. I don't care. It's fine. Don't worry about that. But don't touch the Roth. That Roth is like sacrosanct to me. It's so great. And I'd rather hold onto that for as long as possible. Again, it's already been taxed and we know you have to get the traditional money out. So now let's talk about the inherited money. Tell me what this, this money for you sounds like. Like a security blanket. Do you feel like it's warm and toasty? It's like I'm putting my little cashmere sweater on my. My beautiful, yummy blanket. Is that what it's making you feel like?
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B
You know, once you turn off the good old income?
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A
Yeah.
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B
Even though we had a plan, it still was unsettling. And then I. We inherited this money and, and it, it put my mind at. I mean, obviously we could reverse mortgage, worst case scenario. I mean, there are.
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A
Nah, you don't want to do. You don't need to.
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B
I'm just talking worst Case scenario. Okay, it is, it is warm and fuzzy.
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A
Okay.
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B
Another, another part of the suggestion besides the going municipal bonds was converting some money to Roth. I was thinking that about that.
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A
Yep. Okay, so let's talk a little bit now about our $500,000 security blanket. You know, if you want to feel warm and fuzzy, one way to do so once you retire is to have two years of your living expenses set aside. Right. I mean, there's, there's nothing that will make you feel like you can get through any sort of awful thing in the market. Like this will be a security blanket. Now for you, that's about 200 grand, right? So I could certainly see something where we say, okay, of the 500, let's make sure we keep 100 available, which gives you your 200 grand. I'm not saying you should keep it in a checking account. You can put it in a high yield savings account or you know, you can play the short term CD thing. But like, that should be safe for you and that should make you safe. Which gives us 400,000 left. Right. Okay, now here's your choices. Ready of that 400, are you ready to part with 40 grand for the grandkids, 529s or 20 grand or whatever it is you want to do? I'd rather you don't do like a thousand dollars a year. I think you should just decide what number you want to pick and front load it and be done with it. Let the parents on deal with it. Beyond that, I'd be fine with 5 or 8 or 10. Whatever you want to do. I wouldn't do more than 10 each. Don't commit to putting something in. You may wish to and maybe things are going great for you. But of the 400, let's just presume some chunk goes for 529. Planning for funding now we really need to think about whether or not you think converting and you and your advisor think that's worth it. So, you know, we, we know that you're going to pull money out of that traditional environment. The question is, am I better off converting or should I just pull the money out as I need it and keep this cash on hand? Let's say it ends up being 350 grand as like my security blanket. Because what will happen, I think, Steve, is that as soon as you convert, all of a sudden let's say that we've converted a bunch of money and now let's just pretend it's sort of like equalized, right? A million is in Roth and a million is in traditional and you have now had your security blanket get a lot smaller because you had to pay the tax it's due. I don't know if that's going to make you feel so great because as soon as the money goes into the Roth environment, it's harder for you to actually feel like, oh, that's available to me, even though it is. Okay, I get it, it is, but it's harder. So if you feel like it's more important, at least in the early going to have access to this money, I think you can talk to the advisor and say, hey, I get it, we live in a high tax state. And also you're going to be in a high tax bracket because you have $6,600 a month already. We're going to pull another six grand a month out. So you know you are going to be in the 22, 24% highest bracket plus California. So your advisor is going to have to run the numbers and see whether or not owning a municipal California municipal bond fund is a better deal for you than a taxable bond fund. The problem with the CD environment that your advisor is probably pointing out to you is that those rates are going to go down. And also by the way, they're taxable. Right. So the interest you receive, but that's just an easy calculation. So as I'm laying these options out to you, does it seem more important to keep preserve more of that inherited money outside of any investment environment or does it seem more important to you to convert and have the tax paid already?
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B
Keeping it out is more. I think you have a good finger on my temperament for risk and comfort. And yeah, I like having that money aside.
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A
And so the only.
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B
And also I was thinking if we're going to throw it into municipal bonds, I didn't really want to do it maybe necessarily through where I pay 1% to my advisor to have it sitting in municipal bonds.
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A
Can I ask you a delicate question, sir?
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B
Yeah.
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A
Are you having doubts about this advisor?
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B
No, I'm not. He's done well for us. He's a younger guy. I mean I was doing it all on my own and I really do like their planning. I do like, like they do advise for taxes and I'm just not sure of this move per se. I mean they told me to go into the, to buy this annuity probably seven years ago and I always had kind of issues of whether that was the right thing to do. But in general I do feel comfortable with him and they're very responsive.
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A
Okay, so here's What? I think, just because I'm hearing this from you, if you're feeling reluctant to put new money into. Under the structure of the municipal bond fund, I think that that might be a tiny yellow flag that I am hearing in you, okay. About whether or not this person's the right person for you. I'm not saying they're terrible. I'm not saying they sold you anything terrible. I mean, having an annuity sold from an advisor is always, like, a little sketchy anyway. Just generally spe. They can be good. They may not be so good, but maybe this is a moment where you have somebody else take a look, see at what you have and give you a second opinion. And you might find that you're in great shape and you stay exactly where you are. And you might find that someone says, wow, this annuity really stinks. You already did it. It's fine. And no, I don't think you should do municipal bonds, but I think you need a second opinion. And it's not me. Me and Mark. I think it is probably another professional. Now, if you don't want to do it, I get it. It's such a pain in the neck to change, but that is what I'm hearing through this. Is your wife on board with this current advisor? Or is this like, oh, it's your relationship and your wife sort of shows up?
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B
I think she's okay with everything we're doing. I mean, that's my. My sense is that she.
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A
Let's ask her. Give me the boss. Get the boss on the line right now. Hey, boss. How are you?
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C
Good.
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A
What do you think? You listening to all this? How are you feeling?
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C
I've been listening. Steve has done such a good job our whole entire lives saving money, getting us this far. I just trust him to have a good feeling about what to do and how to do it and.
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A
But he now sounds okay, so I agree with you. I think feelings matter, especially when you have the money. And what I am interested in you considering is like, God forbid, Steve, drop dead tomorrow. Is this guy, the advisor, somebody that you would feel good about?
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C
You know, I don't have a problem with him at all. I have a problem with anybody. Because you have heard about. I know it's so silly to bring up Bernie Madoff, but people trusted him, too.
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A
Totally agree. I totally. That's why I want you to feel good. Why? Because. No, not for nothing, Steve, love you. Hope you stick around forever, but chances are your wife is going to outlive you, and I want you to be happy. With whatever relationship is created with an advisor. So I'm going to listen, here's where we are right now. I'm going to, like, finish up this conversation with you when we get off the air. I'm going to send you the name of somebody that you may just look a second set of ears and eyes on the situation. You guys are in great shape, Steve, and you have done an incredible job amassing this money. The inherited money is that warm, comfy sweater that you can put on and share with each other. I would not be, you know, I think that you could put it in muni bonds. Of course, you can buy a California muni bond fund through a bazillion different places. So it's not an issue. But if you feel like now is a moment just to make sure that both of you are really on board with this person, the only way you can do that is to have a meeting with somebody else who you can talk to to see if both of you feel. Feel that comfort level. This is a great conversation. There's so many people having these conversations with one another. One person in the couple is always taking lead on these situations. Right. All I want to make sure is that whoever the survivor is feels comfortable. All right, Steve and his wife, go back to enjoying your beautiful day. And for everyone else listening, this is such an instructive conversation. Why? Because I am hearing. You know, I hear different things when I talk to people, right? You guys might think all I'm doing is writing down my notes, which I am. I'm taking all my notes. But what I am trying to do when I have these conversations with you guys is really listen for what I think is going on behind the scenes. Sometimes you guys don't even realize it, but I can hear it in your voice. My mother always likes to say, I like to talk to you. I want to hear your voice. Why? Because of this? Because you know things that are being said or unsaid. So if that's you and you need some, I don't know, like maybe just some level setting, give us a Holler. Go to jillonmoney.com, click the contact us button, write us a note. 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. And if you have not subscribed to Jill on Money Live tonight, tonight's the night, so please subscribe by 3 Eastern Time today. And you can do some beautiful year end tax and financial planning, you can subscribe to us on the Odyse app or wherever you find your favorite podcast. Please try to lift someone up. Change your work, change your wealth, change your life. Thank you for listening. We'll talk to you tomorrow. Your business identity is everything that shows what your business is about, from what customers see to what they don't see, like operating agreements, meeting minutes and compliance paperwork. Get more for your business, more privacy, more guidance and more free resources with Northwest Registered Agent Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They're the largest registered agent and LLC service in the us. Build your business identity fast with Northwest Registered Agent and get access to thousands of free resources, forms and step by step guides without even creating an account. Don't wait for protect your privacy. Build your brand and get your complete business Identity in just 10 clicks and 10 minutes. Visit www.northwestregisteredagent.com Jill Free and start building something amazing. Get more with Northwest registered agent@www.northwestregisteredagent.com Jillfree what's up world?
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D
Is Von Miller, Super Bowl MVP, chicken farmer and now host of Free Range. This is a show where I go off the field and off the script. We're talking what's hot in music, film, trending news and everything blowing up your feed. If you love football, you'll feel at home. But if you're here for the vibes, the Internet, deep dives, the conversation, this is your podcast. Join me every Wednesday. Follow and listen to Free Range with me Von Miller everywhere. You get your podcast.