Asset Location, Investing Property Sale Proceeds, and Maxing Tax-Free Retirement - 537

Summary

Your Money, Your Wealth Podcast Episode 537 Summary

Title: Asset Location, Investing Property Sale Proceeds, and Maxing Tax-Free Retirement
Hosts: Joe Anderson, CFP® & Alan Clopine, CPA
Executive Producer: Andy Last
Special Guest: Susan Brandeis, CFP
Release Date: July 8, 2025

---

Overview

In Episode 537 of the "Your Money, Your Wealth" podcast, hosts Joe Anderson and Alan Clopine delve into strategic financial planning with a focus on asset location, investment decisions regarding property sales, and maximizing tax-free retirement incomes. Joined by guest Susan Brandeis, CFP, the trio addresses listener questions with insightful analysis and practical advice, all while maintaining the show's signature blend of humor and expertise.

---

Kevin in Denver: Asset Allocation Between Roth and Tax-Deferred Accounts

Timestamp: [00:00] – [08:53]

Kevin's Inquiry:
Kevin from Denver seeks advice on whether to manage his Roth and tax-deferred retirement accounts independently or take a holistic approach to determine his overall asset mix. He details his current investment distribution:

• Total Investment Mix: 60% stocks, 30% bonds, 10% cash
• Roth Accounts: 90% stocks, 10% bonds
• Tax-Deferred Accounts: 53% stocks, 36% bonds, 11% cash
• Retirement Strategy: Utilize tax-deferred accounts first, then Roth withdrawals to manage tax brackets and inheritance considerations.

Notable Quotes:

• Big Al Clopine [03:11]: “...you want to put your assets that you think are going to Appreciate in your Roth because they're never going to be taxed again.”
• Susan Brandeis [04:43]: “Since a Roth account, when the money comes out, is taxed at 0%, you'd probably want to put your assets that you think are going to appreciate the most there.”

Discussion Points:

• Holistic Asset Allocation: The panel emphasizes the importance of viewing all retirement accounts collectively to optimize growth and tax efficiency.
• Asset Placement Strategy: Higher-growth assets like stocks should be allocated to Roth accounts to capitalize on tax-free growth, while more stable or lower-growth investments like bonds can reside in tax-deferred accounts.
• Long-Term Planning: Ensuring that the overall portfolio meets the required rate of return for retirement goals, adjusting the allocation to maintain a safe and efficient growth trajectory.

---

Jim and Pam in Orange County: Maximizing Tax-Free Strategies with Combat Zone Exclusions

Timestamp: [08:53] – [17:18]

Jim and Pam's Scenario:
A military couple with unique financial circumstances due to overseas combat zone assignments, allowing for combat zone tax exclusions. They aim to retire at ages 60 and 55, respectively, and are considering their investment strategies amidst low-tax environments.

Notable Quotes:

• Big Al Clopine [12:03]: “...because there's not that much in the Roth right now.”
• Susan Brandeis [14:30]: “Putting money into a Roth makes sense because it's never going to be taxed again.”

Discussion Points:

• Roth Conversions: Leveraging the low-tax environment of combat zone assignments to convert traditional IRA funds to Roth accounts, thus maximizing future tax-free withdrawals.
• Education Savings Alternatives: Evaluating the necessity of 529 plans versus the benefits of the GI Bill, which may cover significant education expenses, reducing the need for additional savings vehicles.
• Future Savings Strategy: Continued focus on Roth contributions and ensuring tax-efficient investments within brokerage accounts to maintain growth without unnecessary tax liabilities.

---

Ned in Tokyo: Deciding Whether to Sell a Bay Area Rental Property

Timestamp: [17:18] – [25:37]

Ned's Dilemma:
Ned and his wife are contemplating selling their appreciated rental property in the San Francisco Bay Area. They are evaluating whether to sell and invest the proceeds in a brokerage account yielding a conservative 6% versus maintaining the property for its current rental income and appreciation potential.

Notable Quotes:

• Big Al Clopine [22:17]: “You need about 83,000 from your portfolio, which is a 3.6% distribution rate... that's pretty good.”
• Susan Brandeis [20:32]: “In California, given that the property values tend to be higher, the cash flow doesn’t do as well as....”

Discussion Points:

• Cash Flow vs. Appreciation: The property currently yields a 1.7% cash-on-cash return, which is typical for high-appreciation areas like California but may not meet retirement income needs.
• Investment Alternatives: Selling the property could allow Ned to invest the proceeds in higher-yielding assets, thereby increasing retirement income flexibility.
• Management Considerations: Managing a rental property from abroad poses logistical challenges, potentially making the sale more appealing despite the loss of steady rental income.
• Strategic Decision-Making: The recommendation leans towards selling if improved cash flow and reduced management stress align with their retirement objectives, though maintaining the property remains a viable option depending on personal preferences and long-term plans.

---

Bob and Bridget in Wisconsin: Late Start on Roth Contributions and Retirement Planning

Timestamp: [25:37] – [34:07]

Bob and Bridget's Situation:
Bob, age 51, and his wife, age 49, are aiming for early retirement at 62 and 60, respectively. With a combined salary of $260,000 and a substantial 401k balance, they are questioning whether to prioritize Roth IRA contributions or continue their traditional 401k strategy.

Notable Quotes:

• Susan Brandeis [33:14]: “If this is for retirement, I would recommend putting it into the Roth because it's never going to be taxed again.”
• Big Al Clopine [31:55]: “I would just switch my traditional 401 into a Roth just to start building up that part.”

Discussion Points:

• Roth vs. Traditional 401k: Given their high salary and tax bracket, the panel advises increasing Roth contributions to benefit from tax-free withdrawals in retirement.
• Investment Growth Projections: With disciplined saving and a reasonable rate of return, their portfolio is on track to exceed retirement spending needs, even before accounting for Social Security.
• Diversification and Tax Efficiency: Emphasizing the importance of tax diversification to mitigate future tax rate uncertainties and enhance retirement income flexibility.
• Actionable Steps: Transitioning a portion of their traditional 401k to a Roth 401k, leveraging current lower tax rates to maximize future tax-free growth, and ensuring their brokerage accounts are invested in tax-efficient assets.

---

Conclusion and Final Thoughts

Throughout Episode 537, Joe Anderson, Alan Clopine, and guest Susan Brandeis provide comprehensive and tailored financial advice addressing complex scenarios. The key takeaways include:

• Holistic Financial Planning: Assessing all assets and accounts collectively to optimize growth and tax efficiency.
• Strategic Asset Location: Allocating higher-growth investments to tax-advantaged accounts like Roth IRAs to maximize tax-free returns.
• Adaptability to Personal Circumstances: Tailoring strategies to individual situations, such as military tax exclusions or managing properties from abroad.
• Proactive Retirement Planning: Encouraging early and diversified contributions to retirement accounts to ensure financial security and flexibility.

Notable Final Quote:

• Big Al Clopine [34:07]: “So for Susan Brandeis, myself and you, Andy, you just listen and are watched another episode of Your Money, Your Wealth.”

Listeners are encouraged to seek personalized financial assessments with Pure Financial Advisors to align their strategies with their unique retirement goals and financial landscapes.

---

Access More Resources:
For a detailed spitball analysis and access to free financial resources, visit YourMoneyYourWealth.com.

Transcript

[Andy Last]

You've got your tax free Roth accounts and your tax deferred retirement accounts. Should you invest the same way in each? Kevin in Denver wants to know. Jim and Pam in Orange county are eligible for combat zone tax exclusions. How else can they maximize their tax free retirement strategy until Joe Anderson returns next week? Susan Brandeis CFP Spitballs with Big Al Clopine CPA Today on youn Money, you, Wealth Podcast 537 Plus. Should Ned in Tokyo sell his Bay Area rental property and invest the proceeds? And Bob and Bridget in Wisconsin got a late start on Roth IRA savings. Should they be prioritizing saving in Roth brokerage account or 401k? I'm executive producer Andi Last with Susan Brandeis CFP and Big Al Clopine CPA. All right, next up is Kevin in Denver. He says hi Andy and the boys. It's been a while since I reached out and the retirement clock is ticking louder and louder. I I couldn't bear listening to myself. So I'm leaving it up to Joe or in this case Andy Bluf, which I believe is bottom line up front. Should the investment mix of our Roth accounts and tax deferred accounts be independent of each other or should I take a holistic view of all the accounts when determining a total asset mix? He says, I currently have a total investment mix of 60, 30, 10 stock to bond to cash. However, my Roth accounts are invested 90% stock, 10% bonds. When I subtract out all the Roth allocations from the total mix, this results in a more conservative 53, 36 11% mix in my tax deferred accounts. The wifey and I currently have 75% in tax deferred and 25% in Roths. She is invested slightly more aggressively due to her youthful demeanor. My spending plan is to use the tax deferred accounts first and delay tapping into the Roth only in years when a little bit of Roth withdrawal would keep us out of the next new tax bracket or Irma bump. I figured this will help me a lovely and younger bride when she eventually becomes a single taxpayer and could ultimately become another gift to my daughters when they take over the estate. Still drinking the barrel aged Imperial Stouts and driving the 98 Toyota Avalon. It's up to 350,000 miles but I'm picking up a new F150 Lariat tomorrow but so I'll have something to pull home on wheels when we finally say goodbye. The daily grind and we no longer need to sleep on the ground. Thanks as always for your Witty and wise. Spitball Kevin in Denver and then Big Al's additional information if relevant to your response since I know he reads these ahead of time. Yes, Kevin is definitely a longtime listener. $3.1 million in retirement. The house is paid off, value of 850k. Wife has a pension of 38k level for life and at age 66, plus Social Security of 15k. She is 55 and retiring at 60. His Social Security will be 53k at age 70. He's currently 61, retiring at age 63. 15k a year land rent in Dakota, which is also my extended care policy valued at 500,000 if I choose to sell it. Currently saving $66,000 a year into Roth and HSA spending about $129,000 per year. So what say you spitballers?

[Big Al Clopine]

Well, Kevin, well first of all, great question and I can't believe you drove an Avalon for 350,000 miles. And it's a Toyota, so duh. Right.

[Andy Last]

Yeah, those things will just go and go and go. But now he's in the Ford land, I guess.

[Big Al Clopine]

I remember when our kids were young, we got a Toyota Corolla station wagon and it was the little car. And as one of our friends said, well, it's a good car for a little family, which it was. And my sister in law, Donna, she said you should never buy a Corolla because they never stop running. You'll never be able to sell it.

[Susan Brandeis]

Is that what happened?

[Andy Last]

We did sell it after how long though, how many miles did it have when you sold it?

[Big Al Clopine]

Well, not that many. It was probably over a hundred thousand, but the kids got bigger so they didn't fit anymore.

[Susan Brandeis]

But it could have gone, kept going.

[Big Al Clopine]

A few, it could have. I'm sure it did for somebody for sure. Yeah. But it was, it was a four cylinder and going up Del Mar Heights Road, that was a little, that was a little tricky. I almost had to get out and push it. But anyway, it, it, it did run, it, it, it ran the whole way. But great question. So, so the question is, okay, I got Roth accounts, I've got deferred accounts. He doesn't mention non retirement accounts. Maybe he's got some of those. And do you kind of figure out your retirement strategy for each or do you do a holistic, is each account the same or what's the best approach? What do you think, Susan?

[Susan Brandeis]

Well, since a Roth account, when the money comes out is taxed at 0%, you'd probably want to put your assets that you think are going to Appreciate. So you'd want to put assets that are going to appreciate the most because they're never going to be taxed again. While in your tax deferred account, that's every dollar that comes out is going to be taxed at the highest of rates. You would want to put your assets that aren't going to appreciate as much because they're going to be taxed at that rate anyways.

[Big Al Clopine]

Yeah, yeah. Well said. And so when you think about, you know, probably the best way to approach this is to take a look holistically. Like what, what rate of return do you need on in your portfolio to make your retirement work? You know, is it 4%, 5%, 6%? If it's 11%, maybe you're not quite ready to retire yet, or maybe you got to work a little bit longer. So there's limits to this. But figure out a portfolio, the safest portfolio possible to be able to create that rate of return.

[Joe Anderson]

Right.

[Big Al Clopine]

So that's step number one. And then step number two is figure out where you have these assets. I got some in Roth and some in an IRA and some in a non retirement account. Do all three of those look the same? Maybe you came up with 60, 40, 60% stocks, 40% bonds. And the answer is no. As Susan just said, you want to put your higher performing assets or high expected performing assets in the Roth because you get rewarded for that growth by paying no tax. So what are higher performing assets? Stocks versus bonds. So bonds are safer. They're not as volatile, but they don't grow as much over the long term. Maybe you want to put those in your retirement account. Maybe you want to put your stocks in your Roth. You, you probably won't have it 100%, but you'll favor the stocks in the Roth. Of course you'll still put stocks in your IRA likely, but that's where you want your safer money, your more aggressive money in the Roth. Because over the long term you'll be happy.

[Joe Anderson]

Right.

[Big Al Clopine]

Because you're not going to pay taxes on those dollars. So I think it's a, you know, when, when we see clients and potential clients, it's so common to have exactly the same assets in each category.

[Susan Brandeis]

Yeah, it really is. And especially when you're accumulating, you know, you may not have the different pools of money, but then as you get closer into retirement and you build that up and you haven't looked at what the appropriate allocation is in each one. That's very common.

[Big Al Clopine]

Yeah. And I think the other thing that tends to happen is People like maybe they got an inheritance and so they, they, they think of this as different. They think of, maybe they think of it differently than what they might do for their other money. And it really, it's when, when it's, it's your money, when you're in charge of it. Think of it all together holistically.

[Joe Anderson]

Right.

[Big Al Clopine]

And manage it that way. It's not that. Oh yeah, I, or I just got, I just, you know, just got a, a restricted stock grant. I got all this money, so I'm going to invest this this way.

[Joe Anderson]

Right?

[Big Al Clopine]

No, it's all part of your portfolio. Take a holistic look. Right. And then figure out which assets should go into which category.

[Susan Brandeis]

Yeah, and I think that's really important because if you, you know, pick and choose what you think is important, you're missing that opportunity.

[Big Al Clopine]

Yeah. So we talked about like the Roth, you want to have higher expected return assets like stocks, maybe the regular IRA, 401k where you get taxed on the money that comes out. You don't necessarily want your highest growth there. What about a non retirement account, a brokerage account? What would you think about that?

[Susan Brandeis]

Yeah, so for a brokerage account you'd want to be invested in capital assets that get capital gains treatment. So that's one thing. And then also to, if you're in a higher income and you have fixed income it income in it, you'd want to look at using potentially like muni bonds that would have tax free income.

[Big Al Clopine]

Yeah, that's exactly right. And you probably, you probably will have some bonds in your non retirement accounts, but to the extent that you have them. Yeah, just go ahead and get municipal bonds if you're in a high enough tax bracket. That would be the way to think about that. But that's a great question and we get that all the time. And I'm Kevin, I'm glad you asked it and I'm stoked to hear your avalon made it 350,000 miles. And even more stoked to know you're getting a new car.

[Andy Last]

Perfect. Okay, the next one is from Jim and Pam in Orange County, California. And I realized after the fact, I think this is Jim and Pam from the office. Anyway, hi Big al and Joe. Three questions. Number one, requesting a retirement spitball analysis, assume 60 year old retirement timeline don't include Social Security. Jim and Pam say two, anything else I should be maximizing with my current tax free situation. Three, I have opted for after tax brokerage savings over a 529 plan because my effective tax rate is very low. And my kids will have access to my GI Bill. I prefer flexibility, but wanted your take on potential pitfalls with that strategy. My mother recommended the show to me about four years ago. Thank you, Mom. As I was getting into personal finance and I haven't stopped listening since. As an avid golfer and a Hawaiian vacation enthusiast, the big Alan Joe team is a slam dunk and a perfect way to deal with traffic.

[Big Al Clopine]

Yeah, you know, I think. Yeah, I think you found your right show, Jim.

[Andy Last]

Exactly. He says, I am 35 and my lovely wife is 36. We have two young children under the age of six. It would take less time telling you what we don't like to drink than what we do like. However, to keep it simple, we prefer Islay Scotch, Spanish Reds and just about any beer we drive. Two overseas beaters, a 2009 Toyota Highlander and a 2010 Mazda 5. I'm an active duty military officer with 13 years of service. Thank you for that service, Jim. And my whole family is currently entering year two of three of an overseas assignment in a combat zone tax exclusion zone which has presented some unique financial opportunities. I plan on retiring from the military at 20 years and picking up a new career. My wife has been in and out of the workforce but plans to return to work once we're done with overseas assignments. Assume we will continue to save at least $60,000 per year. Thanks for the spitball and for all you do. Here are the numbers. Combined Roth tsp 240k, Roth IRAs, 85k, traditional IRA none. As we were able to convert what little we had last year tax free. After tax brokerage 165K, high yield savings account, 25K. Total net worth $515,000. Income is 156,000 net. Thank you.

[Big Al Clopine]

C czte combat zone tax exclusion.

[Andy Last]

There we go. Annual saving $23,500 for the TSP, $14,000 for the two IRAs, $23,000 for the after tax brokerage for 60,500 total. No debt desired spending is 175,000 in today's dollar and military pension is $80,000 a year in 2032 future dollars and cola adjusted from Jim and Pam.

[Big Al Clopine]

Wow. Well, Jim, first of all, thank you for your service. Combat zone, that's pretty heavy duty. And maybe some of our listeners and viewers may not know, in a combat zone your wages are tax free. So that's why the wage, that's why the taxes were low. And therefore he was very clever. You know, when there's low taxes, you want to figure out what strategies could potentially work for you. And Roth conversions was perfect. Right?

[Susan Brandeis]

Yeah.

[Big Al Clopine]

Get that money into a tax free environment. So. Okay, well, first of all, I love questions from 35 year olds. 36 year olds and a 35 year old. 36 year old that has 500,000. So rounding.

[Joe Anderson]

Right.

[Andy Last]

Incredible.

[Big Al Clopine]

I, Jim and Pam, I did not have that. So congratulations. That's, that's, that's a great job. And furthermore, Susan saving 60 grand a year. Yeah, that's. Are you saving that?

[Susan Brandeis]

No, I'm not saying that.

[Big Al Clopine]

I put her on the spot anyway.

[Andy Last]

Hey, at least she's honest.

[Big Al Clopine]

Yeah, well, and I wasn't at that age either anyway, so. Okay, well, Jim, I did a little math for you. Okay, so here's what I did. You start with $515,000. I said 25 years. You said you wanted to retire about 60. I did a 7% rate of return favoring. I often do 6% to be more conservative. But 7%, just because you have a longer timeframe adding $60,000 a year, you end up with those assumptions of 6.5 million. So that's a pretty hefty sum. But we always got to compare that to what your goals are. And you want to spend 175,000 in today's dollars 25 years from now at a 3% inflation rate, believe it or not, that's $370,000.

[Joe Anderson]

Right.

[Big Al Clopine]

And so we'll take the $370,000 that you want to spend with subtract your military pension. I inflated that. I get about $135,000. Ish, something like that. So you're short spend $370,000. Fixed income, $135,000. You need $235,000 from your portfolio at 6.5 million portfolio. Your distribution rate, so we divide the two together is 3.6%. It's below the 4% that we like to see. This looks very, very good to me, exactly what you're doing. Even if you were a little bit higher. I would say anyone that can save $6 million can sort of write their own retirement. Even if you spend a little bit less or maybe a little bit more in certain years. But that's. I would say he's on track.

[Susan Brandeis]

I would say he's on track. I would agree with you too.

[Big Al Clopine]

So what about. Is there anything else that he should be doing for they should be doing in their current tax situation? What do you think? Anything come to mind?

[Susan Brandeis]

Well, one thing I do see is about the 529 and the GIA bill.

[Big Al Clopine]

Okay, okay. And that was actually the next question, so we'll go right to that. So 529 plan.

[Joe Anderson]

Right.

[Big Al Clopine]

Which is putting money in for your, your kids in college. 529 Plan, how does that work, Sue?

[Susan Brandeis]

So how it works is you put the money, you put the money in and it's going to grow tax free. And then when you use it for qualified education expenses, it's not taxed.

[Big Al Clopine]

Got it.

[Susan Brandeis]

And if you were to take it out for that isn't for qualified education expenses, then the gain on it will be taxed on your income and you'll get a penalty.

[Joe Anderson]

Right.

[Andy Last]

Okay, so then how does the GI Bill work? Because he's saying he's got that over and he's suggesting using that since the kids will have access to that. So the 529 is not necessary.

[Susan Brandeis]

Well, and here's the thing. For the GI Bill, for the public, if you're going to an in state university, it's free tuition and then for a private university it'll pay up to about 30,000 per year. So if you're looking at what the appropriate amount to save, if your kids are going to plan on going to a state university, then there may not be anything to save up for to pay for that.

[Joe Anderson]

Right.

[Big Al Clopine]

So in that case, the 529 plan wouldn't necessarily be needed.

[Susan Brandeis]

Yeah, wouldn't be needed. Now if you wanted to go to a private school that's going to be more than the 30,000, then it may make sense.

[Joe Anderson]

Right, right.

[Big Al Clopine]

So anyway, it's not a complete answer, but it sort of depends upon what your goals are longer term. So that's why you do 529 plan is if you, the kids really would be thinking of going to a private college or maybe out of state college where it's going to be more than $30,000, maybe that's the right way to go to get someone there. But yeah, G.I. the G.I. bill is, it's a great thing.

[Susan Brandeis]

It really is.

[Big Al Clopine]

And there's a reason for that, is because look at what he's doing. He's in a combat zone.

[Susan Brandeis]

Yeah.

[Joe Anderson]

Right.

[Big Al Clopine]

Protecting us.

[Susan Brandeis]

Yeah. I can only imagine where that is.

[Big Al Clopine]

Yeah. So anyway, I, I commend you, Jim. I think what you're doing is great. Keep it up.

[Andy Last]

Is there anything else that they should do tax wise?

[Big Al Clopine]

Yeah, we don't have a lot of suggestions just because he's doing everything so well.

[Joe Anderson]

Right.

[Big Al Clopine]

But to the extent that he's got $165,000 in a brokerage account, maybe make sure that's tax efficient, right? Maybe make sure you've got index funds over mutual funds. Index funds generally are or ETFs, that they're more tax favored when when you get out of the combat zone and your pay is higher in a higher tax bracket. Maybe you get some municipal bonds. So you know there's some things that you can do there. But I would say by and large, keep doing what you're doing. It's great.

[Andy Last]

Taking the wrong actions during a recession can have a negative impact on your investment portfolio and can take decades to recover from, maybe even delaying your ability to retire. Watch how to Build a Recession Proof Portfolio on YMYW TV and download the companion guide for free from the podcast Show Notes. Learn the signs of a recession, how to position your portfolio accordingly, and how to be prepared to grow your wealth regardless of the economy and market conditions. Click or tap the links in the episode Description to watch how to Build a Recession Proof Portfolio on YMYW TV and to download the companion recession Protection Guide. All free. All yours, courtesy of your money, your wealth and pure financial advisors. Okay, our next question comes from Ned, who is in Tokyo, Japan. He says, hi Joe and Al. We would love a spitball on what to do about our rental property in the San Francisco Bay Area. My wife and I make a combined $400,000 a year. My wife doesn't drink, but I occasionally drink a Kirin beer. And where of course it makes sense you're in Tokyo.

[Big Al Clopine]

Yeah, that makes sense.

[Andy Last]

I'm 55, planning to retire in one year and the wife is 54, plans to work another four or five years. We have financial investments of $2.3 million, half a million in a Roth IRA, 1.2 in an IRA.4 million in a brokerage account, 350k in 529 for two kids that are 19 and 17, and 148k in a savings account, he says. We have two rental properties. One of the properties we bought for $420,000. The rental property is currently valued at a million with two and a half years of mortgage remaining 52,000 at 2.75% interest rate. We'll collect rental income of 34,000 annually, pay 9,000 in expenses and insurance, and 8,000 in property tax. Question Would it make more sense for us to sell the property, invest the proceeds about $800,000 after commissions and taxes, et cetera, and in a brokerage account earning a conservative 6%? The income generated from investing would far exceed the income generated from renting the property Out. We'd appreciate a spitball from you. Thanks. In additional information that he forgot to include, we have no pension but expect to collect Social Security when we're in our late 60s. So that'll be about $50,000 a year. We have rental income from our second property of about $20,000 a year. After expenses, we expect to spend about 120k per year in retirement when the kids leave for college and we have an empty nest. I love listening show and get a lot of value listening to other people preparing for their retirement. Thanks.

[Big Al Clopine]

So, Ned. Well, first of all, Tokyo. That's pretty cool. I'm actually going there next week.

[Andy Last]

Perfect.

[Big Al Clopine]

On vacation. Maybe we'll run into you.

[Andy Last]

So it's not a big place or anything else.

[Susan Brandeis]

Could you imagine if somebody just saw you in Tokyo?

[Big Al Clopine]

Well, yeah, I wouldn't expect that.

[Susan Brandeis]

Oh, I can't wait to hear. I can't wait to hear what happens.

[Big Al Clopine]

But I do like Kirin beer, so. Perfect. Do you like Karen beer? I do, yeah. Kind of a lighter beer.

[Susan Brandeis]

It is a lighter beer, yeah. Refreshing.

[Big Al Clopine]

Yeah, Refreshing, Yeah. Yep.

[Susan Brandeis]

More sophisticated beer.

[Big Al Clopine]

More sophisticated. Okay, I'll go with that. So rental properties, this is a lot of, a lot of people have rental properties and they do rather well.

[Joe Anderson]

Right.

[Big Al Clopine]

They buy a property particularly in this case in San Francisco area, California. Most places in California have done rather well rental property wise. And you know, maybe you could talk about a rental property. You know, cash flow is properties in California, do they generally have pretty good cash flows or pretty poor cash flows or what would you say?

[Susan Brandeis]

I would say in California, given that the property values tend to be higher, the cash flow doesn't do as well as let's say Texas or places where the assets aren't as high. But there is appreciation in California when you buy a house. If you look at long term, you know, it does appreciate. So there's two parts, there's the cash flow. California usually doesn't cash flow as well. But there is appreciation which is tend to do better than other parts of the country.

[Big Al Clopine]

Yeah. In this example, he bought the home for 420,000 and now it's worth a million. Yeah, I would say that's a pretty good appreciation. Yeah. So I think the way you want to think about this is do, do do a little bit of numerical analysis, Right. So look at your income versus your property value. So you tell us that you, you're collecting 34,000 of income, 9,000 expenses and 8,000 in property taxes. So you're netting about $17,000 and your property is worth a million. Okay, well, that's not too hard math that that's a 1.7% cash on cash. So is that good or bad? It's typical for California, but it's not a very good asset for cash flow, for, for retirement, if that's what your goal is. And this is what happens a lot when people invest in areas like California where there's a lot of appreciation and they never want to sell.

[Joe Anderson]

Right.

[Big Al Clopine]

They don't want to pay the tax, they never want to sell. And the problem with that is you then have this appreciating asset that will benefit your kids, but you're not necessarily benefiting from that with the lower cash flow. And I'm not saying that's the wrong answer. Maybe that's the right answer. Maybe you're, you're fine with the cash flow. But generally in high appreciating states like California, you do better selling or you, you do better doing a 10:31 exchange into a property, maybe out of state, or a triple net lease that has a better cash flow or maybe an apartment.

[Andy Last]

That was going to be. My question was whether or not it makes sense for him to actually sell that asset and buy something in another state that would actually produce more income.

[Big Al Clopine]

It could be. And I've, I've owned out of state and I've owned apartments and both have their headaches.

[Andy Last]

Yeah, I guess that's the other question. Do you want to manage a property anywhere in the United States when you're in Tokyo?

[Big Al Clopine]

Yeah, well, especially that.

[Joe Anderson]

Right.

[Big Al Clopine]

So, so, so, but, you know, just doing a little bit more math, I, I looked at your situation just based upon what it is right now, and, and you want to spend about $120,000 a year. So that's cool. And if you, if you don't sell either one your rental properties, you're netting $17,000 on one, $20,000 in another. So you need about 83,000 from your portfolio. Divide that into your total assets of about 2.3 million. That's a 3.6% distribution rate when you do retire. Yeah, that's, that's pretty good. You don't necessarily need to sell, but if you do sell, the cash flow will be even a little bit better. So it just depends if you'd like to spend a little bit more and have a little bit more cushion, then you might consider selling either paying the tax, cashing out, and, and, you know, then, you know, we talk about a 4% distribution rate on your assets instead of what you're getting, which is 1.7. 4% is better than 1.7, Andy, no matter how you do that.

[Andy Last]

Yeah, no question.

[Big Al Clopine]

But I guess. I guess what I'm saying is he doesn't have to sell, because I think it works either way.

[Susan Brandeis]

Yeah, no, he doesn't have to sell. And if it's peace of mind or there's something you're keeping up at night, then, you know, it may make sense. But as far as getting him to retirement, it works.

[Big Al Clopine]

Yeah, it kind of looks good either way. So if it were me, because I own real estate for a long, long.

[Susan Brandeis]

Time, and you like.

[Andy Last]

And you were in Tokyo.

[Big Al Clopine]

Yeah, and I was. And I was in Tokyo, I would sell. It's a lot of hassle. I probably. I probably would. I'd swallow hard on the taxes, but I might consider that. Or I might consider triple net lease or Delaware statutory trust. That's a whole nother category that you can sort to go into.

[Joe Anderson]

Right.

[Big Al Clopine]

But. But at any rate, yeah, there's, there's. There's different options to, to. To. And I keep looking at the wrong camera, don't I? But that's okay. Yeah, no, you're in a great position. I don't think you have to sell. I think you can keep them both if you want to. But if you want a little bit better cash flow, a little more cash to work with, maybe a little bit easier retirement in terms of flexibility, in terms of less stress, because landlord. Landlording has a certain amount of stress, then, yeah, I think selling is great. But I don't. I don't think. I don't think you have to.

[Andy Last]

The next one is from Bob and Bridget in Wisconsin. Love the show. Somewhat new listener over the past six months. Well, thank you, Bob and Bridget. I enjoy the occasional cold beer, any kind, really. My wife loves a mimosa, preferably with her feet in the sand of a Caribbean beach. In the white sand of a Caribbean beach. Found your podcast as a recommended podcast in my Apple podcasts app. I'm 51, wife is 49, looking forward to retirement sooner rather than later. Here's the data. I have 1.7 million in 401k, 40k in a Roth, 401k, 50k in a brokerage, and 110k in a cash or money market account. My projected Social Security at 62 would be $26,000 a year. My wife's at 62 would be 21,000 a year. My wife also has a pension that she could start collecting at 57, which will be 23,000 a year. Continue to put 30,000 a year into my 401k and Roth 401k combined with a 5% employee match. Combined annual salary of 260k. The house is paid off, the kids are gone, and my only debt is my truck and are SUV loans at a combined 1100 dollars a month for another 3 or 4 years. Would like to shoot for retirement at 62 for me and 60 for my wife a year or two earlier, if possible. Annual spending is estimated at 150k. Is that doable? Also, I got started late with Roth contributions through my 401k at work. Should I be focusing more on funding that now rather than my traditional 401k or fronting my brokerage or another account? Or should I just keep putting it in my 401k? I've read differing opinions on this, but you all seem to favor the Roth. Of course. I appreciate your spitball analysis. Thanks.

[Big Al Clopine]

All right, Bob and Bridget in Wisconsin, great questions, a whole bunch of them. So maybe let's, let's tackle the first one, which is, is this doable? And sue for this. I did a little math.

[Susan Brandeis]

Okay.

[Big Al Clopine]

So. So if, if you just kind of. So I, I think the Bob want wants to retire in about 11 years, right? He said 62 and he's 51 now. So I just took current assets of 1.9 million, 11 years at a 6% rate of return, adding about 30,000 a year. I get about 4 million, which is another gigantic number.

[Joe Anderson]

Right.

[Big Al Clopine]

But you always have to compare it to your expenses, right? And so your expenses, in this case, you want to spend about 150,000 in today's dollars. 11 years. I just did a 3% inflation rate. You could do more or less, whatever. So I get about 210,000, right? 210,000. Minus your pension, which I didn't even include Social Security yet. I just said pension. I get 32,000 index for inflation. I get, I get, I don't know, about 178,000 shortfall. That's what you need from your portfolio. Divide that into 4 million, you get about 4.4, 4.5%, which it's not quite at the 4% that I would like to see. However, I haven't even included Social Security. So I think when you consider Social Security, Sue, I think it's. I think it looks just fine. And you know, when you're Talking about something 11 years out, it's hard to know exactly what you want to spend. And what tends to happen is people, people will spend what they can, and if they can take one vacation instead of three, then, then that's what they do.

[Susan Brandeis]

Yeah. Or as they get closer and they want to take three vacations, they may see it may make sense to work longer or they'll adjust to make sure that they can do what they want in retirement.

[Big Al Clopine]

Yeah. And I think a lot of people, they, they retire and then they, they figure, you know what, it's, I don't really like playing golf every day or I'm trying to figure out what to do.

[Joe Anderson]

Right.

[Big Al Clopine]

Andy. So it's like maybe I want to work part time and that can help things a little bit too.

[Andy Last]

Is this someplace where maybe doing a test drive of retirement might make sense? Try it a little bit or back off on the amount that you're working or something like that to see how it goes first?

[Big Al Clopine]

Yeah, I think that's ideal for almost anybody if they have the ability. Now, not all jobs have the ability to so called test drive your retirement.

[Joe Anderson]

Right.

[Big Al Clopine]

Which basically means what if you could work halftime for a while instead of full time or 10 hours a week and try it out.

[Joe Anderson]

Right.

[Big Al Clopine]

And see how it works. And maybe you like it, maybe you don't, maybe you continue working part time, Andy. Because that can be a good way to go to help supplement retirement and keep your mind sharp.

[Joe Anderson]

Right.

[Big Al Clopine]

And give you a purpose to get up. All these things I think are really important.

[Andy Last]

And as you're earning a little bit less and it's giving the opportunity to see how it is that your assets are going down during that time, you can see how it feels psychologically as well.

[Big Al Clopine]

Yeah. And a lot of times, like, like if you're wanting to spend, let's say $150,000 or $200,000, whatever the number is, and you realize, well, maybe I can't really quite do that. Okay. I don't want to work full time, so I'm going to figure out how to spend a little bit less. Yeah, that, that happens all the time too. Yeah. Okay, well, let's. So he got started with roth conversions. His 401at start a little bit late.

[Joe Anderson]

Right.

[Big Al Clopine]

So his salary is about 260,000. Should he be focusing more on like a Roth 401K or traditional? What do you think, Sue?

[Susan Brandeis]

Well, given that the majority of his liquid assets are in a roth, he has one point in a 401k is 1.7. It would make sense to start diversifying out of the pre tax that's going to be taxed at the highest of rates and start moving money to a Roth. So either Doing it with conversions or through the 401k. Or both.

[Big Al Clopine]

Yeah, or both. Yeah, I would agree with that. You think of. You think of 1.7 million, really, over time, maybe over another 10 years, it could double.

[Joe Anderson]

Right.

[Big Al Clopine]

So it could be. You could be three and a half million or so, maybe approaching four million. And RMD required minimum distribution on a $4 million retirement account.

[Joe Anderson]

Right.

[Big Al Clopine]

That. That would be about $160,000 a year, plus your Social Security, plus your pension, plus whatever other income you have. So just think about that. I agree with you, sue, because, I mean, $260,000 is a high salary. It's really, really good. However, our current tax rates right now are. They're lower than they've been actually for my entire career.

[Susan Brandeis]

Oh, really?

[Big Al Clopine]

Yeah. Which at that salary, it's in a 24% tax bracket. 24% tax bracket. I mean, this, a few years ago would have been in the 28% bracket, plus it probably would have been subject to alternative minimum tax, potentially, which could have been even a higher bracket. Yeah. So I like the idea right now of taking the current dollars in the 401 and putting more in the Roth, maybe even 100% in the Roth to build that up, because there's not that much in the Roth right now.

[Andy Last]

So you're talking specifically about contributions, though, or are you talking about converting 100%?

[Big Al Clopine]

Could do either. But the trick with the hard part about that is there's not unlimited resources, Andy. To pay the tax.

[Andy Last]

Exactly. Yeah.

[Big Al Clopine]

And because of that, I probably wouldn't do a lot of conversions right now. I would just sort of switch my traditional 401 into a Roth just to start building up that part. That's what I would probably do.

[Andy Last]

Yeah.

[Susan Brandeis]

If you imagine, if you started now in 11 years, what would be in building up the Roth?

[Big Al Clopine]

That'd be. Yeah, it'd be amazing. Yeah. So. Or funding my brokerage accounts. We get this question a lot, too, which is, should I fund a brokerage account or put the money in a Roth?

[Susan Brandeis]

You know, it depends if it's. If this is for retirement, I would recommend it putting in the Roth because it's never going to be taxed again. If you're saving for, you know, at an event or a time, then in the next few years, then I would put in a taxable account and a brokerage account. But definitely if it's for retirement, putting it into a Roth because of that. Tax free.

[Big Al Clopine]

Yeah. So like, if it's for a down payment for a home or for maybe.

[Susan Brandeis]

For like a kid's wedding or big, you know, whatever.

[Andy Last]

You gotta buy a car, trip to Japan, something.

[Big Al Clopine]

Trip to Japan, gotta go to Tokyo.

[Susan Brandeis]

Big expense. Then if it's something that I need before retirement, then I would put it in a brokerage account and make sure that it's invested in a capital asset or something that's going to get tax treatment. Preferential treatment.

[Big Al Clopine]

Yeah, because I guess paying zero tax is better than capital gain.

[Susan Brandeis]

Yeah, it is.

[Big Al Clopine]

I like the zero tax rate. That's a pretty good rate. Well, so Bob and Bridget, hopefully that helped you out a little bit. And Andy, I guess that's going to do it for us. And what a pleasure to have you reading the questions. I would say it's more succinct and understandable but not quite as funny.

[Andy Last]

But no, exactly. Yeah.

[Big Al Clopine]

But it was really fun to have you read the questions and it was fun for us to answer them. Yeah.

[Andy Last]

Thank you. And Susan Brandeis, cfp, thank you so much for joining the show today.

[Susan Brandeis]

Thank you for having me. It was great.

[Big Al Clopine]

Yes. So for Susan Brandeis, myself and you, Andy, you just listen and are Watched another episode of youf Money, you, Wealth.

[Andy Last]

If all goes according to plan, we're finally getting the band back together next week with Joe and Big Al and me. Just like it was before. Tell a friend Leave your honest reviews and ratings for your Money, you, Wealth and Apple podcasts and jump into the comments with me over on our YouTube channel. Links to all of them are in the episode description. You Money, you, Wealth is presented by Pure Financial Advisors. A retirement spitball is great, but it's not a complete, complete financial plan. Schedule a free and thorough financial assessment with one of the experienced professionals on Joe and Big Al's team at Pure and learn whether your plans align with your retirement needs and goals, whether your investments are aligned with your risk tolerance, how to minimize your taxes in retirement, and more. Whether you want to meet in person at one of our 12 nationwide locations, or if you'd rather have a face to face meeting from your home office via Zoom. You can book yours now by clicking or tapping the free financial Assessment link in the episode description or give us a call 888-994-6257. Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this podcast and does not represent that the securities or services discussed are suitable for any investor. As rules and regulations change, podcast content may become outdated. Investors are advised not to rely on any information contained in the podcast. In the process of making a full and informed investment decision.