How Much Money Do You Need to Retire in 2026? - 538

Summary

Podcast Summary: "How Much Money Do You Need to Retire in 2026?" (Episode 538)

Released on July 15, 2025

Hosts:
Joe Anderson, CFP®
Alan "Big Al" Clopine, CPA
Presented by Pure Financial Advisors

---

Introduction:

In episode 538 of the "Your Money, Your Wealth" podcast, Joe Anderson and Big Al Clopine delve into the critical question of determining the necessary funds for retirement by 2026. Despite Big Al's temporary unavailability due to an extended vacation in Europe, the hosts present an encore episode featuring listener questions from a previous October 2024 broadcast. This episode maintains the show's characteristic blend of humor and insightful financial advice, focusing on retirement planning, investment strategies, and tax optimization.

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Section 1: Listener Case Studies

1. George and Wheezy from Illinois (Land of Lincoln)

   Timestamp: [01:02] - [07:18]

   Case Overview: George and Wheezy are contemplating early retirement in mid-2026. They have substantial savings and various retirement accounts but are uncertain about their readiness and the sustainability of their financial plans.

   Financial Breakdown:

   • Assets:

     • IRA: George has $1,200,000; Wheezy has $1,010,000 (both non-Roth)
     • 401(k): George has $1,100,000 (only $50,000 Roth)
     • Taxable Brokerage Account: $880,000 ($240,000 in a government money market fund)
     • Personal Residence: Valued at $1,000,000 with a $300,000 mortgage at 6%
     • Health Savings Account: $65,000
     • Cash Value Life Insurance: $140,000

   • Income Streams:

     • Non-Qualified Deferred Compensation Plan: $2,200,000 expected balance by January 2027, projected to pay $220,000 annually.
     • Social Security: George expects $3,600/month at age 70; Wheezy expects $2,000/month and $25,000 at age 70.

   Hosts' Analysis:

   • Joe Anderson:
     "They want to spend $180,000 annually. With $4.3 million in assets, that's a 4.2% distribution rate, which is on the higher side but manageable given their deferred compensation plan covering $220,000 yearly."
     [03:54]

   • Big Al Clopine:
     "With the deferred comp plan, there’s no immediate need to dip into savings, allowing their assets to grow. The key consideration is the tax diversification and potential future tax rates."
     [05:29]

   Conclusion: George and Wheezy appear financially prepared to retire by 2026, provided they manage their tax strategies effectively and validate their spending. The hosts suggest ensuring their annual expenses are accurately projected and consider the implications of their deferred compensation plan on their tax liabilities.

2. Jen from Ohio

   Timestamp: [13:02] - [17:46]

   Case Overview: Jen is facing a company office closure and is contemplating whether to move, take a career break, or retire altogether at age 55. She inquires about her early retirement options with her spouse staying at home and no immediate Social Security benefits.

   Financial Breakdown:

   • Assets:

     • Brokerage Account: $2,100,000
     • Rollover IRA: $1,700,000
     • 401(k): $1,300,000 ($280,000 Roth)
     • Roth Conversion IRA: $1,100,000
     • HSA: $80,000
     • Cash and Short-Term T-Bills: $45,000
     • 529 Plans for Two Kids: $750,000

   • Expenses:

     • Desired Annual Spending: $40,000 (pre-tax)
     • Planned Gifts to Children: $30,000 annually per child for IRA funding

   Hosts' Analysis:

   • Joe Anderson:
     "With $6.2 million in liquid assets and a desired spending of $200,000 annually, you're operating at a 3.2% distribution rate, which is feasible. However, considering the cash flow from real estate investments is crucial."
     [14:23]

   • Big Al Clopine:
     "A 4% burn rate is aggressive for individuals in their early 50s. It’s essential to assess the cash flow from real estate investments to determine any additional income needs."
     [21:03]

   Conclusion: Jen is in a strong financial position to consider early retirement. The hosts recommend a thorough review of her actual spending versus projected expenses and the stability of her real estate income. They also advise evaluating the sustainability of her distribution rates and potential adjustments to ensure long-term financial security.

3. Seth from Montana

   Timestamp: [18:20] - [24:34]

   Case Overview: Seth and his wife, both aged 52, have recently ceased most of their work activities. They seek validation on their retirement path and inquire about Roth conversions within their solo 401(k) accounts.

   Financial Breakdown:

   • Assets:

     • Brokerage Account: $500,000
     • After-Tax LP Real Estate Investments: $2,040,000
     • Traditional Solo 401(k): $310,000 (Seth) and $740,000 (wife)
     • Roth Solo 401(k): $80,000 (wife)
     • HSA: $13,000
     • Cash and Short-Term T-Bills: $45,000
     • Home: Valued at $725,000 (no mortgage)

   • Income Streams:

     • Social Security: Seth expects $28,000 annually at age 67; his wife expects $35,000.
     • Desired Annual Spending: $150,000
     • Legacy: Plans to leave remaining assets to charity

   Hosts' Analysis:

   • Joe Anderson:
     "With a total of $3.6 million in assets and a desired annual spending of $150,000, you're looking at a 4.2% distribution rate. This is on the higher end, especially considering the varied liquidity of your assets."
     [21:00]

   • Big Al Clopine:
     "Understanding the cash flow from your real estate investments is crucial to determine any shortfall and adjust your distribution rates accordingly."
     [22:03]

   Conclusion: Seth and his wife are well-positioned for retirement but need to carefully assess their distribution strategies, particularly concerning their real estate investments' cash flow. The hosts emphasize the importance of tax-efficient Roth conversions and aligning their spending with their investment returns to ensure a sustainable retirement.

4. Leon from Chicago

   Timestamp: [25:31] - [33:56]

   Case Overview: Leon, a value-based investor from Chicago, seeks advice on integrating real estate into his investment portfolio without directly managing properties. He contemplates investing in REIT ETFs and desires guidance on portfolio allocation.

   Financial Breakdown:

   • Assets:
     • Portfolio Size: Approximately $1,000,000
     • Current Allocation: 70-30 stocks to bonds
     • Interest: Real estate involvement without direct management

   Hosts' Analysis:

   • Joe Anderson:
     "For someone looking to diversify into real estate without direct management, REIT ETFs are an excellent choice due to their liquidity and ease of access."
     [29:03]

   • Big Al Clopine:
     "Starting with a 5-10% allocation to real estate within your portfolio could provide diversification benefits while maintaining your preferred investment style."
     [32:41]

   Conclusion: Leon is advised to consider REIT ETFs as a strategic method to incorporate real estate into his investment portfolio without the complexities of property management. The hosts recommend beginning with a modest allocation to gauge comfort and effectiveness before potentially increasing exposure.

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Key Insights and Takeaways:

1. Distribution Rates:

   • Maintaining a sustainable withdrawal rate is crucial. While the commonly recommended 4% rule serves as a guideline, higher or lower rates may be appropriate based on individual circumstances and asset liquidity.

2. Tax Diversification:

   • Balancing pre-tax and post-tax accounts can optimize tax liabilities in retirement. Roth conversions can be a strategic tool, especially for those in higher tax brackets or those anticipating higher future tax rates.

3. Asset Allocation:

   • Diversification across various asset classes, including real estate through REITs, can enhance portfolio resilience. However, it's vital to assess the liquidity and risk associated with each asset class.

4. Spending Assessment:

   • Accurate evaluation of current and projected expenses ensures that retirement plans are grounded in realistic financial needs. Contingency planning for unexpected costs is also essential.

5. Lifestyle Considerations:

   • Beyond finances, emotional and lifestyle readiness for retirement plays a significant role. Ensuring personal fulfillment and mental well-being is as important as financial security.

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Notable Quotes:

• Joe Anderson:
  "With $6 million bucks and you're just miserable, you need to find purpose beyond the numbers."
  [11:53]

• Big Al Clopine:
  "A 4.2% distribution rate is manageable, but it's essential to consider the deferred compensation and potential tax implications."
  [05:34]

• Seth (Caller):
  "We would like to spend $150k annually and would like to die with 0. Anything remaining we will have left for charities."
  [19:00]

• Joe Anderson:
  "If you're 57, you're going to retire still in your 50s. That's super young for retirement. What are you going to do when you retire?"
  [07:04]

---

Conclusion:

Episode 538 of the "Your Money, Your Wealth" podcast offers comprehensive insights into early retirement planning, emphasizing the importance of sustainable withdrawal rates, tax-efficient strategies, and thoughtful asset allocation. Through real-life listener scenarios, Joe Anderson and Big Al Clopine provide actionable advice tailored to various financial situations, reinforcing the podcast's commitment to making finance both informative and entertaining.

Listeners are encouraged to engage further by accessing free financial resources, episode transcripts, and personalized consultations through Pure Financial Advisors to refine their retirement strategies.

Transcript

[Andi Last]

George and Weezy in the land of Lincoln will have deferred compensation and wonder if they can retire in mid-2026 or even earlier. Will they have enough? Should Jen in Ohio move with work, take a break, or just retire? She asks Joe and Big Al for a brutally honest spitball. Seth isn't sure if he can afford to stay retired at age 52 and whether he should convert his retirement savings to Roth. So he uses an AI voice to ask the fellas for his spitball. Today on youn Money, you, Wealth Podcast538. And Leon uses his real to ask whether REIT ETFs are a good way to get into real estate investing. I'm executive producer Andi Last, and when I asked Joe Anderson, CFP and Big Al Clopine, CPA when we were recording the podcast this week, Al replied that he was on a train to Venice and that we would indeed record next week. So until Big Al returns from his extended European vacation, enjoy an encore presentation of these Questions from an October 2024 episode of youf Money, you, Wealth podcast in reverse order so you'll catch things you may have missed the first time around.

[Joe Anderson]

We got George and Louise. They're calling in from the Land of Lincoln. No pets. Land of Lincoln, Nebraska. Or is that Chicago? Or, like, Illinois? Is it Abraham Lincoln or Lincoln, Nebraska?

[Andi Last]

Well, I guess it could be either.

[Joe Anderson]

The Land of Lincoln. It could be Aaron. Illinois could be the Land of. All right, okay. They got no pets, only a high school junior still at home. $165,000 saved in that 529 plan. What did you do? Did you put money in a 529 plan? You cash flow. And remember, you're all stressed out.

[Big Al Clopine]

Yeah, I did put some in, but not enough. Yeah, so I cash flowed it.

[Joe Anderson]

University of Colorado was just.

[Big Al Clopine]

That was a killer. Yeah. Oh, boy.

[Andi Last]

Actually, I just checked the email. You're right. It's Illinois.

[Joe Anderson]

Oh, yes.

[Big Al Clopine]

Land of Lincoln. Okay.

[Joe Anderson]

Land of Lincoln.

[Big Al Clopine]

Okay, There you go. See, you're right.

[Joe Anderson]

I like my American history.

[Big Al Clopine]

Really? That's the first time I've heard you say that.

[Joe Anderson]

I drive an S05 series in Wheezy. So that's George and Wheezy from Jefferson's Land of Lincoln. Land of Lincoln was. What does Wheezy have? She's got a BW Atlas. I don't know what that is.

[Big Al Clopine]

Me neither.

[Joe Anderson]

All right, they're both paid for. Wheezy doesn't drink. But my pre bird, what does he drink? A hot Hoegarden.

[Andi Last]

Actually, he says it's pronounced Hoogarden a.

[Joe Anderson]

Cold hugarden who garden. That's a Belgium white bitter and de emphasizes hops in is unfiltered. By the way, it's pronounced who garden. I should have just.

[Big Al Clopine]

There we go.

[Joe Anderson]

I better. Just did a little bit of prep today.

[Big Al Clopine]

A little bit of prep.

[Andi Last]

All right, so here's a VW Atlas. It's suv.

[Joe Anderson]

Cool.

[Andi Last]

And here's. Here's the who garden.

[Joe Anderson]

Who garden.

[Big Al Clopine]

Okay.

[Joe Anderson]

Nice. Okay. Wanted a spitball analysis as to my ability to retire June 30, 2026 or earlier. Noted to define benefit pensions for either of us. Wezy would continue to work to access health care benefits for the family costing $400 a month. Her income is fairly limited. I have a non qualified deferred compensation plan that will pay out over a 10 year installment starting January 2027. Assume the June 30th, 2026 retirement date. Current balance is 1,000,800. An expected balance will be about $2,200,000 with my proposed retirement trustee HP12C. Alright, Big Al and I, that's what we use.

[Big Al Clopine]

There you go.

[Joe Anderson]

Says that it's $220,000 per year. I also expect a three year long term incentive trail of $60,000 a year in 27, 28, 29. You doing the math there, Big Al?

[Big Al Clopine]

Yep. Looking pretty good.

[Joe Anderson]

All right. My IRA is $1,200,000. Wheezy's is 1,010,000. All non Roth. My 401 is a $1,100,000 of which only $50,000 is Roth. So a lot of deferred monies here.

[Big Al Clopine]

Yep.

[Joe Anderson]

Contributions have all been pre taxed given the Household income is 600 to $700,000 the last couple of years and expect at least $500,000 to retirement. Taxable brokerage account is $880,000 of which 240,000 is in a government money market fund. Personal residence is valued at $1 million with a $300,000 mortgage at 6%. Thinking we are clear, thinking we will clear the deck on the mortgage at retirement. Desired retirement spending EX mortgage is $15,000 a month in today's dollars. Health savings account balance is $65,000 and have cash value life insurance of about $140,000. All right, you got a lot of stuff going on here, George. Let's get to the question, can I retire? All right. You'll probably answer is yes, I think so. Social Security calculator reflects monthly benefits of $3,600 for me, 48 at age 70 for Wheezy, it's $2,000 and then $25,000 at 70. We appreciate the levity the team brings to each podcast.

[Big Al Clopine]

Okay, all right, so let me recap here a little bit.

[Joe Anderson]

Yeah, please.

[Big Al Clopine]

So we've got 4.3 million in assets.

[Joe Anderson]

Okay. Most of it Deferred. Yeah, most $50,000 in Iraq.

[Big Al Clopine]

And that's without the non qualified deferred comp plan, which I'll get to in a second. Now they want to spend $180,000. If we just take those two numbers, 180 divided by 4.3, we get a 4.2 distribution rate, which 56, 57. If there was nothing else going on, it might be just a little bit rich. But pretty close. Pretty close. Yep. But now you look at the deferred comp plan. Ten installments starting in January. So basically what that means is probably about $220,000 per year for 10 years. Okay. So there's no reason to dip into any of the savings. So that can just grow. Right.

[Joe Anderson]

So all of his assets will grow. Weezy's gonna work. She's gonna pay the healthcare.

[Big Al Clopine]

Yeah, she'll pay the healthcare.

[Joe Anderson]

And then the deferred comp plan is gonna pay for their living expenses over the next 10 years.

[Big Al Clopine]

That's right. And plus they got an extra 60 for three years.

[Joe Anderson]

Yeah. A little kicker.

[Big Al Clopine]

Yeah, a little. For vacation money or what? Whatever. Whatever fun stuff you want to do. So. So I guess what I'm thinking is if you don't touch the 4.3 million for 10 years, that's 9. Could be 8. 9 million. Will that cover your spending? I don't see how it wouldn't. And that's even before Social Security, so. Yeah.

[Joe Anderson]

That'S the basic easy stuff. I mean, what. What other items do you think George and Wheezy really thought that they couldn't do it, or is there?

[Big Al Clopine]

Well, that's what they asked.

[Andi Last]

Well, they want to know if they can retire by 20, 26 or earlier.

[Joe Anderson]

Yeah, you can retire earlier because deferred comp plan is going to cover your monthly expenses over the next 10 years. And if Wheezy continues to work just to pay the health care, you're golden.

[Big Al Clopine]

Yeah.

[Joe Anderson]

But the issue is, is that most of this is all, again, in a deferred account, 100%. And then you got 10 years of $200,000 of income that you're still going to be in a high tax bracket. So then the question is, okay, well, how diversified from a tax perspective, in how much pain is it going to be. To do it because he's going to have to convert in high rates because he's going to be in higher rates probably in the future, depending on what that IRA grows to.

[Big Al Clopine]

Yeah, and so the way I would think about that is when he retires, that's when you start doing big Roth conversions.

[Joe Anderson]

He should retire tomorrow.

[Big Al Clopine]

Good, good. No reason not to. Now the deferred comp will be, let's say if it's maybe it's 180,000 a year, which still covers his expenses. So yeah, he could definitely retire earlier. Yeah, I think I have a. So that's one thing is tax problem in the future. The second thing that I would just have George and Weezy take a look at is when you make 6 or 700,000 per year and do you really only spend 180?

[Joe Anderson]

There's no way.

[Big Al Clopine]

Just be careful on what you're really spending because I bet you it's more than that. So just take a look at that.

[Joe Anderson]

How old are they?

[Big Al Clopine]

57, 56.

[Joe Anderson]

57, 56. How much do you think? Well, let's see if they make $700,000 a year. State of Illinois. That's probably. That's a high tax rate. So they're probably paying two plus FICA. 250, 300,000, let's call it.

[Big Al Clopine]

Yeah, 250. Probably 250. Yeah. So let's split the difference. So 650, 250. So 400 net. They're probably saving 100, 100 ish. So they got 300. And you're really only spending 180. Maybe. But just be careful on that because how many times have we seen people come into our office and say, yeah, I only spend 40 grand a year.

[Joe Anderson]

Well, this is how we can tell. So in the non qualified deferred comp plan, so he's got $1,800,000 there. So is that company funded or did he fund that? In most cases he funded.

[Big Al Clopine]

He probably funded.

[Joe Anderson]

So I don't know what percentage of his inc that he funded there. But to get 1,800,000 at $56,000, $57,000, he probably put a pretty good chunk of money there.

[Big Al Clopine]

Yeah.

[Joe Anderson]

And then you look at what do they have outside of retirement accounts. It looks like most of it is pre tax.

[Big Al Clopine]

Most of it's pre tax. They have $880,000.

[Joe Anderson]

Okay, $880,000 outside of retirement accounts. So you know, their spending is a little bit high. Let's say if he didn't have the deferred comp plan and he only had retirement accounts and he only had eight. I mean only, I'm saying only. And I just feel like a jack saying that. But given what percentage of non qualified dollars that he has compared to his qualified dollars, you could see that the spending might be a little bit high. But I don't know what he put in the deferred comp plan, if that is company funded or if that's him funding, which I think he probably fund a majority of that.

[Big Al Clopine]

Yeah, I would say so too. So if he put in, let's just say 75k a year or even 100, then I think the numbers probably work out right to where the spending is appropriate.

[Joe Anderson]

But I like 700 over the last 10 years. Let's say they made that amount of money. It's like, all right, well, $7 million came into the household. Seven million. How much of that went to tax? Well, he went to pert comp. So he got tax savings there.

[Big Al Clopine]

That's right.

[Joe Anderson]

401S, all pre tax savings.

[Big Al Clopine]

Yep. So maybe we're high on the taxes.

[Joe Anderson]

Maybe.

[Big Al Clopine]

Yeah. So it's just worth a look.

[Joe Anderson]

Right? Because if you're 57, you're going to retire still in your 50s. That's super young for retirement. What are you going to do when you retire? They're going to go on African safaris every other week.

[Big Al Clopine]

Yeah, it's. Anyway, that's, that's, yeah. So, so it looks, it works. This works. Well, so you got a tax problem. Check your spending and then we don't really talk about this much. But what are you going to do? We'll go back to the hard charger. George, you're probably a hard charger just like Big Al. What are you going to do? Right? I mean that's as important as the financial part.

[Joe Anderson]

Oh yeah. In some cases. More.

[Big Al Clopine]

More. Right.

[Joe Anderson]

All right. You got 10 million bucks and you're just miserable.

[Big Al Clopine]

Yeah. Right. You feel depressed.

[Joe Anderson]

Oh my God.

[Big Al Clopine]

I was like, oh, I got no worth, no reason to get up in the morning.

[Joe Anderson]

Yeah, I want another humble bog. Well, let me who garden, whatever the hell it's called.

[Andi Last]

Common bug.

[Big Al Clopine]

I like that.

[Joe Anderson]

Give me another 12 pack of hoe garden.

[Big Al Clopine]

Oh my.

[Joe Anderson]

It's Monday morning.

[Big Al Clopine]

So you, you open up your, your, your bank, you know, and your investment accounts in the morning and you look at you go, oh, that's great. And then two minutes later. Oh, now what?

[Joe Anderson]

Now what? Can I spend some of it? No, I don't want to spend any of it.

[Big Al Clopine]

I know it's, it's too Tight.

[Joe Anderson]

All right, well, congratulations. Good luck. Thanks for the. Thanks for the email.

[Andi Last]

All right, Pop quiz. Are you required to take minimum distributions from your Roth account? Test your retirement knowledge this week on the youe Money, you, Wealth TV show as Joe and Big Al give you a retirement pop quiz. 18 questions to get you ready to retire. With each questions, the fellas have actions you'll want to take now to secure your future retirement. Watch Retirement Pop Quiz on youn Money, you, Wealth tv. Use our online pop quiz to test yourself and see how ready you really are for retirement. And download the free Retirement Readiness Guide. It'll show you how to control your taxes in retirement, create income to last a lifetime, make the most of your retirement investing strategy and much more. Click or tap the links in the episode description to get started.

[Joe Anderson]

All right, let's move on to Ohio. We got Jen. She writes in. She's asking for a little bit of a spitball. Company office closing within six months. I'm allowed to move out of state, but given daughter in high school, I may take some years off or retire altogether. Currently 55. Given that, I'm checking to see my overall early retirement options. Spouse stays at home, no Social Security. I'm planning on taking mine at 70, if it exists. Oh, Jen. So company office is closing within six months, and I'm allowed to move out of the state.

[Big Al Clopine]

So I guess they have offices outside of her.

[Joe Anderson]

Looking closing. Who cares?

[Big Al Clopine]

No, just allowed.

[Andi Last]

Just that office.

[Big Al Clopine]

No, just that office is how I read that.

[Joe Anderson]

Okay. All right, let's see what Jen's got here. She's got. Wow, we got Richie Riches here today.

[Big Al Clopine]

This is the Rich Person show.

[Joe Anderson]

We got 2.1 million in a brokerage account, $1,700,000 in a rollover IRA, 1.3 million DOL, including $280,000 in a Roth in current $401,100,000 in Roth conversion IRA, $80,000 in an HSA, and $750,000 in a $529,000 plan for the two kids, $16,000 and 19.

[Big Al Clopine]

So if we're keeping track, Joe, we got about $6,200,000 of liquid assets.

[Joe Anderson]

Yep. Okay. And she's going to say I spend $40,000 a year. Can I retire? Ballpark expenses, pre tax. All right, $180,000 to $200,000. In addition, would like to give the kids from ages 22 to 32 $30,000 for them to cover and fund their respective IRAs in case Uncle Sam changes their mind on inheritance. On retirement. Be brutal. And honest may consider part time out of state work once the youngest is out of high school cars. Or six year old Lexus and a four year old Acria.

[Big Al Clopine]

Acura.

[Joe Anderson]

Acra. Acra. Oh, my God. Suv, no pets, Diet Pepsi and occasional beers are the faves. Love to hear your spitball and see if I'm in the ballpark or way off base. Yeah, you're on first, second, third base here, hon. You're good.

[Big Al Clopine]

Just to put a little math to this show. Spending 200,000 on a 6.2 million portfolio, 3.2 distribution rate. That's before Social Security. Maybe she, you know that's at the high end of her spending, right? I'm okay with that. I mean, Anyone that has $6 million, I think you can make it work.

[Joe Anderson]

I think you're all right.

[Big Al Clopine]

I mean, let's just say, Jan, it feels a little bit tight after a year or two. Then go down to spending 170. You'll still have a great life.

[Joe Anderson]

Yeah. At 55. Okay, someone at 55 that has accumulated this much money and her husband doesn't work. I wonder, was he always a stay at home dad or did he make a lot of money and then he retired?

[Big Al Clopine]

I'm guessing that or I'm guessing she.

[Joe Anderson]

Made all of this money. Maybe there could have been a little bit of an inheritance, but there's a lot of money here. Maybe with the amount of money in retirement accounts.

[Big Al Clopine]

I know, right? Unless that was inherited, but that seems.

[Joe Anderson]

Rollover IRA and the 401k and a Roth conversion. I don't think so.

[Big Al Clopine]

It doesn't seem like it.

[Joe Anderson]

So she's jamming a ton of money away. So Jen's 55 and they got 6 million bucks.

[Big Al Clopine]

Yeah.

[Joe Anderson]

I'm guessing she was a hard charger.

[Big Al Clopine]

Yeah, I have to.

[Joe Anderson]

I'm guessing that she made quite a bit of dollars and she probably wants to take a couple of years off, but I don't know.

[Big Al Clopine]

Yep. She didn't really talk about her husband here, so I'm guessing you're right.

[Joe Anderson]

It says husband doesn't work.

[Andi Last]

Where does it say that spouse stays at home.

[Joe Anderson]

He's at home.

[Andi Last]

No Social Security.

[Joe Anderson]

I'll guess no Social Security. I guess he's never had work history. I guess he's got a spouse. He's got a spouse.

[Big Al Clopine]

He does. He does. Yeah.

[Joe Anderson]

It could take half of Jen's.

[Big Al Clopine]

Yeah. All right. Anyway, Jen, you're fine and Yeah, I.

[Joe Anderson]

Guarantee Jen's not going to be sitting around. No, she's gonna go back to work. She's Gonna start a business. She's gonna probably do something.

[Big Al Clopine]

Of course she is a hard charger at 55, I gotta tell you that. I mean, you know, I want to retire at what? Yeah, 48.

[Joe Anderson]

You try to.

[Big Al Clopine]

And here I am. It's because, you know what? When you're a hard charger and you got lots of energy, you. You want to keep.

[Joe Anderson]

So are you calling yourself a hard charger?

[Big Al Clopine]

Yes, I am.

[Joe Anderson]

Because that's like you're giving yourself a little compliment there.

[Big Al Clopine]

Let me pat myself on the back. Yes.

[Joe Anderson]

You and Jen are just like two peas in a pot. You've got a big wallet. I feel like Jen.

[Big Al Clopine]

I feel like I know Jim.

[Joe Anderson]

Yeah. The little AI machine calling us Andy.

[Andi Last]

Yep. At first it seems like it might be a human that's actually calling in for a spitball, but if you pay attention, you can kind of tell that it's an AI voice. So this is our first time. This is the first time we've gotten.

[Joe Anderson]

I mean, do you play with AI?

[Andi Last]

I have a couple of times. But it's just. It's obvious. I've seen a lot of the videos on YouTube that are, you know, faceless YouTube videos that have an AI voice on them. This definitely sounds like it's one. Tell me what you think.

[Joe Anderson]

Wasn't there like an AI song?

[Andi Last]

Well, yes, I made an AI song for you guys. That one, you couldn't really tell so much that it was AI.

[Big Al Clopine]

Got it. Yeah.

[Andi Last]

Okay, so here we go.

[Seth]

Hey, Joe, Al and Andy, this is Seth from Montana. Thanks for the entertaining and thought provoking podcast. I have a spitball analysis for you.

[Joe Anderson]

Please.

[Seth]

My wife and I are both 52 and have mostly stopped working as of this summer, but wanted to make sure we were on the right path or if we needed to pick back up some more assignments. I also have a question for you on Roth conversions. Our assets are as follows. 500k in our brokerage account. $2,040,000 in after tax LP real estate investments. 310k in my traditional solo 401k account. 740k in my wife's traditional solo 401k account. 80k in my wife's Roth solo account. None in mine. 13k in a HSA, 45k in cash and short term T bills. House is worth about 725k. No mortgage. Our Social Security estimates with $0 future earned income shows 28k annually for me at 67 or about 20k if I filed at age 62. Social Security estimates for my wife also with 0 future earned income shows 35k annually at age 67 or 25k poor at age 62. We would like to spend 150k annually and would like to die with 0. Anything remaining we will have left for charities. Are we on track to be able to not continue working? Also, I have a feeling I know what Joe will say, but what are your guys thoughts on us doing Roth conversions? In our solo accounts last year our marginal tax rate was 24% and our effective rate was 18%. If so, any thoughts on the best way to structure these? I drive an F150 and my wife drives a Cadillac XT5 SUV. Drinks of choice are vodka sodas in the summer or Woodford on cold winter nights. A glass of Cabernet is always good too. Okay, I gotta get going to head back out to scout for more elk. Thanks for the spitball.

[Big Al Clopine]

Huh.

[Joe Anderson]

Where's he from? Montana.

[Andi Last]

Montana. So he's out scouting for elk and using AI to send in voice requests.

[Joe Anderson]

I don't know. That sounded like a real person.

[Big Al Clopine]

Yeah, it didn't. Yeah, from kind of fast and high and then it went lower.

[Joe Anderson]

Well, I think he was getting excited about talking about his assets. Yeah, I was like concentrating on the AI aspect and I didn't even listen to the question.

[Andi Last]

Well, I like the fact that it says in my traditional solo 401k account. In my life's traditional solo 401k account the wording sounded a little weird.

[Joe Anderson]

Well, maybe he.

[Big Al Clopine]

Let me summarize for you. So they. He and his wife are both 52.

[Joe Anderson]

52 wants to retire.

[Big Al Clopine]

Yeah, they just retired. They most. They mostly stop working as of this summer. They've got about $3.6 million total. 2 million of that is in a after tax LP real estate investment.

[Joe Anderson]

What is it? What is the real estate cash flow?

[Big Al Clopine]

Doesn't say. Yeah, and the rest is brokerage. Well, broke brokerage and 401k and a little bit of Roth. So anyway, they want to spend about $150,000. So the first thing we do right off the bat is we take $150,000, we divide it into their investments of $3,600,000 and we get a 4.2% distribution rate, which for two 52 year olds is I would say a fairly aggressive rate.

[Joe Anderson]

Yeah, there's a lot of caveats here, Seth. I mean you got $2 million in this after tax LP real estate investments. But we don't know what the cash cash return is.

[Big Al Clopine]

We don't. Sometimes they're great. Lately they haven't Been as good because interest rates have gone up and most of the loans on real estate are commercial real estate are variable. So there's been lower cash flow. I mean, a lot of them have been 5 and 6%. Right. Or some cases more. Lately they've been. I've heard of some make 3 or 4%, some not making any distributions at all. So, yeah, there's a lot we don't. I'm just taking the spending versus the assets to come up with a distribution rate and right off the bat, warning signals go up. That's a fairly high distribution rate in your early 50s.

[Joe Anderson]

But he's telling me that he's in the 24% tax bracket. Was he retired last year? So if he was in the 24% tax bracket, I mean, that's a few hundred thousand dollars of income that has to be peeled off of either the real estate or.

[Big Al Clopine]

Yeah, yeah. No, he says, he, he said they have mostly stopped working as of this summer.

[Joe Anderson]

Okay.

[Big Al Clopine]

Last year was, I guess a full year, and this year might be a half year working maybe. I don't know. Hard to. Hard to say.

[Joe Anderson]

Well, a couple, couple of comments is that you built a really good nest egg at 52. 3/ million dollars. So congratulations there. I agree with alan that a 4% burn rate on the assets, we're assuming that they're all liquid when you look at a 4% rule, but a million, 80% of his net worth is not liquid. So we need to understand what the cash flow is on the real estate investments to determine what is the additional need of income, if any, coming from the other liquid assets. From there, you know, what tax bracket that you're in to determine what conversion strategy is going to make sense.

[Big Al Clopine]

Yeah, probably the better way to think about this is you, you take your 150,000 spending and then you subtract out your real estate income and then you come up with a shortfall and you divide that into the other liquid assets to figure out what the real distribution rate is.

[Joe Anderson]

Because they got a 10 to 15 year bridge for Social Security. You're burning out 4. 4.5% plus tax, plus the cost of living at 52. I don't know. I would. That's, that's. It's a little too rich for my blood.

[Big Al Clopine]

Yeah. Yeah. So the question. We want to make sure we're on the right track or if we needed to pick up some more assignments.

[Joe Anderson]

Yeah, pick up more assignments.

[Big Al Clopine]

I think you need some more assignments, Beth.

[Joe Anderson]

Unfortunately, it's more. Oh, whatever, whatever.

[Big Al Clopine]

Yeah.

[Joe Anderson]

All right. Thanks, Seth. That was cool.

[Andi Last]

You can click or tap Ask Joe and Big Al in the episode description to send in your retirement spitball analysis request like Seth did. But realize making the most of your entire financial future, especially if you're retiring early, that requires more than just a spitball. When you schedule a free financial assessment and work with one of the experienced professionals on Joe and Big Al's team at Pure Financial Advisors, they'll take a deeper dive than you get on the YMYW podcast with the goal of optimizing your entire financial life and helping you craft the retirement you deserve. Book your free financial assessment in person at one of our nationwide offices or online from the comfort of your own home, no matter where you are. Either way, just click or tap the free financial assessment link in the episode description or call 888-994-6257 to get started. The Pure team will work with you to create a detailed plan customized to your retirement needs and goals. Now let's get back to the voice messages.

[Leon]

Hey Joe, Big Al, Andy, hope you're all doing well. This is Leon from Chicago. I have to admit this is my third time calling in with a question or a spitball or commentary I suppose. But you know, while I guess I should apologize for taking advantage, I'm also a value based investor and this seems like a pretty high value proposition. So hoping you'll answer another sort of spitball for me and lay it out for Joe in a different way this time. Since he has to get in the mind of his callers, I thought I would lay it out for him this way. Let's imagine that Leon myself runs into Joe and Big Al in a bar. We're sipping old fashions, just having a barstool conversation about what they do for for a living. And I said hey, if you put your guys in the position of being an early 40s investor planning to retire in your early 60s, let's say you have like a million dollar portfolio at this point and you're a guy that looks at yourself as maybe a 7030 stocks to bonds ratio and you don't want to be a direct real estate investor. Speaking for myself, you know, I want to be in the real estate game, but I don't want to be a direct manager of a property. How would you suggest that this individual would invest in say REIT ETFs? Anything that you guys could offer as a spitball to sort of say, is this like something I should maybe integrate 5, 10% of my portfolio slowly over time? Should it be heavier weighted than that just wanted to hear your guys thoughts on that. Really appreciate it. Love the podcast. I love all the YouTube stuff you guys put out there. And I don't know how Al does it. I've heard about the walking up and down the stairs in his house. I think my wife would look at me really strangely if I did that. So I'm getting my 20,000 steps a day by just going out in the neighborhood, whether it's hot, cold, raining, snowing, whatever. And that works for me. Love the show. Thanks for everything you do.

[Joe Anderson]

All right, Leo.

[Big Al Clopine]

Yes. Hanging out by the way. I run up and downstairs. Yeah.

[Joe Anderson]

And secondly, your boxers or something.

[Big Al Clopine]

Yeah. And I, and I didn't, I didn't start that till my 50s. And at that point your wife just doesn't care. They just. She just throws up her hands.

[Joe Anderson]

I could just see it. I mean, you don't have like a huge tall staircase.

[Big Al Clopine]

Well, it's 15 steps.

[Andi Last]

And you live in San Diego, so it's not like you have to do it because it's snowing outside. Like it might be in Chicago.

[Joe Anderson]

Chicago, like Leon.

[Big Al Clopine]

Yeah.

[Joe Anderson]

You live in Southern California. San Diego.

[Big Al Clopine]

Yeah. But you know, sometimes it's dark or whatever.

[Joe Anderson]

Got it. Okay. We're having a couple cocktails here with Leon. He's thinking about, man, real estate. I want to get a little bit of that.

[Big Al Clopine]

Yeah. I want to get in the game. I don't want to be a property manager. I don't want to find the properties. I don't have to sell them. I don't want to have to take care of the toilets that are overflowing. Yeah, I get it, I get it.

[Joe Anderson]

Yeah. You've been a real estate investor for quite some time.

[Big Al Clopine]

I have, I have. And, and I did that all for many years, Joe. And eventually I got property managers and then you have to manage the property managers. And then I got tired of that and I sold a lot of the real estate. I still have a little bit.

[Joe Anderson]

So you would rather go REIT now? At your.

[Big Al Clopine]

In my current age, yes. Well, I do have REITs and I do have a couple single family homes, so I have a little of both.

[Joe Anderson]

Got it.

[Big Al Clopine]

I like the REITs, the REIT, ETFs, real estate investment trusts, ETFs, because of. They're easy to get into their daily liquidity. You can get out if you want to.

[Joe Anderson]

You know, let's talk about the different ways that you could probably invest in real estate.

[Big Al Clopine]

Yeah, I like that. So right off the bat, he already mentioned owning real estate. That's the kind of, the first thing you think of. And most people start with a single family home or a condo because they don't have a, the, the, the funds to be able to buy a commercial property. So that's, that's one way to do it. But I get it, you don't necessarily want to be a property manager. Although if you really do want to get into real estate, I highly recommend that approach because you learn it really well. You learn what works, what doesn't work. And I think you can, you can actually make a lot of money in real estate because yes, you can. And both of those are true because of leverage, because you're using the bank's money. And so if the property goes up, it's all yours. If the property goes down, it's all yours. So that's the tricky part of that. But after that, the easiest way is probably the REITs, Real Estate Investment Trust ETFs with daily liquidity. That's a good way to go. You can do REITs that are non liquid, non traded, non traded, which in some ways could be a little bit better because there's not flows in and out and you know, so the managers of the fund don't necessarily have to have a certain amount of money for liquidity. Right, right. For people that want distributions and all that stuff.

[Joe Anderson]

So yeah, you got traded rates, you got non traded REITs. And there's pros and cons to each of them.

[Big Al Clopine]

Right, right.

[Joe Anderson]

You just have to really understand what you're getting with a non traded reit because there's, there could be, sometimes there could be a lack of transparency.

[Big Al Clopine]

Right.

[Joe Anderson]

And they might look at a certain cap rate or cash on cash or is that return of capital or is that really the return on, you know, the investment? So there are some really good rates. Untraded or non traded. Yeah, but non traded. You just have to hold on that investment for a little bit longer.

[Big Al Clopine]

Yeah.

[Joe Anderson]

So there's a liquidity issue there. So you should get a higher expected rate of return because you don't have that daily liquidity.

[Big Al Clopine]

Yeah, yeah. Then, then you can do tenant in common. Oh yeah.

[Joe Anderson]

Why don't you do that? Now you're getting hardcore.

[Big Al Clopine]

Yeah, well, and what that is is that's just there'll be a general manager that, that finds the property and manages it or hires managers, basically runs the operation and then tries to get investment capital. And maybe you own 1% right. Of this building or the percentages, but you don't necessarily do anything. You don't have any control over it. But you do have real estate ownership, and they do. Generally the ones I've seen, Joe, are usually 50% ish loan to equity. So in other words, a $10 million property might have $5 million of debt. So you do get additional return. As long as properties go up in value because of leverage, you also can lose more quickly because if properties go down, so just be aware of that. But a dst, dsd, Delaware Statutory Trust, that's another way to go. In some ways, maybe that's even a little bit better because now you own a fractional interest of a pool of properties instead of a single property. So if I were so inclined, I might think about that. But in the case of Tenants in Common or Delaware Statutory Trust, there's a lot of fees and a lot of cases the promoters, the managers, the organizers are getting a cut of the profits. And so if the profit, they're putting.

[Joe Anderson]

The deal together, they're getting paid.

[Big Al Clopine]

Getting paid. Yes. Yeah. So just, just, I guess just be aware of that. And I mean, that's going to be true in, in even REITs as well. I mean, there's going to be, there's higher fees and stuff like that than maybe a traditional stock etf.

[Andi Last]

What amount of real estate should be in the portfolio percentage wise?

[Big Al Clopine]

Oh, I don't know. I think 5 or 10 is fine. Yeah. I, I mean, some people do 100% real estate and they make a lot of money, but you can also lose money, you know, So I don't know if, if you haven't invested in real estate, maybe start at 5%, see how you like it.

[Joe Anderson]

Yeah. Also, I mean, depends on his home value too. You know, if he lives in a mega mansion, you might be good.

[Big Al Clopine]

You got, you have, you have real estate already. Exposure. Yeah. Although if you're planning to never sell, then it doesn't really count. Sure.

[Joe Anderson]

All right, Leon, there's your choices. Probably just go with a low cost etf. That's what I, that's how I, if we're spitballing here.

[Big Al Clopine]

Yeah.

[Seth]

Yep.

[Joe Anderson]

We're not giving advice. Al, remember when we were doing those workshops?

[Big Al Clopine]

Yeah, that was way back when.

[Joe Anderson]

2006, 2007.

[Big Al Clopine]

Yep.

[Joe Anderson]

We're, we're helping people to get rid of their real estate tax efficiently because of the big run up of the overall market here in Southern California.

[Big Al Clopine]

Right, right.

[Joe Anderson]

And everyone was like, are you out of your mind?

[Big Al Clopine]

Why would we do that?

[Joe Anderson]

We are never ever selling our real estate.

[Big Al Clopine]

Yep. And then, yeah, great recession hit and it might have been a good thing to do.

[Joe Anderson]

It could have been, it could have been, could have, should have been. But anyway, hindsight's 20 20.

[Andi Last]

Hey, I still have a few Kindle copies of the Best of Jonathan Clement's classic columns on money and life available for free for the YMYW audience. Simply email infour.com to get yours, but only if you haven't already. For all the details, check out episode 532, where Big Al and I talked to Jonathan Clements about the inspiring way he's using the remainder of his time with us getting young people going on savings and how you can be a part of it. Links in the episode Description Joe and Big Al will be diving into the depths of the voicemail box and the email bag to start getting caught up on the spitball you've been sending our way while the three of us have been all over the world. Make sure you're subscribed to YMYW in your favorite podcast app or on YouTube and turn on notifications so you don't miss a thing. And most of all, please tell a friend that we're making fun of finance over here at yout Money, you, Wealth Presented by Pure Financial Advisors, 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.