Retirement Savings: When to Take Your Foot Off the Gas - 528

Summary

Your Money, Your Wealth Podcast Episode 528 Summary: "Retirement Savings: When to Take Your Foot Off the Gas"

Released on May 6, 2025, "Your Money, Your Wealth" hosted by Joe Anderson, CFP®, and Big Al Clopine, CPA of Pure Financial Advisors, delves into critical retirement planning questions from listeners. In Episode 528, titled "Retirement Savings: When to Take Your Foot Off the Gas," Joe and Big Al address diverse financial scenarios, offering strategic insights to help listeners navigate their retirement journeys effectively.

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1. Ron and Victoria from Indiana: Balancing Aggressive Savings and Reducing Financial Stress

Timestamp: [00:00 – 06:00]

Listener Profile:

• Names: Ron (53) and Victoria (45)
• Location: Indiana
• Occupation: Ron is in sales; Victoria manages the home and kids.
• Financial Snapshot:
  • Roth IRA: $2,200,000
  • Brokerage Account: $600,000
  • Cash Reserves: $3,000,000
  • Annual Savings: $150,000
  • Annual Expenses: $245,000
  • Retirement Goal: Retire between ages 58 to 60

Ron’s Concern: Ron has been aggressively saving, maxing out 401(k)s and IRAs, totaling approximately 20% of his income. However, the intense savings regimen has caused significant stress. He seeks guidance on whether he can reduce his savings rate without jeopardizing his retirement goals.

Joe and Big Al’s Analysis:

• Current Savings Status: With $6,800,000 in combined retirement and brokerage accounts, Ron is in a strong position.
• Expense Planning: Ron’s current yearly expenses are $245,000, with an anticipated increase to $300,000-$325,000 post-retirement, adjusted for inflation.
• Sustainability: Big Al highlights that a 3.9% withdrawal rate from $9.6 million (projected after two more years of saving) is sustainable, especially when combined with Social Security benefits.

Key Advice:

• Maintain or Slightly Reduce Savings: Given Ron’s substantial savings, they can consider reducing his brokerage account contributions to alleviate stress without significantly impacting his retirement readiness.
• Spending Strategy: Maintain a moderate withdrawal rate to ensure long-term sustainability. Big Al emphasizes the importance of flexibility in spending to accommodate market fluctuations.

Notable Quote:

Big Al Clopine [05:14]: "You're right. I think you're going to be okay."

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2. Scott from Illinois: Bridging the Gap from Early Retirement Age 55 to Social Security Benefits

Timestamp: [10:41 – 20:03]

Listener Profile:

• Name: Scott
• Age: 52, planning to retire at 55
• Location: Illinois
• Occupation: Soon-to-be-retiree from his current employer
• Financial Snapshot:
  • Traditional IRA: $2,200,000
  • Roth IRA: $250,000
  • Brokerage Account: $100,000
  • Savings and HSA: $100,000 in savings, $75,000 in HSA
  • Annual Expenses: $80,000 after taxes

Scott’s Concerns: Scott aims to retire at 55 and seeks advice on optimizing his withdrawal strategy to cover the 12-year gap until he can fully access Social Security benefits at age 67. He is also interested in understanding the feasibility of converting his 401(k) to a Roth IRA.

Joe and Big Al’s Analysis:

• Tax Penalty Avoidance: Utilizing the rule of 55, Scott can withdraw from his 401(k) without the 10% early withdrawal penalty, provided he retires at 55.
• Withdrawal Strategy:
  • Initial Withdrawal: Pull funds from the 401(k) to cover immediate expenses.
  • Roth Conversions: Convert portions of the IRA to a Roth IRA to manage taxable income effectively during the early retirement years. Joe suggests converting up to the 12% tax bracket threshold to minimize tax liabilities.
• Sustainability: With a projected $3,000,000 in retirement accounts, a 3% withdrawal rate (approximately $90,000 annually) is feasible, especially when combined with Social Security and pension benefits.

Key Advice:

• Partial Rollovers: Scott should consider rolling over portions of his 401(k) into a Traditional IRA upon retirement to facilitate Roth conversions.
• Diversification of Income Streams: Maintain a balance between taxable, tax-deferred, and tax-free accounts to optimize tax efficiency during retirement.
• Tax Planning: Carefully plan Roth conversions to stay within lower tax brackets, reducing overall tax burdens.

Notable Quote:

Big Al Clopine [14:38]: "Yeah, that's right. 80,000 out of... Call it 3 million just for a quick.. It's probably 3% ish. Maybe even less. So it should work."

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3. Big Juan from Texas: Financing College Education and Early Retirement Strategies

Timestamp: [20:04 – 24:45]

Listener Profile:

• Name: Big Juan
• Age: 54 (son) and 52 (wife)
• Location: Texas
• Occupation: Retired from USG service, currently a stay-at-home parent; wife still employed
• Financial Snapshot:
  • TSP (Thrift Savings Plan): $3,500,000
  • Roth IRAs: $800,000
  • Brokerage Account: $500,000
  • Rental Properties: $1,900,000 (mortgaged with 15-year terms at 5% to 7%)
  • Cash Reserves: $15,000
  • Annual Expenses: $12,000/month

Big Juan’s Concerns:

1. Funding College Expenses: With one child entering college in two years and no existing 529 plans, Big Juan wonders whether to tap into Roth IRAs or utilize brokerage accounts for funding college.
2. Roth Conversions: Considering large holdings in the TSP, Big Juan seeks advice on the advisability of performing Roth conversions in the current financial landscape.
3. Early Retirement Feasibility: Evaluating the possibility of the wife retiring in three to twelve years at age 55, including handling increased expenses and managing rental income.

Joe and Big Al’s Analysis:

• Funding College Expenses:

  • Roth IRAs vs. Brokerage Accounts: Joe advises against using Roth IRAs for college funding, suggesting that brokerage accounts offer more flexibility and do not jeopardize retirement funds.
  • Alternative Strategies: Consider setting up a 529 plan for future educational expenses to take advantage of tax benefits and growth.

• Roth Conversions:

  • Strategic Conversions: With significant funds in taxable TSP accounts, Roth conversions can be beneficial, especially given the current low tax rates. This strategy can help reduce future tax liabilities during retirement.

• Early Retirement Planning:

  • Expense Management: With $9,000 monthly pensions and $5,000-$7,000 from rental income, the projected annual income comfortably surpasses the current expenses of $12,000 per month (~$144,000/year).
  • Mortgage Considerations: Rental properties are mortgaged, but once paid off, they will generate positive cash flow, enhancing financial stability.
  • Sustainable Withdrawal Rate: A distribution rate of around 3% from a projected $3.5 million portfolio ensures sustainability without overtaxing assets.

Key Advice:

• Prioritize Brokerage Accounts for College Expenses: Maintain Roth IRAs for retirement and leverage brokerage accounts for educational funding to preserve tax-advantaged growth.
• Implement Roth Conversions: Gradually convert portions of the TSP to Roth IRAs, optimizing tax benefits without incurring excessive tax liabilities.
• Monitor Rental Property Expenses: Ensure that rental income projections account for maintenance, property taxes, and management fees to maintain accurate financial planning.

Notable Quote:

Joe Anderson [22:00]: "I would stay so far away from the Roth if I had to fund college. I would much rather take a loan than take it from the Roth."

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4. Frank and Jane Drebin from Wisconsin: Evaluating Feasibility of Early Retirement and Business Sale

Timestamp: [25:45 – 32:39]

Listener Profile:

• Names: Frank (46) and Jane Drebin (47)
• Location: Wisconsin
• Occupation: Frank owns a business; Jane is planning to retire in five years
• Financial Snapshot:
  • Combined Retirement Accounts: $1,800,000
  • Annual Additions:
    • Roth IRA: $7,000
    • SEP and 403 IRAs: $50,000
    • Brokerage Account: $25,000 annually
  • Mortgage: $378,000 at 6.5% interest (~$40,000/year)
  • Annual Expenses: $100,000 in retirement, plus mortgage until paid off

Frank and Jane’s Concerns: Frank plans to retire in approximately five years and is contemplating selling his business for $1 million to pay off the mortgage and fund retirement. He seeks advice on the viability of this plan, considering potential capital gains taxes and health insurance challenges post-retirement.

Joe and Big Al’s Analysis:

• Financial Projections:

  • Current Savings Growth: With annual additions and a 6% growth rate, Frank and Jane could have approximately $3.1 million in five years.
  • Business Sale Impact: Selling the business for $1 million, after closing costs and taxes, could yield around $400,000, contributing to their total savings and paying off the mortgage.

• Withdrawal Strategy:

  • Distribution Rate: A 3.4% withdrawal rate from the projected $3.5 million ensures that annual expenses of $100,000 are sustainably covered.
  • Tax Considerations: Capital gains from the business sale and strategic withdrawals from retirement accounts need careful tax planning to minimize liabilities.

• Healthcare Planning:

  • Insurance Coverage: Post-retirement healthcare will transition to the health insurance marketplace unless arrangements are made to continue through Jane’s employer or other means.

Key Advice:

• Proceed with Caution: While the financial outlook is positive, Big Al emphasizes the narrow margin for error. It is crucial to maintain a flexible withdrawal strategy to adjust for market volatility and unexpected expenses.
• Diversify Income Sources: Ensure that rental income and pensions effectively cover expenses, reducing reliance on drawing from retirement accounts.
• Healthcare Planning: Secure a robust healthcare plan to avoid gaps in coverage, especially during the transition period between jobs.

Notable Quote:

Big Al Clopine [31:37]: "I think it looks pretty good, but I would say it's not like there's a huge margin for error. So just be careful when it comes to your distribution strategy from your assets."

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Conclusion and Final Thoughts

Throughout Episode 528, Joe Anderson and Big Al Clopine demonstrate their expertise by meticulously analyzing each caller's unique financial situation. They provide actionable strategies tailored to individual needs, emphasizing the importance of sustainable withdrawal rates, strategic Roth conversions, and diversified income streams to ensure a secure and stress-free retirement.

Final Notable Moments:

• Humorous Interludes: The hosts infuse humor into the discussion, sharing personal anecdotes about their drink preferences and referencing pop culture, which keeps the conversation engaging and relatable.
• Actionable Resources: Listeners are encouraged to access free financial resources and episode transcripts through the podcast’s website, further supporting informed financial planning.

Listener Takeaway: Whether you're considering early retirement, planning for educational expenses, or strategizing your withdrawal approach, Episode 528 of "Your Money, Your Wealth" offers valuable insights and expert advice to help you make informed decisions and achieve your financial goals with confidence.

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For more detailed advice and personalized financial planning, consider scheduling a free financial assessment with Joe and Big Al’s team at Pure Financial Advisors. Visit YourMoneyYourWealth.com for additional resources and episode transcripts.

Transcript

[Andi Last]

You've been jamming money into your retirement accounts for years now. When is it okay to slow down? Joe and Big Al, spitball for Ron and Veronica in Indiana today on youn Money, you, wealth podcast number 528. And sorry, Veronica, today Joe has decided your name is Victoria. Plus, how can Scott in Illinois bridge the gap from age 55 to retirement income at 57? How should big Juan in Texas pay for college? Should he convert his tsp to Roth? Can he retire at 55? That's your last three for Big Juan. And finally, Frank and Jane Drebin in Wisconsin are 46 and 47 and wondering if their plans for retirement in five years is just a pipe dream. 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]

Andy, did you see we have 40 pages of questions.

[Andi Last]

Actually, there's probably more than that now. Yeah, let's see. I have. There's 27 emails that I have not even added to your email sheet, and the email sheet that you don't have is already 16 pages long, so we're probably on par with, like, 50 pages worth of emails.

[Big Al Clopine]

Oh, boy. Okay.

[Andi Last]

But I didn't give them all to you because I didn't want you to have to print an entire ream of paper.

[Big Al Clopine]

I do appreciate that.

[Joe Anderson]

Got it. All right, this is Ron and Victoria. They're from Indiana. Hey, Joe, Big Al. I've been listening for over a year in love the podcast. Thank you. Killing it. However, you make nerve. Wracking financial questions, fun and entertaining.

[Big Al Clopine]

Somehow we do that.

[Joe Anderson]

Oh, somehow. Yeah. You know, however, gonna be like, hey, yeah, whatever. A bunch of jackasses. I listened just as much for the comedy as they do the substance.

[Big Al Clopine]

Oh, well, nice.

[Joe Anderson]

Thank you. I really enjoy an IPA or a bourbon in the cold months. In the warm months, I enjoy a little Miller Light High Noon or Tito's and soda with a lemon. My buddy's like a. My buddies like to buy nice wine, so I try to drink that as often as they let me. So he's mooching off his buddies. This is the first time I've ever heard. Well, my buddies, it's usually like, hey, I like some bourbon. My wife, she likes wine. Never ate. My buddies, God damn, they sure like.

[Andi Last]

Well, he likes his drinks, and then if his buddies are drinking wine, he'll.

[Joe Anderson]

Drink some of that. Yeah, I asked my neighbor what he likes to drink, too. All right, Ron.

[Big Al Clopine]

Okay.

[Joe Anderson]

So his buddies, they like to buy nice Wine.

[Big Al Clopine]

Yeah.

[Joe Anderson]

I gotta get over there. When his buddies are there, I'm always.

[Big Al Clopine]

Knocking on the door. What are you drinking today?

[Joe Anderson]

Hey, I'm kind of in the mood for some wine, honey. What do you got? Should I invite my buddies over?

[Big Al Clopine]

Bring your own booze.

[Joe Anderson]

Bring your own B.Y.O. yeah. All right. I enjoy their wine all year long, no matter what the temperature is, of course. Bada boom, bada bing. My wife loves a little cheap Sauvignon blanc. Oh, I guarantee they got millions. This guy's drinking his buddy's wine and his wife likes some cheap ass Sauvignon blanc.

[Andi Last]

That's how you save millions. Drink everybody else's wine.

[Joe Anderson]

Yeah, guarantee the cheaper the better. If she hits $12 a bottle, we must be celebrating something special. Oh, my goodness, like two buck chalk here. I'm writing in as I want to know if you think I could take my foot out the gas soon. From a savings perspective, I think we're aggressive savers. Yep. I'm almost sensing that here, Ron, but I'm not sure based on my goals. Okay, the goal would be able to reduce some stress. I created some random savings goal that at times makes me stressed out, and I'm hoping I can slow that down soon. I'm in a very stressful job and would like to retire as soon as I can when I confidently that I can confidently fund our goals. Other than maxing out my 401s IRAs, the only rational number I use for saving is about 20% of income. All right, here's the family. Well, I would say first of all, Ron, most people don't Even sniff saving 20% of income.

[Big Al Clopine]

No, that's a great goal to get to.

[Joe Anderson]

All right, so here we go. Here's the family dynamics. My wife is 45 and she stays home to manage the home and the kids. I'm 53 and I'm in sales. My income varies from year to year and it ranges from the top of $500,000 or more per year. We have two kids, 15 and 12. We also have a really dumb and goofy going retriever. Okay, Iras. Here it is. $2,200,000 Roth IRA, $600,000. Brokerage account, $3 million.

[Big Al Clopine]

You're right.

[Joe Anderson]

Cash. Million. Then I'm taking Social Security at $70,000. Of course you are. The payment's going to be millions. I have no pensions. $529,000 equals fully funded home, no mortgage. Every year we contributed to these accounts. 401 and catch up IRAs, brokerage account. So he saves 100,000, $150,000 a year.

[Big Al Clopine]

Correct. And he's got $6,800,000. I think you're going to be okay.

[Joe Anderson]

Yeah, Ron, I would keep up with that cheap ass Sauvignon Blanc and keep drinking your buddy's. Our currently Yearly expenses are $245,000, not including our investments. Where are you spending 245,000?

[Big Al Clopine]

Not on alcohol?

[Joe Anderson]

No. My goal is to retire at 58 to 60, if possible. I want to spend more when I retire, but that number is hard to quantify. If I had to guess, the number might be $300,000 or $325,000 per year and adjust that with inflation. Here's my question, my main question. Do you think I can stop funding my brokerage account when I turn 55 and use those funds as fund money or adding to my cash reserves? Could I spend all these funds guilt free knowing I'm not jeopardizing my future? Bonus question. Do you think I'm on track to retire at 58 to 60? If so, how much do you suggest we could spend per year? I know I'm blessed. However, sometimes I feel like as aggressive as our savings goals are, it creates more stress than is needed in the long run. If I know I can confidently not add as much of my brokerage, it would help me mentally as well as just trying to cross the finish line from the working life race. Thanks for all you do. All right, Ron. Victoria. You want to spend a couple hundred thousand? So three hundred thousand.

[Big Al Clopine]

Yeah. So I had some fun with this, Joe. I already ran some numbers. All right, so we started with 6.8 million. And I said, well, you want to save. You said you'd save at a high level for the next two years. I did 6% save 150,000. You end up with about $7.9 million. You work three more years, 6%. And I've just said, well, maybe you're just saving your 401 and IRA. So you eliminate $100,000 of savings, you end up with $9.6 million. That's a great number. What do you want?

[Joe Anderson]

So what was the two working years? So he continues to save as much as he's saving. For two more years.

[Big Al Clopine]

For two years. And then he stops saving the money in the brokerage account, which is kind of what he said. Can I slow this down after a couple years?

[Joe Anderson]

Okay. But he's still working, so he's not fully done in two years.

[Big Al Clopine]

Yeah, because he said he wants to retire 58 to 60.

[Joe Anderson]

Okay, got it.

[Big Al Clopine]

So I just went with that. So you got 9.6 million. What do you want to spend? High end is 325,000. Five year inflation, it's about 375. 375 into 9.6 million without even regard to Social Security is 3.9%. It looks amazing. And that's probably about what you can spend plus your Social Security. But that's just, you know, I guess the point here is these numbers look great. You could probably retire altogether right now if you want to. But just doing it based upon what you said, and it's just a matter like if you, let's say you, you get sick of your job in six months and you want to retire right now, you can make this work. Probably can't spend that 325, but maybe you can spend 275 or some lower amount. So there's, there's a lot of ways. There's a lot of options here, Jeff. I would say.

[Joe Anderson]

Yeah, okay. A lot of options. Six million, 40, 50 some years old. I get it. He's just stressing. But $250,000 lifestyle, that's not.

[Big Al Clopine]

It's a lot. And you know, people that save that much, it's hard to then all of a sudden become a spender is what we've noticed. So just, just be aware of that. Yeah, you may spend less than you think.

[Joe Anderson]

Right. I mean, we see people that save this crazy amount of money here too, and then they do something, they spend a little bit more on something, and then it's like the guilt kills them.

[Big Al Clopine]

It does. Yeah. Right, right.

[Joe Anderson]

Yeah. I haven't had any major stupid purchases lately, but I used to.

[Big Al Clopine]

Yeah, we used to hear about it.

[Andi Last]

No new Star wars masks.

[Joe Anderson]

The Star wars masks. Yeah.

[Big Al Clopine]

Darth Vader.

[Joe Anderson]

Yeah, Darth Vader. Got a couple of stormtroopers. Yep. Those are somewhere in the. They're nowhere to be found, I still think.

[Andi Last]

Oh, wow. They went into storage after the marriage.

[Joe Anderson]

Yeah, the marriage killed.

[Andi Last]

Do you still have the giant oversized golf bag?

[Joe Anderson]

Yeah. Then I bought like a staff bag.

[Andi Last]

You got to keep that.

[Joe Anderson]

Oh, yeah, that's in the garage next to the golf simulator. It fits like 400 clubs. I swear to God.

[Big Al Clopine]

Wow.

[Joe Anderson]

I don't have 400 clubs, but if I did, I could put it all in that one bag.

[Big Al Clopine]

Right.

[Joe Anderson]

It's got like a TV in it.

[Big Al Clopine]

Well, you can carry roses, clubs and the two kids.

[Joe Anderson]

Yeah, there you go.

[Big Al Clopine]

It'd be perfect.

[Andi Last]

You've been saving to your workplace retirement account for your entire career. So don't Shatter that retirement nest egg when you punch the clock for the very last time. This week on youn Money, you, Wealth tv, Joe and Big Al explain your options for accessing the Money in your IRA, 401k or other retirement accounts when you leave your employer while avoiding common mistakes that could cost you thousands, if not tens of thousands of dol. Watch what happens to your 401k and IRA retirement on YMYW TV and download our Retirement Readiness Guide. 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. The seven plays in this free guide will arm you for retirement despite the uncertainties of market volatility, inflation, rising health care costs, and the future of Social Security and Medicare. You'll find links for both the TV show and the free guide in the.

[Joe Anderson]

Episode Description all right, we got Scott from Illinois. He goes hey gents, I'm a fairly new listener enjoying the show. I was hoping you could help me with recommending a withdrawal strategy specifically during my early retirement years from age 55 to 59 and a half. If it all goes according to the pan according to plan.

[Andi Last]

Good save.

[Big Al Clopine]

That's correct.

[Joe Anderson]

I'll be retiring from my current employer in three years from now at age 55 after 28 years of service. I'm planning to use the rule of 55 to avoid the early withdrawal penalty. I have included some key financial details for future reference. The numbers reflect my conservative estimate on their anticipated value on my retirement date. I anticipate my spouse to be earning $0 in wages for my entire early retirement period. In reality, that might not be the case, but I like to plan for this scenario. I anticipate our expenses to be $80,000 after taxes. My employer does not allow in plan Roth conversions, so I will need to wait until my full retirement age to incorporate that strategy. I do not qualify for a pension and Social Security, although I do qualify. I do qualify for a pension and Social Security, although I do not anticipate electing either of until my maximum benefit age. It would be great to hear your perspective on how to optimize my withdrawal strategy in the early stages of retirement and understand how it fits into my longer term strategy. Thanks. Okay, that seems somewhat complicated, but bust this thing up. Okay, we got. So What? He's he's 55 and is going to retire.

[Big Al Clopine]

He's 52. He wants to retire at 55. So he gave us numbers of what he thinks It'll be at 55.

[Joe Anderson]

Got it. $2,200,000 in traditional IRA, $250,000 in a Roth. They got two IRAs, $30,000 apiece, him and his spouse. He's got $75,000 in HSA, $100,000 in savings account, $100,000 in a brokerage account. He's going to retire 55, needs $80,000. So how do we bridge the gap from 55 to 67 is probably the plan here.

[Big Al Clopine]

It is the plan.

[Joe Anderson]

So he needs $1 million to come out as a distribution over that 12 year time period.

[Big Al Clopine]

Yeah. $80,000 times 12. That's about right.

[Joe Anderson]

Yep. So he's got currently 2.2.6.

[Big Al Clopine]

Yeah. Call it 2 million 800%, actually.

[Joe Anderson]

Oh, 2 million 800. Yep. All right, Sorry. So what do you think, Big Al?

[Big Al Clopine]

Well, I think that, I mean, so he's, what he's referring to is that if you retire from your job at age 55 or older, you can actually and keep the money in the 401k. You can distribute money out of the 401k before age 59 and a half and not pay that 10% penalty. You still pay taxes on it, of course, but you eliminate the penalty. So I think in a case like this where most of Scott's money is in the 401, then I think that's a great way to go. So you bridge that gap by you pull it out of the 401. You have to be 55 when you retire. If you retire 54 at 11 months, it doesn't work. So make sure you're 55.55when you retire, but then you've got another four and a half years. You can withdraw money out of that 401k without penalty and then of course, you'll continue that. As far as whether this is sustainable, that's another question. It depends, you know, what the Social Security would be.

[Joe Anderson]

What is that, 3%? Yeah, roughly. You include taxes on it.

[Big Al Clopine]

Yeah, yeah, yeah. Actually, if you think of it that way, I hadn't even done the math, but yeah, that's right. 80,000 out of. Call it 3 million just for a quick. Yeah, it's probably 3%. Ish. Maybe even less. So it should, it should work.

[Joe Anderson]

Yeah. He's got a pension in Social Security. We don't know what those dollar figures are. He's claim that. I don't know, maybe at 67 or even 70.

[Big Al Clopine]

Yeah.

[Joe Anderson]

So if he's pulling 3% out plus tax at 55, it's got $3 million.

[Big Al Clopine]

Yeah.

[Joe Anderson]

I mean, even if the, if the pension's meaningful, Then yeah, yeah, I would look at. At $80,000. He's married, his wife doesn't have any earned income. You could probably still do a little bit of conversion. So I think his real question is probably, what's the withdrawal strategy? How do I convert? I can't do an implant conversion now. I need $80,000 for my 3 million bucks. Hypothetically. Most of that's in a retirement account. $2.3 million.

[Big Al Clopine]

Yeah, right.

[Joe Anderson]

$2.3 million is in a retirement account. He doesn't have that much outside. He's got 200,000, you know, in a taxable account.

[Big Al Clopine]

Right.

[Joe Anderson]

So let's say you need $80,000. There's no other earned income. Your taxable income, if you pulled the $80,000 from the retirement account is going to be roughly $50,000. So he would have another $50,000 available in the 12% tax bracket to do a Roth conversion of that amount to keep in the $12,000.

[Big Al Clopine]

That's about right. Yep.

[Joe Anderson]

Should he do the $22,000? Because then you got taxes on that. You want to be careful. I think you would go into the 22% tax bracket with some conversions, but I would just calculate how much tax that you can afford to pay over the next couple of years because you don't want to blow out your entire non qualified or the liquidity there. But I think absolutely, with the amount of money you want to have diversification for sure when you're creating the income. And so he's got time. He's going to retire young, but he can't do interplan conversions.

[Big Al Clopine]

So you'd have to wait till 55 retirement. Right.

[Joe Anderson]

But he can't because he can't do an Inter.

[Big Al Clopine]

At 55, you're terminated from service. Couldn't you do a withdrawal then?

[Joe Anderson]

I think.

[Big Al Clopine]

Well, depends upon the plan.

[Joe Anderson]

It depends on the plan. Maybe he could take some of the dollars out to an ira.

[Big Al Clopine]

Maybe you take half a million out or whatever and whatever he wants to convert over the next few years because.

[Joe Anderson]

He can't convert it in the plan. So can he take some of the money out of the plan because he's separated from service? Keep the money in the plan. So take advantage of the 55 rule to at least take those dollars out without any penalty.

[Big Al Clopine]

That's what I was thinking. He can't do it now because he's still working but separated from service. He may be able to keep some money in the plan and take some money out. By taking it out, that means rolling it from a 401 to an IRA, and that money you could actually convert. But Joe is correct. You do have to be mindful of how much tax you're going to pay because you've got a couple hundred in your brokerage and cash, which is great. Right. But at the same time, you've got a lot of money in an IRA 401 that you'd like to convert. So that's where you just have to be a little careful.

[Joe Anderson]

Yeah. Or he's going to have to wait until 59 and a half to do it. Or if he wants to roll the money out at age 55 and put it into an IRA, he could do a 72T tax election, which is a separate equal periodic payment.

[Big Al Clopine]

Good. That could be another approach, too.

[Joe Anderson]

So now you got money and you could split up the IRAs. Maybe you do this. You have to run the numbers here, though. So he's got two and a half million. His wife is only. Not only, but she's got $30,000. So you could easily convert that. But he probably needs to convert a lot more because he's got $2.3 million.

[Big Al Clopine]

Right.

[Joe Anderson]

One strategy is that he could do. Let's say he rolls the money out of the 401 at 55 and puts it into an IRA. And we had to do this a couple of times because people make mistakes and they don't know they can pull the money out of the 401 plan at 55 without penalty. So they roll it into the IRA and it's like, oh, well, I need access to the money. How do I get access to the money? Well, you could do a 72t tax election, which is a separate equal periodic payment, and maybe he splits it up into two. And so because you have to take the payment out every single year until you turn 59 and a half or five years, whichever's longer. And so he could do that. Maybe you can get $40,000, $50,000 out of the Sepp, and then he's got the other IRA that he could convert, and then he could live off of some of the brokerage dollars over the next five years. Yeah.

[Big Al Clopine]

And of course, yeah, true, he could.

[Joe Anderson]

I don't know. That seems like a lot of work to do conversions for five years.

[Big Al Clopine]

Personally, I'd rather if I could take some out, leave some in.

[Joe Anderson]

Yeah. Nobody could do that, though.

[Big Al Clopine]

You don't think so?

[Joe Anderson]

I don't think so.

[Big Al Clopine]

Okay, well, it's worth checking.

[Joe Anderson]

Yeah, for sure. It's worth checking.

[Big Al Clopine]

Yeah.

[Joe Anderson]

All right, well, good luck. Scotland. Check your plan, Doc. Read the plan document to see if at 55, you can do a partial.

[Big Al Clopine]

Rollover when you're separated from service. That's correct.

[Joe Anderson]

And then. So you keep money in the 401 plan, and then you do a partial rollover. You put that into the IRA so you can convert some of those dollars over that five year. That would be the easiest and cleanest, if possible.

[Big Al Clopine]

Yeah.

[Joe Anderson]

All right, we got Big Juan from Texas. Hey, Andy. Joe. Big Al. Big Al. Big Juan.

[Big Al Clopine]

Yeah. How about that?

[Joe Anderson]

Love the show. Found it on YouTube. And now enjoying episodes when I'm on the treadmill or doing some housework. Vinyl details. Rarely drink, rarely drive. Long story right, Big Juan, but we do own the world's most annoying Yorkshire terrier.

[Big Al Clopine]

I'm guessing that Yorkshire barks all the time.

[Joe Anderson]

I'm guessing that's it. I'm 54, wife's 52. I retired one year ago from USG service. United States government service, to become Mr. Mom for our two teenage boys in the last few years of college. Wife still works with USG. Will retire in the next three to 12 years. My pension and wife's net pay gives us about $10.5k a month. We'll get $5,000 to $7,000 a month in rents from three investment properties. The properties are mortgaged for the next 15 years between 5% and 7%, and will not generate actual profit until mortgages are paid off. Our annual expenses, including the mortgage payments, are about $12,000 a month. Here's the current breakdown. My and my wife's combined regular TSPs are $3.5 million. My wife's combined Roth IRAs are $800,000. Brokerage account, $500,000. Wife's HSAs, $8,000. Free rental properties, 1,900,000. Cash, $15,000. Question 1. One kid starts college two years. The other four years, we don't have 529 plans. Is it wise to tap my Roth, or is it better to use our brokerage account to fund our college? Do you see any other creative ways to finance college, given our situation? Okay, let's stop there.

[Big Al Clopine]

Yeah, that's a good question.

[Joe Anderson]

God, I would stay so far away from the Roth if I had to to fund college. I would much rather take a loan than take it from the Roth.

[Big Al Clopine]

Yeah, I mean, I would either set up a 529 plan. Now you've still got some time. Or I would use the brokerage account. To me, those two are much better. The Roth. It's difficult to get money into the Roth. And you would like that to compound growth so you can use it throughout your retirement to keep your taxes low. So, yeah, I would not use that if you don't have.

[Joe Anderson]

Okay. Number two, would Roth conversion from ITS P be advisable in my current situation? I think I know the answer, given your general bent on the topic. Wow. Big Juan throwing heat. Just throwing big gas.

[Big Al Clopine]

Yeah.

[Joe Anderson]

Yeah, Juan, you know the answer.

[Big Al Clopine]

You got three plus million dollars in a tsp taxable. Yeah. You'd like to get more in Roth. That makes sense.

[Joe Anderson]

Tax rates are relatively low. Yeah. Question three. Once my wife retires, we expect $12,000 a month expenses to increase with inflation. Our pensions will net US $9,000 a month. Rents will net US 5 to 7, but we'll also rise with inflation. Our health insurance is vested. Social Security will be about $6,000, but not until age 70. And we can't tap TSP or Roth until age 59 and a half. What's your spitball analysis about whether my better half could retire in three years at age 55?

[Big Al Clopine]

Well, they have about. Currently they have about $4,700,000 and he says $9,000 per month pensions. Right. So that's $108,000. And they want to spend about $144,000. That's inclusive of mortgages, which will be paid off. But even if you look at $144,000 spending 108,000 pensions, $36,000 shortfall against $4.7 million, that's less than a 1% distribution rate. It looks phenomenal.

[Joe Anderson]

Yeah.

[Big Al Clopine]

So, yeah, go for it. No reason not to.

[Joe Anderson]

Okay. Any other.

[Big Al Clopine]

Any other thoughts?

[Joe Anderson]

Sage advice.

[Big Al Clopine]

Well, big one, I think that have the same name. Yeah, I mean, if what I said is right and your shortfall is 36,000, then you can live off the brokerage account till you're 59 and a half, which will be probably right about that time anyway. And you can start withdrawing from your tsp. But yeah, Roth conversions make sense to you. So the rental properties, you know, I know that's what you gross 5,000 to 7,000, but there's other expenses, too. So don't forget the maintenance and the property taxes and maybe property management fees and the like. So just, you know, it's not. It's not all profit, as you know. So just factor that in.

[Andi Last]

Calculate your likelihood of retirement success with a financial blueprint. If you haven't already, click or tap the financial blueprint link in the episode description, input your details, and our free tool will analyze your current cash flow, your assets and Your projected spending for retirement. It'll then output a detailed report with three scenarios that'll help you determine your probability of success, including future taxes and actionable steps you can take now to achieve your financial goals. 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 the next step steps look like. Click or tap the links in the episode description to get your financial blueprint and to schedule your financial assessment, both for free, both courtesy of your money, you, wealth and Pure Financial Advisors.

[Joe Anderson]

Last one, Last one of the day. Okay, we got Frank and Gene Durbin.

[Andi Last]

Drebin.

[Joe Anderson]

Drebin. Oh, Frank Drebin.

[Andi Last]

Yes.

[Joe Anderson]

Yep. Naked Gun.

[Andi Last]

You got it.

[Joe Anderson]

Yeah. And Jane, that was. Hey, nice beaver. Yeah, I just got it stuffed.

[Andi Last]

For anybody who doesn't understand that reference, please go watch the movie.

[Joe Anderson]

She just got it stopped. Never seen the Naked Gun.

[Big Al Clopine]

I've seen it.

[Joe Anderson]

That's great.

[Big Al Clopine]

I wouldn't have said that. But you did.

[Joe Anderson]

It's a movie quote.

[Big Al Clopine]

Okay.

[Joe Anderson]

Hey, Joe. Big Al. I have a spitball question for you about when my wife and I can retire. I'm 46. My wife is 47. I'd like to retire in 5ish years. I'm not sure if that is feasible. We make a combined $300,000 annual, $200,000 for me, $100,000 for her. We currently have $325,000 in a Roth, $965,000 in a SEP, traditional, 403 IRAs, $51,000 in HSA, 400 grand in a brokerage, $100,000 in cash. That equals $1.8 million. We add $7,000 per year to the Roth via backdoor. $50,000 in a SEP, 7 in traditional and $23,500 in the 403. Okay. And the remaining surplus of 25,000 to $75,000 goes into the old brokerage account. I'm hoping to spend $100,000 per year in retirement. However, we still owe $378,000 on our home at 6.5% interest, which comes to about $40,000 a year. It would be an expense on top of the $100,000. Until we pay it off, I own my own business. And it's. Oh, and it's occupying real estate, which I.

[Andi Last]

Real estate.

[Joe Anderson]

Accompanying.

[Andi Last]

So he owns his own business and the accompanying real estate?

[Big Al Clopine]

Yeah.

[Joe Anderson]

What did I say? Occupying. It was close. He's occupying real estate.

[Big Al Clopine]

I think our listeners got it.

[Joe Anderson]

Come on. I told you, I'm tired and funny as hell.

[Big Al Clopine]

You know you do have a three year old, right?

[Joe Anderson]

I get up at 4:30 in the morning.

[Big Al Clopine]

I know. Go to the gym and.

[Joe Anderson]

That's right.

[Big Al Clopine]

Yeah, yeah.

[Joe Anderson]

My life's Groundhog Day.

[Big Al Clopine]

I. Yeah, I can see that.

[Joe Anderson]

And it's like, no wonder why I like to get myself visually, like in the.

[Big Al Clopine]

Yeah, because you.

[Joe Anderson]

You in the emails here, right? I want to be like, what are you drinking, Frank?

[Big Al Clopine]

Yeah.

[Joe Anderson]

And then Drevin, you know, then you think of the movie and it's like, all right, if I sold my business in five years for $1 million and used the proceeds to pay off my mortgage and invested the rest, would we be sitting pretty or is this just a pipe dream? I have no debt and on the business, so I assume I would pay capital gains. Also, I know health insurance would be an issue for us as our insurance is through my wife's work and if she retired too, we would have to hit the health insurance marketplace. Maybe I could convince my wife to keep working, huh? Appreciate your spitball and your thoughts. By the way, my drink of choice is new Glarus Moon Man. I like Spotted cow from the old New Glarus. Yeah, he's Wisconsin, right. It's gotta be. All right.

[Big Al Clopine]

Only IPA available in Wisconsin.

[Joe Anderson]

The only IPA available in Wisconsin. My cousin lives in Valeris.

[Big Al Clopine]

Really?

[Joe Anderson]

Yeah.

[Big Al Clopine]

Okay.

[Joe Anderson]

And my wife prefers water. Well, she needs to. While you're pounding the moon, man, does it feel like you're on the moon after you have a couple of those? I have a 2017 Honda Ridgeline and my wife drives a 2023 Toyota Prius. Wow. They still make Priuses?

[Big Al Clopine]

Yeah, they do.

[Joe Anderson]

All right, Cool.

[Big Al Clopine]

They've got a new one, Prius Prime. Oh, I have a friend that drives one.

[Joe Anderson]

Okay.

[Big Al Clopine]

Actually, I have two friends that drive one.

[Joe Anderson]

Priest is coming back.

[Big Al Clopine]

Yeah.

[Joe Anderson]

All right. Is this a pipe dream? I don't even know.

[Big Al Clopine]

Well, let me give you a couple numbers. Thank you. I know. So we're starting with about $1.8 million. If I'll just take your numbers, you're adding about. If I use the lower end of what you're adding about 120,000 a year, 6% over five years, you probably end up with about 3.1 million. If you sell the business for a million well, you've got to. Got to pay closing costs. You got to pay taxes. Right. Then you got. You got to pay off the mortgage. Right? So I don't know, maybe you end up with three or four hundred thousand. Maybe end up with three and a half million somewhere around there.

[Joe Anderson]

You mean he's going to lose. What's the mortgage on the business?

[Big Al Clopine]

Well, he's got. He wants to pay up his home mortgage about 400.

[Joe Anderson]

Got it. Got it. Okay.

[Big Al Clopine]

Yes. I'm just counting that in. So. So if he does that, if he's got 3,400,000, 3.5 million, his $100,000 that he wants to spend without the mortgage. So that would be about a 3.4% distribution rate. He's kind of. Kind of right there, I would say.

[Joe Anderson]

How old is he?

[Big Al Clopine]

He's 46. And he's talking about 50 again. Yeah, 51.

[Joe Anderson]

God, everyone wants to retire at 50.

[Big Al Clopine]

I know, right?

[Joe Anderson]

Me, too.

[Big Al Clopine]

Yeah. Hey, you're retiring tomorrow?

[Joe Anderson]

It's coming, Al. It's going.

[Big Al Clopine]

Yeah. I think it looks pretty good, but I would say it's not like there's a huge margin for error. So just be careful when it comes to your distribution strategy from your assets. Then just try to have a little bit of flexibility. Markets do well, you spend a little bit more that year. Markets do less well or go down. You may want to cut back a little bit on spending that year. So just be aware of that. I would say.

[Joe Anderson]

Yeah, I mean, he's done a really Good job. You're 47 years old and you got a giant net worth. You own your business. I don't know. For people that own their own business, I think it's really difficult for them to retire at 50.

[Big Al Clopine]

It kind of is because you're used to kind of charging.

[Joe Anderson]

Yeah, right. And I mean, it's not easy to have a successful business. Most small businesses fail. And, you know, I think he's done a really good job. So, yeah, he could pick up a little side hustle. I don't know. Can he sell the business and stay on for a little bit?

[Big Al Clopine]

Yeah, that would be cool.

[Joe Anderson]

Maybe sell back to the business.

[Big Al Clopine]

Right? Maybe. Or just half time, just be like.

[Joe Anderson]

Al and just never leave working it. Just. Just work like three hours a week.

[Big Al Clopine]

You know what?

[Joe Anderson]

They have a giant ass paycheck.

[Big Al Clopine]

If you can get that gig, I highly recommend. Works for me.

[Joe Anderson]

That's it for us. Thanks for the questions. Thanks for listening. Really appreciate everyone's support. Andy, wonderful job. Big Al. You too, bud.

[Big Al Clopine]

And back at you.

[Joe Anderson]

Aaron, way to go. All right, we'll see you guys next time. Shows Con youn Money, you, Wealth John.

[Andi Last]

In Boston is in the 32% tax bracket and flight deck. Dad and Irish girl in Pensacola have a bunch of tax free pension income. Does it make sense for them to pay taxes now to do Roth conversions? Tune in as Joe and Big Al spitball on these and other questions next week on your Monday. Follow us in your favorite podcast app, subscribe and watch us and join the conversation in the comments on our YouTube channel. And leave your honest reviews and ratings in Apple Podcasts. If you've already done all that, maybe tell a friend or 10 to do it too. Your Money, you, Wealth is presented by Pure Financial Advisors. Getting a spitball from Joe and Big Al is a great way to get a vague idea of how ready you are for retirement. But trust me, you don't want to base the rest of your life on vague. Go deep instead with one of the experienced professionals on Joe and Big Al's team at Pure. It doesn't cost you anything and it doesn't commit you to anything. They'll analyze your entire financial situation to help you develop a retirement plan that's sharp and in focus. Schedule your meeting with the Pure team at any of our locations nationwide or get the same great service in an online zoom meeting without leaving home. Click or tap the free Financial Assessment link in the episode description or call 800-80-8994-6257 to get started. Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this podcast and does not represent that the securities or services discussed are suitable for any investor. As rules and regulations change, podcast content may become outdated. Investors are advised not to rely on any information contained in the podcast in the process of making a full and informed investment decision.