Retiring Before Social Security? Consider These Portfolio Changes - 555

Summary

Podcast Summary: Your Money, Your Wealth – Episode 555

Title: Retiring Before Social Security? Consider These Portfolio Changes
Hosts: Joe Anderson, CFP® & Alan "Big Al" Clopine, CPA
Date: November 11, 2025

---

Episode Overview

This energetic episode finds Joe and Big Al spitballing withdrawal strategies, Roth conversion timing, and saving priorities for listeners navigating complex retirement and savings questions. The hosts tackle scenarios including early retirement before Social Security, combining tax efficiency with portfolio withdrawals, maximizing Roth conversions to avoid future RMD (Required Minimum Distribution) surprises, and the age-old debate: should young families prioritize retirement or college savings? The conversation stays practical and humorous, peppered with cocktails, quirky listener personas, and real-world money concerns.

---

Key Discussion Segments & Timestamps

---

1. [Christine’s Early Retirement Withdrawal Strategy (00:53–13:50)]

Situation Breakdown:

• Christine (retired at 59, now living in France)
• Portfolio: $750K IRA, $550K Roth IRA, $500K brokerage account (great tax diversification!)
• Needs: $60K/year for three years until Social Security; also wants to pay off $75K securities-backed line of credit at 7%
• Concern: Minimizing taxes, managing future RMDs, and possibly doing Roth conversions

Core Advice & Insights:

• Non-Qualified Funds First:
  Big Al recommends paying off the $75K SBLOC from the non-qualified brokerage account to avoid triggering ordinary income taxes.

  • “That’ll be the most tax-efficient way to go…without utilizing the Roth IRA.” (05:23 – C)

• Bracket Management:
  For annual withdrawals, stay within the 12% tax bracket (~$64K for a single filer in 2025).

  • “You want to stay at about $64,000 total income, including your capital gains. If you go over that, your capital gains are taxed at 15%.” (07:36 – C)

• Mix Distributions for Tax Efficiency:
  Combine modest IRA withdrawals (to max out the 12% bracket) with brokerage account capital gains harvesting (possibly at the 0% rate within the bracket), and take any shortfall from the Roth if needed.

  • “Maybe you take $50,000 from the IRA and sell $15,000 in gains…Then you could still be at the 0% capital gains rate.” (07:01 – B, 07:36 – C)

• Tax Gain Harvesting:
  Sell appreciated securities (within the lower bracket) and repurchase to increase cost basis without triggering taxes.

  • “That’s called tax gain harvesting…It’s a really cool strategy you could potentially do there…” (08:28 – B)

• Roth Conversions?
  Likely unnecessary since she already has substantial Roth assets; focus on efficient drawdown.

  • “I don’t think conversions make a ton of sense, because she has $550,000 already in a Roth…” (08:20 – B)

• Maintain Portfolio Balance:
  Use withdrawals as opportunities to rebalance and manage risk, not just for tax planning.

  • “You want to consistently rebalance all three accounts to manage your risk now that you’re pulling [income]…” (09:42 – B)

Memorable Quote:

“Just because you have to pay some capital gains, I’m saying it’s not the end of the world – that’s a cheaper rate. So good for you for having gains in the right account.” (10:54 – C)

---

2. [Prickly Richard & Margarita Maggie: Roth Conversions vs. RMD Avalanche (13:50–25:22)]

Situation Breakdown:

• Richard (68) & Maggie (69) in Tucson, AZ
• Combined portfolio: ~$5M (IRA, Roth, brokerage); big IRAs at risk of large RMDs
• Social Security: Delaying Richard’s, Maggie’s currently receiving; $180K–$180K+ annual expenses
• Built a detailed spreadsheet to project RMDs, income, taxes, IRMAA (Medicare means-testing)
• Core dilemma: Do “pull-ahead” IRA withdrawals and/or Roth conversions now to avoid big RMDs and IRMAA surcharges later?

Core Advice & Insights:

• Distribution Rate is Safe:
  Their projected withdrawal rate is well within norms for their asset base.

• Maximize Use of Lower Tax Brackets:
  Take advantage of lower-income years now for Roth conversions or IRA withdrawals up to the 24% bracket, considering that future RMDs plus Social Security and pension will put them at higher taxable income.

  • “I would try to get as much out…at least maximize the 22% tax bracket.” (22:49 – B)
  • “For IRMAA…that extra Medicare cost is probably going to be less than the other 2% taxed. I would go to the top of the 24% tax bracket for two, three years.” (24:25 – C)

• Roth Conversions Despite IRMAA:
  The additional Medicare premium (IRMAA) is a minor marginal cost relative to permanently sheltering funds from future higher RMD taxation.

  • “What’s the extra IRMAA expense? $3,500. That’s a 1.9% tax. So kind of same-same.” (23:33 – C)
  • “If it were me, I would do some Roth conversions to the 24% tax bracket.” (24:25 – C)

• Humorous Teamwork:

  • “You’d rather spitball and I like to have a little prep. But it’s all good. That’s why we compliment each other.” (24:39 – C)

---

3. [Michigan Queen & Mississippi Boy: Retirement vs. College Savings Priorities (26:19–39:52)]

Situation Breakdown:

• Couple (33 and 34), three young kids, dog, minivan
• Income: $170K/year; Maxing out 401(k) + 2 Roth IRAs + HSA + 529s ($8K/year, $50K balance)
• No debt except mortgage; Home equity; Wife will eventually have pension/benefits when back to work
• Concern: Are they saving enough for retirement to retire at 55? Are they overdoing college savings?

Core Advice & Insights:

• Current On-Track but Stay Flexible:
  Big Al projects if they continue maxing contributions they might amass ~$3.4M by age 55, but early withdrawal needs and variables make precise predictions difficult.

  • “So many things will change over 20 years… probably you’ll be saving more…You’ll probably be in good shape.” (34:49 – C)

• Rule of Thumb: Save 20% of Income:
  Net of taxes, allocate 20% of household income to retirement; if income rises, ramp savings proportionally.

  • “Try to get up to saving 20% of what you’re making, which is about what you’re doing. Just keep doing it.” (35:28 – C)

• Balance College & Retirement:
  Current 529 contributions are appropriate for three kids and not excessive. Don’t shortchange retirement savings to superfund college — prioritize “paying your future self first.”

  • “Just keep your head down, keep saving away. Don’t do anything cute.” (36:44 – B)

• Beware Lifestyle Creep:
  As income increases, avoid ramping up expenses faster than savings rate.

  • “Lifestyle creep will get you, too.” (39:19 – B)

• Retiring at 55:
  May require part-time work, or bridge years, which is fine — focus more on diligent, steady saving than forecasting twenty years out.

  • “If you’re $60,000 short…just make $60,000 for a few years until Social Security. There’s lots of opportunities to not have to do the career grind.” (38:40 – C)

Notable Quotes:

“He probably started the 529 before he even met his wife!” (31:56 – B)
“Have a strategy that’s sound and stay to it…ignore the noise.” (37:45 – B)

---

Notable Quotes & Moments

• On Portfolio Tax Efficiency:
  “Just because you have gains in your non-qual[ified account], good for you…that’s what you’re trying to do.” (10:54 – C)

• On Listener Details:
  “He talks in code…this has got engineer written all over it.” (16:45 – C)

• On Early Saving:
  “He probably started the plans before he even met his wife.” (31:56 – B)

• On Roth Conversions and IRMAA:
  “$3,500 [extra IRMAA]…that’s a 1.9% tax. So same-same, if it were me I’d go ahead and do some Roth conversions to the 24%…get it over with.” (23:33, 24:25 – C)

• On Avoiding Financial FOMO:
  “You hear the Joneses are doing something different…why are you in this boring S&P500?…Just have a sound strategy and stay to it.” (37:45 – B)

---

Humor & Tangents

• Cocktails: Two listeners coincidentally favor the French 75 cocktail (gin, champagne, lemon, sugar) — causing great amusement.
• Minivan Love: A young dad sheepishly admits: “I hate to admit that I love [our minivan] since it’s so stinking practical.”
• Listener Codenames: Prickly Richard, Margarita Maggie, Michigan Queen, Mississippi Boy — adding personality to each scenario.
• Engineers & Code: Richard’s spreadsheet-style inquiry is joked about as “engineer written all over it.”

---

Useful Timestamps

• [00:53] Christine’s withdrawal and tax strategy question begins
• [04:33] Tax-efficient withdrawal and capital gains harvesting
• [13:50] Prickly Richard & Margarita Maggie’s detailed RMD/Roth planning
• [22:49] Deciding how much to convert to Roth and address IRMAA
• [26:19] Michigan Queen & Mississippi Boy start: balancing college vs retirement savings
• [35:28] Rule of thumb: Save 20% of net household income
• [37:45] Don’t get “cute” with investments as you accumulate wealth

---

Final Takeaways

• Coordinate withdrawals across all account types for tax efficiency—aim to bracket manage each year.
• Roth conversions can still make sense even if you trigger IRMAA, if you permanently reduce future RMDs.
• Long-term success for younger savers is more about consistency (20%+ of income to retirement) than precise, rigid plans.
• Don’t let tax fear paralyze you; sometimes realizing gains or “harvesting” can be the best move.
• Humor, practicality, and real listener stories make even arcane strategies relatable and memorable.

---

For further learning, check out the hosts' free guides and videos on retirement withdrawal tax strategies—linked in the episode description.

Transcript

[A]

Join Big Al spitball withdrawal strategies, Roth conversion, timing, and saving priorities for every stage of life. Today on youn Money, you, wealth podcast number 555. Christine just retired at 59 and wants the smartest way to draw income before Social Security without letting taxes take a third of it. Prickly Richard and Margarita Maggie have a plan to pull ahead some Roth conversions now to dodge an RMD avalanche later. Will it work? And the Michigan Queen and Mississippi Boy are wondering whether to save harder for retirement or college for three kids currently under the age of five. Yeah, that minivan has seen things. And this is why nyw. So of course, expect a few derails into cocktails and car maintenance. I'm executive producer Andi Last, and here are the hosts of youf Money, you, Wealth, Joe Anderson, cfp, and Big Al Clopine, cpa.

[B]

We got Christine. She writes in Big Al or the dog writes in.

[C]

Yeah, picture the dog, not her.

[B]

Got it.

[C]

Cute dog.

[B]

Hey, Joe Al. And greetings down under to Andy. All right, so this is fairly new, so we got caught up. Or did you put her top of the list because she said greetings from Down Under?

[A]

This is from July. I moved in May, so it's not that new.

[B]

You moved in May?

[A]

Yeah.

[B]

Wow, time flies.

[A]

It does.

[C]

It's true.

[B]

I finally retired at 59. I'm trying to figure out the most beneficial withdrawal strategy for the next few years until I begin taking Social Security. I did a search on withdrawal strategies and found an episode back in 2021 when Joe first asked us to tell him about her favorite cocktail. Okay, that was in 2021.

[A]

We've been doing that ever since.

[C]

I thought it was later, longer than.

[B]

That, but maybe no idea on how that ever came up. That was very helpful and understanding income gain stacking. But I'd love to hear your thoughts about my current situation. First, to help Joe get in the zone. Let's go. Yeah.

[C]

All right.

[B]

My cocktail of choice for this conversation is a French 75.

[A]

French 75 is a cocktail made from gin, champagne, lemon juice and sugar.

[B]

Gin, champagne, lemon juice, and sugar.

[C]

Okay, that sounds like pretty sweet.

[B]

Yeah, I don't know how many of those you can have. And you can picture me driving around France in my Fiat 500 electric with my Poodle Dee, Poodle Dee mix. Poodle poodle dee doodly doodly, Poodle Dee doodly mixed.

[A]

So I've got the picture up on screen and obviously ball in mouth, ready to play.

[C]

Just like a good dog.

[B]

I'm single, have a retirement savings of $1,800,000 spread around the three buckets. $750,000 in an IRA, $550,000 in a Roth, $500,000 in a non qualified. Well, very good tax diversification there, Christine. Yeah.

[C]

Great. And by the way, I'll just make one quick comment. Love the brevity here. I love it when they give us the total amounts. Right. Rather than 18 accounts that you have to read. Well, I got $18,000 in a SEP and I got. Just tell us the total retirement total. Roth total, non retirement. We love it.

[B]

Perfect. 750. 550. 500. I'd like to withdraw $60,000 a year for the next three years until I start taking Social Security. But I also have 75,000 SB lock at 7%. What is that? A line of credit? $5,000 at 7% that I want to pay off.

[C]

Securities backed line of credit.

[A]

All right, what does securities backed mean?

[B]

It's on the brokerage account versus a home.

[C]

Yeah. Secured by stocks and bonds instead of your home.

[A]

Got it. Thank you.

[B]

Yep. Andy, note to self. Securities backed sbloc.

[C]

She did a little research.

[A]

I wanted to make sure to ask you what that actually was.

[B]

Got it. All right. What's the most tax efficient way to do all of this? I'm trying to consider future RMDs in the long term and interest payments on the LOC in the short term. Once I start taking Social Security, I will replace about 50% of the draw. So that means more money can stay invested and continue to grow. Should I be thinking about more Roth conversions at any point in the future? Do you think I'll be positioned to take an extra 20, $30,000 every couple of years from some bucket list adventure that I'd like for some.

[C]

Yes.

[B]

Yeah. Bucket list adventure. She wants to do some bucket list stuff.

[C]

Yeah. That's cool.

[B]

All right, so let's see. So this is going to be somewhat easy. I believe so. 755. $5,500,000.

[C]

Yep.

[B]

She wants to pull some money out before she takes Social Security. She's got this $75,000 line of credit that is included in our expense number or not included.

[C]

I think it's in addition to.

[B]

In addition to. And she. To take out $65,000 a year.

[C]

That's about 60 grand.

[B]

60 grand on top of the 7,000. Or I mean the 7%.

[C]

Yeah. She wants to take 60. As I read it, 60,000 a year, plus she wants to pay off this $75,000 loan.

[B]

Got it. Okay. So what. What say you, Big Al?

[C]

Well, I guess first of all, the, the loan itself, I would use non qualified accounts, in other words, brokerage accounts, non retirement accounts, because it doesn't cause much taxation. Maybe you sell some stocks, bonds, maybe there's a little bit of capital gains that can be factored in, but that'll be the most tax efficient way to go without utilizing the Roth ira. So that's what I would do. And the second part is, you know, when you think about a single tax bracket, which is $48,000 is the top of the 12% bracket and standard deductions about 16,000 DOL. So which means, Joe, you can have about $64,000 of income and still stay in the 12% bracket. So I would be trying to stay in the 12% bracket because I think, I think it fits her income scenario if she sold some stocks and bonds, maybe a little bit that gets over, I don't know, but close enough.

[B]

Right, so you got 755, 50 and then 500. So there's 1.8 million total.

[C]

Yeah.

[B]

All right. And so 4% of that, of 72,000. She wants 60 to bridge the gap. She also wants to pay out the $75,000 loan.

[C]

Even if you take off 75 grand, it's 1.7 million, 3 1/2% distribution rate in advance of Social Security. I mean, it's fine. It's just a matter of picking which accounts to pull the money out of.

[B]

Yeah, I would pull $65,000 out of the Iraq.

[C]

Yeah, because that's what you can pull out and still stay in the 12% bracket.

[B]

And then I would look at. All right, I'm in the 12%. What is the basis on the $550,000? She says it's all capital gains, but is there any there at a loss? Is there any larger gains? So I would kind of play around with that as well. I would want to draw the IRA to no more than the 12% bracket. And then from there I would play with a non qualified account to see how much I can get out of there at a, at a reasonable, at a reasonable rate. Maybe you don't take the full 64,000 out of the IRA. Maybe you take 50,000 and then you sell 15,000 of gains and still be in the 0% capital gains rate.

[C]

Exactly. That would be the smartest, and I guess to reiterate, so what we're talking about, you want to stay at about $64,000 total income, including your capital gains. Because if you go over that, your capital gains are all of a sudden taxed at 15%. Right. So if you can stay in that $64,000 of income. Now if you need, you know, let's just use that example. You got $15,000 of gains, right. And so you're trying to stay at the 64,000, maybe you can pull out another $50,000 and that, that's cool. Maybe you're 10,000 short, maybe you take 10 from the Roth. Right. Or, or, you know, I don't know, you kind of play around with it.

[B]

Yeah. She's 59, so she, she's got quite some time until the RMD. So you can slowly draw the IRA and still be in the, you know, a 10 or 12% tax bracket.

[C]

That's what I think too.

[B]

So I don't think conversions make a ton of sense because she has $550,000 already in a Roth. That can compound later.

[C]

She's already done a great job.

[B]

Yeah. So I, I would say from now until the only thing she's missing is the basis on the re on the non qualified account, which we don't know because then you would look at a, a capital gain play. Because if you sell stocks at a gain, but you keep yourself in that, like we're saying $64,000, you know, total income level on your tax return, that means you're still in 12% bracket, there is no capital gain. So you could slowly kind of chip away at some of these gains. You could re buy the same stocks if you want. That's called tax gain harvesting. So I have a $15,000 gain, I'm in the 12% bracket, I sell Nvidia and I buy Nvidia back because it's a gain. Right. You just increased your basis, there's no tax on it and you increased your basis. It's called tax gain harvesting. It's a really cool strategy that you could potentially do there just to kind of get you more tax efficient. As you're looking at the different pools, another problem that I see is that people, if they have too large of gains in the non qualified account, it's like almost the same issue people have when it's in a retirement account. They don't want to sell the asset. It's like, well, I'm going to have to pay all this tax. But if the assets down, it's like, well, I don't want to sell it because it's down.

[C]

So they never sell.

[B]

So they don't ever sell it. It's like that's why you got to be tax efficient. You want to look at Tax loss harvesting opportunities. You want to be managing your risk, rebalancing the overall portfolio to mitigate these long run ups. So there's a lot of different things that she's done a great job with, the diversification from a tax perspective. But now it's time to draw the income. And this is where it gets a little bit more complicated because you want to consistently rebalance all three accounts to manage your risk now that you're pulling it because you have sequence of return risk you might want to be looking at. All right, well now I'm going to pull X amount of dollars from the IRA this year and maybe next year I'm going to pull more from my non qualifier account. You're going to be playing with those two accounts depending on how they're managed because asset location is going to be key. You want to hold some assets in your IRA that are different from your Roth IRA that is different from your non qualified account. You also want to be looking at the tax loss harvesting opportunities as you're rebalancing and as you're creating income. So there's different things that have nothing to do with the asset allocation. It has everything to do now with creating income, mitigating the taxes and doing tax strategy on an ongoing basis to make sure that you stay in balance.

[C]

Yeah, yeah, no question. And here's another point I would make. So what, you got gains in your non qual. Good for you. That's what you're trying to do. And guess what, you get a lower capital gains rate. So just because you have to pay some capital gains, I'm saying it's not the end of the world because that's a cheaper rate. So good for you for having these gains in the right account.

[B]

All right, now hang on.

[A]

Did you guys say how she should pay off that securities back line of credit?

[B]

Yeah, she could do it over a couple of years or just bite the bullet and pull $75,000 out of her non retirement account and pay it off.

[C]

Yeah, the non qual account, Andy.

[B]

Cool. Thank you. Or yeah, I mean she could do a couple of different things. If I knew a little bit more information, you could say, all right, well you're going to pull X amount of dollars from the ira. Maybe some of those dollars could be used to pay it off. I don't know. As long as it's in the 12% tax bracket. I think with that, as long as she can cover all of her living expenses and stay in that. Stay in that rate.

[C]

Yeah. And if you know when you're picking the stocks to sell. You want to pick those that have the lowest gain, but you also want to consider about rebalancing. You may want to rebalance a little bit because maybe you have certain asset classes that are overweight. And so just, just think. There's a lot of things you can think about here, but the basic instruction I would say is use the non qualified account, non retirement account to pay off the loan and then use your IRA generally to for your expenses, with some exceptions depending upon how much gain there is. But that would be the basic rule here. At 62, that's three years from now you're taking Social Security. So then at that point that'll pay for maybe half your expenses. As you say, maybe you pull the other half from the Roth, maybe you do a little conversions, maybe not, I don't know. But you're already in a good shape, so you don't really have to do a lot more on conversions, I would say.

[A]

Christine's question shows how tricky retirement withdrawals can be. To see how to turn your savings into income and maybe pay zero tax doing it, you need to watch the newest episode of youf Money, you, Wealth tv. It's called how to Retire Tax Free With a Smart Income Plan. Joe and Big Al break down real examples of how couples can make $100,000 a year in retirement and pay zero in taxes by managing where that income comes from. They'll show you how to balance withdrawals from your ira, Roth and brokerage accounts. And how strategies like Roth conversions, the home sale exclusion, and qualified charitable distributions help you keep more of what's yours. And download our brand new companion, Tax Free Retirement Guide. It walks you through the tax brackets, capital gains thresholds, and proven moves that can help you build a retirement income plan with little to no tax bill. Click or tap the links in the episode description to watch how to Retire Tax Free with a Smart Income Plan on YMYW TV and to download your Tax Free Retirement Guide. All free, all courtesy of your money, your wealth, and pure financial advisors.

[B]

All right, let's move on. This looks really complicated here.

[C]

It does.

[B]

What is this?

[C]

Well, this is what I think it's based, weirdly.

[B]

Yeah.

[C]

Well, what I don't like as much is you have like 30 lines. I've got this much in this account. This much in this account. Well, that's what it makes it really hard to follow.

[A]

If you guys want to just do the recap at the top that actually has all the numbers included.

[B]

Yeah, well, I'll try to get through this as fast as I can here. All right, so we got Mrs. Prickly Things or Mr. Prickly Things from the Land of Prickly Things. AKA Tucson. Tucson, AZ 2 7. Yes sir. Do you enjoy listening to your podcast while I work out? Yeah. Do another squat. I can do it. Max that one out. Entertaining and educational mostly. What the hell does that mean?

[C]

Well, sometimes we're off off base.

[B]

What? We're just giving just information that that information.

[C]

We're mostly educational, entertaining. Sometimes we're not very funny and we're information is not that good.

[B]

Got it. All right, here are the basics. Ages me 68. Darling spouse 69ds for sure. Got it. So hits R and B earlier. Okay. I can already know where this email is going. This is going to be a disaster.

[C]

Going to be good luck.

[B]

Okay. Use Prickly Richard in Margarita, Maggie.

[C]

Okay.

[B]

If you would drinks me any craft beer. Thinking about taking the Cicerone exam. Cicerone exam. That is a beer samier.

[C]

Yeah.

[B]

Oh God.

[C]

There we go.

[B]

Here we go. Yes.

[C]

We're only like a third of the way through this. I know.

[B]

It does exist. DS likes the iced tea. Darling spouse.

[C]

Okay.

[B]

All right. Car me 202006 Lexus. Only 146,000 on it. A tank albeit one that slurps premium. DS 2016 BMW 320i. Employment me just retired long time though had the more important job of raising kids. Oh, DS long time.

[C]

She's been retired a long time. We're getting. We're in code.

[B]

Yeah. Yes. This guy Prickly pears talking a little empty nester now. House roughly $1.3 million. $350,000 on a 2.6% 30 year fixed. All right. Social Security. Me delaying until 70, which is $5,000 a month. Darling spouse is currently taking it at call it 2000amonth. Pension me $1100 a month. No cola iras me a million dollars. Darlington spouse 3.1 million. Darlene's spouse has $3,100,000 but has been retired for quite some time and was stay at home.

[C]

She must have been something else before she stayed at home. That's pretty incredible.

[B]

More important job of raising the kids. All right. Long time well three and a half $3,100,000. Roth me 375 darling spouse 150. Brokerage 450,000 a bit concentrated one stock low basis. HSA 26,000. Will shoebox Medicare part B and D premiums using Medicare and Medigap insurance. Medicare joined 7:1 in 2025. Budget roughly need about 160 $180,000 a year. So 2025, only six months of salary. With salary IRA draw stock sales sitting about 180,000. So some IRMAA room for a conversion. 2026, I will have no salary, no Social Security. Coming in about $36,000 in pension and Social Security. 2027, I turned 70 on April 15th. Yes. Death in taxes. $80,000. Social Security and pension. 2028. How many years is this we going here?

[C]

Keep going.

[B]

2028, full year of both our Social Security. $92,000 Social Security pension. 2029, DSRMD's hit will roughly be $120,000. 2030, my RMD hits roughly be $36,000 plus $120,000.

[C]

Okay, all right.

[B]

All right, cool. Did use the bucket method. Have set up bullet shares in ira.

[C]

That's pretty good. All right, whatever that is.

[B]

If market tanks won't have to sell off low cost shares. Engineer with MBA here. Is that why he talks in code?

[C]

I think so.

[B]

I wonder what his handwriting looks like.

[C]

I mean, this has got engineer written all over it, doesn't it?

[B]

If market takes one up to sell off low cost engineer with MBA here. So made a giant spreadsheet with Social Security, RMDs, et cetera, to see the impact of pulling ahead some IRA money early and possible Roth conversions. This was assuming a 4% KEGR on the Iraq, 2% COLA on the Social Security and a 22% 24% tax rates have rest of 2025, 2026 low with no Social Security. 27 and 28 to do IRA withdrawal. Pull ahead in some Roth conversions. When I run the numbers, looks like I hit IRMAA if I'm using the tax. Deferred ira, but total tax is roughly same if I do some pull ahead. But I'm not considering impact of Roth conversions in their growth in time value of money, blah, blah. DS is figuring out ways to pull money out. So we'll be cashing something out. Traditional processes, brokerage tax, deferred and Roth. See, I've been listening. If I use deferred IRA to fund drawdown would be 4%. Just looking to get a reality check. Makes sense to use the income through the next few years to do a pull ahead or Roth conversion.

[A]

You did a great job of translating all that, Joe Phan nominal. Great job.

[C]

Okay. You like the pull ahead, pull ahead.

[B]

I love the pull ahead and the bullet shares. All right. Well, yeah. All right, you got three and a half plus one and a half. You got $5 million roughly 5 million total.

[C]

Four undeferred.

[B]

$4 million in a deferred account. And they want to spend $180,000. And they're going to have $30,000 of pensions in her Social Security plus. Yeah, one hundred and twenty.

[C]

Yeah. Let me do the math. So they want to spend $180,000. Fixed income, when his Social Security kicks in will be $90,000. Shortfall's $90,000 into $5 million. That's 1 million 8% distribution rate. So it's the number one check. You're in good shape there. That's not your question. But we always want to take a look at that first. So now he's talking about how does he take his income or does he do Roth conversions?

[B]

I would not wor. Well, once both RMDs hit, right, he's got 120 plus 36 of RMDs. And that's assuming. I'm not sure what he uses. A kegr. What did he say? 4% on the IRA. So I don't know what.

[A]

Can you explain a kegr, please?

[B]

What?

[A]

Can you explain a kegr, please?

[B]

Well, that's what he's putting.

[C]

Well, capital gain rate, I guess.

[A]

CGR.

[B]

4%. We are assuming a 4% CGR. I'm guessing that's a compound growth rate. Could be.

[C]

Compound growth there. Capital gain rate. Either. Either way, it's a 4% growth rate.

[B]

But it wasn't capital gain rate. A kegr. A compound annual growth rate. And he forgot the A. So I'm throwing in the cagr.

[C]

I'm saying it could be a capital gains rate and capital. Capital gain rate, whatever. But it's the same. It's growing.4%. That's what I get out of that.

[A]

Thank you.

[B]

I guess you're.

[C]

Whatever.

[B]

Capital gain rate sounds like a tax to me.

[C]

It could. It could be. Anyway, Whatever.

[B]

Okay.

[C]

Okay.

[B]

So, yeah, at 4%, that's fairly conservative. And he's got 40, 60, 160 coming out, plus his pension, plus another $92,000. Right. $92,000 of Social Security and pension, plus another 160 of RMDs.

[C]

Correct. Yep.

[B]

Okay.

[C]

Yeah.

[B]

$250,000 of income.

[C]

Yep.

[B]

$250,000 of income as a married couple is the 22% tax bracket.

[C]

Yeah. Yeah, 22. Maybe even. Yeah, close to 24.

[B]

Oh, yeah. No, you're in the 24. $200,000 in the 24% tax bracket.

[C]

It is. And even when you subtract out the exemption.

[B]

So he's right at the cusp of the 24% tax bracket with all of his fixed income sources and the RMD is coming out.

[C]

Yeah.

[B]

So over the next couple of years he's going to be in a low tax bracket. Next year he's going to be in a very low tax bracket. So you just think some of the rmd, not all of it, most of it is going to be taxed in the 22% and then some of it's going to be in the 24. So you want to look at. All right. You at least want to maximize the 22% tax bracket. And then I wouldn't necessarily worry too much about irmaa because the extra RMD is going to be taxed at 24%. The higher IRMAA cost or his Medicare cost is probably going to be less than that other 2% that is going to be taxed. So I would try to get as much out. I don't know if you might want to stay in the third or second.

[C]

Yeah, you might.

[B]

Irma tier.

[C]

I was curious myself, Joe, so I did a little math. By the way, IRMAA Income Related Monthly Adjustment Account, what that is, that's dependent upon your income in two years from now is dependent upon how much you have to pay on Medicare. So the higher your income, the more you have to pay for Medicare premium. So right now the lowest cutoff is 212,000 of income. So I went up like three levels to 400,000, which would put them top of 24ish, something like that. That's 188,000 of additional income. What's the extra IRMAA expense? 3,500. That's a 1.9% tax. So kind of same. Same. If it were me, I would go ahead and do some Roth conversions to the 24% tax tax bracket for two, three years, get it over with and then you probably stay in the 22% bracket and not have to worry about Irma after that. Yeah, that's what I do now.

[B]

Yeah. I'm glad you did some research before. I'm just kind of.

[C]

Yeah.

[B]

Free ball in this thing.

[C]

And you're free. Yeah. And you're doing a great job at it.

[A]

Well, no, that's even more relaxed than spitballing.

[C]

Yes. You'd rather spitball and I like to have a little prep. But it's all good. That's why we compliment each other.

[B]

Yes, that's right. That's right. Oscar and Felix.

[C]

I, I guess I'll be Felix, you'll be Oscar, you'll be the cool and I'LL be the neat freak.

[B]

All right, I think. Did we. Did we check all the boxes there?

[C]

I think so. I think so.

[B]

He's already got the monster spreadsheet.

[C]

He already knows what to do.

[B]

I know. He just wants to hear us talking. Is like NBA.

[C]

Read the code.

[B]

Yeah, read the code. All right. I wonder if. Yeah, his handwriting must be crazy.

[C]

Well, I wonder what DS thinks of when they, I don't know, have romantic dinners and he talks in code. Can you imagine?

[B]

Oh, boy.

[C]

Okay, she goes, give me another margarita, please.

[B]

Yes, please. Margarita, Maggie.

[C]

Yeah.

[A]

Cheers to you, Richard and Maggie, if you followed along with Prickly Richard's spreadsheet and didn't need a margarita halfway through, you're our kind of people. And if you did need a margarita, you still are kind of people. Either way, hit subscribe and ring that Little Bell on YouTube so you don't miss the next round of Tax Talk. That's actually fun. About 63% of you watching right now haven't subscribed, and that is just bad math. Prickly Richard would never approve. While you're at it, leave us a quick rating or an honest review on Apple Podcasts or any of the other apps that accept them. And your review isn't just ego Fuel. It does actually help other people escape those boring money podcasts. And if you know someone whose retirement plan is basically hope the spreadsheet works, share this episode with them.

[B]

Okay, let's. Let's move on. We got, we got. Hey, Joe, Big Al. Been listening to your show for a couple years now after my former boss and mentor referred it to you. To me. To y'. All. And I haven't stopped learning and laughing since. Well, thank you very much. I usually listen to the show on planes, but.

[A]

I hope he flies a lot.

[C]

Wow.

[B]

The show on planes.

[C]

Planes.

[B]

Driving, driving.

[C]

Morning walks.

[B]

Morning walks, Gym routine.

[C]

Got it.

[B]

Really gets the good pump going. All right.

[C]

Yeah, that's what we want to hear.

[B]

Yeah, Just backs out.

[C]

Do more. Do more squats. Come on, you can do it.

[B]

You got this. Thanks for all you do. My wife, Michigan Queen. All right. Age 33. And I love Mississippi boy. Oh, okay.

[C]

From different states.

[B]

How about that? They live in Tennessee right now. Have three kids ages 5 and younger and a dog. A little pedigree mud. That's what eleven impatiently tolerates our day to day ruckus.

[C]

Doesn't have much choice.

[B]

It doesn't. Naturally. We have a minivan, a 2020 Kia Sedona.

[C]

Okay.

[B]

That I hate to admit that I love since it's so stinking practical. Except for when I rotate the tires.

[C]

Do you have a minivan?

[B]

I do not have a minivan, Alan. No.

[C]

I've never seen you drive one.

[B]

No, I don't. And I don't know if I've ever rotated my tires.

[C]

I take that into the station.

[B]

I do.

[C]

They do that.

[B]

I do. And in 2020, how often do you have to rotate your tires? It's only five years old.

[C]

Well, F150 is pretty heavy, so maybe you do it.

[B]

Well, it's not an F150. This thing's a Kia Sedona.

[C]

Oh, yeah. I was looking at F100 coming up. Kia Sedona. Yeah. Well, it's a minivan. They got to be kind of heavy.

[B]

I don't know what's. What does Google say? What does chat. GDT say about tire rotation?

[C]

Yeah, I'm gonna. I'm gonna say. I'm gonna say once a year. That's my.

[B]

No, sir, that's my guess.

[C]

Yeah. Every time you do an oil change, they rotate your tires like cars.

[B]

7,500 miles every 7,500 miles or sooner.

[A]

If you notice uneven wear.

[C]

More than a year. Yeah. Anyway, I've got electric cars, so there's no oil change, so I never think of it.

[B]

Yeah. Okay. I drive a crew cab. 2020 Ford F150.

[C]

That I love. There we go.

[B]

All right. MQ, that's Mississippi Queen.

[C]

Yeah. Okay.

[A]

Michigan Queen. He's the Mississippi boy.

[B]

Yeah. All right. Well, that's interesting. All right. Michigan Queen. Let me get it. Once I showed her we could cram three car seats in the back.

[C]

That's the prerequisite to get the tricky ones.

[B]

All right. My drink of choice is usually a bourbon or bourbon based cocktail, especially a good whiskey sour. My wife is a bigger fan of champagne and dry wines, but she says I make a mean French 75. Whoa.

[C]

Twice in one show.

[A]

Andy, I swear I did not put those in the same show on purpose. No, they. We just have people that really like the gin, champagne, lemon.

[C]

How many shows have we done without hearing about a French 75?

[B]

I've never ever heard. And then we get two in one in my entire.

[C]

We're gonna like. Everyone's gonna start saying I like French.

[B]

I love.

[A]

The old fashions are out. Now the French 75 is in.

[C]

It's a nice, sweet drink. So. Yeah.

[B]

Okay.

[C]

Yeah.

[B]

My financial questions involve a retirement spitball and balancing that against saving for my kids future opportunity appropriately. Sorry. I make $170,000 a year in Michigan Queen is A teacher by profession, but currently stays at home with the hellions whom I love. I have no debt except for my mortgage. Five years into a 30 year $240,000 remaining valued around $460,000, which is likely not my forever home. I have $420,000 in retirement broken into 70% in traditional rollover IRA, 18% Roth and 12%, a mix of Roth and traditional from my employer's 401 plan. I didn't know about RMDs in my younger years, so I didn't do the most ideal investments early on. But I have seen the light and now contribute to Roth retirement accounts now until things change significantly.

[A]

And keep in mind he's 33 and 34, so he's saying he didn't know about them in his earlier years like he's now in his 60s.

[B]

I maxed out to the IRS limits on my 401k in both of our Roth IRAs. We also recently started maxing out our HSA and intend to use that for medical bills later in Life. That has $15,000 in it. We will contribute to some of to some form of retirement when MQ goes back to work, which will give her access to state benefits such as a pension, 401k deferred comp and other retirement vehicles. But we currently unsure as to how much debt can provide in retirement based on our current goals. Honest, I'm sure Social Security will do something, but I don't even know how to value that at this stage. So I've excluded that from my expectations to stay conservative for the kids, we put $8,000 a year total across their 3529 accounts, anticipating that they'll go to a state school and it has $50,000 in it. I may or may not have started a little before they were born. All right, 50K. That's pretty good.

[C]

Yeah.

[B]

All right. He started it before they were born.

[C]

That's what he said.

[B]

This guy is a master planner.

[C]

He is. He's only 33.

[B]

He's like. He probably started the plans before he even met his wife. He's like, honey, I got a 529 plan. What do you think?

[C]

I think we're going to have a kid eventually.

[B]

Let's do it. You want to get married? Guess what the expectation is we'll have.

[C]

You as a beneficiary and then we'll change it.

[B]

Oh boy. Now the kids will all be out underaged. Hold on. The kids will all be out of undergrad school age. What? Undergrad school age. By the time we are 55, they'll.

[C]

Be graduated from college, I think is what he's saying.

[B]

Got it. And we'd like to have the chance to retire then if we can. Not to say we will, but it'd be great to have a want to work rather than to have to work mindset. That's what you have right now.

[C]

Yeah, I, I want. I don't have to work. Yeah, I want.

[B]

You have the want to work.

[C]

That's. That's right now.

[B]

I have the have to work mindset.

[C]

You still have two young kids.

[B]

I know. Our current expenses are $90,000 a year, and I roughly guess we'd like to spend $120,000 in today's dollars per year in retirement. Okay. What are your thoughts on how short we may be? If we only assumed. I continue to max out the 401 in both Roth IRAs, it'd be nice to Roth in how much extra we need to put in retirement to meet our goals before we start focusing more on college savings. You feel we're woefully short and need to turn it up? I don't know, Turn the heat up on retirement. Are we saving too much in college? With that in mind, thanks again for your time and keep up the awesome work. All right. Very standard issues. That young Mississippi boy and Michigan queen.

[C]

Michigan queen. So to start with, they got about 420,000.

[B]

Okay.

[C]

So I just ran a little bit.

[B]

They want to retire at 55.

[C]

Yeah. I ran a little math. So let's call it 21 years. 7% saving. I did 37,000 a year, which is max 401 and 2 IRAs. I don't know what the employer match is, so I didn't include that. But just to see what that looks like. And they get to 3.4 million.

[B]

$3.4 million at age 55.

[C]

Now if they want to spend 120,000 a year at just 3% interest for 21 years, that's 223,223. That would be a 6.6% distribution rate. So that doesn't quite work. But I gotta say, I mean, first of all, I love that you're thinking about this math, but so many things will change over the next 20 years and probably you'll be saving more. Different part. Probably you'll.

[B]

You'll find makes $200,000 roughly at 30 something years old.

[C]

He's doing amazing. I mean, I mean, you were not.

[B]

Even taking into account cost of living adjustments of.

[C]

Maybe I'm not adding My savings and so straight line, it doesn't quite work. But I guess what I'm saying, Joe, is that's it's not the best way to think about this. So the best way to think about this is as you make more money, save more. Try to, try to get up to saving 20% of what you're making, which is about what you're doing. Just keep doing it so you'll saving more and more and you'll probably be in good shape. Can you retire at 55 with your goal of spending 120,000 of today's dollars? Maybe, maybe not. But you'll be close, right?

[B]

I think. Yeah. I mean it. The better rule of thumb of what he should be thinking about is that, you know, save 20% net.

[C]

That's what I think. That's what I think.

[B]

Because then he's already probably close to that with the 529 savings.

[C]

Yeah, yeah, probably.

[B]

He's got $50,000 of 529, he's got three kids and he's putting in what, $8,500 a year into that. Is that when I remember what's he doing?

[C]

He's putting about $8,000 a year.

[B]

Yeah, $8,000 a year.

[C]

That's right.

[B]

So no, I like the 529 plan savings with three kids. Keep that, do the 401. We don't know what the match is. Keep funding the Roth IRAs. And then as your salary goes up, as you get bonuses, just keep that percentage of what you're currently saving now continue to save that amount. And I, I would be very shocked if he would not be able to plug in 55.

[C]

If you're making 170 at 34, chances are you're going to be making 300 or more in 10 years.

[B]

44.

[C]

Yeah. And you just keep saving more.

[B]

I put money in a 529 plan before kids. Before kids.

[C]

So I think, Mississippi boy, you're going to be fine.

[B]

Congratulations. Way to go. You are going to be a.

[C]

You're going to be a star. We're going to give you a star in 21 years.

[B]

Yeah. But yeah, great job. Keep doing what you're doing. Just keep your head down, keep saving away. Don't do anything cute. I think, I mean, I think that's the problem sometimes where if I'm younger, it's like I want to take on more risk and then I start doing things that are a little bit cute and in most cases it doesn't pay off if I keep my head down. If I Just keep plowing away, keep saving into just low cost index funds into my 401k plan, keep going in the Roth IRA, you know, and then just ignore the noise. I think you'll be just fine. But all of a sudden it's like you start seeing these balances, like, hey, wait a minute now I got a million dollars or a million and a half dollars. And then you hear the Joneses are doing something different with their money and they made all this return. Or hey, you know, here's a hot stock and maybe you should. Why are you in this boring, you know, s and P500?

[C]

Why are you in crypto?

[B]

What the hell is it? You know, I made millions in crypto. Maybe he should be in a little bit of crypto. Whatever. He's got a plenty of time. But the point is that just have a strategy that's sound and then stay to it and then just make sure that you keep yourself on track. I think once people kind of veer off, once they get a little bit more cash and wealth, they're like, oh, well, maybe we. Oh, let's buy that apartment building.

[C]

That's right. That's right.

[B]

Oh, we should have more real estate or should we do this or that or whatever.

[C]

Right.

[B]

You really want to retire at 55 and hang out with the kids when they're undergrad post grad? I would just put my head down and grind.

[C]

Yeah. And also I would say this. Chances are being older than 55, you'll get there. And you may want to keep working because you still have a lot of energy, but you don't necessarily have to work full time.

[B]

Yeah, right. Because that's. He wants to be in. I want to work.

[C]

Yeah, I want to work. Not that I have to. Right. And so, so let's say you're $60,000 short in this calculation or whatever it is. So you make 60 grand for a few years until Social Security or whatever. Right. There's lots of opportunities to not have to do the career grind if you don't want to at age 55 when you will have saved as much as you have saved. So I, I would say there's a lot of opportunities here. I agree with you, Joe. Just keep saving more and more as you make more money. 20% is a good goal. Right. Of your, of your income and just keep that up as you get raises, bonuses. Keep saving that 20% and you'll be fine.

[B]

Yeah, I think. Yeah. The, the only. It's just that lifestyle creep will get you too.

[C]

It does, it does. Of course. And, and because you got the money. But that's okay. So what we're saying is of the net, save 20% of that, you can spend the other 80 net.

[B]

Yeah, spend 80.

[C]

You get to spend 80% of your bonus. But make sure you save at least 20, maybe even 25 if you want to accelerate this. Right? So just. But yeah, you can spend more, but a lot of people spend it all. That's what that creep is all about.

[B]

Yes Sir.

[A]

Next week, you Money, you, Wealth podcast episode episode 556 will sound like a continuation of today's 5:55, because it will be Joe and Big Al will help Joe Mama figure out whether his 0% capital gains plan is too good to be true. David and Shannon ask if both spouses need to do Roth conversions. Thomas wonders when to finally spend his Roth stash, and Lizzie and Billy from Texas put their early retirement dreams to the test. So be honest. Do you have your own retirement plan figured out or are you just hoping that the spreadsheet works? If it's the latter, then it's time to schedule a free financial assessment with Joe and Big Al's team of experienced professionals at Pure Financial Advisors. We're coming up on the end of the year. There's no better time, and no matter where you are in the country, you can meet in person at one of our nationwide offices or online via Zoom. They'll help you build a retirement income plan, cut your taxes, and feel confident about your financial future with a trusted partner guiding you every step of the way. Click or tap the free assessment link in the episode description to book yours. There's no obligation and it might just be the smartest step you take towards a stress free retirement. 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.