Bonds and Annuities, Social Security and Retirement Spending - 508

Summary

Podcast Title: Your Money, Your Wealth
Hosts: Joe Anderson, CFP® & Alan Clopine, CPA of Pure Financial Advisors
Episode: Bonds and Annuities, Social Security and Retirement Spending - #508
Release Date: December 17, 2024

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Introduction

In episode #508 of "Your Money, Your Wealth" (YMYW), hosts Joe Anderson, CFP®, and Alan Clopine, CPA delve into critical retirement planning topics, including the roles of bonds and annuities in investment portfolios, strategies for optimizing Social Security benefits, and effective retirement spending management. The episode features insightful discussions with multiple callers, each presenting unique financial scenarios and questions.

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Caller Discussions

1. John from Pennsylvania: Should He Add Bonds to His Portfolio?

(00:00 - 05:00)

John, a 61-year-old nearing retirement, reaches out with concerns about his investment portfolio, which currently lacks bonds. His assets include $2 million in 401(k)s and IRAs, $500,000 in Roth accounts, $200,000 in cash, and $3 million in brokerage accounts—all heavily weighted in equities.

Key Points Discussed:

• Asset Allocation: Both Joe and Al assess whether introducing bonds into John’s portfolio is necessary, considering his near-retirement timeline and low distribution rate of approximately 2.6% based on his projected withdrawals.
• Tax Efficiency: Al suggests favoring taxable accounts for bond allocation, recommending municipal bonds (munis) for their tax-free income benefits. This strategy could facilitate Roth conversions by minimizing taxable distributions.
• Risk Tolerance: Given John’s substantial liquid assets and history of successful equity investments, Al notes that John may have a higher risk tolerance and might not require immediate bond allocation.

Notable Quote:

Joe Anderson (03:53): "If you put that $1.5 million out of the $5.7 million, you're still heavily weighted in equity, so you're still participating in the growth."

Conclusion: While adding bonds could provide a safety net, John’s strong equity position and low withdrawal rate suggest that he may not need significant bond exposure at this stage. The hosts recommend a balanced approach, emphasizing tax efficiency and John’s comfort with his current investment strategy.

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2. Tiger and Lioness from San Diego: Managing Lifestyle Creep at Age 33

(07:01 - 13:32)

Tiger and Lioness, a 33-year-old couple with impressive portfolios totaling approximately $3.2 million, seek advice on managing potential lifestyle inflation (“creep”) as their income increases.

Key Points Discussed:

• Savings vs. Spending: The couple contemplates reducing their aggressive retirement savings to enjoy a slightly higher standard of living, questioning if this is sustainable.
• Overconfidence Bias: Al warns against the overconfidence that can stem from early financial successes, advising the couple to maintain disciplined savings despite their substantial assets.
• Long-Term Planning: The hosts highlight the importance of continuing to grow their savings to reach their target of $2.8 million in taxable accounts, ensuring long-term financial security.

Notable Quote:

Big Al Clopine (11:03): "I mean, I love the idea of maximizing your savings, but apparently he did really well with a certain stock. This is a concern I have though, ... be careful."

Conclusion: Joe and Al commend Tiger and Lioness on their financial achievements but caution them to remain vigilant against lifestyle creep. They encourage maintaining rigorous savings while allowing for some discretionary spending to balance present enjoyment with future security.

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3. Charlie from Castle Rock, Colorado: Balancing Social Security and Pre-Tax Withdrawals

(14:24 - 21:52)

Charlie, a 60-year-old single individual planning to retire at 61 or 62, seeks guidance on the optimal timing for claiming Social Security benefits amidst the need to withdraw from pre-tax retirement accounts.

Key Points Discussed:

• Distribution Strategy: Joe and Al analyze Charlie’s need for $84,000 annually, emphasizing the implications of withdrawing from pre-tax accounts versus the benefits of delaying Social Security.
• Social Security Timing: The hosts explain the financial trade-offs between claiming benefits early (at 62) versus waiting until full retirement age or beyond, considering delayed retirement credits and the impact on taxable income.
• Longevity and Tax Considerations: Al underscores the importance of personal health and longevity expectations in determining the best Social Security claiming strategy, while Joe touches on the tax benefits of delaying benefits to reduce taxable withdrawals.

Notable Quote:

Joe Anderson (19:03): "If he burns through some of that. Those assets until then he's going to have a lot larger fixed income."

Conclusion: Joe and Al advise Charlie to carefully evaluate his life expectancy and financial needs before deciding on the timing for Social Security benefits. They suggest running various scenarios to understand the long-term impacts of early versus delayed claiming, ultimately recommending a strategy that balances immediate income needs with maximizing future benefits.

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4. Worrywart Mom from Seattle: Helping Her 27-Year-Old Daughter with Student Loans and Savings

(22:27 - 26:56)

A concerned mother reaches out for advice on whether her daughter, a 27-year-old career changer, should focus on paying off student loans or saving for future goals amidst recent financial setbacks.

Key Points Discussed:

• Emergency Funds: Joe and Al commend the daughter for maintaining substantial cash reserves, ensuring financial stability despite career changes.
• Debt Management: The hosts recommend prioritizing the repayment of higher-interest student loans (4.5%) while continuing to contribute to retirement accounts to benefit from employer matches.
• Balanced Approach: They suggest a phased strategy—partially paying off loans while maintaining steady contributions to retirement savings, thereby balancing debt reduction with long-term financial growth.

Notable Quote:

Big Al Clopine (25:43): "There's no tax deduction. Well, actually there's a little tax deduction for it."

Conclusion: Joe and Al advise a pragmatic approach for the daughter, balancing aggressive debt repayment with continued retirement contributions. They emphasize the importance of securing employer matches and strategically managing loan repayments to ensure long-term financial health.

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5. Esther from San Francisco Bay Area: Early Retirement at 51

(26:56 - 32:17)

Esther, a 51-year-old house husband who recently retired, seeks feedback on her early retirement plan, which includes managing substantial assets and planning for future income needs.

Key Points Discussed:

• Asset Utilization: Joe and Al evaluate Esther’s robust portfolio, including investment properties and significant retirement accounts, ensuring her annual expenses of $21,000 are well-covered.
• Annuities and Fixed Income: The hosts discuss Esther’s use of annuities with Guaranteed Lifetime Withdrawal Benefits (GLWBs), cautioning about the inherent complexities and costs associated with insurance products.
• Financial Flexibility: They highlight the importance of maintaining liquidity and considering the annuities as part of her fixed income strategy, allowing for a balanced investment portfolio that can adapt to market fluctuations.

Notable Quote:

Joe Anderson (30:18): "So if you think of those guaranteed annuities as your bond allocation, I mean, I would probably take on a little bit more risk in the overall liquid assets because you have a pretty high floor in regards to fixed income."

Conclusion: Joe and Al affirm Esther’s solid financial standing, suggesting that her early retirement is feasible given her diversified income streams and asset base. They recommend viewing her annuities as fixed income components, allowing for greater investment flexibility and risk management within her liquid assets.

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6. James from Tierra Santa, San Diego: Retirement Planning with Annuities and Social Security

(33:40 - 39:38)

James and his wife, nearing retirement at 60, consult on their comprehensive retirement plan that includes annuities, Social Security, and aggressive Roth IRA conversions.

Key Points Discussed:

• Annuity Critique: Joe expresses skepticism about the reliability of annuities, emphasizing that insurance companies often benefit more than the policyholders.
• Income Strategy: Al and Joe review the couple’s plan to utilize annuities as a guaranteed income foundation while maintaining a significant liquid asset pool for flexibility.
• Retirement Feasibility: Despite Joe’s reservations about annuities, both hosts agree that James and his wife’s substantial assets and planned income streams position them for a comfortable retirement without the need to return to work.

Notable Quote:

Joe Anderson (37:12): "Because the insurance company always wins."

Conclusion: While Joe advises caution regarding annuities, he and Al conclude that James and his wife’s robust financial plan is sound. They acknowledge the couple’s strategic use of guaranteed income sources and liquid assets, affirming that their retirement goals are achievable without necessitating continued employment.

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Additional Insights

Throughout the episode, Joe and Al intersperse their technical advice with lighthearted banter and personal anecdotes, making complex financial concepts accessible and engaging. They emphasize the importance of individualized financial planning, considering each caller's unique circumstances, risk tolerance, and long-term objectives.

Key Takeaways:

• Diversification: Balancing equities with bonds or fixed income can provide stability during retirement but should align with individual risk tolerance and financial goals.
• Social Security Strategy: Delaying benefits can enhance long-term income, but requires careful consideration of personal health and financial needs.
• Debt Management vs. Savings: Prioritizing high-interest debt repayment while maintaining retirement contributions can optimize financial health.
• Annuities Caution: Annuities can offer guaranteed income but come with complexities and costs; they should be evaluated critically within the broader retirement strategy.

Notable Quotes:

Big Al Clopine (13:28): "I think that's, that's a good number because tax deferred will grow. So will Roth IRA grow."

Joe Anderson (21:52): "If you burn through some of that. Those assets until then he's going to have a lot larger fixed income."

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Conclusion

Episode #508 of "Your Money, Your Wealth" provides valuable insights into retirement planning, addressing common dilemmas such as asset allocation, Social Security timing, debt management, and the role of annuities. Joe Anderson and Alan Clopine deliver expert advice tailored to diverse financial situations, underscoring the importance of personalized strategies in achieving a secure and enjoyable retirement.

For more detailed financial guidance and personalized advice, listeners are encouraged to visit YourMoneyYourWealth.com and access free resources or request a retirement plan spitball analysis.

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Note: This summary is intended for informational purposes and does not constitute financial advice. Always consult with a certified financial planner or advisor before making significant financial decisions.

Transcript

[Andi Last]

John in Pennsylvania does not have bonds in his investment portfolio. Should he add them and if so, where? That's today on youn Money, you wealth podcast number 508. Plus Joe and Big Al spitball on retirement plans for James and Tierra Santa California who has $4 million plus annuities Esther in the San Francisco Bay Area who has a nearly $12 million net worth and Tiger and Lioness who wonder about a safe level of lifestyle creep. Also, Charlie in Castle Rock, Colorado has an exciting new question on how to balance collecting Social Security with making withdrawals from his pre tax retirement account for living expenses and a worry warp mom in Seattle asks whether her 27 year old daughter should focus on paying off her student loans or saving for the future. To ask your money questions or to get a retirement spitball analysis of your own, click the link in the episode description to ask Joe and Big Al on air. I'm executive producer Andi Last and here are the hosts of youf Money, you, Wealth, Joe Anderson, CFP and Big Al Clopine CPA John and Pa.

[Joe Anderson]

He goes hello Joe, Al, Andy, long time. First time. I'm 61 years old and my wife is 58. We don't drink much. When we do, it'll be some of Pa's youngling beer. What's that called again?

[Andi Last]

I believe it's Yingling, but I think you did it pretty good on the first shot.

[Big Al Clopine]

Yeah, me too.

[Joe Anderson]

My wife drives a 2024 Lexus 350 Hybrid and I'm still driving that 2020 Honda Odyssey. I have a question on bonds. We don't have any bonds in our portfolio. Here's the breakdown of our investments. Joe and Al will be proud of our asset locations. The assets are equally almost owned by my wife and I. $2 million in 401 s IRAs, $500 in Roth and 200,000 in cash. 3 million in brokerage accounts. None of these accounts have bonds. We are retiring in 2025 in 2026 or we are retiring in 2025 and 26. We spend $80,000 a year for our basic needs and we'll want to put another 50,000 to travel so we'll need to withdraw 150 a year. Well, $80,000 and $50,000 is not $150,000.

[Big Al Clopine]

Well, I think he's adding more for tax maybe.

[Joe Anderson]

Okay. We will be in the accumulation phase and not sure where to add bond or bond funds. Should we put in the brokerage accounts or the tax deferred IRA accounts? We'll also be doing Roth conversions starting in 2025. Okay.

[Andi Last]

That's it.

[Big Al Clopine]

Yep, that's it.

[Joe Anderson]

All right. So he wants to know.

[Big Al Clopine]

Yeah. Where'd he put the bonds?

[Joe Anderson]

Well, he's got $6 million, roughly five and a half million dollars of total liquid assets.

[Big Al Clopine]

Yeah.

[Joe Anderson]

And 100, let's see. Well, he wants.

[Big Al Clopine]

If he wants $150,000 and a 5.7, it works out to about 2.6% distribution rate. So that's good.

[Joe Anderson]

130. He doesn't need bonds if he doesn't want them. Yeah, but.

[Big Al Clopine]

Yeah, some people just don't like them. If it were me, I would probably favor getting my distributions out of my taxable account, which wouldn't cause a lot of taxation. So I could do more Roth conversions, which would mean I might want my bonds in the taxable account. In that case, I would do muni bonds. So they're tax free. That's. That's what I might do in this situation, I guess.

[Joe Anderson]

So onto the $5,700,000. Let's see. Here's an option. Yeah, I like that, Al. I think I would do in the non qualified account. So here's the allocation that might make sense for John is that he wants to spend $130,000. He says 150, so it doesn't matter. But let's say you put that 150, you have 10 years of safe money.

[Big Al Clopine]

Right.

[Joe Anderson]

So that's 1.5 million out of the 5.7. So what's that, 20, 25% in bonds, you're still heavily weighted in equity, so you're still participating in the growth. But let's say if the market tanks over the next 10 years, you still have that safety valve that you can pull that for your income and, you know, let your equities recover.

[Big Al Clopine]

Yeah. And someone like this that has no bonds and probably has done well in his portfolio, maybe you just do five years of, you know, 130,000 times.

[Joe Anderson]

Because his burn rate's 2%.

[Big Al Clopine]

Right. It's low.

[Joe Anderson]

So you could be in all equities there. If your burn. If your distribution rate was a little bit higher, then you probably want a lot more safety because. But it sounds like he doesn't. He's got a high tolerance for risk. If he's never had bonds in his life. Right.

[Big Al Clopine]

That's what I'm thinking.

[Joe Anderson]

And he's 60 some odd years of age.

[Big Al Clopine]

Right.

[Joe Anderson]

That's probably why he's got 5.7 million.

[Big Al Clopine]

Yeah, he's kind of rode things out.

[Joe Anderson]

Right. So his average rate of return over the last several years has been probably pretty high.

[Big Al Clopine]

Yeah.

[Joe Anderson]

So, but here's, here's the question I would ask him. If that, let's say five and a half million dollars goes to three, how does he feel?

[Big Al Clopine]

Right.

[Joe Anderson]

Or I mean, does he want that five and a half million dollars to grow to 10?

[Big Al Clopine]

Yeah. Or another way. Another question is what did you do during the Great Recession? Did you hold the course to say the course? And if so, then you're probably a good candidate to keep going with equities. However, it's a little different mentality when you're retired and you don't have the income.

[Joe Anderson]

Right. And seeing your accounts drop as you're pulling $150,000 from the account doesn't feel so good. It doesn't. And you might do things that you may not want to do. So if you're doing Roth conversions, you probably want to keep the safety in your overall taxable account and you might want to go muni bonds just to get the tax free income from that to keep as much income off the tax return as you possibly can. Another aspect of the non qualified, you would want to definitely keep an equity so that you can tax, loss, harvest and wash out any capital gains on an annual basis and then do Roth conversions probably to the top of the 12 or 22% tax bracket and just pay the tax on the conversion. And you want to do that for a few years until you get the right balance. I think he's right on his way.

[Big Al Clopine]

Yeah, me too. On the other hand, I'll just say, let's say he was 41, for example, and he wanted bonds for a little less volatility. You'd probably put those in the IRA and 401 because there you don't necessarily want your equities in tax deferred accounts because you just pay more tax later.

[Joe Anderson]

Right. Because all of that, if you get a 10% return in your retirement account, well, you have to pay ordinary income tax on the 10% return versus if you get a 10% return on the Roth, it's tax free. If you get a 10% return on your brokerage account, it's at a capital gains rate.

[Big Al Clopine]

But the reason why I like the taxable account is because he wants to do distributions. That's why I would probably put the bonds there and do muni bonds.

[Joe Anderson]

Right. Because if the market tanks, he's got all equity equities in his non qualified account, then he's selling stocks to create the income at a loss. That doesn't make A lot of sense. Okay, we got Tiger. Not Woods.

[Big Al Clopine]

Not Woods. Okay.

[Joe Anderson]

All right, here we go, dear Joe, Big Al, Andy, just throw that in there for you. Love the show.

[Andi Last]

Thanks. Appreciate that.

[Joe Anderson]

Enjoy your Roth heavy content. I am a financial advisor. You want a second opinion spitball on my current situation.

[Andi Last]

Okay, you got advisors asking you for spitballs on their own situations. That's pretty good.

[Big Al Clopine]

I like it.

[Joe Anderson]

We are both 33 years old. I'm on a health kick in drink a choice of chocolate protein shakes. My wife needs her morning coffee. We drive an 182018 Ford Explorer and a 2024 Grand Highlander. My wife works part time and we can combined for $240,000 due to some great single stock returns. We have the following assets. Okay, so what's he saying? My wife works part time and we have a combined income of $240,000.

[Big Al Clopine]

That's what he's saying.

[Joe Anderson]

And then due to some single stock returns, he's got a pretty nice portfolio. At the age of.

[Big Al Clopine]

I'll say. He must hit a home run on a stock.

[Joe Anderson]

He's got $1 million in a brokerage account after selling single stock paying taxes in April of 2025. He's got $1 million in pre tax retirement accounts, $850,000 in a Roth and $375,000 in crypto. Home value is $1 million. He's got a $360,000 mortgage at 2.875. Wow.

[Big Al Clopine]

If you're keeping track, that's about 3.2 million at 33 at 33am wow.

[Andi Last]

Can he retire?

[Joe Anderson]

I wonder why? He said.

[Big Al Clopine]

Well, we'll see what his question is.

[Joe Anderson]

Additionally, all four of our parents are still living ages 65 to 71. But I expect to receive a combined inheritance of $5 million plus 60 to 70% pre tax between the two families.

[Big Al Clopine]

Okay.

[Joe Anderson]

Our current plan is for my wife to retire when our kids get out of daycare. That's in four years. And me to retire when I reach $2.8 million in a taxable account, not including the Bitcoin. Two questions. We spend $120,000 a year. Now after. We spend about $120,000 a year. Now after a retirement savings of around $40,000 a year, can I let off the retirement savings to just get employer matches, put it in Roth 401 and increase our spending by $2,000 a month and put the extra in the taxable brokerage. What have you found is a safe level of lifestyle creep on an annual basis. Thank you for your time. And laughter. Tiger and lioness. Huh? Lioness.

[Big Al Clopine]

Lioness, but tiger. But not tiger wood. No, tiger, not Woods. Well, he wants to retire when he gets reaches 2.8 million in taxable assets.

[Joe Anderson]

So he's got right now 1.4.

[Big Al Clopine]

Yeah, 1.4. So basically double what he's got right now, roughly. Well, actually says not including crypto, so actually he's got a million, so he wants to almost triple that.

[Joe Anderson]

Got it.

[Big Al Clopine]

He's probably done his own analysis to figure out that's his magic number. Sure, so we'll go with that. I mean that's probably a good number because tax deferred will grow. So will Roth Ira grow.

[Joe Anderson]

And he's getting $5 million, right?

[Big Al Clopine]

Yeah. Although I hate to plan that in your own early retirement.

[Joe Anderson]

33.

[Big Al Clopine]

Yeah.

[Joe Anderson]

I mean his parents are 60s.

[Big Al Clopine]

Yeah, that's like me. I'm not going anywhere. Juniors.

[Joe Anderson]

So what's the question? Can I let off the retirement savings to just get the employer match and put that in the Roth 401, increase our spending by 2,000amonth. So ye.

[Big Al Clopine]

I mean he wants to spend a little more, so.

[Joe Anderson]

But so he's saving $40,000 a year and he wants to go to $24,000 a year.

[Big Al Clopine]

Yeah.

[Joe Anderson]

Or increase our spending by 2,000amonth.

[Big Al Clopine]

Yeah, he want maybe save about 16 grand a year plus which, plus the employer matches. It's going to mean the taxable accounts can take a lot longer to get because there's less savings. Maybe that's okay. Maybe he works longer. I guess that's what he's thinking. I guess the real question is can he spend a little bit more? You got 3.2 million at 33. Yes, you can spend a little bit more. I mean, I love the idea of maximizing your savings, but apparently he did really well with a certain stock. This is a concern I have though, Joe, and that is the overconfidence bias. When you're young and you hit a home run on something, you think you can keep doing it. And I'm not saying Tiger Knot woods can't keep doing it. It's just be careful. You hit a home run on something and it's, it may or may not happen again.

[Joe Anderson]

He's 33, he's making more money, wants to spend a little bit more, wants to put up the foot off the gas on the retirement savings. Can he continue to do it? But the funny thing is that. All right, well his planned retirement date is not necessarily an age, it's a number and it's when his non qualified dollars reach $3 million. So he's got to triple his non qualified dollars. And he could do that in probably 20 years.

[Big Al Clopine]

He could.

[Joe Anderson]

So now you're 53 years old without any savings at all at around 6% growth rate.

[Big Al Clopine]

Right. I'm wondering if he wants to save a lot less. If he's thinking he'll hit another home run to get to the basically triple the taxable account, which maybe he will. I'm just saying it's. You do it once. It's. It's difficult to keep repeating what, what.

[Joe Anderson]

Have you found is a safe level of lifestyle. Creed, I don't. Everyone does it. I don't know if there's a safe level or not. The more money that people make, the more they spend.

[Big Al Clopine]

Agreed. I think that's, that's what's common. You make more and you spend it. That's what's common. And so the way that you stay out of the creep is you put money into 401k so you never see it, so you can't spend it.

[Joe Anderson]

But I don't know. Tiger in lion is doing a hell of a job.

[Big Al Clopine]

Great job. Fantastic. This could be our record for a 33 year old for sure.

[Joe Anderson]

By far.

[Andi Last]

There are at least five questions you need to ask yourself before you retire. Because after a lifetime of saving, making the transition to retirement means facing a whole new set of challenges. As we plan today, we face a very different retirement landscape than the ones our parents saw. We're living longer and we may need to rely on that retirement income for much longer. Download our free Retirement Income Strategies guide to learn how to answer those five critical questions before you quit working. This guide will also outline your sources of income available to you in retirement and maximizing your Social Security benefits. It also covers how to develop a retirement income strategy that meets your needs. Click the link in the description of today's episode in your favorite podcast app to download the retirement income strategies guide for free.

[Joe Anderson]

We got Charlie writes in from Castle Rock, Colorado. Exciting new topics. Social Security versus pre tax account withdrawals. Is that you?

[Andi Last]

No, that's him. He actually wrote that in his email.

[Big Al Clopine]

Exciting new topic.

[Joe Anderson]

Wow. Exciting. Hi team. Love the show. The spitballs and the laughs. Here's the question I haven't seen you cover as a standalone decision. I understand the pros and cons of when to take Social Security. All right. However, I haven't heard you talk about that decision. When a person's other assets are all in pre tax accounts. This is my situation. The more I delay Social Security, the More I need to pull out of my pre tax accounts which is taxed at ordinary income. I also lose the benefit of compounding interest on the money that I pulled. I also see that the Social Security COLA has been on average 2.5%, which I think should be factored in the decision as well. I'm 60, single and want to retire at 61 or 62. I currently make approximately $200,000 a year and I contribute the max of the 401 and receive 6.5 contribution from my employer. I have no Roth yet. Don't kill me, Joe. All good, brother. I estimate I will need $7,000 a month or $84,000 a year in today's dollars in retirement. I have $1.5 million in pre tax retirement accounts and plan to start converting to Roths once I retire. I have $20,000 in HSA, $50,000 in a brokerage. My house is worth $2,200,000 with eight years left on a $200,000 note. My Social Security benefits are at 62. We got $2,300 a month. 65 is 3067. 35 and 70 44. Can you spitball some ideas of when to start taking Social Security given my above scenario? I drive an older suv, live in Castle Rock, Colorado. I'm transitioning from the margaritas to a riled fashion now that the winter has arrived. Thanks so much, Charlie.

[Big Al Clopine]

Sam.

[Joe Anderson]

All right, uh, let's talk about. So he's got $1.5 million, wants to retire in two years. He's saving, maxing out his plan. So let's call it. He's got $1.8 million at 62. He wants his plan.

[Big Al Clopine]

Probably right. I just did current math. 84 grand into 1.5. It's 5.6% distribution rate, but that doesn't include Social Security and tax. Yep.

[Joe Anderson]

Mm. Okay. So what he's forgetting, yeah, there's a cola, but there's also a couple of things. With Social Security, if you know how long you're going to live, then you can dial this thing to the penny. It'd be easy, but we don't know how long we're going to live. So the longer you live, the more it makes sense for you to push this thing out. But that's the advice and that's what the numbers show. But most people don't do that. A couple of things of why the numbers show that is that each year that you wait after full retirement age, you get a delayed retirement credit of 8% plus the COLA. So when you think about, hey, well, I'm pulling this out and I'm losing, there's a cost, there's an opportunity cost because I'm pulling that money out and spending it well, how do I go about the appropriate claiming strategy? Most people take it early because of that. They want an income stream and they don't want to take a large distribution out of their retirement account because they.

[Big Al Clopine]

Don'T see that balance go down, down, down, down. Right. They like it. I get it, I get it.

[Joe Anderson]

He's done a great job. He saved a million and a half dollars. It's like, well, I want to retire at 62. And he's almost talking himself into taking.

[Big Al Clopine]

It early, even though he's heard we should do, he should do otherwise. Yes, I think for me, it's a bit of a personal choice when you're single. I think your own expectation of life expectancy and health really factors into this because at 60, do you feel like you're going to live into your 90s, or do you feel like you got health issues and it's not going to be as long? That's a factor. And if you're not as healthy, you might want to take it sooner and so forth. If you're healthier, you might want to delay it. But here's another thought too, is the longer you delay it, not only is the benefit greater in the future, but you'll have less, potentially a little bit less income. You could do maybe more Roth conversions.

[Joe Anderson]

I don't think he's going to Roth conversion.

[Big Al Clopine]

Probably not, though, because he's going to. With what he needs. It's going to. He's going to be in the 20% bracket anyway.

[Joe Anderson]

Yeah, yeah. Charlie, I did a little bit of math for you. Let's see if you can get this thing to $1.8 million. And then once you retire, given your Social Security at age 62, your distribution rate is going to be roughly around 3%. And so you're going to have a lot more flexibility looking at that balance. If you don't pull it at 62, you're going to have a 5, 5 and a half percent, let's call it 4.5% to 5% distribution rate, which is 2% higher. You're going to see that balance, and especially if the markets turn on you, you're going to see that balance go down. And can you handle that?

[Big Al Clopine]

Right. That's it.

[Joe Anderson]

It's, you know, 62 year. Just take it. I think that's what he wants, a year.

[Big Al Clopine]

Just take it just take it.

[Joe Anderson]

Financially speaking, he probably doesn't make any sense, but I think emotionally that's what you need. You need someone to push you to make a bad investment decision. I'm your guy, I think.

[Big Al Clopine]

I don't know. I still Go back to your own health and what your expectations are. I try to. Me personally, I would hold out as long as I could, but if I, if the market was going down, I saw the bal. And that felt terrible, which of course it would. Maybe I start taking it then. I don't know. It's a, it's really, it's kind of a longevity. Insurance is what Social Security is if you think about it.

[Joe Anderson]

Right.

[Big Al Clopine]

I like it to think about it more that way than a break even. Because the break even, it's like, well, you have to be dead before you know if you was a good idea or not. And at that point you don't know.

[Joe Anderson]

4,412. So 53,000. If he waits until 70, he's going to probably have a $60,000 benefit from Social Security, which would cover probably close to 70% of his living expenses.

[Big Al Clopine]

Yeah.

[Joe Anderson]

So if he burns through some of that. Those assets until then he's going to have a lot larger fixed income. And if the assets continue to burn, I'm sure he would still live a pretty comfortable life.

[Big Al Clopine]

Right. Right.

[Joe Anderson]

So. But yeah, it's a, it's, it's.

[Big Al Clopine]

I guess, Charlie, it's a bit of a toss up. Yeah.

[Joe Anderson]

Run the numbers and then you just run worst case scenarios on it and then you can kind of see what, whatever that you want to stomach or you don't take it. And then you wait until the, until the market does something and then you're like, you know what? I'm just going to pull the trigger and then I'll take it in the house.

[Big Al Clopine]

It's like I can't stand it. And by the way, I mean, every month you wait, you get a higher benefit. So you don't have to wait till 65 versus too. Any extra year or extra few months you wait, you'll have a better benefit. So just be aware of that.

[Andi Last]

You know, There are over 2,700 rules around claiming your Social Security benefits. So it's a good idea to really explore all your options before you file. Download our Social Security handbook and figure out how to maximize your monthly Social Security payments. This guide explains who's eligible, how Social Security benefits are calculated. The difference between collecting early versus is late working while taking Social Security details on spousal ex. Spousal and survivor benefits and how your Social Security is taxed. Click the Social Security Handbook link in the episode description to download yours for free.

[Joe Anderson]

We'll move on to Seattle, Washington. You got a daughter that's a career changer and worries mom. She wrote that.

[Andi Last]

She said yes, exactly. And she called herself Worrywart Mom.

[Joe Anderson]

Worrywart mom. Okay, he a big fan of the pod. Keep up the great work. My 27 year old had a career change recently due to a layoff. She's very frugal and has been working hard to save. This career change has caused some setbacks on her finances since she has to start all over from the bottom. She's trying to pay off the student loans and save, but feels like one step forward and two steps back. She's currently paying about 80 to $100 a month towards a student loan, more whenever she could. She's working toward a certification to advance her career and hoping she would get a raise soon. Not sure if it's a good idea to just pay off the student loan with their savings and move on. Any insight and advice on a strategy to help pay out that loan and start putting money away for the future like buying a house, saving for retirement, et cetera. Your input would be much appreciated. Rory Wart Mat. All right, so she's the daughter's got $50,000 salary, monthly expenses of $2200 and student loan at $11,000. Interest rates between 3 and 4%. Current savings, 10,000 in a CD, 1500 in IRA, 10,000 in a 401K and $20,000 in a general savings account. Okay, so 48,000. So she's probably got, I don't know, what, five to eight hundred dollars extra a month.

[Big Al Clopine]

Yeah, based upon what we're seeing.

[Joe Anderson]

She'S got like 50, some odd thousand dollars already.

[Big Al Clopine]

Yeah, 42. Yes, she's doing well. Really well. Well, here's what I would say. You kind of look at what the needs are. So number one, the emergency cash reserves are fine. It's 30,000 to 30,000. Her spending is 26, so she's got a year's. So I'm good with that. So, so make sure you she at least does the 401k to the match. That's a minimum and put it in the Roth side. If it were me and it was my daughter, I might say, you know, maybe, maybe focus on the student loans that are higher interest rate like the 4.5% one, get that paid off quicker and make, you know, make your. Make payments on the other ones too. Of Course, but make the bigger payments on the higher interest rates and then to the extent there's any extra money, go back to the 401k or if it makes you feel better, pay more student loan. But that's what I might do.401k to the match and then pay off the higher student loans. And then you gotta probably have extra money. Probably go back to the 401 was probably what I would do. What would you do?

[Joe Anderson]

I don't know. I'm almost thinking about just getting rid of the debt. Just getting rid of it. She needs $20,000 in cash reserves. She's got 30. Student loans are 11. Maybe you cut a check for 10 and then you pay that thing off the next few months after that, then that creates more cash. Then I would fully fund the 401 in Roths.

[Big Al Clopine]

Yeah, seems dramatic. How about this? Why don't you pay off half of it this year and half next year with earnings. I don't know. You've saved up 30,000. You were laid off in a job it looks like.

[Joe Anderson]

You shouldn't worry, I guess is the point.

[Big Al Clopine]

Well, I agree. I agree. Mom doesn't need to worry. Yeah, there's plenty here to work with.

[Joe Anderson]

Right. Go to the 401 of the match and then continue to chip away at the student loans. I mean, they're three and four and a half percent if they're a lot higher. No, it's not bad.

[Big Al Clopine]

There's no tax deduction. Well, actually there's a little tax deduction for it.

[Joe Anderson]

She can continue to have the rest funnel into savings. And then if that savings account gets to 25,000, take 5,000, cut that off and get up the, you know, pay off the debt.

[Big Al Clopine]

Yeah, I like that.

[Joe Anderson]

All right, cool question. Thanks for, thanks for that. Hopefully that helped. All right. We are in the San Francisco Bay with Esther. My, my grandmother name was Esther.

[Big Al Clopine]

Really?

[Joe Anderson]

Yeah. My sister's middle name is Esther.

[Big Al Clopine]

Okay.

[Joe Anderson]

She didn't spell it that way though. No, there's an A in there, I think, somewhere.

[Big Al Clopine]

Okay.

[Joe Anderson]

All right. Anyway, Esther, My husband is 51 and retired this year. Now a house husband at 51.

[Big Al Clopine]

Wow, that's. There's hope for you.

[Joe Anderson]

Here we come. Let's go. I'm 47 and waiting to retire until I hit 49.

[Big Al Clopine]

Wow, two years.

[Joe Anderson]

Yeah, we have a 10 and 14 year old. 529 plans to cover four years of a state public school. I'm going to, I'm going on sabbatical next summer and I not want to come back to work. After I get back, can I pull this off? Net worth 11.8 million. Yep. You're good.

[Big Al Clopine]

Next question.

[Joe Anderson]

Yeah, real estate, primary home, paid off $2.6 million. Investment properties, 2.7 million. We get positive cash flow from. They got 401 accounts of 3.5 million. Roth IRAs and Roth 401ks of 600. Brokerage accounts of 2.2 and cash of 350. Estimated expenses in retirement padded for ACA premiums in cushy vacations, $21,000 a month. Currently working annual salary is approximately $360,000, including the bonus and about $100,000 in annual RSUs. That best. We will only have 30 years of work on our Social Security numbers, so I think we'll be around $3,300 each at age 67. Also, my husband gets a pension around $46,000. No cola. At the age of 65, mentally, I have one foot out the door from work. If things go south at work, I don't want to be trolling on LinkedIn looking for a job. Well, you're on foot out the door.

[Big Al Clopine]

She doesn't necessarily go back.

[Joe Anderson]

She's cashed in.

[Big Al Clopine]

Yep. Yep. You know, she's. I was gonna say 6.6 million of liquid assets. 11.8 million. You can do almost anything you want, so. So, but just to put a couple.

[Joe Anderson]

Numbers to this, so 1000 times 12 is 250, 2.03 is 8.4.

[Big Al Clopine]

What are you doing? Oh, the 3%.

[Joe Anderson]

Yeah.

[Big Al Clopine]

Yeah. So I did it. I did it the other way. I just said, what's the burn rate? It's 3.8%. Okay. But I don't know what the positive cash flow is. So here's what I did, Joe. I said, okay, well, you got a piece of rental property with 2 million of equity. What if it's 3%? I don't know what it is. What 3%? 60 grand. If I take 60 grand off the 250 grand needed, I get 190. That's a 2.9% burn rate. At 50, I'm good with that. Plus the other thing, too, is with this amount of assets, if you need to cut your cushy vacations one year, you can do it. I mean, that's worth not having to go back to a job you don't want to go back to. I would say, yeah.

[Joe Anderson]

What would you do?

[Big Al Clopine]

What would you do with your time? Yeah, that's another question. I'd have trouble with that at 51 or 49.

[Joe Anderson]

Yeah.

[Big Al Clopine]

Hard case. I Think. As you know, I was thinking that when I was that age and I, of course, the real estate market changed my mind, but even still, now being older, it's like, I don't know what I would have done at 50 without like, something to do. No, I don't know.

[Joe Anderson]

Yeah, I went to the doctor yesterday. I got my physical.

[Big Al Clopine]

Yeah.

[Joe Anderson]

And then they're like, what? Any other hobbies besides golf?

[Big Al Clopine]

Really?

[Joe Anderson]

I'm like, yeah, I like to spend. Hang out with my family.

[Big Al Clopine]

Yeah, okay, sure.

[Joe Anderson]

Well, what do you guys do?

[Big Al Clopine]

I don't know.

[Joe Anderson]

We kind of hang out.

[Big Al Clopine]

Yep. So it's like suggesting a couple of things.

[Joe Anderson]

I don't have enough hobbies.

[Andi Last]

I mean, is he saying that you need more exercise?

[Joe Anderson]

No. No.

[Big Al Clopine]

Well, you can't. You, you have to have more than golf. Like you gotta volunteer or you gotta have some. Something to get up to where you.

[Joe Anderson]

What was that coming. You think I'm.

[Andi Last]

No. Well, I was figuring if they were asking you, do you have any other hobbies, that maybe it was because you're spending too much time being sedentary or something like that, and he was suggesting that you need to.

[Big Al Clopine]

No, I don't think it's that. I think they're, they're. He's a, he is a. What do you, what would you call Joe? Hard charger. That's my term. And if he's not working, what happened? What happens?

[Joe Anderson]

Yeah, right. It's like, I don't know, I would blow myself up.

[Big Al Clopine]

So. But yeah, it's actually, to me that's the bigger question is when you're used to working really hard and being productive to all of a sudden not work, it can be a little tricky. Yeah, I think that's the bigger issue here.

[Joe Anderson]

But it sounds like they got cushy vacations to look forward to, so congratulations on all the wealth and the well being.

[Big Al Clopine]

So, yeah, for sure.

[Joe Anderson]

You're one foot out the door. You're one foot out the do door. Just get out the door.

[Big Al Clopine]

Yeah, just do it.

[Joe Anderson]

And you're just not doing anyone any good here. You're just kind of milking that 360, right. And you're miserable going to work every day. It's like you got enough assets. Why don't you find something that you're really passionate about, then make a little bit less money.

[Big Al Clopine]

Right. And if you, if you, if you retire and you can't find something you're passionate about, you know what? Go back to work, get another job, whatever. But yeah, if you want to give it a try, you've got the assets to do it.

[Andi Last]

There are so many factors to take into account when forecasting your financial future. Inflation, required minimum distributions, asset allocation, stock market declines, Social Security and Medicare, long term care and estate planning, and many others. After 40 plus years of saving for retirement, the last thing you want to do is sabotage all your hard work with unrealistic expectations, market miscalculations, or planning missteps. Once you retire, watch Retirement sabotage 12 post retirement money Mistakes to avoid on youn Money, you, Wealth TV and learn from Joe Anderson, CFP and Big Al Clopine cpa. The key tips and tricks to avoid sabotaging your retirement. Download the Retirement Readiness Guide for seven plays to help you get retirement ready despite the uncertainties we face along the way. Click the links in the episode description to watch YMYW TV and access other financial resources. All free. All courtesy of your money, you wealth and pure financial Advisors.

[Joe Anderson]

All right, we got James. He writes in. He goes. Hey Joe, Al, Andy, Join. Listen to your podcast while walking the peaceful neighborhood in local trails and canyons.

[Andi Last]

I forgot to mention that James is actually from Tierra Santa here in San Diego. He did actually put that in his email. So.

[Big Al Clopine]

Okay.

[Joe Anderson]

Oh, Tierra Santa. Just down the street.

[Big Al Clopine]

Yeah. Right. Okay.

[Joe Anderson]

All righty. On special occasions, my wife and I enjoy a little iced Thai tea with boba.

[Big Al Clopine]

Ever had Thai tea with boba?

[Joe Anderson]

No, sir. Never heard of it. While exploring the fantastic Convoy area restaurants. All right. I've been down Convoy Street. They're planning to retire next year when we turn 60 and thought we would request some advice or I mean, a spitball from you while we chew on our boba. You chew on boba?

[Andi Last]

Boba is little, like chewy little gelatinous pearls that go into the bottom of iced tea.

[Big Al Clopine]

Drinks tapioca in your tea?

[Joe Anderson]

Yeah, tapioca.

[Big Al Clopine]

Yeah. That's like, it's like they put different spices and they. It's got a little milk in it. They have these little. Yeah. Pearls, Andy. I mean, it's what I've. I've not had it. I've heard it's like tapioca. So you're drinking. You're drinking.

[Joe Anderson]

When you hear tapioca, I think of like pudding. Well, not pearls.

[Big Al Clopine]

Well, you know, tapioca has those little pearls in it. You take out the pudding part and just put the pearl so it's a.

[Joe Anderson]

Pearl before it becomes pudding.

[Big Al Clopine]

I think so.

[Joe Anderson]

I got it.

[Big Al Clopine]

Actually, I've never had one. I just have seen people with it.

[Andi Last]

I love Thai tea, but I do not put boba.

[Joe Anderson]

All right. Okay. We estimate we'd like our annual retirement income to be $180,000 next year. We have $2 million in our 401s and $2 million in a deferred compensation account that can be rolled over into an IRA upon retirement. My family history suggests that I've got the longevity gene and we're both in good health. So we've been taking advantage of the normalization of rates over the last two years and purchased a couple of annuities with GLWB's guaranteed life withdrawal benefits for longevity insurance. One which will turn on when we are age 65 of $47,000 a year, and another that will turn on at age 70 for $28,000 a year. We're planning on waiting until 70 to turn on Social Security, which we estimate will be $50,000 a year combined. In our 60s, we plan on aggressively converting to Roth IRAs our combined $4 million pre tax, 401k plus deferred comp before RMDs kick in at age 73. I know this is just a spitball, but what do you think of our retirement plan? Do you think it can work? Or do you think one of us should plan on working for a few more years in our 60s? Thanks for your very entertaining financial education. You three are great. All right, cool. Thanks.

[Big Al Clopine]

Nice.

[Joe Anderson]

All right, first of all, you got a lot of assets, but I don't like these guaranteed GLWs lifetime withdrawal benefit.

[Big Al Clopine]

Why don't you like them?

[Joe Anderson]

Because the insurance company always wins.

[Big Al Clopine]

They do seem to win a lot, don't they?

[Joe Anderson]

Yes, they do. I understand you have.

[Big Al Clopine]

But if she lives a long time, maybe she wins.

[Joe Anderson]

So he. James.

[Big Al Clopine]

Oh, okay. Sorry. He.

[Joe Anderson]

Yeah, it's fine. It is what it is. They bought the insurance, so 65. They want to spend $180,000. They have what, $4 million liquid right now?

[Big Al Clopine]

Yeah. 4% on that would be 160. They're basically there. That doesn't include Social Security and it doesn't include the, the guaranteed income. Once you add that in, they got. They have plenty of money.

[Joe Anderson]

Yeah. I think their guaranteed income is going to be what, $120,000.

[Big Al Clopine]

Yeah. Call it 125 out of $180,000. Right, right. So. And then you got $4 million to produce. We'll, we'll, we'll call it $60,000.

[Joe Anderson]

Yeah. And, yeah, it's fine. But I would consider that the annuities as your fixed income or bonds. So I would probably take on a little bit More risk in the overall liquid assets because you have a pretty high floor in regards to fixed income. So if you think of those guaranteed annuities as your bond allocation, I mean, you still will have quite a bit of liquidity. And then do conversions up until 65 until that first annuity kicks in. And I take a look at where tax brackets are, but they don't have a ton of money in non qualified accounts, it looks like.

[Big Al Clopine]

No, they don't. It's all tax deferred. I mean, almost all.

[Joe Anderson]

So it's kind of. I wonder where those annuities came from. Were they not qualified dollars or are they qualified? So when you do the conversions, you just got to be careful where you. Where you pulling the tax.

[Big Al Clopine]

Right, right, right.

[Joe Anderson]

Well, it's going to work. Yeah, it'll work.

[Big Al Clopine]

Anyway, the question is, what do you think our retirement plan? Do we need to go back to work? The answer is no. You got. You got plenty here.

[Joe Anderson]

Do I like the plan that.

[Big Al Clopine]

Wasn't that what they asked?

[Joe Anderson]

Okay, then I'll just shoot.

[Big Al Clopine]

Well, actually. Actually, he did want you to spitball. So you don't really like the annuity?

[Joe Anderson]

No. Why do you think it's a she? Because the tapioca.

[Big Al Clopine]

I don't know. Maybe. I was.

[Joe Anderson]

You thinking about.

[Big Al Clopine]

I was. Sorry. James.

[Andi Last]

Well, it is James and his wife.

[Joe Anderson]

Yeah, it's James and his wife.

[Big Al Clopine]

Yeah. I just. Based on this one.

[Joe Anderson]

Yeah. All right. Well, no, yeah, I think the plan works. Don't love it, but thank you.

[Big Al Clopine]

Me too.

[Joe Anderson]

All right, way to go. Congrats. She'll count your money. You're welcome.

[Andi Last]

Richie and Heather, Rebecca and Sam and P. Ware. I've asked Joe and Big Al to spitball on your questions on when to claim Social Security, what to do with an annuity, reasonable financial advisor fees, and of course, Roth conversions. Next week in YMYW podcast, episode 509. We appreciate you watching us on YouTube and Spotify and listening on Apple Podcasts and all the other podcast apps. Tell your friends and join us then, won't you? Time flies, especially when it comes to planning for retirement. At your end, don't put your financial future on hold. Get a comprehensive assessment for free from one of the experienced professionals on Joe and Big Al's team at Pure Financial Advisors. See if you're on track. They'll analyze your situation, identify any potential roadblocks, and help you create a detailed, personalized plan for your retirement. Don't wait to book yours. Right now, everyone is looking for last minute ways to save on their 2024 taxes and to prepare for what's coming in 2025. Click the free assessment link in the episode Description or call 888-994-6257 to schedule your free financial assessment ASAP. Tell them you heard about it on the podcast. 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.