Financial Planning for Marriage, Separation, and Singlehood - 515

Summary

Your Money, Your Wealth Podcast Episode Summary: Financial Planning for Marriage, Separation, and Singlehood (Episode 515)

Release Date: February 4, 2025

In Episode 515 of the "Your Money, Your Wealth" podcast, hosts Joe Anderson, CFP®, and Alan "Big Al" Clopine, CPA, delve into nuanced financial scenarios surrounding marriage, separation, and singlehood. The episode features insightful discussions on optimizing financial strategies during significant life transitions, ensuring listeners are well-equipped to make informed decisions about their financial futures.

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1. Financial Planning for Marriage: "Old Bear and His Honey"

Case Overview: The episode begins with a listener question revolving around an older individual, affectionately referred to as "Old Bear" from Northern Kentucky, contemplating marriage with a younger woman, "Honey." Old Bear is 62, recently retired, and holds substantial financial assets, including $770,000 in taxable assets, $780,000 in retirement accounts, and an impressive $1 million in tax-free Roth assets. Honey, aged 44, works a low-income job, dedicating most of her earnings to raising two children (ages 14 and 19), with minimal savings of $20,000 in a traditional 401(k).

Discussion Highlights:

• Tax Implications of Marriage: Joe emphasizes the potential tax benefits of marriage, noting that combining incomes can lead to favorable tax brackets, especially when one partner has a significantly lower income. “From a tax standpoint, marriage can be advantageous because you can double up the tax brackets,” says Joe (05:25).

• Social Security Considerations: Big Al points out that marriage may enhance Social Security benefits, as the spouse could claim the higher earner's benefits upon their passing. “If you’re older and you pass away, she would get your Social Security benefit, which would probably be greater than her own,” Big Al explains (06:26).

• Asset Division and Prenuptial Agreements: The hosts discuss the importance of prenuptial agreements, especially when there’s a significant disparity in assets. “Make sure you’ve got that figured out in a trust or will,” advises Big Al (07:00).

• Child Support Implications: Andi raises a crucial point about the cessation of child support once marriage occurs, which aligns with financial motivations for the decision. “Once she gets married, she probably wouldn’t get the child support,” Andi notes (06:30).

Notable Quotes:

• Joe Anderson: “You never really want to get married for financial reasons, especially when you're holding all the cards here.” (04:43)
• Big Al Clopine: “I think you marry for love first, but from a tax perspective, it makes sense.” (05:35)

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2. Navigating Separation and Divorce: Sebastian's Financial Planning

Case Overview: The episode shifts focus to Sebastian from Virginia, who is preparing for a separation and seeks guidance on managing the financial complexities that accompany such a transition. Sebastian's primary concerns include the division of shared assets and debts, protecting his financial interests, and understanding the long-term financial implications, such as taxes and impacts on retirement accounts.

Discussion Highlights:

• Inventory and Asset Division: Joe and Big Al stress the importance of conducting a thorough inventory of all assets and debts. “Take a look at exactly what you have... What you have in joint? What you have?” Joe advises (10:59).

• Retirement Accounts and Tax Implications: The hosts highlight the need to evaluate the tax consequences of dividing retirement accounts. “You can’t look at that entire account balance because you have to pay taxes to get those dollars out,” Joe explains (11:22).

• Protecting Financial Interests: Big Al suggests measures such as separating joint credit accounts and securing individual credit lines to prevent financial exploitation. “Maybe you want to get your own credit cards... have her get her own credit cards,” he recommends (10:48).

• Long-Term Financial Planning: The conversation covers strategies for equitably dividing assets while considering the differing tax implications of each type of asset. “If you have $500,000... those are not equal because the cash account you already paid tax on, the retirement account you have not,” Big Al elaborates (12:25).

Notable Quotes:

• Big Al Clopine: “The mortgage would probably go with whatever spouse would get the property. Typically, one spouse would get the property, the other one gets other assets.” (10:59)
• Joe Anderson: “You want to take inventory. You want to take a look at everything that you have and then kind of go from there to say, all right, well, if it's going to be split evenly, what should that look like moving forward?” (11:22)

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3. Bridging the Retirement Gap: Paul with the Big Wallet

Case Overview: Paul presents a scenario where he seeks advice on managing the financial gap between retiring and claiming Social Security benefits. At age 59, with plans to retire at 61 or 62, Paul has a substantial portfolio including $2.3 million in savings but anticipates a shortfall of $17,000 annually during the initial retirement years before Social Security kicks in.

Discussion Highlights:

• Withdrawal Rates and Savings Longevity: The hosts evaluate Paul's withdrawal rate of 6.7% and express concerns about its sustainability. “If I were to generate $90,000 of fixed income that was guaranteed, I would need over $3 million,” Joe asserts (24:29).

• Loan Options for Home Renovations: Paul is contemplating paying for unexpected home renovations. Joe advises against taking a Thrift Savings Plan (TSP) loan, opting instead for a conventional loan despite higher interest rates. “I do not take a TSP loan. No. I just take out the conventional loan,” Joe states (24:48).

• Investment Strategies and Risk Management: Joe and Big Al emphasize the importance of not overextending retirement withdrawals, suggesting alternative strategies such as home equity loans and reducing TSP contributions to manage the financial shortfall. “I hate the TSP loan... I would much rather just take... a HELOC,” Joe concludes (26:12).

Notable Quotes:

• Joe Anderson: “You can run scenarios all day long, right? You get the financial planning software out, you plug in the numbers...” (35:15)
• Big Al Clopine: “I think you either cut spending or you work part time for a little bit longer to make this work.” (36:14)

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4. Aspiring Adventurer's Retirement Planning in Oregon

Case Overview: The final segment features an "Inspiring Adventurer" from Oregon, a 51-year-old single female aiming to retire at 58. With a diverse portfolio that includes a significant pension, brokerage accounts, and an inherited IRA, her primary concern revolves around optimizing Roth conversions to manage her taxable income effectively.

Discussion Highlights:

• Roth Conversion Strategies: Joe advocates for maximizing Roth conversions to take advantage of current tax brackets, especially before retirement increases taxable income through pensions and Social Security. “I would flip. Go to Roth... as long as I stay out of the 24 and stay in the 22, that’s what I would be toggling,” Joe advises (47:58).

• Tax Bracket Management: The hosts discuss maintaining income within preferable tax brackets to minimize liabilities. “If you can stay out of the 24 and stay in the 22, that’s what I would be toggling,” Joe reiterates (48:10).

• Inherited IRA Considerations: Big Al highlights the complexities of dealing with inherited IRAs, emphasizing the necessity of strategic withdrawals and potential Roth conversions. “The inherited IRA doesn't count for your own IRA, so, yeah, you don't have any IRAs,” Big Al notes (47:38).

Notable Quotes:

• Big Al Clopine: “If you add the pension, actually you probably be higher because you have the pension and Social Security and required minimum distribution if you don't do Roth conversions.” (46:29)
• Joe Anderson: “As long as I stay out of the 24 and stay in the 22, that’s what I would be toggling.” (48:10)

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5. General Financial Advice and Tools

Throughout the episode, Joe, Big Al, and Andi emphasize the importance of personalized financial planning and utilizing available resources:

• Financial Blueprint Tool: Andi promotes the "Financial Blueprint" tool, a free resource designed to help listeners calculate the likelihood of a successful retirement by inputting their current cash flow, assets, and projected retirement spending. “Get your financial blueprint for retirement. Click or tap the link in the episode description to get started,” Andi encourages (38:29).

• Engagement and Community: The hosts encourage listeners to engage with the podcast through ratings, reviews, and scheduling free financial assessments with Pure Financial Advisors to receive tailored advice.

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Conclusion

Episode 515 of "Your Money, Your Wealth" provides listeners with real-life financial scenarios related to marriage, separation, and retirement. Joe Anderson and Big Al Clopine offer practical advice grounded in fiduciary responsibility, ensuring that listeners can navigate complex financial decisions with confidence and clarity. Whether contemplating marriage, facing a separation, or planning for retirement, this episode serves as a valuable guide for effective wealth management.

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Notable Quotes with Timestamps

• Joe Anderson: “You never really want to get married for financial reasons, especially when you're holding all the cards here.” (04:43)
• Big Al Clopine: “I think you marry for love first, but from a tax perspective, it makes sense.” (05:35)
• Joe Anderson: “You want to take inventory. You want to take a look at everything that you have and then kind of go from there...” (11:22)
• Big Al Clopine: “The mortgage would probably go with whatever spouse would get the property...” (10:59)
• Joe Anderson: “If I were to generate $90,000 of fixed income that was guaranteed, I would need over $3 million.” (24:29)
• Big Al Clopine: “I think you either cut spending or you work part time for a little bit longer to make this work.” (36:14)
• Joe Anderson: “As long as I stay out of the 24 and stay in the 22, that’s what I would be toggling.” (48:10)
• Big Al Clopine: “If you add the pension, actually you probably be higher because you have the pension and Social Security...” (46:29)

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For more detailed financial strategies and personalized advice, visit YourMoneyYourWealth.com and access free resources, episode transcripts, or schedule a consultation with Pure Financial Advisors.

Transcript

[Andi Last]

Financially speaking, should old Bear in Northern Kentucky marry his honey? How can Sebastian and Virginia navigate his separation? That's today on youn Money, you, Wealth podcast. 515/famous Missourians want to know how much is enough for retirement and when can you take your foot off the gas? Can Paul with the big wallet bridge the long gap between retiring and claiming his Social Security benefits? And can aspiring adventurer in Oregon retire at age 58? Click or tap Ask Joe and Big Al on air in the episode description to send in your money questions or to get your own retirement spitball analysis. I'm executive producer Andi Last, and here are the hosts of youf Money, you, Wealth, Joe Anderson, cfp, and Big Al Clopine, cpa.

[Joe Anderson]

All right, let's get right to it. We got old Bear and his honey, Big Al.

[Big Al Clopine]

Okay. Northern Kentucky, huh?

[Joe Anderson]

All right. I discovered YMYW after I exited the workforce 15 months ago, and I've been binging your podcast ever since. It's the only podcast that I've listened to more than three times.

[Andi Last]

Dang, that's pretty good.

[Big Al Clopine]

That's saying a lot, Jeff.

[Joe Anderson]

Three times?

[Big Al Clopine]

Yeah.

[Joe Anderson]

I can't believe how much I enjoyed listening to you while I'm working out trying to stave up the Grim Reaper as long as possible. In an older episode, Joe said he wanted to expand the range of questions, and he specifically mentioned relationship advice as a topic he wanted to explore. So here it goes. Should I marry this lady?

[Big Al Clopine]

Oh, see?

[Joe Anderson]

I'm expanding our horizons.

[Big Al Clopine]

Why not? This will be fun.

[Joe Anderson]

Yeah, relationship advice.

[Andi Last]

Can't wait to hear this one.

[Joe Anderson]

I'm really good at it. Really good at it.

[Big Al Clopine]

You are amazing.

[Joe Anderson]

All right, so here's the facts. He's 62, recently retired, no earned income anymore. Taxable assets is $770,000. He's got retirement accounts of $780,000, and he's got tax free assets of a million million dollars. Tax free assets. That's all Roth.

[Big Al Clopine]

That's quite impressive.

[Joe Anderson]

In diversified stock funds, we see thousands of individuals.

[Big Al Clopine]

Right?

[Joe Anderson]

How many people do we see that have over a million dollars in a Roth account?

[Big Al Clopine]

I can't remember when. I mean, I'm sure we've had some, but it's very rare.

[Joe Anderson]

Yeah, millions and millions in retirement accounts. $0 in Roth. Cause they. Well, no, I don't. Never qualified.

[Big Al Clopine]

Yeah, never qualified. Or maybe they just started doing something. They got 40,000, whatever.

[Joe Anderson]

Yeah, but a million dollars? That's pretty impressive. 62 years old, he's got a little debt, $200,000 mortgage. Soon we'll be spending $440,000 on a home reno. I anticipate about $50,000 in Social Security when I claim it at age 70. So the lady in question, all right, she's 44, works in a low income job. Most of what she earns goes to raise her two children, 14 and 19. She has full custody and receives child support from her ex husband. Savings is about $20,000 in a traditional 401. No debt, very frugal. I love her so much because she's frugal. That's it. Love is the answer.

[Big Al Clopine]

Yeah.

[Joe Anderson]

We plan on moving in together when the home rentals completed this year. We intend to continue living in this sinful state at least until the children stop receiving child support in four years. Sinful sake. Does it make sense to get married at this point I will be 66 and on Medicare she will be 48, probably still working for a bit, but not at full retirement age due to her career field. There's no expectation of a huge salary or an increase in her future. Our spending target will be about $90,000 a year. Today's dollars. We don't feel any pressure to get married. But from a financial perspective, does it make sense to do so at some point? And if so, when? The old bear and his honey. We like our margaritas.

[Big Al Clopine]

Margaritas. Okay.

[Joe Anderson]

The old bear. I wonder if she calls him old bear and he calls her honey.

[Big Al Clopine]

I'm guessing yes.

[Joe Anderson]

Oh, that's sweet. Isn't that cute?

[Andi Last]

I think this is the first time we've seen an 18 year age difference. That in itself is pretty impressive.

[Joe Anderson]

18 years?

[Big Al Clopine]

Yep. I have.

[Joe Anderson]

So what is he, 62. She's got a 14 year old and a 19. So when I'm 62 I'm going to be like the old bear.

[Andi Last]

Yep.

[Joe Anderson]

I'm trying to have like a 14 year old.

[Big Al Clopine]

That's about right. This is you?

[Joe Anderson]

Yeah. This is just fast forward, right? 12, 12, 13 years.

[Big Al Clopine]

Not completely, but personally. So what do you think? Marriage advice, marriage counselor?

[Joe Anderson]

Well, you never really want to get married for financial reasons, especially when you're holding all the cards here. But we've had this question in the past.

[Big Al Clopine]

We have.

[Joe Anderson]

So does it make sense to get married from a tax perspective? I think yes, in a lot of ways it does because she doesn't have a huge income and you could double up the tax brackets as you're creating income of this $90,000 that you want to draw from. But on the other hand he doesn't have that much tax. Deferred assets where he could draw and stay in the 10%, 12% tax bracket. Single. Because he's got such a giant amount in Roth.

[Big Al Clopine]

Right. Although Social Security will add to it. First of all, I'm going to say you marry for love. Let's get that.

[Joe Anderson]

I wonder if old bears ever been married before.

[Big Al Clopine]

I don't know. But if you're strictly talking finances from a tax standpoint, yes, it's better to be married than not, because the. You have the same brackets when you're married, 10%, 12% and so on. But it's when you're married, you're much longer to get to the next higher income. To get to the next bracket.

[Joe Anderson]

Yeah. Like what, 12%, 50,000. Roughly. Married to 100,000.

[Big Al Clopine]

Yeah. At the 12% bracket. Right. And so. Yeah, so. So from that standpoint, yes, it makes sense to get married. It also makes sense to get married from the standpoint that if you're older and you pass away, she would get your Social Security benefit, which would probably be greater than her own. So that would be a reason. Some of the cons financially is it's. It looks like old bears got more money than honey.

[Joe Anderson]

So make sure she's got two and a half million dollars. She's got 20 grand.

[Big Al Clopine]

Yeah. So. So make sure, old Bear, if you want the assets to go to her, great. But if you want them to go partially to someone else, make sure that you've got that figured out in a trust or will or something of that sort. But, yeah, financially, sure, why not? Except for waiting for the child support, which is. Yeah. Once she gets married, she probably wouldn't get the child support. So that makes sense. But I don't really ever want to say get married because of finances. You get married because you're in love. And the financial part, old Bear does make sense.

[Joe Anderson]

Yeah. He gets two stepchildren right out the gates.

[Big Al Clopine]

Yeah, yeah.

[Joe Anderson]

And then he's going to do something, and then they're going to say, you're not my dad, old Bear.

[Andi Last]

Wow. This sounds like it's coming from experience.

[Big Al Clopine]

They are going to say that, aren't they?

[Joe Anderson]

You can't tell me what to do. You're not my dad. Go find Honey Bear. All right. Well, yeah, I agree from a tax perspective, but I don't know. You got a lot of money. You've done really well. You love her so much, though, Bear, Why don't you go for it? Just invite Big Al to the wedding.

[Big Al Clopine]

To me. To me. That was the key. I love her so much.

[Andi Last]

I've got a Question. At what point or at what dollar figure does it make sense to have.

[Joe Anderson]

A prenuptial agreement at any dollar amount?

[Big Al Clopine]

Yeah, it depends. Like, for example, let's say Old Bear has no beneficiaries and he wants to all go to her, then great, no big deal. But as long as Old Bear has a benefic, then yes, you want a prenuptial or at the very least, you want some kind of trust agreement stating where those assets go to when you both pass away.

[Andi Last]

Thanks for that.

[Joe Anderson]

Yeah. At 62, he's not getting younger, but he's at the gym. He's grinding out at the gym, getting chiseled.

[Big Al Clopine]

She's going to keep him young.

[Joe Anderson]

44.

[Big Al Clopine]

Yeah.

[Joe Anderson]

All right. Okay, here we go. Hey, Joe. Al, Love the show. Been listening for the last few years. I'm currently in the process of preparing a separate. Preparing for a separation. We would appreciate your expertise in navigating the financial aspects of this transition. Specifically, I'd like your guidance on the following. So we got Big Bear was loving. And we got Sebastian here from Virginia. He wants to go the other way. Yeah, he's going the other way.

[Big Al Clopine]

Yeah.

[Joe Anderson]

Specifically, he wants some guidance here. Big Album, how shared assets and debts are typically divided in. How can I protect my financial interests? Okay, where's he at? Virginia?

[Big Al Clopine]

Yep.

[Joe Anderson]

Immediate financial measures I should consider to safeguard my finances during this period. And third, potential long term financial implications such as taxes or impacts on retirement accounts and strategies for planning ahead. Any help in spitball would be extremely helpful. Okay. Not a lot here.

[Big Al Clopine]

No.

[Joe Anderson]

It's like I'm going through a separation, going through a divorce. What are the steps I should be taking at this point?

[Andi Last]

Well, you know, something else to take into consideration. I've seen people who have gotten separated, been separated for six months, a year, something like that, and gotten back together, and so they never actually got divorced. So he says he's going into a separation. Do we know that? They're gonna end up divorced? So what do they do in the interim time?

[Big Al Clopine]

Yeah, good question.

[Joe Anderson]

I think going to counseling and try.

[Big Al Clopine]

To work it out.

[Joe Anderson]

Work it out.

[Big Al Clopine]

I think, Joe, depending upon their relationship and how serious. I think you bring up a good point, Addie. How serious this separation is. Maybe you've got certain things that are joint credit, like loans and credit cards. Maybe you want to separate that. If you don't fully trust your partner, maybe you want to get your own credit cards, have her get her own credit cards and so forth. If there's joint loans, maybe try to work at separating Those now, a joint loan typically is like a mortgage, for example. And so the mortgage would probably go with whatever spouse would get the property. Typically, one spouse would get the property, the other one would get other assets, or the property would be sold and the assets would be split. So I think maybe look at your joint credit, figure out what you want to do with the home if you have one, and if you want to sell it, it makes it easier. If you want to keep it, then it would be much better to get your name off the loan and just have your spouse, or if you're in the loan, just have it be your name and so your spouse isn't on it.

[Joe Anderson]

I think number one is inventory. You want to take a look at exactly what you have, what she has or he has and she has. What do you have in joint? What do you have? Do you have a living trust? Do you have retirement accounts? So just take the inventory of exactly what you have. You know, Al, you touched on the debts, but assets in most cases get split evenly.

[Big Al Clopine]

Yep.

[Joe Anderson]

Depending on how those assets came to be, did you inherit them, are they still in separate property, or did you grow them together? But I would assume that, you know, you're going to split those evenly. Couple things and couple mistakes that we've seen too. Is that retirement accounts, if they have a big IRA or 401, let's say you do or she does, or vice versa, you can't look at that entire account balance because you have to pay taxes to get those dollars out. So I'm married and let's say I have a million dollar retirement account and we also have a million dollar home with no debt on it. It's like, okay, well, you could take the home at a million dollars and I'm going to take the retirement account. Well, that's not necessarily a fair split. Just because I have to pay ordinary income tax to get out of my retirement account. Depending on what the growth is of the primary residence, you could get the 121exclusion capital gains tax. So I think you take inventory. You want to take a look at everything that you have and then kind of go from there to say, all right, well, if it's going to be split evenly, what should that look like moving forward?

[Big Al Clopine]

I think, Joe, that's such a good point. Let's say you have $500,000. You got 250,000 in a cash account, checking account, and 250,000 in a retirement account. Those are not equal because the cash account you already paid tax on, the retirement account you have not. So you got to figure out the estimated tax from that to get an equivalent number.

[Joe Anderson]

Yeah. Or if you had 250,000 in a Roth versus a $250,000 retirement account, that Roth is worth way more.

[Big Al Clopine]

Correct. Because there's no taxes to be paid.

[Joe Anderson]

And you paid a bunch of taxes trying to get it in there. Right. All right. Immediate financial measures. So I think you do that. I mean, how to safeguard your finances. If you have an inventory of what you have and you have the statements, and so that's your inventory. So that safeguards at least the spouse or the can't take the money and run. There's record of that, but I think you said it right, too. With credit cards. It could run up credit cards on you. I know we've seen that in some terrible divorces. Long term financial implications. Yeah. You're going to lose half your assets.

[Big Al Clopine]

Yeah. And what's typical? I'm not sure anything's typical. It depends upon the situation. What I've seen is either the house is sold or one spouse or the other gets the house. And if one spouse gets the house, the other house gets more assets. Right. Because they got to, they, they got to be compensated for the one partner or one spouse getting the house. So you just have to do the math. And when you do the math, as we said, the retirement account is not as valuable as a, like a non retirement account or a Roth, which is even probably better because that's all tax free.

[Joe Anderson]

Yeah. If you're miserable, though, you know, I don't know. I would go just start over.

[Andi Last]

You wouldn't go to counseling?

[Big Al Clopine]

Oh, now I would not go to counseling.

[Joe Anderson]

I'm just punching. I'm just.

[Big Al Clopine]

You're done. You're done. Well, I mean, so well. Right?

[Joe Anderson]

I mean, I know people stay married for a long time just because they don't want to pay their spouse dollars.

[Big Al Clopine]

That's right. Yeah. No, it happens a lot.

[Joe Anderson]

I'll cut a check tomorrow if I was that, you know, if my spouse cheated on me or something like that. I don't know. But that's just me, I guess. Yeah. There is significant financial implications.

[Big Al Clopine]

I think the best thing I would say is find an attorney that specializes in this because they're really the ones that generally do this, the split, and they'll take care of all these things they were talking about and make sure that you haven't missed anything.

[Andi Last]

So many retirement planning strategies are for married couples, but what if you're getting separated or you're divorced or you're single? Watch Going Navigating youg Financial Future. Single this week on youn Money, you, Wealth tv, Joe and Big Al empower you to map out your journey, create a budget, manage debt, and strategize for retirement on your own. Whether you're a single baby boomer, Gen Xer, or millennial, check it out and download the companion guide just by clicking or tapping the links in the episode. Description.

[Joe Anderson]

Moving on here, Big Al. Let's see. Famous Missourians. JCPenney and Laurel. Laura Ingle Wilder. That's Little House on the Prairie.

[Big Al Clopine]

Yes.

[Joe Anderson]

Missouri.

[Andi Last]

Yes.

[Joe Anderson]

Iowa. Or that isn't it?

[Andi Last]

No. Well, Laura Ingalls Wilder is famous. Is a famous Missourian. So at the end of this email, they say, we can't come up with a cute couple name, so we're asking you to do it for us. So they said they were from Missouri. So I found the two most famous people I could find in Missouri, but.

[Joe Anderson]

Laura Ingalls, and her father's name was Charles.

[Andi Last]

Why do you know that?

[Joe Anderson]

Because it's. Wilder was like James Wilder that Laura married, and then she had a sister named God, Debbie. Who's that? And then she turned blind. Come on, who's with me?

[Andi Last]

I'm shocked that you know all this.

[Joe Anderson]

Penny. Little Penny.

[Big Al Clopine]

I think I saw that show. It was Penny's 40, 50 years ago. How do you remember that you were even.

[Joe Anderson]

I have a steel trap. My memory is a steel trap.

[Big Al Clopine]

I guess so.

[Joe Anderson]

No, my God. My parents loved this show and they just would reruns over and over and over and over again. And then in Minnesota, they would play. When I was in high school, they would play Little House on the Prairie reruns on the local channel.

[Big Al Clopine]

Got it.

[Joe Anderson]

Channel nine. That wasn't ABC or CBS or NBC affiliates.

[Big Al Clopine]

And that was your favorite show?

[Joe Anderson]

No, that was the only thing on. So I don't know. My parents loved it, and so I was like. But yeah, I don't know. I can't believe I just admitted that.

[Andi Last]

Me, too.

[Joe Anderson]

Yeah, I knew the whole thing, but I thought it was Iowa. I think it was Missouri.

[Andi Last]

That might be the case for the actual TV show. But Laura Ingalls Wilder, the writer of Little House on the Prairie, is famous for being from Mansfield, Missouri.

[Joe Anderson]

Oh, see, I didn't know that there was an actual Laura Ingalls Wilder.

[Andi Last]

She's the author of the Little House on the Prairie books for children.

[Joe Anderson]

Oh, wow. Okay. There you go. There you have it.

[Big Al Clopine]

All right. Do we have a question?

[Joe Anderson]

Yeah, we got Dear Joe, Big al, Andy. I'm 80 and have about $30 million. Oh, there you go. Laura Ingalls Wilder. Three personal houses, a city full of rental properties and a trust fund. She's got a whole city, Al.

[Big Al Clopine]

Yeah, whole city.

[Joe Anderson]

Oh, man.

[Big Al Clopine]

In Missouri.

[Joe Anderson]

This is great. I was wondering if I have enough to retire. Yes, you're good, hun. Not really, but this is what I keep hearing on your show, and I just can't seem to relate to some of the content. I also wonder to myself, how much is enough and at what point do I start to take the foot off the gas and do I actually have enough? Oh, all right. So here's the real deets.

[Big Al Clopine]

Okay.

[Joe Anderson]

He's not 80 and has $30 million in three personal homes in a city full of rental properties.

[Big Al Clopine]

What is the real deed?

[Joe Anderson]

Here's the deets, man. I'm 52, wife's 53. We live in KC, Missouri, and I'm the primary source of income as wife is busy with the grandkiddo who lives with us, and we take care of our aging grandparents who live nearby. All right. I drive a 2013 Corolla. My wife drives a 2020 Sienna minivan. I listen to your show while walking in the mornings and love it. Boom. I think you guys have great chemistry and I like to hear Joe read the letters, which I'm. Why does everyone love me? Just bumble.

[Big Al Clopine]

It's comic relief. They like it.

[Andi Last]

People love the authenticity, Joe, because I.

[Joe Anderson]

Just learning how to read along with your kid.

[Big Al Clopine]

Yes, you are improving.

[Joe Anderson]

Oh, man. You should hear the stories. Once upon a time, you can start.

[Andi Last]

Reading the Laura Ingalls Wilder books.

[Joe Anderson]

Oh, love it.

[Big Al Clopine]

Love it.

[Joe Anderson]

I like to hear Joe read the letters, which is why I'm writing and not recording this. I look forward to the new episodes each Tuesday and disappointed when there's not one. During the holiday season, there's always one.

[Andi Last]

It's just sometimes a compilation, but understood. JCPenney.

[Big Al Clopine]

Okay.

[Joe Anderson]

All right. We have three cats. My wife likes a good craft beer and a hard cider. And I'm a big fan of Hefavison, but my doc has recommended no alcohol and that sucks.

[Big Al Clopine]

That does suck.

[Joe Anderson]

That sucks. That's terrible.

[Big Al Clopine]

You're. Can you imagine being 52 and Doc says no more.

[Joe Anderson]

I'd find a new Dr. Big Al. Easy as that.

[Big Al Clopine]

Got a second opinion?

[Joe Anderson]

A second opinion. I'm in healthcare and I won't tell you what I do because those jokes just write themselves. Currently making about $170,000 a year, but will most likely be taking a lower job, paying about $120,000 for less stress and write out my career with the federal government. I've been working for the Feds for about 22 years and plan to retire at age 60. I'll get a first supplement, 75% of my SS in addition to my pension for a couple of years from 60 to 62. Then start Social Security at 62 and my wife will start Social Security as well. My pension will be roughly $48,000 less 10% so wife can keep 50% of my pension after I kick it. Pension gets a diet cola annually. Oh, that's kind of cute.

[Big Al Clopine]

I like that.

[Joe Anderson]

Yeah. Estimated Social Security for me is $30,000 and the wife would be half of mine. So $15,000 total $45,000. So we would have fixed income of about $90,000. I have roughly $500,000 in my TSP account with $100,000 of this in the Roth. Don't have a bunch of cash but have about $10,000 in savings account and $10,000 in a separate IRA. Currently have about 24% going into my TSP with 18% of that going into the Roth. But we'll reduce that amount if I can do about 10% if I take that lower paying job. All right. We have a house that we owe about $115,000 on and we currently worth about $450,000. Not super interested in refinancing as it's 3.25% rate. One more wrinkle. I have about $70,000 worth of work that needs to be done at the home. I was not anticipating this. Do I take that out of the TSP loan at 3.4% payback over five years? Do I take out a conventional loan to pay it but then interest is like 7% and pay it off over a longer time period? How do I approach this? I anticipate our future spending in retirement will be about $105,000 per year. So the shortfall will be $17,000. I have a couple of spreadsheets, but I'm not an engineer. I think this can work and even maybe have a bit for emergencies or extra travel if necessary. But was wanting to spitball to see if I'm on track or am I missing something or if there's a glaring detail that would derail my retirement plans. I can always work a couple more years to age 62 and that would increase my pension by about 10%. But I sure do hate trading away my life as I had a health scare. Almost took a dirt nap last year. That definitely made me Rethink some things. Love what you guys do. Keep up the good work. Best regards. Can't think of a cute or funny name or funny couple name. So leaving it up to you. So there you go. You got J.C. penney and Laura Englewilder.

[Big Al Clopine]

That's quite a name. Quite a combo.

[Joe Anderson]

I don't know if that's funny or cute.

[Andi Last]

Hey, I got a great story out of you though.

[Joe Anderson]

Yeah, true. There you go, man. Little health scare. Those are always, you know. That sucks too.

[Big Al Clopine]

That does. Almost took a dirt nap. That. That doesn't sound good.

[Joe Anderson]

That doesn't sound fun. No, no.

[Big Al Clopine]

That must be why you can't drink alcohol.

[Joe Anderson]

Yeah. A little health scare.

[Big Al Clopine]

Yep. More than little.

[Joe Anderson]

So. Okay.

[Big Al Clopine]

Okay.

[Joe Anderson]

Let's see.

[Big Al Clopine]

So I get the question is how to fund $70,000 worth of improvements that need to be on the home.

[Joe Anderson]

Yep. Well, so $17,000 shortfall at $17,000, let's. Oops. 17,000.03. So let's say at a 3% burn rate, that's $560,000. And he's got that. So I agree with him. I think from a retirement perspective, he's got $90,000 of fixed income. You know what, so $90,000, just. If I were to generate $90,000 of fixed income that was guaranteed Al, I would need over $3 million.

[Big Al Clopine]

Yeah, right.

[Joe Anderson]

You agree with that math?

[Big Al Clopine]

I do. At age 60.

[Joe Anderson]

Yeah. When he's saying, oh, I don't know if I relate because everyone has all these dollars. I mean, he's got the equivalent of several million dollars himself.

[Big Al Clopine]

Right. So. Right.

[Joe Anderson]

Anyway.

[Big Al Clopine]

Yeah, yeah. No, I like this. But how do you pay for the loan? I mean, how do you pay for the home?

[Joe Anderson]

I do not take a TSP loan. No. I just take out the conventional loan. 7%, pay it over a long period of time. That's what I would do.

[Big Al Clopine]

And why wouldn't you do the TSP loan?

[Joe Anderson]

I don't know. Because I'm paying after tax dollars to put back into pre tax.

[Big Al Clopine]

It is tricky when you do that. Right.

[Joe Anderson]

I hate that.

[Big Al Clopine]

Yeah. Because you get the money for tax, tax free, but then you're paying it back. You have to pay tax on that money and then the net, you pay back and it seems like it takes forever to pay off.

[Joe Anderson]

Yeah. I've taken out a 401k loan long, long time ago. And I was like this.

[Big Al Clopine]

I don't want to touch that unless it's an emergency.

[Joe Anderson]

Yeah. I think he could qualify for just a conventional loan.

[Big Al Clopine]

I might get a home equity Loan, keep the conventional loan, Try to pay it off as fast as you can. Maybe I hate reducing TSP contributions, but he's got so much fixed income. Maybe you reduce it a little bit. Try to get that thing paid off in five years with a HELOC. Keep your 3.25% rate intact. I'd also probably figure out this is 70,000. Is that a hard number? Can that be slow played? A little bit, yeah.

[Joe Anderson]

Well, I mean, a TSP loan, he can only take out 50 grand anyway.

[Big Al Clopine]

True, that's true. But I agree with you. I wouldn't do tsp. I get a home equity loan and I would just try to pay that thing off more quickly by probably reducing my money going to the TSP for a few years.

[Joe Anderson]

Yeah, the $70,000 gone. So you miss out on the compounding effect of the $70,000 growing in the overall account. And you got to pay that thing back with after tax.

[Big Al Clopine]

You never make it up.

[Joe Anderson]

Yeah, I'd much rather just take. Yeah, I like the heloc. That's what I would do too.

[Big Al Clopine]

Yeah. And plus, if. If you don't get that paid off by the time you retire, then it's all taxable. So that can be dangerous too.

[Joe Anderson]

Yeah. If you're taking out of the tsp.

[Big Al Clopine]

Yeah.

[Andi Last]

So how much is enough for retirement? When can he take his foot off the gas?

[Joe Anderson]

He can take his foot off the gas now because he needs $550,000 at a 3% distribution rate today. So that means he needs $566,000. And I believe he has more than that today. Yeah, $520,000 today at $52,000.

[Big Al Clopine]

But I bet you the pension doesn't really kick in until 60.

[Joe Anderson]

Yeah. So let's say if he stops saving entirely, that 522 at age 62 is going to be a million bucks. Roughly 7% over 10 years. Might be a little bit less, might be a little bit more, but on average, you know, 10 years. So now you have a million dollars. Three percent on a million dollars is 30 grand. He needs 17. Let's say that 17,000 give inflation over 10 years. Maybe he needs 25. Three percent of a million is 30.

[Big Al Clopine]

And by then he can probably get by with three and a half percent distribution.

[Joe Anderson]

Sure.

[Big Al Clopine]

Yeah. I think I would take the less stressful job. I would reduce the TSP contribution.

[Joe Anderson]

Yeah, you got to get your health, you're young man, 50Q.

[Big Al Clopine]

That's the most important thing right there. And then get a HELOC and then just reduce the tsp. Contributions. Try to get that thing paid off as soon as you can.

[Joe Anderson]

Yeah, well, I'm glad you're still with us. And, yeah, just lay off the booze for a little bit, get a little workout, take a less stressful job, and then you're right back in the game.

[Big Al Clopine]

Then you can drink again.

[Joe Anderson]

Just right back there. Right back in it.

[Big Al Clopine]

Hefenweizen.

[Joe Anderson]

Yeah, And Hefenweizen. Let's get those on ice. Okay, we got Paul with the big wallet. Hey, Andy. Joe. Big Al. I asked a question that you answered in 2023 on Roth conversions. That's not the topic here. In Joe's reference to me as Paul with the big wallet has stuck as my new nickname with my kids, so thanks for that.

[Big Al Clopine]

I wonder if that's good or bad.

[Joe Anderson]

Big Paul's got a giant wallet. Kids love it. They want to get into that wallet.

[Big Al Clopine]

They probably do.

[Joe Anderson]

I look forward to the podcast each week, and I have learned so much over the last few years. Besides, the content highlight for me is Joe's reading. When rushing through the question and pronouncing words like Hyundai, Tucson is tucks in.

[Andi Last]

It's Tucson.

[Joe Anderson]

Whatever you're still doing, it'll do it. I'm still calling it tucks. Comedy gold for me.

[Big Al Clopine]

See, whether it's intentional or not, huh?

[Joe Anderson]

Even. Especially because it's unintentional. It's definitely unintentional, my friend. Do you think I come here every week just to sound like a complete utter?

[Big Al Clopine]

It gets a laugh. Maybe you do.

[Joe Anderson]

People are like, your role at the firm is what again? I'm hoping for a little spitball on our situation that involves what I'm hoping to be relatively meet with these other firms. They're like, yeah, listen to your podcast. I was like, yeah, we got a couple. Joe Anderson's on staff. All right, back to Paul with the big wallet. Why did we call him Paul with the big wallet? He must have giant gaps.

[Big Al Clopine]

He must have a lot. Well, I guess we're going to find out. He's going to tell us.

[Joe Anderson]

All right. He's hoping for a little spitball on a situation that involves what I'm hoping to be relatively long gap between me retiring and starting to draw Social Security and what kind of withdrawal rate makes sense during those years versus the years receiving Social Security. We call that bridging the gap, Paul. Bridge the gap. We got to build a bridge. Details. Wife and I are 59 and have a job, and my wife no longer does. Kids launched. I'm looking to go halftime at 60, retire at 61 or 62. Current income is about $500,000 and halftime income for those one to two years is expected to be 250. I'm hoping it's one year instead of two years. For the halftime work, he's got conventional tax deferred accounts of $1 million, brokerage company stock of $1 million, equity in the home and vacation condo of about $2 million. Low interest loan on the home is $100,000. We're saving about $180,000 per year over the last several years and plan to maintain that until I go half time, then saving about $50,000 that year or years. So by age 61, I'm expecting to have $2.3 million saved. That's why he's got the big ass wallet.

[Big Al Clopine]

That's a pretty good wallet.

[Joe Anderson]

I'm not going to what as I type that we will have about $250,000 in inheritance coming, but hoping that will not be until around age 70. So I tend to ignore it. Social Security will be me at 60, 40,000 or at 70, 55. Wife at 66 will be 15 or 20. No pensions for either of us. Looking at expenses during retirement to be about $150,000 a year. Question finally. Thank you, Paul. What I'm looking for is spitballing. How do we evaluate the years between retiring and taking Social Security when ballparking withdrawal rate. If I use 61 to retire, which is what I'd like to do, we will have five years without Social Security and drawing down on what will be $2.3 million pretty quickly at $155,000 a year at 6.7% burn rate at 66. When Social Security kicks in, I'm thinking we'll have $1,800,000 left. In drawing down closer to 5 expenses at 155, lesser Social Security at 55, we can get that to 4% by selling our vacation condo at that point for about $550,000, which we will not have an issue doing. So to make our numbers work, if it looks like we need to do that. All right, ballpark spitball. Does this look like we're on track? We're on the right track. Burning down the total savings during those years between.

[Andi Last]

In those in between years.

[Joe Anderson]

Yeah. Burning down the total savings during those in between years is kind of freaking me out. But if we can end up near 4% at age 66, I think we will be close. My last question to you in 2023 was related to Roth conversions as a high earner you guys were split on doing it now with Al saying I could do it, but he probably wouldn't only do a small amount. We didn't get a small amount to do, but we opened up a fund. Roth accounts. But we'll wait until we drop our income during the halftime working years to do more. Occasional Coors light or a heavier craft beer for me, little red wine for the wife. No pets currently, but a spur of the moment decision to get a rescue dog is never too far away. Paul with the big wallet. All right, Paul, I don't know if I care for those numbers all that much.

[Big Al Clopine]

They don't quite work out, do they?

[Joe Anderson]

How old is big Paul?

[Big Al Clopine]

Paul is. They're both 59.

[Joe Anderson]

Oh, yeah.

[Big Al Clopine]

Yeah.

[Joe Anderson]

He wants to retire two years.

[Big Al Clopine]

Yeah, he wants to. Let's see, at age 61, he wants to work halftime. Or let's see, I'm looking to go halftime at 60 and retire at 61 or 62. He goes from $500,000 of income to $250,000. I hate to say this.

[Joe Anderson]

So he wants an eight year bridge to get it to age 70.

[Big Al Clopine]

Yeah, Paul with a big wallet. I, I would work halftime a little bit longer than one or two years, I think, based upon that spending. Now, if you could cut the spending, the numbers work better. But what I think what we're looking at at age 60, you know, maybe with Social Security coming, maybe, maybe a 4% distribution rate and you're 6.7, you know, maybe a 4.5% distribution rate, but it's just too far out of whack, at least for my comfort.

[Joe Anderson]

I mean, you could run scenarios all day long, right? You get the financial planning software out, you plug in the numbers, you put in the assumptions, and I think the numbers would say it would be fine. But I think Paul with the big wallet is smarter because he's already doing the spreadsheets himself. And he's like, man, I'm going to burn $155,000 from my account with no other fixed income for six to seven years until he takes Social Security. I mean, that's a huge amount.

[Big Al Clopine]

I'd be uncomfortable, right?

[Joe Anderson]

That 2.3 million, he's running it as like, let's just assume I get a certain rate of return. How about if the market blows up.

[Big Al Clopine]

Or goes down in that period of time, which it could.

[Joe Anderson]

Well, that's what blows up. Me.

[Big Al Clopine]

Yeah.

[Joe Anderson]

That means bad. The market's really bad.

[Big Al Clopine]

Thanks for educating me.

[Joe Anderson]

I mean, right? He's like, oh, my God, now my big wallet Is not a big wallet. It's like a purse wallet or it's like a coin wallet.

[Big Al Clopine]

Right.

[Joe Anderson]

You don't know what that is? Do you know what a coin wallet is?

[Big Al Clopine]

I know what a coin wallet is. You shouldn't know, you're too young.

[Joe Anderson]

Well, my parents used to play a lot of poker.

[Andi Last]

They were watching little house on the prairie.

[Joe Anderson]

Yeah. Well, as they were watching Little house.

[Big Al Clopine]

On the prairie play poker.

[Joe Anderson]

Yeah. And they had play for quarters and dimes. So they have these little coin wallets.

[Big Al Clopine]

Well, I guess that's what I think. I think you either cut spending or you work part time for a few more years to make this work. That's what I would do anyway.

[Joe Anderson]

Well, how about claiming Social Security a little earlier?

[Big Al Clopine]

You could.

[Joe Anderson]

So at 66 he's got 40,150. So he's 105.

[Big Al Clopine]

Maybe you claim it on your wife first and let yours run a little bit more. I still would want to work a little bit longer, I think.

[Joe Anderson]

So let's say he claims at 66, he'll probably need about $2,700,000. At $66,000, if I'm looking at a 4% distribution rate, he's got $2,300,000 right now.

[Big Al Clopine]

Right, right.

[Joe Anderson]

So he's got $2,000,000 today. That $2,000,000 at $155,000 burn rate. The equity in his home condo. 2 million. I don't know.

[Big Al Clopine]

Well, and he's got a potential inheritance, but you always hate to count on that.

[Joe Anderson]

Yeah, the vacation homes worth 500.

[Big Al Clopine]

And I don't know, is that net of closing costs and taxes or. I don't know. I, it's, it's, it's tight enough that I would want to kind of run some scenarios with different things. Maybe if you take Social Security at 64, maybe this works better. I don't know.

[Joe Anderson]

I keep going back to the behavioral aspect of this is he feels like he's got a big ass wallet because he does. It's $2 million. But that $2 million after a couple years of retirement, taking 150 grand out. So over two, three years right now, that's 300, 450, $500,000. The market doesn't cooperate with you. Now that 2 million is one and a half.

[Big Al Clopine]

It can happen.

[Joe Anderson]

Right. He's going to feel a lot more comfortable with that. Two in front of it versus a one.

[Big Al Clopine]

What we're saying is there's really not much cushion here. In fact, I think there, there's, I don't think there's quite even enough to do it. But cutting spending would be one way to go. Working part time for a little bit longer would be a way to go. Selling your your vacation condo, that would be a way to go. All these things. I think you kind of do all three simultaneously and then I would feel more comfortable. I. I'm not sure I'd feel comfortable with this scenario. Jim.

[Joe Anderson]

Yep, Tend to agree with you on that one.

[Andi Last]

Have you given our Financial Blueprint tool a try yet? It's a free and self guided way to calculate the likelihood that you'll have a successful retirement. Click or tap the Financial Blueprint link in the episode description, input your current cash flow, your assets and your projected retirement spending and it will output a detailed report with three different scenarios that map out your possibilities with actionable steps you can take now to achieve your financial goals in the future. Get your financial blueprint for retirement. Click or tap the link in the episode description to get started.

[Joe Anderson]

Let's see, we got an Inspiring adventurer. Oregon. That's the name.

[Andi Last]

Inspiring Adventure Aspiring adventurer. Yes.

[Joe Anderson]

That's what this person put in.

[Andi Last]

Yes.

[Joe Anderson]

Wow. Greetings all. Really enjoy the show. I didn't know I liked financial podcasts until I came across yours. Oh wow.

[Big Al Clopine]

How about that?

[Joe Anderson]

Live in Oregon. I'm 51 year old, female, single, no kids. No. I don't drive a Subaru. Oh bs you had one before? Guaranteed. Guaranteed. You live in Seattle. You got a Subaru. I drive the 2019 Mazda CX5 with the girls. I drink a little Pear Ginger Lemon drop with the boys. I typically like an Irish Mule. Oh very good. I have no dependents, no family financial responsibility as both parents are now deceased. I would like to retire in the spring of 2032 at age 58, which is when I'm eligible for my pension. I've worked in the 911 public safety industry for over 30 years and I'd really like to be done the 91 1.

[Big Al Clopine]

I don't blame you.

[Joe Anderson]

Yeah. So is that like dispatch or police person? Fire person.

[Big Al Clopine]

Doesn't say. But it whatever it is, I don't know. It's stressful.

[Joe Anderson]

Yeah. 91 1. I would not want to do anything with the old 911 for 30 years.

[Andi Last]

Imagine that.

[Joe Anderson]

A lot of stories. Wonder why.

[Andi Last]

Aspiring adventurer has built up some resilience.

[Joe Anderson]

I would be drinking these Pear ginger lemon drops after every shift. And an Irish mule Both.

[Big Al Clopine]

Yep.

[Joe Anderson]

I'm looking forward to less trauma, less drama and more travels exploring with the dog. The rundown $128,000 current salary typical 3% COLA every year until I retire. 2032, $30,000 yearly contributions in the 457 can either do Roth or pre tax. Currently pre tax due to taking inherited IRA distribution. This keeps my modgi low enough to fully contribute to the Roth IRA. Max contributions to HSA and Roth IRAs. My home is worth $350,000. Plan to retire in it. Here's the savings. $53,000 in cash emergency funds. $320,000 in a brokerage. $28,000 in HSA. $220,000 in the $457,000 pre tax. $100,000 in the Roth $61,000 in the Roth IRA. $182,000 in the IEP account. Individual account that is part pension system. Pre tax money that will be rolled into my 457 at time of retirement. $154,000 in inherited IRA that needs to be emptied out in 2032 to the Secure 2.0 rules. Projected retirement income $80,000 estimated pension. Okay, that's pretty cool.

[Big Al Clopine]

That's great. And by the way, about $1,100,000 in assets.

[Joe Anderson]

Hell of a job. We got $3,300 a month in Social Security. Or $41,000 if she waits until age 70. I think I'll need about $100,000 to live in my go go years guarantee. You drive a Subaru. If you're saying go go years as I want to travel for the first five to 10 and then get closer to $80,000 in my slow go years. Alan, are you in your slow go years or are you in your go go years?

[Big Al Clopine]

I'm still in the go go years.

[Andi Last]

He's in the hypergo go years.

[Joe Anderson]

I didn't do a great job saving early on, so I'm trying to do the best I can to make up for it. I know you like the Roth money, so here is my spitball question. What color Subaru should I be purchasing upon retirement?

[Big Al Clopine]

That would be good.

[Joe Anderson]

Just kidding. Do I appear to be on track to retire at 50? Should I go back to Roth contributions in my 457 and not to worry about pushing myself out of the income window for Roth IRA contributions since the Roth contributions in the 457,000 would be more Roth dollars. Then should I take the $8,000? I would normally put it into a Roth IRA and put it into my brokerage account instead. Go Roth in the 457. You can always do a backdoor Roth. You don't have any IRAs.

[Big Al Clopine]

Yeah, and the inherited IRA doesn't count for your own IRA, so, yeah, you don't have any IRAs, so the Pro rata rule aggregation doesn't account.

[Joe Anderson]

Do I need to plan a Roth conversion ladder in retirement?

[Andi Last]

What is that? I've never even heard of that.

[Joe Anderson]

They're just converting dollars every year.

[Big Al Clopine]

Yeah, just one year after another. Like a little ladder. Yeah. Well, let's answer the first question. Do I appear to be on track to retire at 58?

[Joe Anderson]

The answer is yes, Absolutely. You got a giant pension.

[Big Al Clopine]

And I'll give you some numbers. $1,100,000 today, seven years, 6%. You're adding about $40,000 a year. You end up about $2 million at a 6% return you're spending at that point. Seven years from now, $100,000 will be $125,000. Your pension's $80,000. Your shortfall's $45,000 into $2 million. That's a 2.3% distribution rate. That doesn't even include Social Security. So this looks really good. So, yeah, you're on track for sure.

[Joe Anderson]

Yeah. By the time you claim Social Security, you'll probably be at a surplus. You'll have more fixed income than what you're spending.

[Big Al Clopine]

That's probably true. Yep. Yep. So this looks fantastic.

[Joe Anderson]

Yep. My income will dip from what it currently is. Plus the inherited IRA distributions. I might go down one tax bracket. I don't have millions of pre tax. So would be spending. So would a spending plan to spend down the pre tax money first be the way to go, or do I need to think about doing Roth conversions? Thank you for any input. I've learned a lot from your podcast in a very short period of time. Much appreciated. Happy holidays. Happy New Year, aspiring adventurer.

[Big Al Clopine]

You know, I just got back from Australia and they say adventure, adventure, adventure. So that's kind of like that word.

[Joe Anderson]

Got it. What's the cliche? What do people say in Australia? Andy, aren't you from Australia?

[Andi Last]

Put another shrimp on the barbie.

[Joe Anderson]

Yeah, little shrimp on the barbie.

[Andi Last]

But they don't actually say that. They call them prawns.

[Big Al Clopine]

Prawns, Prawns.

[Joe Anderson]

Ponds and prawns.

[Big Al Clopine]

We were on a tour and we. You keep hearing things like, look at the agriculture. It's like, okay, this is an adventure. Look at that structure. I got that part of the lingo down.

[Joe Anderson]

Wow. Man. I feel like I'm in Australia right now. Roth conversions. Let's see, what does she. Here's what I would do. I would totally flip. Go to Roth. Now her income is $128,000 current salary. Your salary is going to be $80,000 plus Social Security. I would not. You might be in the exact same tax bracket once your full fixed income is in retirement as it is today.

[Big Al Clopine]

When you add the pension. Yeah. Actually probably be higher because you have the pension and Social Security and required minimum distribution if you don't do Roth conversions. Yeah, I would agree with you.

[Joe Anderson]

So she doesn't got a ton like she said. She's got $220,000 in the pre tax account. So I would flip everything to Roth at $128,000. You can do a backdoor Roth or you can just, you know. So yeah, you're getting more money into the Roth regardless because you're not fully funding now. Does she have a 403B as well?

[Big Al Clopine]

Doesn't say she does.

[Joe Anderson]

I don't. Maybe it's just a 457 and then she's got the IAP account.

[Big Al Clopine]

Right? Yeah. And when you. If you look at the 457 pre tax IAP and the inherited IRA, it's 600,000 of deferred. That all needs to come out, right?

[Joe Anderson]

If you could do 600,000. I don't see that.

[Big Al Clopine]

Yeah. Yeah. Let's see. Pre tax, 457, 220, 182 IAP and 154 inherited. I add the inherited because it's got to come out too.

[Joe Anderson]

Yep. Yeah. I like flipping everything to Roth and then looking even at doing conversions. If you can do interplanet conversions at $128,000 of. Of gross income. 30,040. So she's probably at what, 75,000 of taxable income?

[Big Al Clopine]

A little more probably, but. Well, no, actually you're probably pretty close. I'm probably right in that ballpark.

[Joe Anderson]

So 75. 80,000 of taxable income. $80,000 of taxable income as a single tax bureau in the 22% tax bracket.

[Big Al Clopine]

22% bracket goes up to single.

[Joe Anderson]

Probably what, 90 something.

[Big Al Clopine]

Yeah, 100.

[Joe Anderson]

Okay.

[Big Al Clopine]

We're waiting. Yeah, 100. 124% bracket goes to 192.

[Joe Anderson]

So 22. The 22s might go to 25. We don't know how long that's going to be. I would take advantage of the 22% tax bracket as much as you can and try to get as much Roth IRA dollars as possible. So let's say if you flip everything into Roth, you're not going to. Your taxable income switches from 75,000 now to probably 100,000 because of that 30,000, right? Yeah, maybe a little bit more. And so as long as I stay out of the 24 and stay in the 22, that's what I would be toggling.

[Big Al Clopine]

Yeah. There's no reason to go into the 24.

[Joe Anderson]

So if putting all the dollars into roth would have $1 go into the 24, then that's the dollar that you would want to go pre tax. And then you could do a backdoor Roth contribution with. I mean, you could take a distribution from the inherited ira and then you could actually then put that distribution into an IRA and then you could convert it.

[Big Al Clopine]

You could. Yeah, you could. There's different ways to do that because.

[Joe Anderson]

That would still be an after tax contribution that would come from an inherited IRA that you pay tax on to go in after tax. And then you convert that, you put that into a Roth. So you're just paying taxes there because I don't think she's spending that. I think that's going into the brokerage account.

[Big Al Clopine]

I think so. And I think. I mean, one of the things is then when you do retire, continue the Roth conversions because you're going to be in a lower bracket still. Right. And by the time you get. If you don't do that, by the time you have Social Security and your required minimum distribution, you actually be in a higher bracket than you are now. That's why you're wanting to do this.

[Joe Anderson]

Well said, Al. Well said. Well, that's it. Killed it. Merry Mary. I don't even know what the hell I'm talking.

[Andi Last]

Were you gonna say Merry Christmas?

[Joe Anderson]

No, I was gonna say, I don't know. Laura Ingalls Wilder's sister is named Mary.

[Big Al Clopine]

Mary. Oh, there you go. You pulled it out of the hat.

[Joe Anderson]

Yeah, or something.

[Big Al Clopine]

Let's do a fact check on this for next time.

[Joe Anderson]

I'm gonna binge watch Little House on the Prairie. Keep you guys informed here. Very cool. That's it. Thanks for listening. We'll be back again next week with a little bit more your money and a little bit more your wealth.

[Big Al Clopine]

I like it.

[Joe Anderson]

All right, we'll see you next week. Thanks, Andy.

[Andi Last]

Thank you.

[Big Al Clopine]

Bye. Bye.

[Andi Last]

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