Roth Conversions, Pension Lump Sums & Annuities: Is Bigger Always Better? - 581

Summary

Podcast Summary: Your Money, Your Wealth Ep. 581

Title: Roth Conversions, Pension Lump Sums & Annuities: Is Bigger Always Better?
Date: May 12, 2026
Hosts: Joe Anderson, CFP® & Big Al Clopine, CPA
Producer: Andi Last

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Episode Overview

Episode 581 dives deep into some of the most pressing retirement planning questions: Should you take a pension lump sum or a lifetime monthly payment? How aggressive should you be with Roth conversions, and when does it make sense to pay conversion taxes from other sources? The episode features detailed “spitball” analysis of listeners’ real-world scenarios, peppered with the show’s signature blend of expertise and humor. Other hot topics include the pros and cons of annuities, MyGAs vs. CDs, and conflicts of interest with financial advisors.

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Key Discussion Points, Insights, and Memorable Quotes

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1. Pension Lump Sum vs. Monthly Payment: June’s Dilemma

[01:09 – 08:23]

Scenario

• June (62, Washington State): $2.5M portfolio, offered $350k lump-sum pension or $2k/mo annuity (with survivor benefit, no COLA), monthly expenses ~$7k, $4,200/mo Social Security, plans to retire at 65.
• Longevity runs in both families (80s & 90s).

Key Insights

• Back-of-the-Envelope Math:
  • Lump sum = ~$350k; Annuitized at $2k/mo ≈ 6.4% of lump ($24k/yr / $350k)
  • If she lives to 80, return from annuity is about 2.5%; to 90, about 5%.
• Longevity & Guarantees Matter:
  • “If they live till 90, it’s a guaranteed five [percent return].” – Joe [05:20]
  • “There’s something good about a guarantee.” – Joe [05:28]
• Balancing Security and Flexibility:
  • Joe: “I would take the monthly annuity in my pension. That would cover most of my living expenses, and I would take on more risk in the portfolio.” [05:58]
  • Al: “I think I would take the lump sum because you’ve got Social Security and plenty of money to do whatever.” [06:11]
• Behavioral Factors:
  • “You wouldn’t freak out when things go bad. You have your discipline. But I think most investors would not be able to weather storms as well as you.” – Joe [06:41]
  • “There’s something about that paycheck coming in every week…it feels good.” – Joe [07:44]
• Split Decision:
  • 3-to-1 in the studio would take the annuity for most people; Al would personally take the lump sum.

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2. How Aggressive Should Homer and Marge Be With Roth Conversions?

[09:23 – 16:25]

Scenario

• Homer (63) & Marge (61, retired, SC): $2.1M investable assets ($1.2M IRA, $400k Roth, $480k brokerage), spend $100k/year, $34k pension (COLA), will get $55k Social Security in 7 years.
• Ongoing Roth conversions of $65k/year.

Key Insights

• Safe Spending:
  • “3.1% distribution rate without Social Security. Looks great.” – Al [13:25]
• Conversion Bracket Targeting:
  • “I think they can do Roth conversions in the 12% bracket...do about $75,000 conversion [annually]...until Social Security.” – Al [14:05]
  • Joe pushes for 22% bracket due to projected RMDs:
    “Given that he has a pension and Social Security that’s going to cover most of his needs in 7 years...he’s got brokerage he’s already living off, and these inherited IRAs...22, that’s my number.” – Joe [15:27]
• Tax Source for Conversions:
  • Can pay taxes from inherited IRA RMDs or other after-tax dollars; functionally same as paying from brokerage.
  • “I don’t think it makes a difference...it’s the same.” – Joe [15:08–15:16]
• Key Strategy Point:
  • “12% bracket, maybe some in the 22...reevaluate as you go.” – Al [16:02]

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3. Roth Conversions When You’re Already Wealthy — “Pompous Assets”

[16:25 – 22:03]

Scenario

• Listener with $12.5M brokerage, $685k cash, $5M IRA, $6.5M real estate (paid off), $1M “other,” spends $450k/yr, $80k fixed income (pension/Social Security), financial advisor discouraging Roth conversions.

Key Insights

• The Tax Bracket Question:
  • “$5 million in the IRA—in what bracket would you do Roth conversions?”
  • “I would go 24, 24, 24, until... I’m 73, then see how much I have.” – Joe [20:03]
  • Al & Joe agree: 24% bracket is “tempting,” but they see the logic of converting it all (“ripping the band-aid off”) if growth will go untaxed for a generation plus 10 years.
• Advisor’s Conflict of Interest:
  • “A lot of times brokers get paid on the amount of your assets...don’t want you to take money out of your brokerage because they get a pay deduction.” – Al [20:30]
  • “Any Roth conversion strategy works against the advisor. 100% of the time.” – Joe [20:44]
• Family Wealth Legacy:
  • “Family’s way better off with ripping the band-aid off and doing a conversion, given this guy’s situation.” – Joe [21:07]
• Flexibility:
  • “Do 24, 24, until 73...if the market crashes, do the rest when the market’s down 30%.” – Joe [20:22]

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4. Annuities & MyGAs — Johnny Mercer’s Question

[23:00 – 35:50]

Scenario

• Johnny Mercer (almost 70, GA): $5M qualified accounts, $85k Roth, $100k brokerage, spends $300k/yr (target $275k in retirement), $115k fixed income (pension + Social Security), considering $1M immediate joint income annuity and “five years of MyGAs” instead of bonds/CDs.

Key Insights

• Immediate Annuity Realities:
  • “You give a million to the insurance company. They guarantee $75,000 a year for life. If you die before a million is paid out, it’s refunded. So, if you live 15 years, you’ve just received your own money back, zero income.” – Joe [28:55]
  • “You have to live a long time for this to kind of make sense financially.” – Al [33:10]
• Return Assumptions:
  • “That 7.5% yield is not an investment return—it’s mostly your principal coming back.” – Al [30:05]
• When to Consider Annuities:
  • “If you want to hedge against longevity—that’s insurance. You’re buying income insurance,” – Joe [27:30]
  • “It’s about your sleep factor…if guaranteed income helps you sleep better at night, it’s okay. You just have to understand what you’re getting into.” – Al [33:10]
• MyGAs vs. CDs:
  • MyGAs: Like CDs but issued by insurance, not FDIC-insured. Higher yield, less liquidity, generally safe with highly rated insurers.
  • Not a true “yield” on a risk-free basis as with CDs; always consider what you give up in terms of liquidity and guarantees.

Key Quote

• “If you live a long time, you're probably going to make money. If you live a short time, well, at least you get your million dollars back. But you know what? You were able to sleep well at night…” – Joe [34:17]
• Joke: “I really wanted to be an accountant, but I didn’t have enough personality. So I became an actuary.” – Al [35:30]

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Noteworthy “Joe & Al” Style Commentary

• Show signature: candid, slightly irreverent back-and-forth, technical when relevant but always bringing it back to behavioral realities and real-world decision making.
• Frequent focus on “sleep factor”: choosing strategies you can stick with, not just mathematically optimal ones.
• Humor, even in serious matters (“actuary” and “pompous asset” jokes).

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Timestamps for Key Segments

| Topic | Time | |-----------------------------------------|-------------| | June’s Pension Lump Sum vs. Annuity | 01:09-08:23 | | Roth Conversions: Homer & Marge | 09:23-16:25 | | Roths & Tax Brackets: Pompous Assets | 16:25-22:03 | | Annuities & MyGAs: Johnny Mercer | 23:00-35:50 |

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Final Thoughts

No “one size fits all” solution exists. Your bracket, legacy goals, liquidity needs, and behavioral tendencies all matter.
Know what you’re buying: Whether it’s an annuity or Roth conversion strategy—read the fine print, run the numbers, and ask who truly benefits.

Best quotes:

• “If guaranteed income helps you sleep better at night, it’s okay. You just have to understand what you’re getting into.” – Al [33:10]
• “It’s about ripping off your partnership with the IRS.” – Joe [21:44]

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For more:
Download the Ultimate Guide to Roth IRAs, get a spitball analysis, or schedule a no-cost financial assessment with Pure Financial Advisors. See episode description for links.

Transcript

[A]

June in Washington State is 62 with 2 1/2 million dollars saved and a $350,000 pension on the table. Should she take the lump sum or the monthly check for life? Spoiler alert. There's a three to one vote in the studio and Big Al is the one today on youn Money, you, wealth podcast number 581. Plus, how aggressive should Homer and Marge get with Roth conversions? And is it smart to pay the conversion tax from an inherited ira rmd? Pompous assets drops his big fat wallet on the YMY table. Next, with millions in tax deferred and taxable accounts, why is his financial advisor fighting him on a Roth conversion? Of course Joe and Big Al have some thoughts on the subject. Finally, Johnny Mercer in Georgia is eyeing an immediate income annuity and a MYGA. The fellows break down. Why that 7.5% rate of return might not be what he thinks. If you like what you hear today on ymyw, do us a favor and tell one friend about us. Word of mouth is how we grow. 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]

Let's go to June.

[C]

Okay.

[B]

Washington State. Hello, Andy, Joe, Big Al. I've been tuning in just since I discovered you guys a couple of years ago. Still listening, June. That's wonderful to hear. Yeah, we get a lot of subscribers and a lot of desubscribers every single day.

[A]

Desubscribers, good word. I like that.

[C]

Do we stay even or.

[B]

It's just. It's a revolving door.

[A]

Two steps forward, one step back. Two steps forward, one step back.

[C]

Yeah. Yeah.

[B]

It's a wonderful merry go round.

[C]

Alan. Yep.

[B]

My husband and I are planning to retire in three years when we both hit 65. Our current portfolio asset mix is above 70 30. Given the time horizon in our age, do you think our portfolio would generate enough gain to cover us through retirement? Retirement? Should we keep the current allocation? We got 70% stocks and 30% bonds.

[C]

Okay.

[B]

We have a pension of $350,000 if

[C]

we take the lump sum.

[B]

If we decide to take the lump sum.

[C]

Yeah.

[B]

Or we'll receive a monthly payment of around $2,000 a month. No cola adjustment, but with a survivor benefit. Historically, longevity runs at both our families living until 80s and 90s. What do you think? Should we take the lump sum and invest it in the market or take the monthly annuity? Total assets equal $2,500,000, $600,000 in cash bond, CD the rest in equities. Monthly expenses is $7,000, not including travel. Monthly Social Security is $4,200. For the both of us, monthly pensions is $2,000. So call it $6,200. Al, current annual gross income is $230. Your spitball. Greatly appreciate it. Again, thank you for what you do, which is so awesome and informative. Big fan of yours, June. Okay. She's in Washington state. Would like to retire. Do you think the portfolio would generate enough return, I guess is what she's saying, or enough gain to cover us through retirement?

[C]

Why don't we start with the pension? Should they take the lump sum or the pension? I just do the quick back of the envelope method. It's 6.4%, the total pension divided by the lump sum. And there's no cola. You're going to do something more fancy.

[B]

Yeah, but they have longevity, right? So your IRR is going to be a lot higher.

[C]

Could be.

[B]

In most cases, if they live to 95 or if they live in their 90s, it'll be better pension. But you never know when you're going to die. Right now, planning would be a lot easier. So what would you do, Al?

[C]

I would probably take the lump sum, which is how I did the calculation. So start with two and a half million plus 350. That's 2 million, 8 50. Three years, 6%, adding. I don't know what they're saving. I just said 30k, have no idea. So they end up with about three and a half million.

[B]

How old are they, Honan?

[C]

They're 62.

[B]

62.

[C]

One retired, 65.

[B]

I'm going to go 30 years.

[C]

Okay, you do that calculation while I go through this math. So you end up with $3,500,000. 4% distribution is probably a good number. You could spend about $140,000 in future dollars. Your expenses of $84,000 will be $92,000 at that point. So there's an excess up Joe, about 48,000 from the assets, meaning that that could be used for travel and that's before Social Security. So yes, I think it looks great. I think there's going to be able to do almost any kind of travel they want to do.

[B]

Okay, here's the internal rate of return on the pension versus the lump sum.

[C]

Okay.

[B]

If they live until 80 at 62 to 80, taking the annuity is going to guarantee them two and a half.

[C]

Got it.

[B]

So if you think you can do better than 2.5%, then you probably take the lump sum. If they live until 90. It's a guaranteed five.

[C]

Five.

[B]

I like that.

[C]

Guaranteed five. We use 6% for portfolio. But there's something good about guarantee, something

[B]

good about a guarantee. And if they like that 70, 30 split, they can take on a little bit more risk and probably get a higher rate of return with the other liquid assets. What have they got? $2,500,000. That's not including the $350,000.

[C]

That's right.

[B]

I don't know. They got $2,000,000 there, plus their Social Security Ford. That's six they want to spend. How much they want to spend?

[C]

$84,000. So, yeah, this works no matter how you look at it.

[B]

I would take the monthly annuity in my pension. That would cover most of my living expenses, and I would take on more risk in the portfolio.

[C]

I like that.

[B]

Then I would look at conversions. I would.

[C]

I think I would take the lump sum because you got a pretty good Social Security. And then I got plenty of money to do whatever.

[B]

But I bet my strategy at the end of the day would. Could give better results for most. And here's why I say that.

[C]

Okay.

[B]

For you, assuming the same market, but you have experience in the market.

[C]

Good point.

[B]

You wouldn't freak out when things go bad. You are able to continue to pull income from the portfolio. You have your discipline, strategy. You'd be fine. I think most investors would not be able to weather storms as well as you. And so if I had a fixed payment that was covering most of my living expenses, I could take on more risk in my portfolio. Right. You have to take less risk in your portfolio because you have to draw income from it.

[C]

Sure.

[B]

Would you agree with that?

[C]

Yeah. Or at least have enough bonds to cover several years. Yeah.

[B]

So my target rate of return would probably be. Or my expected rate of return would be higher than yours on a lower number. But since I'm taking on more risk because I don't need that portfolio at the end of the day to maximize the total wealth of the family. I don't know it.

[C]

Yeah.

[B]

Well, it could come out dead even.

[C]

Yeah, it could be.

[B]

Or else I would edge you out.

[C]

You make valid points. And I. I will say one thing. As I get the older I do kind of like fixed income. Yeah.

[B]

You like that paycheck?

[C]

I like it. Yeah.

[B]

That paycheck coming in every week, it's like, yeah, it feels good. I don't have to spend this or that. It's now like, oh, my gosh, I got to plan every quarter. What am I going to sell? Yeah.

[C]

Right.

[B]

To create the income or put in cash or am I going to do it monthly? Am I going to do it annually?

[C]

It's true. What you said is totally valid. I still think I do the other. All right, me personally, what would you do?

[B]

Aaron, Would you take the annuity or would you take the lump sum? Aaron's taking the annuity. Andy, what are you doing?

[A]

I'm taking the monthly.

[B]

No, she's taking the annuity.

[C]

Oh, I'm number three to one.

[B]

That's why I'm assertive. I'm a certified financial planner here.

[C]

I, I'm, I'm only a CPA showing my strikes. How would I know?

[A]

This week on the youe Money, you, Wealth TV show, Joe and Big Al walk you through their 11 step path to financial freedom. From taking inventory of what you've got to figuring out how to actually sustain your money through retirement. The same kind of math that Big Al just ran for June. That's the kind of stuff they cover. Click the link in the episode description to watch. Oh, and you see that link to the financial blueprint that happens to be the special offer in this week's TV show. It's a free tool you can use right from home. Answer some questions about where you are now and it'll spit out a personalized roadmap of where you actually stand. Three scenarios for what your retirement future could look like and what you need to do next to get there. If you're just a few years from retirement, like June, and wondering whether your numbers really work, this is a good place to start. Click the links in the episode description to watch YMYW TV and to calculate your free financial blueprint.

[B]

We got Homer and Marge. Okay, Simpson. Are they still airing?

[A]

Yeah, it is still active and it has been on since 1989. December of 1989 to present.

[B]

Wow.

[C]

Wow. Okay, so 36 years. More than 30. Yeah.

[A]

Oh my gosh.

[B]

Hi Andy, Joe, Big Al. I've been listening to you all for years. Love the show. I wrote in a few years ago, but things have changed. I would love a little spitball as I'm confused. Drink of choice is a good 15 year old Scotch. Drive a Subaru these days. I'm 63, wife 61, both retired. We bought a house, South Carolina for my wife's daughter, son in law, granddaughter and soon to be player to be named later early next year. Oh, that's kind of cute. South Carolina was just in Charleston.

[C]

You were okay.

[B]

Yeah, Played Little Kiawah Island.

[C]

I've heard good things about it. I'VE never been.

[B]

They'll be living with us forever. Yes, I live here too, along with my two dogs. They pay for gas, electricity, Internet and half the food. Wife and I bought the house and pay everything else. All right. So they bought the house and they pay for everything else.

[C]

Yeah.

[B]

I love stress and being tortured.

[A]

Evidence being facetious, obviously.

[B]

All right. Evidently. All right. I am looking for determination on how much of a Roth conversion to do each year and a review of how I'm doing. I have about $2.1 million in investable assets, zero debt. We spent about $100,000 a year. About 40% of this is discretionary spending, so we could cut back if needed. Summary of accounts. About $1.2 million in IRAs. 400,000 in Roths. 480 in a brokerage account. All accounts average at about 58% stocks, 42% bonds, treasuries, cash. My Roths are a bit more aggressive. 68% stocks, 32% bonds. About 14% are in international and index funds. Do you think this guy is like an engineer? I mean, just round.

[A]

What does Homer do? He works in a nuclear power plant.

[B]

Yeah. More detailed breakdown, if he cares below. No, don't care. I have $34,000 yearly pension with a yearly COLA which will last me for life. My wife and I will get a combined Social Security of about $55,000 per year at 77 years from now. Detail breakdown. Two inherited IRAs, one about 180, which we take a yearly RMD under the old stretch rules. One with $30,000 under the new 10 year rule 401 of $980,000. Deferred 400,000 Roth 401, $320,000 in a brokerage. Second brokerage account is $157,000 and mostly short term Treasuries used for monthly spending. About $50,000 in cash accounts in an emergency fund. I have done about $65,000 in a Roth IRA conversions each of the past two years. I pay the taxes from the inherited Iraq RMD, plus additional draw as necessary. My question is this. How much of a Roth conversion should I do each year if I want to do it for the next five to seven years. Does paying out of the RMD make sense? I get about $14,000 yearly in interest and dividends from my brokerage account, $34,000 from my pension. I take $50,000 each year from cash and Treasuries. The retirement finance stuff is more work than when I was working. Looking forward to your expert opinion on the mess above. Thanks in advance. See?

[C]

Okay.

[B]

It is a little bit more challenging once you retire.

[C]

It is. I would agree with that. You don't really have to think about it when you're working.

[B]

No, you just plug away. Just keep paving.

[C]

Keep paving. That's all you got to do.

[B]

Take on a little risk, see what happens. Get lucky, tone down the risk, and retire.

[C]

So, Joe, they got about $2,100,000.

[B]

Yeah.

[C]

Very good. That's great. Spending $100,000 pension, $34,000 shortfall, $66,000 compared to $2,100,000. 3.1% distribution rate without Social Security. Looks great. So. Yeah, so far. Check.

[B]

The Social Security is going to pay them $5,500 or $55,000 a year, plus 34,000.

[C]

Mm.

[B]

So 85,000. They want to spend 110. So once Social Security happens in seven years. All right, so they'll need about 20, 30,000 from the portfolio.

[C]

Yeah.

[B]

The RMD will be more than what they'll need to spend.

[C]

Yeah. Is I think they can do Roth conversions in the 12% bracket. And here's why I say that. Because interest and dividends are 14,000, pension's 35. The inherited IRA, about $8,000, give or take $57,000, minus itemized deductions. Joe, that would leave him about $25,000 in taxable income. Do about $75,000 conversion. Do that every year. Tell Social Security. And then you chipped away at this pretty well.

[B]

What do you think about paying the tax out of the rmd?

[C]

Well, you can't pay the tax out of the rmd, but, I mean.

[B]

Well, he's taking the rmd.

[C]

Oh, I see. I see what you're saying.

[B]

Yeah. Paying the tax with the RMD.

[C]

Yeah. But that's not for 10 years. I think you reevaluate in 10 years and see.

[B]

No, he's got two inherited IRAs. Oh, he's taking the RMD from the inherited. Pay the tax.

[C]

Okay.

[B]

That was one of his questions.

[C]

Okay, gotcha. Yes. That's just fine. In fact, that would be a main source, in addition to the taxable. Yep, for sure.

[B]

Yeah. I don't think it makes a difference, because let's say if he takes the RMD and puts it into a brokerage account, then takes the brokerage account to pay the tax, it's the same.

[C]

Same. Yeah. Or put into savings or checking. Pay it that way. Whatever. It's the same thing. That's what I probably. I probably do. 12% bracket. I think that makes Sense. In this case, probably.

[B]

How much? I don't know, 12 or $22,000. He's got $1,200,000 in retirement accounts. He is 61, 63. You got 10 years. He's got cash that he's living off of. That $1,200,000 grows to $2,500,000 by his RMD age. Four times two is $80,000. Plus his pension, plus his Social Security is in the 22.

[C]

Yeah, could be.

[B]

So it's going to be close. I think I might go to the 22.

[C]

Maybe to start.

[B]

Maybe to start. I don't know if I go to the top of the 22, but I think I would want to get more out of the retirement accounts, given that he has a pension and Social Security that's going to cover most of his needs in seven years. He's got brokerage account that he's already live off of, and he's got these inherited IRAs that he can live off of, too. 22. That's my number.

[C]

22. I go 12, 22 occasionally.

[B]

All right, let's ramp it up with pompous assets.

[A]

Joe probably thinks it's going to be about the same either way.

[B]

We got another Roth conversion question. Imagine that. Should we convert all sum or none of our retirement accounts to a Roth? I don't care.

[A]

Wow, spicy today. My goodness.

[B]

Wow. I'm kidding.

[C]

Maybe we should just drop this question up.

[B]

This is a pompous asset.

[A]

Should we keep doing this show? I mean, Joe doesn't care.

[B]

It should seem the amount is going to be taxed at higher rates regardless if it's us or our two kids now or in the future. If we don't plan to use any. Right. Doesn't plan to use any. Should he do conversions? I figure it's best to just eat the tax now and let it grow for as long as we live plus 10 years after and not have to worry about RMDs or taxes on that amount. Financial Advisor is fighting against us using any type of the portfolio to pay for taxes. We have enough capital losses to offset any capital gains upon liquidation to pay the taxes on the conversion. All right. Ready for this, Big Al?

[C]

I'm ready.

[B]

He's got $12.5 million in a brokerage account.

[C]

That's a good start.

[A]

He waited until he got his words out before he gave you the big fat number.

[B]

He is a pompous asset. 12 and a half million. Good for you. That's awesome. $685,000 in cash. $5 million in the old IRA, $6.5 million in paid off real estate.

[C]

Okay, you think they can.

[A]

And a million dollars in other. What's the other?

[B]

A million bucks? I don't know. Just some odds and ends. No debt, retirement, fixed income, pension, Social Security, $80,000. Living expenses, $450,000.

[C]

$450,000.

[B]

$450000 in Arkansas, that's living high. What do you think, Sam Walton style?

[A]

Maybe it is Sam Walton.

[B]

It could be 65 and 67. Okay. Yeah. $80,000 of pension, Social Security. You're in the 12% tax bracket. I would convert. I would not rip it all off.

[C]

No, of course not.

[B]

What. What bracket?

[C]

I would go 24 or 32. I'm not. I don't know. I mean, need a little more. I would do 24 in a second. But would you go 32?

[B]

I would go 24 as well. Yeah, I would go 24 as well. Because you. You convert all 5 million and you can stay at 100% equities. I see his point, though. It's like, okay, well, here I convert $5 million. I paid $2 million in taxes, I got the capital losses, so now there's 12.5 million, goes to 10 million, and I got $5 million in a Roth that I can just lever. And that 5 million grows to 10 million, grows to 15 million. Right. I never have to touch that money. I die. My spouse never has to touch that money. She dies, the kids get it. They don't have to touch that money for 10 years. That is called compounding tax free. Like a.

[C]

Well, the fact that there's so much brokerage account, it. It would be kind of tempting, wouldn't it?

[B]

I know, looking at this, I might do it.

[C]

I might, too. I mean, I think that. I think the right answer is 24%,

[B]

but I think this is what I would do. I would go 24, 24, 24, until, like, I 73. When I turn 73, I'll see how much money that I have and then compute the whole thing right before my RMD.

[C]

Or you do 24, 24, 24, and the market crashes. You do the rest of it, and

[B]

do the rest when the market's down 30%.

[C]

Yeah, right. Maybe that's what I would do.

[B]

And why do you think his broker is fighting him on not taking any money out of the brokerage account to pay the tax?

[C]

Yeah, that seems kind of obvious. By the way, a lot of times brokers get paid on the amount of your assets, so they don't necessarily want you to take money out of your brokerage account because they get a pay deduction. Pay deduction.

[B]

In any Roth conversion strategy, the advisor is going to.

[C]

Works against the advisor.

[B]

It works against the advisor.

[C]

Right.

[B]

100% of the time.

[C]

That's right. Because you're giving away assets.

[B]

Right. Because you have to give those assets away to pay the tax.

[C]

Right.

[B]

So their asset base goes down. So they're going to get a pay cut. I'm not saying that advisors are of course worried about that. Maybe some.

[C]

Maybe some.

[B]

But it does work against them. So he's fighting you against it. I would run the numbers. And I bet the family's way better off with ripping the band aid off and doing a conversion, given this guy's situation.

[C]

Yeah, yeah, it's tempting.

[B]

It is.

[C]

I think that's what I do, though. I think you say at 24 and then market collapses and you do the rest of it.

[B]

He's got time, he's got 10 years to get the money out there. He doesn't have to do it all at once. I like doing it all at once.

[C]

In a way.

[B]

Yeah, in a way. Just because it's like now on the Roth and so all future growth of all Those dollars are 100% his in his wife's in the families.

[C]

It's.

[B]

He takes his partnership off the table of the irs.

[C]

True.

[B]

They're no longer involved in pompous assets. They're. They're no longer involved in the pompous assets.

[C]

Yeah, that's right. That was hard to say.

[B]

No. Very cool.

[A]

Notice how pompous assets and Homer and Marge two pretty different answers to their Roth conversion questions. That's because there's no one size fits all rule for how aggressively to convert. It depends on your tax bracket now, your tax bracket later, what's sitting in your brokerage account, what you actually want to do with your money in the future. And those are just the obvious variables. You may have even more. Get smarter on all of that before you consider your next conversion. Download the ultimate guide to Roth iras. Learn about the different conversion strategies. The backdoor Roth for those of you who make too much money to contribute directly to a Roth. The Differences between Roth IRAs and Roth 401ks, how tax diversification helps your portfolio, the rules you have to know before you pull the trigger, and much more. It's free. The link is in the episode description and it might just save you from making a multi million dollar mistake. And when you request it, you'll have the option to tell us how you Heard about us and I'd appreciate it if you chose podcast.

[B]

Dear Andy. Joe, Now, Johnny Mercer here again from the great state of Georgia. Joe, please sit down before you read this next line.

[C]

Are you sitting? Yeah. You're sitting.

[B]

Okay. Yes, I am. I'm losing my voice though. I have a couple of questions about annuities.

[C]

Oh, boy.

[B]

Let's go. First, the details. I'm almost 70 and still working. My lovely and intelligent wife is almost 67. She loves California Pino in drives a 2022 Lexus NXI. I'm a lager beer guy and drive a 2023 Toyota RAV4. We have a spoiled King Charles Cavalier who runs the house. What's a King Charles Cavalier?

[C]

It's a dog.

[B]

I understand, but what does it look like?

[C]

Maybe Andy will call it up. We have a Cavapoo, which is half poodle, half King Charles Cavalier. So I can tell you what half of our dog looks like.

[B]

Got it. All right, here you go.

[A]

It's one of these. They're cute.

[B]

Oh, okay. King Charles.

[C]

Got it.

[B]

I plan to retire in December 2026. We spend $300,000 a year after taxes, but I expect that in retirement we'll spend around 275. That equates to roughly 335,000 married, finally jointly before taxes in the great state of Georgia. Starting this year, we will receive $80,000 from Social Security. When I retire, I'll get a government pension of another $35,000 a year. We have roughly $5 million in various qualified accounts which I will consolidate once I retire. $85,000 in a Roth IRA and about $100,000 in a brokerage account. I'm doing some relatively small conversions to the Roth have much in after tax dollars to pay the tax, so I'm not making them a priority. My questions relate to income annuities in mygaas Multi year guaranteed annuity.

[A]

Myga.

[B]

Myga. I am leaning toward both, but I wonder if I'm being misled. First of all, I'm thinking about buying an income annuity that will start when I retire. I will put a million dollars to cover both of us for life with a refund at death. If we both die before the million is paid out, it looks like we can get around $75,000 a year. That wouldn't mean we would be right around that magical 4% withdrawal rate from qualified accounts to make up the difference. There is no cola for this, so I know that the relative importance of the annuity would decrease over time. But it seems like to be pretty reasonable deal anyway. All right, the second question I have is about multi year guaranteed annuities. As far as I can tell they seem to be equivalent to a CD but are offered through insurance companies and have less liquidity but offer a higher yield. I know they are not FDIC insured, but as far as I can tell the default rate is almost zero, especially if you buy from a highly rated insurance company. The lack of liquidity is not a big issue for us since we do have backup emergency funds available elsewhere. All right, I'm thinking about having about five years worth of MyGas rather than bonds and CDs to pay for the RMDs and living expenses, et cetera. I'd love to hear your spitball on this before making any comments. Thanks again, Johnny Mercer or Commitments.

[C]

So let me just start with this. Here's my thoughts right off the bat. So first of all, some of these annuities you can get low cost annuities nowadays, Joe, that when we talk more about this 10, 15 years ago is harder to get low cost annuities. So in my view some of them are better vehicles than they used to be, but they are not the same as a cd. What happens, yeah, you get a higher return rate, but that's because it's your principal coming back to you. And when you die, that's it. Now there's a refund option if you don't get the million dollars. I understand that, but a CD is, yeah, it's a lower return rate but you still have the principal to use.

[B]

He's talking about the yield though on the multi year annuity.

[C]

No, I know, which is that he's doing here.

[B]

There's a deferred annuity, then there is a immediate annuity.

[C]

Right, right.

[B]

So I guess my two cents is this. If you want to hedge against longevity, then go for it because it's insurance. You're buying insurance. So it's income insurance you will receive. It's going to be based on mortality rates. How long that you live is going to determine what your internal rate of return is. So you're going to give the insurance company a million dollars and in response to that million dollars they're going to guarantee you $75,000 a year for the rest of your life. If you don't get the million dollars back, they're going to sum you up to get you the million dollar principal back. So he's got like a little bit of a death benefit here to get the million dollars back. So you're giving million dollars to the insurance company. They're taking your money and they're investing in it in their portfolio. And they're probably looking to get a certain target rate of return on that. That is going to be less than what they're giving you because they have a big pool of money. They're going to be able to guarantee you at least at $75,000 a year at age 70. So you want to give them a million dollars to give you $75,000 a year back. And if you die, you get your million dollars. So you made zero return on the money. To be clear, you made zero.

[C]

Right.

[B]

You gave them a million, you die 15 years later, you're going to get the million back over that 15 year time period. You made zero income or interest on those dollars.

[C]

You agree with that 100%. 75,000 times 15 years is a million.

[B]

So you have to live longer than that. If you die prior to that, you make no money. And that's fine. You're just guaranteeing that you get your $75,000 per year. No matter what happens to the market, the market goes down 30%. All right? You get your 75,000, the market goes up 30%, you get 75,000. It's not a 4% distribution rate because you're taking principal along with it, is what you were kind of referring to, because you're looking at the principal plus income is going to equal that 75,000. And you don't make a dime on the product until you outlive that 15 years. And then everything after that is going to be your return. So if you're fine guaranteeing income and don't worry about the return, then go for it. But if you want to make a little bit of money on your money, then it's like, all right, well, is there other options?

[C]

Yeah, I think that's well said. I mean, but a lot of people still get confused about that. They see 7 1/2% rate of return. That's phenomenal. CDs pay 2 or 3 whatever they're paying right now. But the main difference is that 7.5% is also your principal coming back to you. So that at the end of the term, when you pass away, there's nothing left. Unless in this case, you don't get your million back. Which if I agree with you, Joe, if you get your million back for Maybe you got 75,000 for 10 years and then you get another chunk of 250 or whatever it is. Yeah. Then you've made nothing for 10 years.

[B]

He's going to start it at age 70. He's got to be 85. That's life expectancy. 75,000 plus 15 is.

[C]

Then he's just getting his money back at that point.

[B]

He's just getting his money back. They're just slowly giving your money back over that 15 year time period. So he's got to live until 90 to make a couple of percent on the money, Right?

[C]

Right.

[B]

So that's immediate annuity. If you want to have a guaranteed income stream, it's coming from your qualified dollars. So you're going to pay ordinary income tax on it. You have less flexibility. You're putting yourself into what tax bracket? You have no flexibility in the withdrawals. So he's got $80,000 in Social Security, plus another pension of 35,000. So he wants to live off of $300,000?

[C]

Yeah, he says $275,000.

[B]

Okay, $275,000. So. And that's going to give him another $75,000?

[C]

Yeah. Well, right now his shortfall. So he wants $275,000. Fixed income is $115,000. His shortfall is $160,000. Divide that into his assets and it's a 3.3% distribution rate. So he's looking good no matter what he does. So I think he's probably just looking for some guarantees, but he may not fully understand the whole concept of the reason you're getting $75,000 is they're paying you your money back. So that's probably the thing you gotta say. Now, if you live to $100,000, it's probably a good deal, right? Yeah, but I think you.

[B]

I think it's longevity insurance is what you're buying.

[C]

Yeah, but I think you still have control of your distributions. Right, because it's inside a retirement account,

[B]

because he's buying an immediate annuity. So you're taking a lump sum and you're exchanging the lump sum for $75,000 a year.

[C]

I know, but inside a retirement account, so you don't have to take it out. Right. Or am I misunderstanding?

[B]

Oh, you mean. Well, the 75,000. Why wouldn't you take it out? What do you mean?

[C]

Well, you could, but if you didn't need it, you could leave the 75,000 in the IRA, right? So you wouldn't.

[B]

All right, so you give the insurance company a million dollars, your IRA is now worth zero. The first year it would be worth 75,000. The second year it would be worth 100. You wouldn't do that.

[A]

Why not? Just invest the money.

[C]

Well, that's what Joe and I would do, but we have. And I also think it depends upon. So we'll go back to your sleep factor, Joe. If it helps you to sleep better at night, it's okay. You just have to understand what you're getting into. But I'll go back to my first comment was you do have to look at the rate of return. You have to live a long time for this to kind of make sense financially. Right. But at the same time, because there are lower cost annuities, lower cost in terms of the upfront fees.

[B]

But there's no fees in this. Right. Immediate annuity has no fees.

[C]

I know, but.

[B]

Right. You're exchanging money for. It's a spread. That's how the insurance companies make their money. It's just kind of. It's similar to a cd. It's a spread. They're taking your money and investing in it, giving you a lower expected rate of return over that time period. So if I got a variable annuity, a variable annuity has a bunch of fees in it. If I have like a guaranteed income benefit rider within a variable annuity, then those have fees that I don't necessarily have to take withdrawals. But he's talking about immediate annuity. I'm just going to exchange it for an income stream. That's longevity insurance. You're buying insurance to give you the $75,000 every year guaranteed, no matter what happens within the overall market. If you live a long time, you're probably going to make money. If you live a short time, well, at least you get your million dollars back. You didn't make any money there. But you know what? You were able to sleep well at night because you were able to get that guaranteed income. It's like fire insurance, Right. You don't want your house to burn out, but you're gladly to pay that insurance. And if it does happen to burn down, then there you go, you got coverage or car insurance or anything like that. You think of this as an insurance policy. I'm insuring income for the rest of my life. So no matter what happens to the market, everything goes to hell in a handbasket. It's fine. I'm gonna get that. As long as the insurance company's gonna be solvent. But you know what I watched last night? It's too big to fail. And when aig kind of the bed, right there's. Then the government has to step in and kind of bail you out. But I'm not saying that I think there's a lot of reserves and there's a lot more regulation and things like that within the insurance company. And these guys are smart, right? They know what they're doing. These actuaries are like the smartest people in the business, and it's really smart money. So anyway, I digress.

[C]

I've got it. I've got an actuary joke for you. And this is actually that I used to know. And he said, he said, I really wanted to be an accountant, but I didn't have enough personality. So it became an actuary.

[B]

Wow. I think we end. I think we end on that. All right, well, that's it for us. We'll see you guys next time. Shows called you'd Money, you, Wealth Next

[A]

week on YMYW, can elite performers Ron and Harry Semi retire at 43 and move to Portugal? Plus mike2me17 on Apple Podcasts and Rand and Elaine come out swinging at the fellas over YMYW's absurd early retirement safe withdrawal rates. Don't miss it. Your money, you, wealth is your podcast, and y' all get pretty Vocal on our YouTube comments, especially if you think the fellas missed something. I love it. Already got a spitball. Go check out what people had to say about it on YouTube. Your financial situation is different from anyone else's, and you need a real retirement plan that fits your needs and goals, not a bunch of generic rules of thumb pulled off the Internet. When you book a free financial assessment with an experienced professional on Joe and Big Al's team at Pure Financial Advisors, they'll walk through your full picture, your accounts, your income, your tax situation, and your goals, and you'll come away with a real strategy you can actually use. There's no cost and no obligation and no pressure. Just a conversation about your money and your future. You can meet in one of our offices around the country or via Zoom from anywhere, even Portugal. Click the link in the episode description to schedule your free financial assessment. 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 on any information contained in the podcast in the process of making a full and informed investment decision.