Should You Convert to Roth Before or After You Retire? - 553

Summary

Podcast Summary: Your Money, Your Wealth – Episode 553

"Should You Convert to Roth Before or After You Retire?"
Release Date: October 28, 2025
Hosts: Joe Anderson, CFP® & Alan “Big Al” Clopine, CPA

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Episode Overview

In this episode, Joe and Big Al dig into several listeners’ questions about some of the trickiest retirement and tax-planning issues—and they do it, as always, with their trademark banter and humor. The main theme is the perennial Roth conversion timing dilemma: should you do it pre- or post-retirement? Along the way, they cover high-fee 457 plans, decumulation strategies, Social Security timing, and even “borrowing from yourself” with 401(k) loans. The episode is a wide-ranging, practical, and entertaining look at modern retirement planning.

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Key Questions and Listener Scenarios

1. Should You Max Out a High-Fee 457 Plan?
   [01:01–06:39]

   • Listener: James from Texas, local government worker, household income $135,000.
   • Scenario: Considers maxing out a 457(b) plan with high expense ratios vs. investing in a low-cost taxable brokerage.
   • Discussion:
     • Big Al: “I would max it out if there was a Roth option... If I can't, then I would take it outside. I'd invest in low-cost funds in a brokerage account.” [04:44]
     • Joe: “I would go 100% into the 457 account. Max it out, Roth or not... Out of sight, out of mind. You check the box, save as much as you can.” [05:08]
     • Key Points:
       • Tax-sheltered savings beat taxable for most, even with high fees.
       • Roth options in 457s can tip the decision even more towards maxing out.
       • High-expense ratios matter, but not as much as participation/discipline for long-term wealth.
       • Brokerage accounts are more flexible but also more tempting to spend.
     • Memorable Quote:
       “People who have a 401k, 403b, 457 or whatever versus people that don’t at retirement—who has more money? It’s out of sight, out of mind. They save and they don’t look at it, they don’t touch it.” — Joe [06:12]

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2. Roth Conversions and Retirement Decumulation for “Lois & Clark” (Full-Time Travelers)
   [06:39–18:45]

   • Listeners: Lois (65) & Clark (78), Florida residents living full-time in a motorhome; $3.8M net worth, thinking of buying a $500K house, minimal real estate, large IRAs.
   • Questions:
     1. How much should Lois convert to Roth before age 73 (RMD age)?
     2. Should the tax payment for conversions come from the brokerage account?
     3. Should they get more conservative with investments after a 12% average return?
   • Discussion:
     • On Asset Allocation:
       “20% [fixed income] is like a million dollars on $3.8 million, and they only need to be pulling $60,000 for the next five years. So I’m okay with 80/20.” — Joe [13:55]
     • On Roth Conversion Tactics:
       • Use mortgage strategically: Consider taking a loan on the new house and methodically using IRA withdrawals and Roth conversions over several years to pay both the tax and the mortgage, locking in lower tax rates before RMDs force higher withdrawals.
       • “The RMD is going to be a pretty high number, so you want to get converted certainly well past the 12% [tax] bracket, because by the time the RMDs kick in, you’re going to be in the 22 or 24% bracket.” — Big Al [16:49]
       • Tax payments for conversions should come from the brokerage to maximize Roth balance.
     • Estate Planning:
       • Consider projected heirs’ future tax brackets for Roth conversion aggressiveness.
       • 10-year rule for inherited IRAs: Discussed implications.
     • Memorable Exchange:
       “Honey, we got $96,000—that’s it. No, we can’t go $1 over that 12% tax bracket.” — Joe [11:16], lampooning clients who anchor spending decisions to tax brackets.
     • Conclusion:
       • Keep some flexibility (loan for house instead of using up all brokerage assets).
       • Be aggressive but strategic in Roth conversions toward RMD/estate goals.

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3. Planning Roth Conversions After Early Retirement (“Ray Charles” in Chicago)
   [20:17–32:26]

   • Listener: “Ray Charles,” 52, $3.1M portfolio, high income, wants to quit corporate job at 55 for a lower-stress gig until 60, then fully retire. Wife earns $110K, retirement expenses projected at $130K/year.
   • Questions & Points:
     1. Is their plan financially feasible?
     2. If Ray stops saving at 55, will assets last for $130K/year from age 60 onward?
     3. Best Social Security claiming strategy?
     4. Should he use the “Rule of 55” to access 401(k) at 55?
     5. Should he pay off a 2.1% mortgage early?
   • Discussion:
     • Calculations show a sustainable plan (~4% withdrawal rate), especially if Social Security is timed strategically (defer highest benefit as long as possible).
     • Both hosts recommend deferring Ray's larger Social Security benefit to age 70.
     • Rule of 55 only needed if his new part-time work won't cover expenses—which it should, per his plan.
     • “Should I consider paying off the mortgage in the next few years?”
       “No. 2.1%. Keep it. You got plenty of assets. I'd want to continue to have the assets compounding for me.” — Joe [29:56]
     • On Early 401(k) Withdrawals:
       “If you have to [use the Rule of 55], fine. But if you don’t, let it grow.” — Big Al [28:40]
     • Humor:
       “What the hell is mountaineering?” — Joe [30:37], about Ray’s planned mountain adventures.
       “There is actually a Chicago mountaineering club!” — Andi [31:04]
     • Big Picture: The plan is sound if Ray keeps some earned income between 55-60; Social Security deferral is key.

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4. Should You Take Another 401(k) Loan for Home Improvements? (“Gun & Rose” in Louisiana)
   [33:28–38:27]

   • Listeners: “Gun and Rose,” $436K in wife’s 403(b), $262K in TSP, $292K in Roth, mortgage $400K (after cash-out for property repair), wife’s job is stable.
   • Scenario: Considering another $50K loan from 403(b) for a home project and possibly to pay off a car loan.
   • Discussion:
     • Both hosts dislike 401(k)/403(b) loans unless absolutely necessary.
     • Problems:
       • Repayment must be made with [already] taxed dollars.
       • If job is lost, unpaid loan becomes fully taxable.
       • Opportunity cost: Missing market growth.
     • Alternatives:
       “I think if there’s no other way to do this, then maybe I’d get a home equity loan—and maybe I’d rather do that.” — Big Al [38:18]
     • Memorable Quote:
       “No, because I did one before... it sucks!” — Joe [36:17]
     • Conclusion:
       Avoid using retirement plan loans for optional home improvements; consider home equity as a better alternative.

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Other Notable Quotes & Memorable Moments

• On Cruises and Financial Discipline:
  “You put stuff in brokerage accounts and guess what? It gets spent. Big Al’s going to ask you to go on his cruise where there’s no drink limits, no off limits, and he’s not going to buy you the drink package.” — Joe [06:21]
• On Financial Planning Discipline:
  “If you got a 401k plan at work, max it out. Save as much as you can, don’t touch it, you’ll be amazed at the power of compound growth.” — Paraphrasing Joe & Al’s general advice [Throughout Q&A segments]
• Joe on Mountaineering:
  “I’d much rather just keep grinding the corporate life than do that!” [32:03]
• Show’s Tone:
  Irreverent, candid, and full of gentle teasing—blending genuine expertise with humor.

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Segment Timestamps (Major Content Sections)

• [01:01] — James: 457 plan vs. brokerage, expense ratios, contribution strategy
• [06:39] — Lois & Clark: Roth conversions while traveling, buying a house, asset allocation, estate goals
• [20:17] — Ray Charles: Early retirement math, Social Security, asset drawdown, mortgage decision
• [33:28] — Gun & Rose: 401(k) loans for home improvement, financial trade-offs

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Summary Takeaways

• Roth conversions are generally more favorable in lower-income, pre-RMD years. Be aggressive if future tax rates or RMDs will be high, but plan how to pay the conversion tax—ideally from taxable/brokerage assets.
• Weigh high-plan fees against the value of automatic, tax-advantaged savings behavior.
• Timing Social Security is nuanced; deferral of the higher-earner’s benefit often maximizes household longevity protection.
• Borrowing from 401(k)/403(b) should be a last resort due to tax/repayment complications and lost compounding.
• Deciding on asset allocation in retirement depends on your risk tolerance and goals for heirs—there’s no one-size-fits-all.
• Always customize your strategy for your life goals, family tax situation, and timeline.

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Further Learning & Resources (as referenced)

• The Ultimate Guide to Roth IRAs — Free resource for Roth account strategies, backdoor Roths, and withdrawal rules.
• [Retirement Lifestyles Guide](Link in episode description) — For planning around longevity, health, lifestyle, and withdrawal rates.

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Note: For detailed spitball analysis or advice, listeners are encouraged to submit questions at YourMoneyYourWealth.com or schedule a meeting with Pure Financial Advisors.

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Transcript

[Andi Last]

Joe and Big Al tackle one of the trickiest timing questions in retirement planning today on youn Money, you, wealth podcast number 553. When should you convert to Roth while you're still earning or after retirement? But first, James from Texas wonders if it's worth maxing out his high fee 457 plan or if he's better off investing in a low cost brokerage account. Full time travelers Lois and Clark want to know how much they should keep converting to Roth now that they're on Medicare. Ray Charles in Chicago is burnt out on corporate life and plans to quit at 55. Is that the perfect time for him to start Roth conversions? And finally, Gun and Rose from Louisiana ask if borrowing again from their 401k is a smart move. Our email inbox is so full, it's making the servers groan with all of your questions. But the fellers are doing their best to cruise through them. I'm executive producer Andi Last, and here are the hosts of youf Money, you, Wealth, Joe Anderson, cfp, and Big Al Clopine, cpa.

[Joe Anderson]

All right, let's go to Texas. We got James. He writes in, he's like, hey, y'.

[Big Al Clopine]

All.

[Joe Anderson]

Love the show. I work for a local government and have access to a 457B account. I'm currently contributing 6% of my pay. I make about $135,000 a year. But I'm considering maxing out this account. Now, my holdup is that the funds I have to choose from have pretty high expense ratios. Is it worth getting the tax benefit to max this account, or should I invest the spare money in a taxable brokerage with low cost and potentially zero expense ratios? My wife and I live in Texas with two beautiful girls. We don't drink much, but when we go on a cruise, I would say nothing is off limits.

[Big Al Clopine]

Wow.

[Joe Anderson]

Wow, look at James.

[Big Al Clopine]

You've been on a cruise lately.

[Joe Anderson]

I have never been on a cruise.

[Big Al Clopine]

Never? Never.

[Joe Anderson]

No.

[Big Al Clopine]

Oh, okay.

[Andi Last]

He just lives with nothing off limits.

[Joe Anderson]

I would love to go on a cruise with James.

[Big Al Clopine]

Yeah. Where nothing's off limits.

[Joe Anderson]

Nothing's off limits. Hey, y', all, let's. Let's go to the bar.

[Big Al Clopine]

Let's do it.

[Joe Anderson]

Wow.

[Big Al Clopine]

Yeah. You know my no drinking rule.

[Joe Anderson]

Yeah. Not on a cruise ship. Oh, my God. Just. People are just getting plastered.

[Big Al Clopine]

Right? Right.

[Joe Anderson]

Stuck on a boat.

[Big Al Clopine]

Yep, yep, yep.

[Joe Anderson]

No, I'm not a big fan of the. The cruise ships. Maybe I would be, but I don't. That's not.

[Big Al Clopine]

We took our. We took our kids on a cruise. Ship when they were probably 8 and 10.

[Joe Anderson]

Okay.

[Big Al Clopine]

And it was okay. We didn't do a cruise until they were adults, and we just did it ourselves.

[Joe Anderson]

Andy, you cruiser.

[Andi Last]

I've never cruised. I don't think I would enjoy it. I don't think I would have a good time. But I probably have a problem with being on the water for that long.

[Big Al Clopine]

Okay.

[Joe Anderson]

What about you, Aaron? You're a big cruiser.

[Big Al Clopine]

Oh, five times. Yeah.

[Joe Anderson]

Five cruises, you're like. Nothing's off limits when I'm on that cruise ship.

[Big Al Clopine]

Oh.

[Andi Last]

Probably not just with alcohol.

[Big Al Clopine]

Anyway. I actually love cruise stuff like Vegas.

[Joe Anderson]

So, like, you get free drinks and.

[Big Al Clopine]

Well.

[Joe Anderson]

Or do you have to buy that?

[Big Al Clopine]

You have to buy.

[Andi Last]

Depends on what you pay for.

[Big Al Clopine]

Now, for you, it'd be a good deal for me. For me, I lose. I'd lose money on it.

[Joe Anderson]

So you get a wrist brand, and so then it's unlimited cocktails.

[Big Al Clopine]

Yeah.

[Joe Anderson]

Oh, wow.

[Big Al Clopine]

You got to pay for it.

[Joe Anderson]

How much is the. Is the package?

[Big Al Clopine]

I don't know. It never pencils out for me, But I think it would be a deal for you.

[Joe Anderson]

You actually pencil it out?

[Big Al Clopine]

Well, yeah, I'm an accountant.

[Joe Anderson]

Interesting.

[Big Al Clopine]

Okay, so there you go. I would give you one tip, and that is when you go on a smaller cruise ship, like windstar has like, 200, 300 people. That's a fun way to do it. When you go on a four or five thousand person. That was what we did.

[Joe Anderson]

It's a full city.

[Big Al Clopine]

We're not doing that again. It took, like, an hour to get off the boat. I mean, it's one of those things.

[Joe Anderson]

Got it.

[Big Al Clopine]

Yeah.

[Joe Anderson]

Stay tuned. I don't think anytime soon. All right, so, James, so what is. What should he do? He's thinking about, you know, maxing out his 403 or 457 plan. Right. He's afraid of those expense ratios. Yeah.

[Big Al Clopine]

Let's see. He's contributing 6% of his pay, so that's, oh, maybe around 8 or 9,000.

[Joe Anderson]

But he wants to exit out.

[Big Al Clopine]

Yeah, it wants to max it out, which would be a lot higher. Well, first of all, that would. If he maxes it out, it would put him into the 15 or 12% bracket. So if there's a Roth option, that.

[Joe Anderson]

Would be a question is should he max it out or not max it out and put it into a brokerage account because of the high fees.

[Big Al Clopine]

Yeah. So I, I. Well, my answer is I would max it out if there was a Roth option. That's what I was going to get to.

[Joe Anderson]

Oh, okay. But you wouldn't max it out. If there wasn't a Roth, you wouldn't put it in the retirement account. You would take those extra dollars and put it into a brokera.

[Big Al Clopine]

I think so. I mean, maybe I'd put enough in to get it down to the 12% bracket. So maybe that's $10,000 or something like that, right?

[Joe Anderson]

0.8 to 1%. I think he's tripping over dollars to pick up pennies.

[Big Al Clopine]

Yeah, but I'd rather get in a Roth if I could. If I can't, then I would take it outside. I'd invested low cost funds in a brokerage account.

[Joe Anderson]

I would go 100% into the 457 account. Max it out, Roth or not. I think, James, I would look into this a little bit more because how much money does he have is going to play a campaign?

[Big Al Clopine]

We don't have any of those details.

[Joe Anderson]

If he works for the government, I would imagine there's options that he would have lower cost funds. But still you're taking then after tax dollars, putting into a brokerage account that could have tax leg of, I don't know, 0.5%, depending on what those funds are too. So it's easy. Out of sight, out of mind. You check the box, save as much money as you possibly can. You get the tax deduction today. How much money does he have? What tax bracket is he going to be? Is there a tax arbitrage that you can play that's going to outpace these, these dollars? You know as well as I know if someone has a 401k, 403b, 457 or whatever versus people that don't at retirement, who has more money?

[Big Al Clopine]

Yeah, the ones with the 457 because.

[Joe Anderson]

It'S out of sight, out of mind. They save and they don't look at it, they don't touch it. You put stuff in brokerage accounts and guess what?

[Big Al Clopine]

It gets spent.

[Joe Anderson]

Big Al's going to ask you to go on his cruise where there's no. Where there's no off limits, there's no drink limits, no off limits, and he's not going to buy you the drink package.

[Big Al Clopine]

Well, so you bring up a good point and I agree with that. But if you're asking me, that's what I would do, all right? Because I got the discipline.

[Joe Anderson]

You do. You do have the discipline. You got a big ass wallet. Sometimes it doesn't matter. If you got a money question, go to your money wealth.com, click on that button. Ask Joe and Al Like Lois and Clark Kent did. Okay. Love, love, love the show. Have recommended to all your. My many friends. Many friends and family over the years. Great team. And Big Al, Joe, Andy. We are Lois and Clark Kent. Low 65. Clark, 78. Will travel full time in a magnificent rock star bus.

[Big Al Clopine]

All right.

[Joe Anderson]

But reside in Florida for tax and voting purposes. Sold everything 10 years ago to hit the road. No real estate, no mortgage, no hassles. Haven't looked back. Not sure if I could do that.

[Big Al Clopine]

I don't believe I could either, but more power to them.

[Joe Anderson]

Yeah, just hit the road and cruise.

[Big Al Clopine]

You know, that way they can go to where the crime is and about the cities.

[Joe Anderson]

Oh, perfect.

[Big Al Clopine]

There you go.

[Joe Anderson]

All right. Yes, we know motorhome is a depreciating asset or even a liability to some. But we choose long ago to enjoy life and see the world. It's really not much. That much different from spending money on golf. I beg to differ.

[Big Al Clopine]

I bet you would differ on that one.

[Joe Anderson]

Just more zeros and we get to see family and friends whenever we want to on our terms. Besides traveling the lower 48 each year, we find time to go to foreign nations every year for about a month or two. Drink of choice? Lacroix. No drinking and driving here. As of this year, we're both retired. We are healthy, happy, and still love to travel. Our assets are the following. Total savings is 3.8 million. All right, Clark, he's got $230,000 in an IRA, $40,000 in a Roth. Lois has $200,000 in an IRA, $200,000 in a Roth, and then another $2.5 million in an IRA. And then they got a joint brokerage account of $630,000. Total fixed income is $72,000. That is Clark's $36,000 Social Security and $11,000 RMD, plus a little interest of $25,000. The fixed income lowest is $36,000.

[Big Al Clopine]

Yeah, that is how we look at it. Not interest, not RMDs. It's just money that you're getting from another source besides your own assets.

[Joe Anderson]

So. But 72, that's fine. Most will take Social Security in five years. At age 70, the amount will be $44,000 per year. There is no pension. Our only savings.

[Andi Last]

Only our savings.

[Joe Anderson]

Only the savings. Okay. We have been converting about $20,000 to Roth each year over the past six years. We stayed under income limits for ACA. That's the affordable Care Act. And that is no longer necessary now that Medicare has kicked in. We are also hoping to purchase a small retirement house anywhere but Florida.

[Big Al Clopine]

Anywhere but.

[Joe Anderson]

Okay.

[Big Al Clopine]

Even though that's where they supposedly live, that's their residence.

[Joe Anderson]

Our goal is to spend not more than $500,000, and we'll pay cash. If financial gurus such as yourselves could spitball our retirement situation would be much appreciative. All right, so they got two questions for us. For the next three to five years, we spend $96,000 or to the top of the 12% income tax bracket. Assuming we will own a small home and still travel half the year, we will keep our investments. 80% stocks, 20% fixed income, human Lois's large traditional IRA. We can endure some pain to get the gains we've enjoyed over the last 10 years. Should we get more conservative now with our investments, we average 12% annually. ROI. 12%.

[Big Al Clopine]

Pretty good.

[Joe Anderson]

That is really good. It feels hard to walk away from all that growth. All right, so they want to spend $96,000 a year. They're claiming they got $72,000 of fixed income. They got $3.8 million if I take out the interest in the RMD.

[Big Al Clopine]

Yeah, and I already did the calculation. So spending 96 fixed income, 36 shortfall 60, and a 3.8%. That's a 1.6% distribution rate.

[Joe Anderson]

So you got a five year bridge for 44 additional dollars coming in for Social Security. But I don't understand. We plan to spend 96,000 or the top of the 12%. I mean, they dictate their spending on the tax brackets.

[Big Al Clopine]

Well, and Joe, if that's the case, they're forgetting the standard deduction of $30,000.

[Joe Anderson]

Yeah, I don't know. I've never seen that before. Hey, honey.

[Big Al Clopine]

We get raised 96,670.

[Joe Anderson]

We got 96,000. That's it. No, we can't go $1 over that 12% tax bracket. Let's see. All right, 80%, 20%. Okay, how much should Lois be converting to Roth from now until her mandatory age of 73? That'd be almost eight years of conversions. And should the tax payment come for the brokerage count? The reason we are thinking about conversions is we would like to have our two grown adult children inherit whatever we have left. Any other spitball insights are welcome. Thanks for putting your two cents on our situation. Hope to see you down the road sometimes. Lois and Clark Ken, full time travelers.

[Big Al Clopine]

Cool.

[Joe Anderson]

That's awesome. You know, there's. There's a guy, he's an advisor here in town. Good guy, Jamie. I forget his last name, but he did that you just said. Sold his house.

[Big Al Clopine]

Oh, really?

[Joe Anderson]

Bought a sprinter van.

[Big Al Clopine]

Sure. And that became his home and traveled. Worked out of wherever he's working out of.

[Joe Anderson]

Spinner man.

[Andi Last]

Okay, so he's advising from the road?

[Joe Anderson]

I guess so.

[Andi Last]

Cool.

[Joe Anderson]

Yeah.

[Andi Last]

Do you have to be licensed in whatever state you're parked in? How does that work?

[Joe Anderson]

Yeah, that's a good. Well, I think. Yeah, he's a. He's not selling product or anything, so.

[Big Al Clopine]

Yeah, it would be permanent residents, whoever they happen to pick.

[Joe Anderson]

Let's see.

[Big Al Clopine]

All right, so should they do Roth conversions?

[Joe Anderson]

All right, well, there's got to. There's more to the story here. All right, so, Clark, why do you still have the money in a sep? I would move that into an ira. Roth ira. Just keep it in one custodian, you're on the road. Lois has got a SEP to $200,000. So they must have been self employed at some point. She's got a traditional IRA that was probably rolled over from a 401 of $2,500,000. So she's got $2,700,000 in a retirement account and $200,000 in a Roth. They've only been converting to the top of the 12. They have $630,000 in a brokerage account. So if they need $60,000 over the next five years to live off of to get to that $100,000 mark, should they stay in 80, 20, I think I'm okay with that because 20% is like a million dollars on 3.8, and they only need to be pulling $60,000 for the next five years. So I'm okay with 80, 20. They want to leverage their estate for the kids. Yeah, they have enough fixed income to provide their lifestyle. If they only want to spend 96,000. But they want to buy this house is the kicker here. So that's another $500,000 that they want to pay cash. It's going to come out of the 630 grand. So they only have $130,000 of liquid assets.

[Big Al Clopine]

Right.

[Joe Anderson]

Would you take a mortgage on the.

[Big Al Clopine]

Property in this particular case? I might consider it. And the reason is because there's a lot of money in deferred, not. Not as much in the taxable accounts. And there's going to be a lot of required minimum distributions in the future, which is relatively easy to pay down the mortgage. But that's one way of thinking about it. Another way to think about it, though, is interest rates are on the higher side right now compared to a few years ago. So It's, I guess it's a little bit of a toss up.

[Joe Anderson]

So let me use his math, because he's getting a 12% ROI, right. All right, so let's just assume, hypothetically speaking, if he got 12% on the retirement account, so he's spending over the next five years. Let's say he buys the house, or they both, Clark in Lowe's, buy the house for 500,000. There's still $130,000 in the brokerage account that they could live off of, potentially, because you don't want to be pulling dollars from other areas. You want to keep that income off your tax return and do conversions. But his her RIA, if they didn't do anything at 12%, would be close to $7 million, right?

[Big Al Clopine]

True.

[Joe Anderson]

And so you're looking at what, $300,000 RMD, right. I don't think you run a calculation like that. But if that's how he was thinking about planning what you want to do conversions, I think the answer is absolutely. But the issue is you're going to spend all his liquidity and he doesn't have any other dollars to pay the tax, and you don't want to pay the tax out of the retirement account.

[Big Al Clopine]

Yeah. So I think maybe what I might think about, Joe, maybe something like this is you definitely have a lot of money in deferred, and you want to get some of that money out. Roth conversion is a logical way to go. But because you want a house, maybe you take some out of the IRA 401 to pay for the house, and maybe you do it slowly, maybe you get a mortgage, maybe you pay that mortgage off over three years, you take a little bit each year and then convert some of the rest. And. But the point is the RMD is going to be a pretty high number. So you want to get converted certainly well past the 12% bracket, because by the time the RMDs kick in, you're going to be in the 22 or 24% bracket. So you want to get some of that money out. But maybe that's what I might do, Joe. Instead of using the 630, I might get a loan and just have a plan to pay it off in three years, five years, something like that with money from the ira.

[Joe Anderson]

No, I like that a lot. Because the problem is you can't control the rmd. It's a certain dollar figure that is forced out.

[Big Al Clopine]

Right. And so here you force it out at a better rate.

[Joe Anderson]

Yeah, you're forcing it out at a better rate to Pay out the note.

[Big Al Clopine]

Yeah. Right, Right.

[Joe Anderson]

So yeah, you're taking money out of it at 12% versus a force out of 24. I like that math a lot better. Even though you're paying a little bit of mortgage, but if you pay it off in three to five years, you add the mortgage expense into the tax to see what that true cost would be. The cost of capital to carry the note plus get it out of the ira.

[Big Al Clopine]

Yeah. I mean, I'm just thinking about how I would think about it. Paying 6% interest would seem like a lot for a long term. Right. On the other hand, do I want to use up all my taxable. Not really.

[Joe Anderson]

Right.

[Big Al Clopine]

So I kind of don't like either answer. So maybe that's why I think maybe I would probably do some kind of hybrid there.

[Joe Anderson]

Yeah, I would definitely take a note.

[Big Al Clopine]

If it were me and the 80, 20. I'm totally fine with that. And the reason I am is because it's a personal choice here. They've got more money than they need. Right. So you don't have to take as much risk if you don't want to, but if it's for the kids and you want to take more risk, by all means. So here's a case where you kind of have some flexibility depending upon what your goals are. I would say.

[Joe Anderson]

Yeah, I also look at what tax bracket the kids are in. Yeah, a lot of this is gonna go to the kids and if they're in high brackets, well, then you convert more. If they're in lower brackets, well then you don't have to be as aggressive in the conversion. You just wanna kind of mitigate your RMD as much as you can because then the kids will inherit. They'll have to pull the money out over 10 year time period depending on when you pass.

[Big Al Clopine]

Yeah, but you also have to think about, I mean, she's 65, so she lives another 25 years. What's their bracket gonna be, you know, in 25 years? So which is kind to estimate. But at least you would have a sense based upon the careers of your kids and what the tax brackets might be.

[Joe Anderson]

True. We don't know when we're going to go, Al.

[Big Al Clopine]

We don't. I'm just saying at 65 she could go to 90.

[Joe Anderson]

Yep. I know why you say that, because that's my plan.

[Andi Last]

It's important to understand Roth accounts and how they work so you can take full advantage of the lifetime tax free investment growth that they offer. Click or tap the link in the episode description to download the ultimate Guide to Roth iras for free. You'll have valuable information in print, mind you, about how Roth contributions and conversions allow you to keep and grow more of your money. Plus, you heard the fellows mention the infamous backdoor Roth strategy earlier. This guide explains how it can help even if you make too much money to contribute directly to a Roth. Plus, learn the differences and pros and cons of saving in a traditional traditional IRA versus a Roth IRA versus a Roth 401k, the rules for taking money out of your Roth account, and much more. Click or tap the link in the episode description to download your copy of the ultimate guide to Roth IRAs and share YMYW and all the free financial resources with anyone you know who would benefit.

[Joe Anderson]

Let's go back to Chicago Shut down. You know, we got a lot of advisors now in Chicago.

[Andi Last]

Good, because we get a lot of questions from Chicago.

[Joe Anderson]

I love Chicago.

[Andi Last]

So does Ray Charles. I love his name.

[Joe Anderson]

Ray Charles, by far, is one of my favorite artists of all time.

[Big Al Clopine]

He's a good one.

[Andi Last]

Nice.

[Joe Anderson]

Hi, Al, Joe, Andy. Found your podcast and Spotify a couple months ago and love the conversation and humorous style. You guys are my daily partners during my morning walks with my dog at the gym. Oh, and the gym.

[Andi Last]

And at the gym.

[Joe Anderson]

I don't know how you can listen to this garbage at the gym.

[Big Al Clopine]

Well, if you're. I don't know if you're doing the treadmill, you got to listen to something, I suppose.

[Joe Anderson]

I'm 52. My wife's 50. We both live in Chicago area with our two kids and dog, Simba.

[Big Al Clopine]

Simba. Okay.

[Joe Anderson]

Our daughter's 20, will graduate college in a year and our son is 17, getting ready to head off to college this fall. I drive an EV and my wife drives a 2021 Toyota minivan. Still got the old minivan. Yeah. She likes sweet cocktails while I enjoy cold yungaling. The hell's that called again?

[Andi Last]

Good enough. Yingling, I believe is how most people pronounce it.

[Joe Anderson]

Yingling.

[Big Al Clopine]

Yingling.

[Andi Last]

Apparently, Yingling is America's oldest brewery beer.

[Big Al Clopine]

Oh, okay. All right.

[Joe Anderson]

So, all right. In the summer, in the bourbon. He likes a little scotch in the winter. Bourbon and Scotch. Scotch in the winter.

[Big Al Clopine]

Yeah, it kind of warms you up.

[Joe Anderson]

Yeah. Warms you up in Chicago, right?

[Big Al Clopine]

Yeah. Right.

[Joe Anderson]

Here's our situation. After a corporate career of 28 years, I'm burnout and want to pivot to something less stressful and sustainable. 10. He's 52. 50 with likely lower pay. I earn 350 to $400,000 annually. I'd like to quit the corporate job in 2027, the year I turned 55, and switch to do something non corporate until I'm 60 before I fully retire. Ideally, this would be putting part time job that covers our expenses so I can pursue my hobbies of hiking, mountaineering and running while I still can. I plan on doing roth conversions between 55 and 60 when my income is lower. My wife is a healthcare worker and makes about $110,000. She also enjoys her work and plans to work for a few more years, ideally until she's age 60. Through disciplined savings investments in the magic of compound interest, Arnest e grown to $3.1 million. Here's the breakdown. Man, a lot of wealth in Chicago.

[Big Al Clopine]

Yeah.

[Joe Anderson]

Tax deferred $1.6 million. Brokerage account, 850, Roth IRAs 290, HSA 40, 529 and UTMA $370,000. For the kiddos. Their Social Security benefits are estimate to be about 3000, 4000 or 5000, depending on if they take it at 62, 67 or 70. Hers is 2000, 3004. So a little differential there. Our current annual expenses are 160, 180,000, which I expect to drop to 130 once the kids are fully launched in a few years. Our home is worth about $1 million with an outstanding mortgage of $200,000 at 2.1% fixed rate. We plan on staying here for the foreseeable future and we have no other debt. I'd love to get your spitball analysis and have the following questions. Is this a financial feasible plan? If I stop contributing to retirement savings at 55, will we have enough to save to spend $130,000 annually in retirement from age 60? I expect we'll both live to at least our mid-80s. So that's $130,000 in today's dollars, right?

[Big Al Clopine]

Correct.

[Joe Anderson]

He wants $150,000. We got five years. Let's use 3.5%.

[Big Al Clopine]

We got eight years. Because he's 52. He wants to retire at 60.

[Joe Anderson]

He said 55.

[Big Al Clopine]

No, 55.

[Andi Last]

He said he plans to stop contributing to retirement savings at 55. And then he wants to know if he can spend enough in retirement from age 60 and they'll live into their mid-80s.

[Big Al Clopine]

So he's 25 years to get a part time job to cover his expenses.

[Joe Anderson]

So he stopped savings. Okay, so he's got eight years you're saying for spending.

[Big Al Clopine]

Okay, I already did some math. Jay, let me help.

[Joe Anderson]

I got 150,000. We got eight years. We got 3.5%. And then future value there. Okay. $200,000 is his annual spending. All right? And that's at age 60. And they want to take their. So they.

[Big Al Clopine]

All right, 130. Your math is wrong.

[Joe Anderson]

It's not.

[Big Al Clopine]

Yeah, it is.

[Joe Anderson]

$150,000.

[Big Al Clopine]

$130,000 at three and a half for eight years.

[Joe Anderson]

Oh, I put $150,000.

[Big Al Clopine]

Yeah, that's right. It's wrong.

[Joe Anderson]

Oh, okay. All right, so maybe Ray wants to spend $150,000 instead of $130,000. So $200,000. What does he have $3.5 million today?

[Big Al Clopine]

Yep.

[Joe Anderson]

He needs $6,000. Yeah, I think he's going to be okay.

[Big Al Clopine]

I agree with your conclusion, but I got way different math.

[Joe Anderson]

Okay.

[Big Al Clopine]

What I did is I looked at, for the next two years, saving. I don't know how much he's saving. He didn't say, But I said 2.7 million today. Two years, 6%. Add another 30,000 per year, that's 3.1 million. Then you got 3.1 million. Five more years at 6%, you end up with no savings. You end about 3.5 million. Right. You want to spend about one hundred and sixty five is what I get. One hundred and thirty eight years at 3%. So that's a 4.7% distribution rate, but that's without regard to Social Security. If wife collects Social Security early, I think it's right at 4%. So. Which is something I might consider. Just so you don't see all the dollars slipping away. That's what I might do. And then I would probably defer my benefit to 70 because it'd be the larger of the two. And then you got that going.

[Joe Anderson]

Yeah. Okay, well, let's. Let's. Let's see. What. So he's saying, is this feasible? Yeah, I think so.

[Big Al Clopine]

Yeah, I do, too.

[Joe Anderson]

How I look at it is. All right, well, how much money does he need to spend when. So he needs 130. I used 150. In five years, that's like 180. As long as he's making 180 to cover the living expenses, I think he's good. Right. But he's not going to save any more money. Hopefully the compounding of his nest egg does well.

[Big Al Clopine]

Yeah.

[Joe Anderson]

So, yeah, I thought he would need around 5 million. He's got 3 million now. In 10 years, that could double at 6. With zero savings right there. Without taking any dollars out.

[Big Al Clopine]

Right. Although he will take it out because that's the plan.

[Joe Anderson]

Not in 10 years. He's got 10 years that he was.

[Big Al Clopine]

Yeah. He won't take that for eight years.

[Joe Anderson]

Okay, well, I rounded, so 3.1. 10 years. That would double. So take out my savings for two years. So that could double. So say it's 5.7.

[Big Al Clopine]

Yeah. Okay.

[Joe Anderson]

Four times five.

[Big Al Clopine]

Yeah.

[Joe Anderson]

It's close.

[Big Al Clopine]

It's close. Yep.

[Joe Anderson]

So I did mine in 30 seconds. You probably spent all day on your planning software.

[Big Al Clopine]

I had to pull out the big spreadsheet. Well, we got. We got a similar answer. Different ways to get there, but. Yeah.

[Joe Anderson]

This is spitball.

[Big Al Clopine]

I know, I know.

[Joe Anderson]

You have a CPA that.

[Big Al Clopine]

I don't sell your spitball. I'm just doing a quick calculation.

[Joe Anderson]

Yeah, you think so?

[Big Al Clopine]

No, I don't. Because I think it's. It's helpful to like. Because if you're not doing it like on the spot, you can, you can catch yourself if you make, you know. Yeah.

[Joe Anderson]

Fat finger.

[Big Al Clopine]

Yeah. Like putting in 150 instead of 130. That kind of thing.

[Joe Anderson]

Well, I gave him a raise. What should our strategy be for Social Security? If I retire early, I would take Social Security at your full benefit age, depending on what the account balance is going to look like when you can claim it at 62. That would be my mindset. I would want to push Social Security out as far as I could.

[Big Al Clopine]

Yeah, me too.

[Joe Anderson]

But if the market turns, then turn it on.

[Big Al Clopine]

Yeah, I could do that. Like I said, I would consider wife's Social Security early just because it's over 4% distribution rate and that might feel better.

[Joe Anderson]

Is the wife younger or older?

[Big Al Clopine]

About the same. Two years younger.

[Joe Anderson]

And then let his grow.

[Big Al Clopine]

That's right.

[Joe Anderson]

He's going to die before her and then she takes a larger.

[Big Al Clopine]

Well, you always want the higher benefit. You want to defer that if you can.

[Joe Anderson]

Yeah, right. Good point.

[Big Al Clopine]

Yep.

[Joe Anderson]

Should I use the rule of 55 to draw down my 401k which is around $500,000 when I turn 55?

[Big Al Clopine]

I don't need it. If you're working to cover your expenses, you don't need it. Right.

[Joe Anderson]

Unless he needs. But he's got a brokerage account too.

[Big Al Clopine]

$850,000.

[Joe Anderson]

Yeah.

[Big Al Clopine]

Yeah. No, I'd use that if you have to.

[Joe Anderson]

Yeah.

[Andi Last]

Can you give a quick recap of the Rule of 55 for those who haven't listened before?

[Joe Anderson]

Sure. Rule 55 is that you can tap into your 401 plan as long as you separate from service from that employer at age 55 versus 59. And a half and avoid the 10% penalty. So a lot of times people will retire early, they don't know the rule of 55.

[Big Al Clopine]

Right.

[Joe Anderson]

And they roll the money into an.

[Big Al Clopine]

IRA and then it's over.

[Joe Anderson]

Yeah. Then you're stuck with 59 and a half. So then you have to wait. Or you can do a stupid 72T tax election. One I'm not going to get into.

[Big Al Clopine]

That's another episode. You can put down the show notes.

[Joe Anderson]

Yeah. There are three different ways to take it. Amortization, the annuitization, all that.

[Big Al Clopine]

Yeah.

[Joe Anderson]

When's the last time you have seen someone do a 72T? I think anyone that I've seen do a 72T tax election was a mistake.

[Big Al Clopine]

I, I, I can probably count it on my fingers and, and I don't, I don't know that any of them made a lot of it.

[Joe Anderson]

Never was like, wow, that's really good planning there. It was like, wow, you're an. Oh, you, you overspend.

[Big Al Clopine]

Yeah. Right.

[Joe Anderson]

You were going to go broke.

[Big Al Clopine]

Right. Right.

[Joe Anderson]

Should I consider paying off the mortgage in the next few years? No. 2, 2%. Keep it. You got plenty of assets. You can always cut a check and write the, you know, pay off the mortgage. It's only a few hundred thousand. The payments pretty low. I would want to continue to have the assets. Compounding for me, I think you're in awesome shape. He still has five years to go. He's already done so much more planning than most. Just kind of thinking through this of what he wants to do. I get it. Right. Corporate America, you've been grinding for 25 years. It's like, hey, I want to hike. I want to, I get it. I want to do my. What, Mountaineering?

[Big Al Clopine]

Yep.

[Joe Anderson]

What the hell is mountaineering?

[Andi Last]

I believe it's literally climbing mountains.

[Joe Anderson]

Is there mountains in Chicago? I don't think there's mountains in Chicago.

[Big Al Clopine]

Not too many, but it's not that far from Colorado maybe, and I don't know, Montana mountaineering is, it's a little bit more scrambling or scrambling up rocks and stuff sometimes with ropes.

[Joe Anderson]

Have you been. Are you mountaineers?

[Big Al Clopine]

I don't like rock climbing, though.

[Andi Last]

There is actually a Chicago mountaineering club.

[Big Al Clopine]

Yeah, I'm not like, indoors.

[Joe Anderson]

When you're climbing the rock of.

[Andi Last]

Oh, that's a good question.

[Big Al Clopine]

Well, that's a version, but that's not mountaineering. Mountaineering is up a mountain.

[Joe Anderson]

What's it called when you're like, on a fake mountain? Fake mountain.

[Big Al Clopine]

Rock climbing. Yeah, the rock climbing gym. That's what they call that?

[Joe Anderson]

Oh, Rock gym.

[Big Al Clopine]

Yeah.

[Andi Last]

I suppose this club is bringing together Midwest alpinists, climbers and outdoor athletes since 1940.

[Joe Anderson]

Wow.

[Big Al Clopine]

Nice.

[Joe Anderson]

Yeah.

[Big Al Clopine]

Well, I would run mountaineering. I would say to Ray Charles, my hiking group, which consists of about 50 or more people in the financial services industry. We've got like four or five people still in their 70s. So I think you're going to be doing this a while. You keep yourself in shape, you'll be able to do this for quite some time. That's what I have seen.

[Joe Anderson]

Hiking, mountaineering, or running. I'd much rather just keep grinding the corporate life than do that.

[Big Al Clopine]

Well, I know you would. I would love the hiking, mountaineering. I'm not a huge fan of that. Running, I don't particularly like that either, but I do elliptical at the gym several times a week.

[Joe Anderson]

So there you go.

[Big Al Clopine]

That's how you stay in shape. Mr. Anderson, the elliptical.

[Joe Anderson]

Gotcha. I just see you, you wear a headband. Wristband.

[Big Al Clopine]

Oh yeah.

[Joe Anderson]

Short shorts.

[Big Al Clopine]

Yeah. And I play staying alive.

[Andi Last]

How much money will you need to have saved by the time you retire? It's probably more than you think. And many factors impact whether your retirement savings will last as long as you do. This week on a brand new episode of youf Money, you, Wealth tv, find out from Joe and Big Al how your lifestyle and spending, your longevity in health care, inflation and taxes and where you retire all impact the kind of life you'll live in retirement. They'll teach you financial moves that can help you become a millionaire and income strategies so you don't run out of money. Plus, download the Retirement Lifestyles Guide to make the most of your lifestyle, growth, health and relationships in retirement. Click or tap the link in the episode description to watch will your money last through through retirement? And to download the Retirement Lifestyles Guide. Yours free, courtesy of your money, your wealth and pure financial advisors.

[Joe Anderson]

All right, let's. We got one more. All right. We got Gun and Rose. Oh, that's cool.

[Big Al Clopine]

Gun and Rose.

[Joe Anderson]

Yeah. Well, Guns and Roses.

[Big Al Clopine]

Guns and Roses.

[Joe Anderson]

Love the show. Well, I do, but my wife is happy. I listen and try to plan.

[Big Al Clopine]

Bam.

[Joe Anderson]

So wife doesn't care for the show?

[Big Al Clopine]

Not really.

[Joe Anderson]

Hates the show.

[Big Al Clopine]

Couldn't get her to listen to.

[Joe Anderson]

She's like, these guys are idiots. I drive a van and my wife drives a Toyota. I like athletic IPAs. So that's what Al drinks when he's on the elliptical with his headband.

[Big Al Clopine]

Non alcoholic.

[Joe Anderson]

And my wife drinks all types of cocktails and wine. Well, I think your wife would like the show with cocktails and wine.

[Big Al Clopine]

I don't think she'd even like it with that.

[Joe Anderson]

More than I can keep track of. All right, well, we have $436,000 in the wise 403 tax deferred though now we switch to putting it into the Roth. So we have $262,000 in my TSP tax deferred. We have $292,000 in our Roth accounts. We have a mortgage of $400,000 on the house. That's about $800,000. The reason our mortgage is so high is because we did a cash out refi to do a major project on our property erosion issue. Where's Guns N Roses from?

[Andi Last]

Louisiana.

[Joe Anderson]

Louisiana.

[Big Al Clopine]

Okay.

[Joe Anderson]

Yeah.

[Big Al Clopine]

Oh, well, yeah, there's a lot of water there.

[Joe Anderson]

Yes, there is. All right, long story short, it costs about $270,000. In order to get all the cash we needed, we also took a $50,000 loan from my wife's 403. It was a five year loan and we paid it back with interest, I think like 5%. We are about all paid back. And now we have another project we'd like to do on our house. Would it be unwise to borrow $50,000 from the plan again? It feels like we're paying ourselves the interest and it's only taking 16 of our savings from the market. Is it bad for me to think of this as a good thing? We were also thinking about using some of the loan if we take it again to pay off the $15,000 five year car loan. Thanks for your thoughts. To the loan. From thyself or not to loan. I forget to mention my wife job is very stable.

[Big Al Clopine]

Okay.

[Joe Anderson]

I hate taking the money out of the 401 and the loan.

[Big Al Clopine]

Yep, I knew you were going to say that. And actually I agree.

[Joe Anderson]

Let's see.

[Big Al Clopine]

I think, Joe, you do that if that's your only option and you have to. But this doesn't sound like it's. This is something he wants to do instead of has like erosion in the house. The house is falling down. Right. And maybe that's. Maybe you do that. But. Yeah, I don't think I'd want to do it just for a kind of an optional home improvement. Yeah. Why don't you explain why. Why don't you like it?

[Joe Anderson]

No, because I did one before.

[Big Al Clopine]

It's hard to pay back.

[Joe Anderson]

It sucks because it's like after tax dollars going back into a pre tax account.

[Big Al Clopine]

Yeah. So you get the money tax free, but you got to pay it with after tax, you have to pay taxes on the money before you pay it. It seems really expensive.

[Joe Anderson]

Yeah, it does, because all right, I get the loan. I get $50,000 loan. I would take the loan from the house. Don't take it from the 401, because I got the 50,000 now in my hand. I pay off the truck loan, I pay off the car loan. I do whatever fancy stuff to the house. But then you got to pay it back. And so when you put it in the 401, contributions, if it's pre tax, it's going in the pre tax account and it's growing. Tax deferred, you pay taxes later. But now I'm paying taxes on the dollars and putting it in the pre tax account to pay off the loan.

[Big Al Clopine]

It's hard to pay off.

[Joe Anderson]

I don't care for it.

[Big Al Clopine]

And if you lose your job, it's all of a sudden fully taxable.

[Joe Anderson]

Fully taxable, right. I get it. It's $50,000. It's 1/6 of your overall savings. How old is Guns N Roses? Doesn't say, you know, if you want to spice up the house and make it nice. And it's not like he's taking $500,000 out or, you know, and he's almost paid off the home loan, isn't it? No. 400.

[Big Al Clopine]

Got 400.

[Joe Anderson]

Yeah.

[Big Al Clopine]

I would.

[Joe Anderson]

I don't know if you. Absolutely. I don't think it's going to break the bank. You're still probably going to accomplish your goals. It looks like your wife is an educator, very stable job. Got a 403. Keep saving into that. If you want to pay off the truck loan. If you want to do that and it's going to take you only 5 years to pay off. I'm not a huge fan of it, actually. I hate it. But I get also having a nice house or at least, you know, fixing something that has been bothering you. The home is your castle.

[Big Al Clopine]

That's true. And wife's job is very stable. Maybe.

[Joe Anderson]

I mean, that's all the different. All I have to do is read that. Go for it. Yeah.

[Big Al Clopine]

I think I'm kind of with you. I think if there's no other way to do this, then maybe I get a home equity loan and maybe I'd rather do that.

[Joe Anderson]

I think so. I think so, too.

[Big Al Clopine]

Yeah.

[Joe Anderson]

All right, good luck. Let us know how everything works out. And that's it for us today. Hopefully you enjoyed the show, Andy. Great job. And then are you off to Hawaii or you're. Another week.

[Big Al Clopine]

I'm off.

[Joe Anderson]

You're done now?

[Big Al Clopine]

Yeah.

[Joe Anderson]

When do you leave?

[Big Al Clopine]

Saturday.

[Joe Anderson]

Oh, for what, a month?

[Big Al Clopine]

Just a couple weeks.

[Andi Last]

Are we still doing a show with you? Are you actually vacationing in Hawaii?

[Big Al Clopine]

No, no, I could. These shares.

[Andi Last]

All right, cool.

[Big Al Clopine]

All right. Yeah.

[Joe Anderson]

See y' all next week. Chills called your money.

[Andi Last]

You're well next week on ymyw, Chris in Minnesota is weighing the new senior bonus deduction against Roth conversion. Wendy Chicago in California isn't sure what to do after losing cost basis during a Vanguard transfer. Terry in Utah asks the fellas to spitball on when she's harvested enough tax losses. Thank you very much. And Larry and Sally are looking for a strategy for retail retirement spending and Affordable Care act subsidies. Your money, you, wealth is your podcast. We just make it for you. Your questions, your honest Reviews and your YouTube comments keep us making fun of finance. Thanks for being a part of ymyw. And look, if you've saved millions for retirement, you know money management isn't a hobby, it's a full time job. Or it should be. Tax laws, market volatility, planning for the long term. This is complex stuff and there is no way one size fits all solution. Let Joe and Big Al's experienced team of professionals at Pure Financial Advisors give you more than just a spitball. A free financial assessment with Pure is a comprehensive review of your taxes, investments and your plan for retirement income designed to protect and maintain your wealth for the long run. Meet in person at one of our 14 nationwide offices or on Zoom. Whatever works best for you. Book your free assessment now. Click or tap the link in the episode description or call 888-994-6257 and tell him you heard about it on the youe Money, you, Wealth podcast. 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 rely on any information contained in the podcast in the process of making a full and informed investment decision.