Portfolio Drift, Avoiding Capital Gains, and a $6M Retirement - 530

Summary

Podcast Summary: Your Money, Your Wealth Episode 530 – "Portfolio Drift, Avoiding Capital Gains, and a $6M Retirement"

Release Date: May 20, 2025

In Episode 530 of the acclaimed Your Money, Your Wealth podcast, hosts Joe Anderson, CFP® and Big Al Clopine, CPA delve into essential personal finance topics, addressing listener queries on portfolio management, tax strategies, retirement planning, and emergency funds. This episode combines expert advice with the hosts' signature humor, ensuring both informative and entertaining content for listeners aspiring to secure their financial futures.

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Introduction and Episode Overview

[00:00] Andi Last opens the episode by outlining the key topics and listener questions. From DJ in St. Louis's concerns about asset allocation drift to Duke in upstate New York's ambitious retirement goal, the hosts prepare to provide actionable insights and strategies.

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Portfolio Drift and Rebalancing

Listener: DJ from St. Louis

DJ seeks guidance on handling asset allocation drift in his retirement portfolio, particularly during the decumulation phase.

[00:47] Joe Anderson addresses DJ's initial query about preferring three funds over a single fund to maintain simplicity and effectiveness.

[01:20] Big Al Clopine emphasizes the importance of simplicity, stating, "At least have these three," referring to a global US stock market fund, an international fund, and a bond fund.

Rebalancing Strategies:

DJ's follow-up question focuses on rebalancing when the asset allocation drifts from the target (e.g., 60/40 to 70/30).

[03:02] Big Al Clopine explains, "once it's 20% out of whack, we rebalance," allowing flexibility based on portfolio size and client preferences. He elaborates on setting deviation thresholds, such as 10-15%, to determine when to rebalance.

Joe Anderson further elaborates on the psychological benefits of rebalancing:

"Rebalancing does the exact opposite. So you're selling your winners and buying your losers." [04:01]

[06:26] Big Al Clopine reinforces this disciplined approach:

"Stocks go up and you have a disciplined approach to sell. What are you doing? You're selling high. That's what you're supposed to do." [06:26]

This strategy promotes emotional detachment, ensuring investment decisions are based on logic rather than market volatility.

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Capital Gains Tax and Roth Conversions

Listener: Tim the Enchanter from Florida

Tim inquires about executing a Roth conversion while avoiding significant capital gains taxes.

Initial Banter:

The hosts engage in light-hearted conversation about hot tubs before transitioning to Tim's financial question.

Tax Strategy Explanation:

Joe Anderson breaks down Tim's scenario:

"If I add in the standard deduction of $30,000 and my HSA contributions of $8,500, I come up with a total of $135,000." [11:44]

Big Al Clopine clarifies, "It's zero percent because it gets him to 96,000 taxable." [12:10]

Joe Anderson confirms, "Yes. It is," ensuring Tim understands the strategy.

[14:43] Big Al Clopine adds a crucial point about tax brackets:

"A lot of people still have that misconception. They go over a dollar, they're in a new tax bracket, they're going to pay thousands more. That's not true. It's just that extra dollar."

This segment demystifies the complexities of tax brackets and Roth conversions, providing Tim with a clear path to minimize tax liabilities during retirement planning.

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Achieving a $6 Million Retirement Goal

Listener: Duke from Upstate New York

Duke presents his retirement ambition of accumulating $6 million to sustain an annual expenditure of $100,000, seeking validation and additional recommendations.

Financial Analysis:

Joe Anderson outlines Duke's plan:

"I've always heard the purchase power of the dollar decreases by half every 20 years. So to maintain our current lifestyle at retirement, we'll need to draw $200,000 annually." [24:07]

Big Al Clopine supports the logic:

"200,000 divided by 4%. $5 million. That's what I get. I think you're kind of on track with your analysis." [25:46]

The hosts discuss the feasibility of Duke's goal, considering factors like life expectancy, inflation, and the 4% withdrawal rule. They recommend:

• Roth Conversions: Maximizing tax-advantaged accounts to optimize withdrawals.
• Savings Rate: Duke needs to save approximately $27,000 annually to reach his target, which the hosts deem achievable based on his current savings trajectory.

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Building a Brokerage Account with Municipal Bonds

Listener: Coach Dawber from Minnesota

Coach Dawber is exploring the merits of incorporating municipal bonds into a brokerage account, concerned about total return and market volatility.

Expert Insights:

Big Al Clopine advises against prioritizing municipal bonds for growth, highlighting their limited returns:

"What’s the growth component of a municipal bond? It's not that great. You're buying it for income..." [21:07]

Joe Anderson emphasizes investing in growth-oriented assets within brokerage accounts:

"I'd go stocks. But your total return is basically your growth plus income plus your tax benefit." [21:22]

The hosts recommend focusing on tax-efficient stock ETFs or mutual funds to maximize growth, especially given the low performance of municipal bonds relative to potential returns from equities.

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Establishing an Emergency Fund

Listener: Daniel from Stevensville, Michigan

Daniel seeks advice on determining the appropriate size for an emergency fund and steps to initiate one.

Practical Recommendations:

Big Al Clopine suggests a baseline:

"Set aside three to six months." [32:20]

Steps to Start:

• Separate Account: Open a dedicated savings account distinct from checking to prevent accidental withdrawals.
• Consistent Contributions: Begin with small, regular deposits to gradually build the fund.
• Purpose-Driven Use: Reserve the emergency fund strictly for unforeseen expenses, ensuring it remains untouched for its intended purpose.

This guidance provides Daniel with a clear roadmap to financial resilience against unexpected financial setbacks.

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Host Interactions and Light-Hearted Banter

Throughout the episode, Joe Anderson and Big Al Clopine engage in humorous exchanges, particularly about hot tubs and fitness routines. These segments, while entertaining, underscore the hosts' approachable and relatable demeanor, making complex financial topics accessible to listeners.

Notable Moments:

• [07:31] Playful discussion about hot tub preferences.
• [21:07] Transition from serious tax strategy to humorous remarks about hot tubs.
• [33:50] Banter about starting a new podcast, "Hot Tub Retirement," blending finance talk with personal anecdotes.

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Promotions and Resources

Andi Last intermittently promotes valuable resources for listeners:

• Financial Blueprint Tool: "Click or tap the financial blueprint link in the episode description. Enter your real numbers and details and see how you're doing as you plan for retirement." [27:08]
• Retirement Readiness Guide: Offers a downloadable guide covering tax control, income strategies, and investment planning.
• Free Financial Assessment: Encourages scheduling a free assessment with Pure Financial Advisors to tailor financial plans.

These resources empower listeners to take proactive steps toward their financial goals.

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Conclusion

Joe Anderson and Big Al Clopine wrap up the episode by addressing the final listener question from Daniel, reiterating key financial principles, and maintaining their engaging rapport. The episode effectively balances expert financial advice with personable interactions, reinforcing Your Money, Your Wealth as a top-tier personal finance resource.

[35:57] Andi Last concludes with a reminder to leave reviews and share the podcast, ensuring the community continues to grow and benefit from the hosts' expertise.

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Key Takeaways

• Rebalancing Portfolios: Essential for maintaining desired asset allocation and managing risk.
• Tax-Efficient Strategies: Roth conversions and understanding capital gains tax brackets can optimize retirement savings.
• Retirement Planning: Setting clear financial goals and maintaining disciplined saving and investing strategies are crucial for a secure retirement.
• Emergency Funds: Establishing and maintaining an emergency fund provides financial safety net against unforeseen expenses.
• Investment Choices: Prioritize growth-oriented investments in taxable brokerage accounts to maximize returns.

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For more insights and personalized financial strategies, visit YourMoneyYourWealth.com and explore the free resources offered by Pure Financial Advisors.

Transcript

[Andi Last]

What should you do when the asset allocation of your retirement portfolio drifts? Joe and Big Al spitball on rebalancing for DJ in St. Louis today on youn Money, you, Wealth podcast number 530. Plus, Coach Dawber in Minnesota is curious about municipal bonds and a brokerage account. And Daniel in Stevensville, Michigan needs details on emergency funds. Also, can Tim the Enchanter do a Roth conversion and avoid the nasty big pointy teeth of capital gains tax? And Duke in upstate New York told his wife they need $6 million in retirement and she said he was sill. What's say Joe and Big Al? We'll find out. Click or tap ask Joe and Big Al in the episode description 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 go to DJ from St. Louis. You recently answered a question of mine regarding. They have a 6040 globally balanced fund in the decumulation phase or separate funds. You both prefer three funds? I don't think we've preferred three funds. I think we're just trying to keep it simple for you, dj.

[Big Al Clopine]

Yeah, there's more than three you might want, but three is kind of what we. If you want to be as simple as possible.

[Joe Anderson]

Yeah. Because he wanted one fund.

[Big Al Clopine]

Yeah.

[Joe Anderson]

He was like, should I go into one fund? No, don't go into one fund. If you want to keep it super simple, go into three funds.

[Big Al Clopine]

Yeah. At least have these three.

[Joe Anderson]

But then now he's coming back to us. Big Al, okay. He's like, all right, you preferred three funds. A global US Stock market fund, an international fund, and a bond fund. I had a second question that we overlooked. So he's going to ask it again. If you choose these three funds, what's your take on rebalancing? In other words, do you like the idea of separate funds? I think because I could sell what is winning and that might rebalance the portfolio. That makes sense. But I would assume that you'd like to rebalance when a plan asset allocation that is 6040 drifts to 6,000, 535 or 70 30. Right. In other words, I think that you are stating that you like the flexibility of selling US Stocks, international stocks or bonds at the time of the need for rebalancing or the need for cash. But let's say that's March 2009 happens again, you would rebalance. Right. What's up with People saying, right, is this your brother? It could be to keep up the risk level at the 60, 40 asset allocation. Do you rebalance when the portfolio asset allocation is off and if so, by what percent, 5%. If you don't recommend rebalancing based on a percentage of the movement of the asset allocation from its target, would you be so kind to explain why? You guys are the best. Love your show. You want to rebalance and it's based on bands of the percentage of the asset allocation that you're in.

[Big Al Clopine]

Right. And you can pick any number. I mean we personally as a firm, well, first of all, our client Portfolios are usually 12 to 16 different asset classes. So you have a better opportunity for rebalancing and tax less harvesting. But I think when we answered your question first that you want to kind of keep it simple. So we answered it, just at least have these three. But whether you have three or 15 or 20 or whatever, how many funds you have, then the way we look at it is once it's 20% out of whack, we rebalance. Which means if your allocation on, let's just say large company stocks is 10, 10%, that's what you want. Once it gets to 12% or a 20% deviation, we're selling to get back to 10. Or if it gets to 8, it's too low, you're buy trying to get back to 10. Right now you could pick 10%, you could pick 15%, whatever number you want. But a lot of people think that's too much work. So they just look at it once a quarter or even once a year, which is better than nothing.

[Joe Anderson]

Yes. So you're managing the risk by rebalancing. So you're creating discipline in the overall approach of your investment strategy. Here's what human nature does. We're living in a volatile stock market today. And when the market drops 5%, what do most people do? They're not necessarily buying, they're selling. They're getting out of a certain asset class or they're looking at their portfolio and they're seeing, all right, well which ones are doing well in this environment and which ones are doing poorly in this environment. And they think that the ones that are currently doing poor are going to continue to do poor. So they're selling those assets and then they're buying the ones that are doing well. So they're buying the winners and they're selling the losers. Rebalancing does the exact opposite. So you're selling your winners and buying your losers. And if you Just hear that out loud or try to say that out loud. It's like, well, what are you talking about? That doesn't make any sense. Why would you want to sell your winners and buy losers? Well, when you buy the entire asset class, you're not necessarily buying individual stocks. That could be a falling knife. You're buying hundreds of stocks within the overall asset. So if it's large companies like Alexander, it could be smaller companies, could be international, it could be value, it could be growth. Whatever that you're looking at, you're buying all of those stocks in that category. So in general, all of those stocks kind of work together. Of course you're going to have stocks that outperform and you're going to have stocks that underperform. That's why you want to buy a big basket of those stocks and you want to have the same characteristics of those stocks. So if you want to do three asset classes. So let's say international does really well, us does poorly. I'm selling international, I'm buying us. Or if both of those asset classes go down and bonds go up, I'm selling some of my bonds because I want to buy low. Then you're going to get the recovery. So I'm buying the same really good companies at a lower price. That's what people need to be thinking about, especially in turbulent times like we're experiencing over the last several months, is that this is a phenomenal time to be thinking about what is your strategy in regards to managing the risk? Because the last thing you want to have happen is that you have a 60, 40 asset allocation, and then that thing goes way out of whack. You're just going to be taking on way too much risk or not enough risk.

[Big Al Clopine]

Yeah, I think that's right. Right, right. And I think I heard it explained to me many years ago, and I kind of like this explanation. It's just a disciplined approach. So if you do that, stocks go up. Right. And so you're actually forced to sell. Right. There you go. Good. So stocks go up and you have a disciplined approach to sell. What are you doing? You're selling high. That's what you're supposed to do. Stocks go down, you're not selling more, you're buying. You're buying low. It forces you to sell high and buy low. And I'm not talking in the market, out of the market. I'm just talking about shaving off some of the gains or buying some. When you're a little bit lower. You're just making small course Corrections. And it forces you to sell high, buy low, which is a good strategy.

[Joe Anderson]

Yeah, it just takes emotion out.

[Big Al Clopine]

It does, yeah. Yeah.

[Joe Anderson]

All right, let's go to Tim the Enchanter from Florida. Tim the Enchanter. That's quite the name.

[Big Al Clopine]

Yeah, it is.

[Joe Anderson]

Hi, gentlemen. And Andy, love listening to the show in my 2014 Defender.

[Big Al Clopine]

2024.

[Joe Anderson]

Yeah, there's. What the hell's a Defender?

[Big Al Clopine]

Range Rover.

[Joe Anderson]

Is it a Range Rover? Oh, look at Aaron the producer, just piece up.

[Andi Last]

Yeah, it's a. It's a Land Rover.

[Joe Anderson]

I do not own a Defender.

[Andi Last]

And the Enchanter is from Monty Python.

[Joe Anderson]

Ah.

[Big Al Clopine]

Okay, okay, okay.

[Joe Anderson]

I thought maybe the Defender was part of the Enchanter. Favorite vehicle I've ever owned. This particular question stems from your money or wealth YouTube clip that I was watching in the hot tub with a margarita this past weekend. Why in hell would you be in a hot tub listening to this?

[Big Al Clopine]

Well, you have a hot tub. Do you have a TV right now?

[Joe Anderson]

Do you know how many times I've been in my hot tub?

[Big Al Clopine]

Probably not too much.

[Joe Anderson]

Zero.

[Big Al Clopine]

Why is that? It's for the. For the kids, right?

[Joe Anderson]

I don't know. It's just like, I'm not a hot tub guy.

[Big Al Clopine]

You're not?

[Joe Anderson]

Not even close to a hot tub guy.

[Big Al Clopine]

It's like, I guess I've never seen you in a hot tub.

[Joe Anderson]

Absolutely not. And I don't think you ever will.

[Big Al Clopine]

You've never seen me in a hot tub either. It's, like, on purpose.

[Joe Anderson]

Yeah. I went on a golf trip one time, and they're like, oh, yeah, I can't wait to get in the hot tub. I'm like, what? I'm not getting no hot tub.

[Big Al Clopine]

Okay. Well, I, on the other hand, like hot tubs. I have one, but I've never done it with you, and I guess that's why we're not.

[Joe Anderson]

No, we're not hot tubbers.

[Andi Last]

Joe. What's your offense to hot tubs? Why? Don't you like them?

[Joe Anderson]

I don't know. I just think it's just sitting in there. What are you just sitting there with water and bubbles?

[Andi Last]

You're supposed to relax. It's supposed to be hot. It's supposed to be nice and relaxing.

[Big Al Clopine]

Relaxes your muscles.

[Joe Anderson]

No.

[Big Al Clopine]

Now that you're getting older.

[Joe Anderson]

No. Not gonna do it. I'll go in the pool.

[Big Al Clopine]

Okay.

[Joe Anderson]

The pool's good.

[Big Al Clopine]

Yeah.

[Joe Anderson]

Okay.

[Big Al Clopine]

You swim, but then you get kind of chilled and you want to do the little hot tub before you get out.

[Joe Anderson]

No, no, no, no. Shower.

[Big Al Clopine]

Shower works for you okay?

[Joe Anderson]

Just fine.

[Big Al Clopine]

Okay.

[Joe Anderson]

I don't know. She kind of grosses me out for some reason. It's like. It's a lot of stuff going on in the hot tub.

[Big Al Clopine]

It's a small amount of water with a lot of people. That's what you're referring to?

[Joe Anderson]

You get there's like seven people all crammed in there, their arms around each other. You got just hair everywhere. It's like, no way.

[Big Al Clopine]

Not your thing.

[Joe Anderson]

No.

[Big Al Clopine]

No.

[Joe Anderson]

Thank you.

[Big Al Clopine]

All right.

[Joe Anderson]

I'll be on the patio having a beer, you guys, when you get done with your hot tub in.

[Big Al Clopine]

Yeah. Come join me.

[Joe Anderson]

Just come join me.

[Big Al Clopine]

Okay.

[Joe Anderson]

So.

[Big Al Clopine]

All right. Is there more or is that it?

[Joe Anderson]

That's it. No, no, no. So. But life is good for. For Tim the Enchanter. He's got his margarita chilling in the hot tub.

[Big Al Clopine]

Yeah.

[Joe Anderson]

Do you think it's like, like an above ground or is it like embedded in the pool? What. What type of hot tub do you think our boy Tim's got? He's in Florida.

[Big Al Clopine]

Florida. I'm going to say above ground.

[Joe Anderson]

That's what you got, right? You got the above ground. You don't have it connected to a pool?

[Big Al Clopine]

No, I don't. I don't want a pool.

[Joe Anderson]

Yeah, you just have the big hot tub. Yeah. You got to get in the stairs. You stand.

[Big Al Clopine]

I just climb in and climb out. I don't need stairs.

[Joe Anderson]

Okay.

[Big Al Clopine]

I've got a little. I got a little shelf behind where I can put my beer.

[Joe Anderson]

Okay.

[Big Al Clopine]

I got no TV there. I'm looking at nature, our beautiful backyard.

[Joe Anderson]

Got it, Got it. Yeah, yeah. And the neighbors are like, oh, there's creepy out again. Do the hot tub.

[Big Al Clopine]

There he is again. We got four kids and two dogs next door. They're just looking over what's going on.

[Joe Anderson]

Life is good. Indeed. In the clip, Big Al discusses capital gain taxes for low income earners. In my case, a no income earner. So here's my question. 20, 25 married capital gains rated 0% under $96,700. If I add in the standard deduction of $30,000 and my HSA contributions of $8,500, I come up with a total of $135,000.

[Big Al Clopine]

And that'll be a gross income.

[Joe Anderson]

Okay. But he's talking 96, 7. That's the tax plus another 30. So that's 100 plus pre tax 85. So he's saying 135.

[Big Al Clopine]

He's saying I make 135.

[Joe Anderson]

But no, no, he's. I don't Think he's saying that.

[Big Al Clopine]

Well, he's. You're right, actually. He's saying if he has 135,000 of.

[Joe Anderson]

Income, it's zero percent.

[Big Al Clopine]

It's zero percent because it gets him to 96,000 taxable.

[Joe Anderson]

You got it?

[Big Al Clopine]

Yep.

[Joe Anderson]

Okay, if I have $20,000 in interest income and another $15,000 in capital gain income, does this mean I can do $100,000 Roth conversion and not subject any of my capital gains to be taxed? The answer is yes.

[Big Al Clopine]

Yeah, it is.

[Joe Anderson]

Yes.

[Big Al Clopine]

And especially in Florida, because Florida has no state taxes. So typically this is only a federal rule. Write the 0% capital gains with Florida Joe with no state taxes. Yeah. Zero tax.

[Joe Anderson]

All good, I assume, would just pay regular income tax on 120,000 that did not come from the capital gains of which would most be 10% or 12%. About the 23,000. Okay, blah, blah, blah. This sound right to you? So, yeah, so again, to explain it, what he's doing is looking at the tax tables to say, what is the top of the 12% tax bracket for married? Finally, jointly. And it's roughly $100,000. I'm not going to get to the penny here as Tim the Enchanter chilling.

[Big Al Clopine]

In his hot tub, watching me on.

[Joe Anderson]

Clips, just watching Big Al on clips, just wishing Big Al was in his hot tub.

[Big Al Clopine]

It's getting a little weird with being chatter. I don't know.

[Joe Anderson]

Oh, God. Yeah.

[Andi Last]

In Monty Python, in the Holy Grail, Tim the Enchanter was a pyromaniac. He was a wizard.

[Joe Anderson]

That's why he's in a hot tubs. Yeah, get the fire down. So $100,000 of taxable income, you can have up to $100,000 of capital gains and be 0% tax. We call that tax gain harvesting. So if you wanted to diversify out, you can sell some stocks, buy the stock back the same day. There's no wash sale rule. So you sell and buy it back, and then that just increases your overall basis. Or if he did a Roth conversion, he just wants to make sure that that total income plus the standard deduction stays under that $100,000 of taxable income, and you're all good. If he went like a little bit high on the Roth conversion, or maybe there was a little bit more interest in dividends, just a small portion of that then would be subject to the capital gains, because capital gains sits on top of the ordinary income. So it's not like your capital gains sits on bottom. It's like, all right, Well, I got $80,000 of capital gains. I don't want to pay tax on that. And put another $50,000 of ordinary income. It's the opposite. So it goes ordinary income first and your capital gains will sit on that ordinary income. So just a portion of whatever capital gains that you have would be taxed.

[Big Al Clopine]

Well, and I think that's a good point. Right. Which is if you go over, and this is true always of new tax brackets, if you go over by a dollar, that extra dollar is taxed at the higher rate. Everything else is taxed rate. So a lot of people still have that misconception. They go over a dollar, they're in a new tax bracket, they're going to pay thousands more. That's not true. It's just that extra dollar.

[Joe Anderson]

What, what does that apply to, though? There's a couple things, you know.

[Big Al Clopine]

Well, there are some cliffs, like Irma.

[Joe Anderson]

Irma. It's a cliff, isn't it?

[Big Al Clopine]

Yeah, that's right. I guess there's Social Security.

[Joe Anderson]

Social.

[Big Al Clopine]

Over a certain amount, you got to pay a higher percent. There's the real estate, where you could deduct up to $25,000 of losses. That would be another cliff if you go over a certain amount. Although that's a, that's a graduated cliff. So the QBI is a cliff. I mean, there are cliffs. So I guess I'm oversimplified. But in this case, it's not a cliff.

[Joe Anderson]

Got it. All right.

[Andi Last]

Whether you're a millennial, a Gen Xer like Joe and me, or a baby boomer like Big Al, the stakes are high when you're trying to create financial security for your future. Watch Financial Planning at Every Age on youn Money, you, Wealth tv as Joe and Big Al guide you through the financial strategies and goals that each generation should implement. That can mean the difference between a retirement of scarcity or retirement of abundance. Click or tap the link in the episode description to watch financial Planning at Every age. Then click through to our YouTube channel to subscribe and join the conversation in the comments. Also, download the Retirement Readiness Guide for for free to learn the secrets to controlling your taxes in retirement, creating income to last a lifetime, making the most of your retirement investing strategy, and much more. These seven plays will boost your retirement readiness despite the uncertainties of market volatility, inflation, rising health care costs, and the future of Social Security and Medicare. Now go to the episode description and get watching and downloading Coach Daubert.

[Joe Anderson]

He's back from the good state of Minnesota, my home state. I'll be there in a Couple weeks, I think.

[Big Al Clopine]

Couple weeks. Okay.

[Joe Anderson]

Yes, sir. Well, a couple months.

[Big Al Clopine]

Or months.

[Joe Anderson]

Well, I don't know when this will air, so it's evergreen.

[Big Al Clopine]

Got it. Okay. It could be anytime. You might be there right now for all.

[Joe Anderson]

Let's see him. Anything with alcohol.

[Big Al Clopine]

That sounds like you already.

[Joe Anderson]

All right. In the 2018 Ford Explorer, her wine. 2019 Acra RDX, two middle school girls, a cat in a cavapoo. To refresh your memory, you helped us me think about a home purchase in 2023. Interest rates were low and one end.

[Andi Last]

On one end.

[Joe Anderson]

Oh, yeah. I remember Coach Dauber.

[Big Al Clopine]

Yeah, me too, man.

[Joe Anderson]

And it was Big Al's smooth, soothing words that helped me relax about the whole thing. Happy to say we went for it and everything turned out much better than I imagined. Joe, you were pretty emotional as well as it seemed you were going through the same thing. Very similar.

[Big Al Clopine]

Yep, yep.

[Joe Anderson]

I do remember that 2023. Hope all was hope Al was able to calm you down too.

[Big Al Clopine]

Did I calm you down?

[Joe Anderson]

Oh, yeah.

[Andi Last]

In the hot tub.

[Joe Anderson]

Yeah, Jumping right back in that tub.

[Big Al Clopine]

Get fired up tonight.

[Joe Anderson]

Oh, my God. Looking for your thoughts on a different matter. Municipal bonds and brokerage accounts. All right. We finally got to the point where other retirement accounts are growing nicely and there's money left over to start building a brokerage account balance. We're in the mid-40s and curious about how you look at total return when factoring the tax free gains of in state municipal bonds. I know they don't return nearly as much as other investments, but how do you look at the total return? Because our brokerage account balances are so low, it's difficult to imagine taking greater risks. It feels like the market could be wobbly for a while. We have a high yield savings account and just looking to build a little nest egg in a BA as well. In a BA brokerage account. Brokerage account.

[Big Al Clopine]

Okay.

[Joe Anderson]

If this is an AS9 way to establish a BA.

[Big Al Clopine]

That does have.

[Joe Anderson]

Another little AS9BA audio suggest people dip their toes into the waters. Thanks so much for your time. Continues success and laughter.

[Big Al Clopine]

Coach D. Coach D. Okay.

[Joe Anderson]

All right. No, this is not AS nine at all. Coach D. But here's. This is. This is a common. I wouldn't say it's an issue. I wouldn't say it's a problem. I think it's a characteristic of investors is they treat brokerage accounts so differently than any other account that they.

[Big Al Clopine]

Yeah, they don't want to lose a penny.

[Joe Anderson]

It's like it's money's money. So you just got to think about your retirement accounts for growth. Your brokerage accounts, are they for growth? Is your cash accounts? No, those are not for growth. Your Roth accounts, what are the goals? And then you just look at your entire portfolio. And then you want to make sure that you're thinking about the taxation of the portfolio. So if I have a brokerage account that I'm trying to grow and I'm in my 40s, I'm not going municipal bonds. I want to go very tax efficient stock ETFs, mutual funds, individual stocks, whatever that you want to do. I want growth there because then when I sell it, I'm going to be taxed at a lower rate. I get tax free. Income is fine, but you need the income. I would much rather have growth and income in my 40s. Especially when he says that he's already saving above and beyond the retirement accounts, that he has extra cash. So now he wants to start a brokerage account. I would not go munis, I would go stocks. But your total return is basically your growth plus income plus your tax benefit. So what's your growth component of a municipal bond? It's not that great. You're buying it for income and then so what's the income? What's the yield on the overall municipal bond? And then you calculate your tax equivalent yield depends on what tax bracket that you're in.

[Big Al Clopine]

Yeah, well, that's exactly right.

[Joe Anderson]

So is that 4%? Is that 6%? Is that 7%? That's great. But I would much rather have the opportunity that's on the high end. I'd much rather have the opportunity to make 8, 9, 10, 12, 15% over a long period of time.

[Big Al Clopine]

In a tax favored account. In a tax favored account, which brokerage account is your ba? The ba.

[Joe Anderson]

The ba.

[Big Al Clopine]

Couple exceptions, I think. One is your emergency cash safety that needs to be safe. Number two would be cash that you set aside for some short term purpose, like let's say a down payment on a home or vacation property, whatever, that you want to buy within the next year to two. Yeah, that would be really safe. But everything else in your brokerage account, consider that part of your investments. And definitely you actually want growth in that account because as Joe said, it's tax favor. Because you got a capital gains rate.

[Joe Anderson]

Yeah. Pick a total US Stock market etf off and running.

[Big Al Clopine]

Simple.

[Joe Anderson]

Yep.

[Big Al Clopine]

Like it.

[Joe Anderson]

All right. We agreed, right? Right. Wonder how that house is going. I guess that that house is working out perfectly.

[Big Al Clopine]

Yeah. I'm glad I could soothe you, Coach Dauber.

[Joe Anderson]

Yeah, I wish I could say the same.

[Big Al Clopine]

Well, you bought a new house about the same time.

[Joe Anderson]

I know.

[Big Al Clopine]

Yeah.

[Joe Anderson]

And how's that going down the street?

[Big Al Clopine]

Yeah, I know. It's way much better neighborhood, right?

[Joe Anderson]

Oh, yeah, the neighbors are so much better. It's almost the same neighbor on one side of.

[Big Al Clopine]

They're just on the left now.

[Joe Anderson]

Yeah, exactly. Yeah. But no, it was a little noisy on the other side. All right, let's go to Duke from upstate New York. Hi, Joe. Al. Andy, put that out of order. Just keep natural. I'm so glad I found ymiw. If it wasn't for your show, I'd still be shredding my canceled credit cards into pieces, loading bricks of cash into empty envelopes monthly, and living a curiously odd rich life, consisting of a fridge full of seltzer waters and driving a 2005 Chevy Tahoe with 230,000 miles.

[Big Al Clopine]

I think I know who he's referring to. Yeah, Mr. Ramsey.

[Joe Anderson]

How is this rich? I felt like Frank Costanza on the Festivus episode. Festivus for the rest of us.

[Big Al Clopine]

I remember.

[Joe Anderson]

Wasn't it a poll that they kind of sat around?

[Andi Last]

The Festivus poll? Yes. And I think it's George Costanza. This is from Seinfeld, right?

[Joe Anderson]

Yeah, yeah, George Costanza.

[Andi Last]

Yeah.

[Joe Anderson]

Best of us. For the rest of us, there has to be another way. Your money, your wealth is the other way. Has steered me to the path of financial freedom. So thank you, me and my red hot smoking wife. Oh, my God.

[Big Al Clopine]

Oh, that's cool.

[Joe Anderson]

Yeah. We're 42 and 40, and when the topic of money comes up, I tell her we need $6 million US dollars to retire in 20 years. She says I'm silly. Will you please spitball my silliness? Our average spend is roughly $100,000 a year. All right, here we go, silly. Six million bucks. Here we go. I've always heard the purchase power of the dollar decreases by half every 20 years. So to maintain our current lifestyle at retirement, we'll need to draw $200,000 annually. With life expectancy rates increasing, the 4% rule seems relatively aggressive at 60 and 62, so we might need to drop that somewhere between 3.5, maybe 3.75, which puts our retirement target between 5.3 and 5.71. Whoo. Talk about a fat wallet. Big Al's got that fat wallet. That's why we call him Big. Although it's not the $10 million whopper susie orman says you need. Anyways, do you agree with the logic on my target? We have no pension, currently have $1.5 million of investment split equally between Roth traditional taxable accounts. Assuming the rule of 72, that pot should double twice before we retire in 20 years, putting us on track towards the target. Right, right. What else do you recommend we do? Right. Besides converting traditional to Roths, of course. Thank you, Duke.

[Big Al Clopine]

Okay, I did some math already, Joe, you can follow up with that.

[Joe Anderson]

I would say, what 20 years would you use?

[Big Al Clopine]

3.5 I for inflation? I just did three and I got about 180,000. So 200,000 is about right. That's the need. I divided that by 4%. I think 4% is actually okay because of Social Security, which he didn't mention. But assuming that there's Social Security, which there would be. Right. So then here I know my brother and me at the same time. So, yeah, $5 million. 200,000 divided by 4%. $5 million. That's what I get. I think. I think you're kind of on track with your analysis. And so what I did was you got a million and a half. I said 20 years, 6%. How much do you need to add every year to get 5 million? It worked out to about 27,000, which I think is probably doable based upon your savings already. So I think you're on track, and I think you're probably pretty close to what. What you're thinking. So I give you the victory over your wife on that.

[Joe Anderson]

You're not silly, Duke. Not silly at all. $100,000. 200,000. Yeah. Anything else you should be thinking about besides Roth?

[Big Al Clopine]

Well, that's it. Roth put money in the. Roth.

[Joe Anderson]

That's it. That's all we do, is just Roth it.

[Andi Last]

Gotta Roth it.

[Joe Anderson]

Okay.

[Big Al Clopine]

Okay. I like it, Duke.

[Andi Last]

We didn't have a lot of your numbers, but I plugged what we did have into our financial blueprint tool, ages 42 and 40 for Duke and Red Hot. And I totally made up that you make $150,000 a year combined and that you save $25,000 a year. We do know that you have $1.5 million saved and want to spend $200,000 a year in retirement, or $16,667 per month. I use the blueprints. Default of $58,000 a year in Social Security based on the fake numbers that I fed it. I said that you wanted to retire at 60, and here's what it the likely minimum you would need to have saved by the time you retire is about 2 million bucks. In the retirement zone is about 4 million. And the likely maximum you would require would be 8 million. And remember, this is based mostly on me guessing your numbers, but it's still within the zone. So of course the tool suggests you need to build your investment portfolio. Avoid taking on too much or too little risk and allocating no more than two thirds of your savings to retirement accounts. Now it's your turn. Click or tap the financial blueprint link in the episode description. Enter your real numbers and details and see how you're doing as you plan for retirement. Next, schedule a free financial assessment with one of the experienced human professionals on Joe and Big Al's team at Pure Financial Advisors to review your financial blueprint. They'll help you develop a thorough financial plan that addresses your unique immediate needs and your long term retirement vision. At the end of the assessment process, you can decide whether Pure Financial Advisors is a good match for your retirement planning needs and what those next steps look like. Click or tap the links in the episode description to get your financial blueprint and to schedule your financial assessment. Both free. Both courtesy of your money, you, wealth and Pure Financial Advisors.

[Joe Anderson]

Here we go. Last one for today. We got Daniel from Stevensville, Michigan. Your money or wealth? And Big Al.

[Andi Last]

I don't know why you're separate. Big Al. It's your money, your wealth and big.

[Joe Anderson]

Alright, love it. Okay, to give you a quick insight about me, I served in the United States Marine Corps from 2016 to 2024.

[Big Al Clopine]

Great.

[Joe Anderson]

Well, thank you for your service, sir. Right, and then transferred into the Michigan Army National Guard as a weekend warrior. One weekend a month and two weeks during the summer. I'm an assistant manager at a Courtyard by Marriott. I do love reading and running six miles a day trying to keep up with Big Al. Sounds like Daniel's got a little crush. I run my six miles in 45 minutes. Not bad for an old guy. I'm 28 years old.

[Big Al Clopine]

That's impressive.

[Joe Anderson]

Six miles in 45 minutes.

[Big Al Clopine]

That's fast. I run a 5K, which is about three miles in about 29 minutes. And that's as good as I can.

[Joe Anderson]

Do on your motor scooter.

[Big Al Clopine]

No, no, I do, I do a few 5Ks each year.

[Joe Anderson]

No, you're gonna say a month.

[Big Al Clopine]

Yeah.

[Joe Anderson]

No, just like your boy here. Not bad.

[Big Al Clopine]

But I do, I, I use the elliptical and I do run the stairs.

[Joe Anderson]

Where's it at your house?

[Big Al Clopine]

In the stairs?

[Joe Anderson]

Yeah, yeah. You have an elliptical at the house?

[Big Al Clopine]

No, that's at the gym.

[Joe Anderson]

Oh, got it. Where do you go?

[Big Al Clopine]

Bay Club.

[Joe Anderson]

Bay Club. Oh, I've never Been there.

[Big Al Clopine]

Oh, the Carmel Valley one. You go to the Fairbanks?

[Joe Anderson]

I've never been there.

[Big Al Clopine]

Never been there either. You remember?

[Joe Anderson]

I know.

[Big Al Clopine]

You're like hot tubs. Yeah.

[Joe Anderson]

I don't like hot tubs. No.

[Big Al Clopine]

Okay, I'm seeing a pattern.

[Joe Anderson]

Yeah.

[Big Al Clopine]

Now, Bay Club does have a hot tub. Hot tub at a gym.

[Joe Anderson]

Could you imagine?

[Big Al Clopine]

That would be something.

[Joe Anderson]

All right, so you go to the gym, right? You get done with your workout, you're gonna jump in the hot tub at the gym. Or do you only go to your own personal private hot tub?

[Big Al Clopine]

I go to my own.

[Joe Anderson]

But are you opposed to go to the gym hot tub?

[Big Al Clopine]

I have. I don't do very often because. Because of the same thing you're talking about.

[Joe Anderson]

I mean, how about the guys that are like, you know, they jump in there without any clothes on?

[Big Al Clopine]

Well, that's not true at the Bay Club.

[Joe Anderson]

Well, we'll see. I don't know.

[Andi Last]

Why are you going?

[Joe Anderson]

You gotta go check it out. I got scarred when I was a kid when I went to a gym. And then all of a sudden you see guys just going to the hot tub and they start ripping out their trunks.

[Big Al Clopine]

Now you're thinking of the sauna. That does happen in the sauna.

[Joe Anderson]

Oh, God.

[Big Al Clopine]

You want to.

[Joe Anderson]

I love saunas, but I'm only going to do a sauna. My own backyard. You want to hit my house?

[Big Al Clopine]

So tonight we'll go to the gym. We'll go to jump in the hotel.

[Joe Anderson]

Perfect. Naked.

[Andi Last]

Wow, this took a weird turn.

[Joe Anderson]

All right, my question is about emergency fund and how much should I have in it? And how do I start an emergency fund? Psych. What are some other great financial podcasts to listen to? And I do tell everyone and everyone I know about your money or wealth. Other great podcast to listen to. Financial podcasts.

[Big Al Clopine]

Yeah. What do you like?

[Joe Anderson]

I like the Compounded friends. Josh Brown. I also listen to financial podcasts. I listen to Matt Faber. We've had him on the show. Remember him?

[Big Al Clopine]

Yep.

[Joe Anderson]

I listened to Animal Spirits.

[Big Al Clopine]

Good.

[Joe Anderson]

What else do I listen to? That's about it. Most of the podcasts I listen to are golf.

[Big Al Clopine]

Something other than what we do every day. Yes, I would tend to agree. I'm actually. I'm not much help there. I used to like Rick Edelman's, but he doesn't do those anymore.

[Joe Anderson]

He's done. He's retired. Yeah, he's done his second phase of life. He's lived at 190.

[Big Al Clopine]

That's what he says.

[Joe Anderson]

He's going to space.

[Big Al Clopine]

I guess he still does A podcast on crypto?

[Joe Anderson]

No, I don't think so.

[Big Al Clopine]

Really?

[Joe Anderson]

I think, yeah.

[Big Al Clopine]

You think that's done too?

[Joe Anderson]

Yeah, I listened to the last episode.

[Big Al Clopine]

Yeah. Okay. All right. Anyway, the question is, emergency fund. So I would say set aside three to six months. How do you start it? Very easy. You go to your bank, set up account, have it separate from your checking account, so you're not thinking you'll touch it. It's completely separate. Only use it for emergencies. But yeah, start small, build up to three to six months and then call that good. If you have any extra money to invest, then just invest in the market or invest in whatever strategy is going to make sense to have you reach your goals.

[Joe Anderson]

Cool. You're starting a new podcast, Hot Tub Retirement.

[Andi Last]

Oh, that's perfect.

[Big Al Clopine]

We're gonna get into gyms, working out on the elliptical. We're going to get into saunas.

[Andi Last]

Talking about finance while you do it.

[Big Al Clopine]

Actually, I did do. Have you ever done an ice bath, cold plunge? Yeah. Or an ice bath ice bath in a tub full of ice and water.

[Joe Anderson]

I've done a cold plunge. Yes.

[Big Al Clopine]

Well, probably the same idea in Minnesota.

[Joe Anderson]

No, here, that doesn't count.

[Big Al Clopine]

It's got to be like 35 degrees.

[Joe Anderson]

Well, okay, well, then. No, I've done a polar swim.

[Big Al Clopine]

Yeah, but that's like 50 degrees.

[Joe Anderson]

No, that's like you. When you're ice fishing and you have a polar. You cut a big hole in the lake.

[Big Al Clopine]

Yeah.

[Joe Anderson]

And you jump, you chop in.

[Big Al Clopine]

Okay, well, you just said it was here.

[Joe Anderson]

Well, no, I've done both. I've done a cold plunge where you have a tub and it's full of ice in water, and then you sit in there for like 10 minutes.

[Big Al Clopine]

Okay. So that. That qualifies.

[Joe Anderson]

Okay. All right. What was your experience?

[Andi Last]

Are you saying you only did that one time, a cold plunge here?

[Joe Anderson]

No, I do cold plunges often. Not often, but I've done it more than once and probably less than 10.

[Big Al Clopine]

Yeah.

[Andi Last]

Yeah. Do you feel like it's made a difference for you?

[Big Al Clopine]

You?

[Joe Anderson]

Oh, I am just clean living.

[Big Al Clopine]

That's why he doesn't need a hot tub. The cold flush.

[Joe Anderson]

Yeah, it's just killing it. No.

[Andi Last]

Which is better, the cold plunge or the. The ice fishing experience?

[Joe Anderson]

Well, I was so young when I did that. I was in high school, so I don't really remember. And I would imagine some grain belts and some MD Mogan. David 2020 was involved.

[Big Al Clopine]

Got it.

[Joe Anderson]

So. But. But no, the co punch is good in the mornings. Yeah, yeah.

[Big Al Clopine]

Get you going.

[Joe Anderson]

Get you fired up. All right, that's it for us. Thank you, Andy. Thank you, Aaron. Big Al. Thank you, sir. See you guys next time. Show's called your Money.

[Andi Last]

This is your money, your wealth, and your podcast. If you enjoy ymyw, do us a favor and tell your friends it helps us reach more listeners like you. And don't forget to leave your honest reviews, comments and ratings for your Money, you, wealth in Apple Podcasts, on YouTube, and in all the other apps that let you do that, like Amazon, Audible, Castbox, GoodPods, Pandora, Player, FM Podcast Addict, Podchaser, and Podknife. We're on all of them. You, Money, you, Wealth is 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.