Where to Invest for Pre-Retirement and a GO-GO Lifestyle? - 539

Summary

Your Money, Your Wealth – Episode 539 Summary: "Where to Invest for Pre-Retirement and a GO-GO Lifestyle?"

In Episode 539 of the "Your Money, Your Wealth" podcast, hosts Joe Anderson, CFP®, and Big Al Clopine, CPA of Pure Financial Advisors delve into the financial strategies of Roger from Canton, Ohio, who is contemplating pre-retirement in his mid-50s. The episode provides an in-depth analysis of Roger's financial situation, explores optimal asset allocation, and discusses the implications of various investment strategies to ensure a comfortable and sustainable retirement. Below is a detailed summary of the key points, discussions, insights, and conclusions from the episode.

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1. Introduction to Roger’s Pre-Retirement Scenario

Roger's Goal:
Roger and his wife, Jane, are planning to pre-retire next year at ages 54 and 55, respectively, with a total of $2.8 million in assets. Their objective is to maintain financial stability during their "GO-GO" years (active, travel-filled retirement phase).

Key Financial Details (04:15):

• 401(k): $1,900,000
• Traditional IRA: $280,000
• Roth IRA: $220,000
• Cash: $300,000
• Brokerage Account: $50,000
• HSA: $50,000

Roger has meticulously planned his retirement, employing various strategies such as the Rule of 55, part-time consulting, and deferred compensation ladders to ensure a steady income stream.

Roger's Statement (03:15):

"I plan on retiring for my primary vocation next year after I turn 55. I do plan on still working on a part-time basis."

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2. Asset Location Strategy

Discussion on Asset Allocation (12:50):
Joe and Big Al analyze Roger's strategy of reducing his 401(k) contributions to maximize his Employee Stock Purchase Plan (ESPP) opportunities at a 15% discount.

Joe's Analysis (12:58):

"Roger is shifting his focus from maximizing his 401(k) contributions to leveraging the ESPP at a discount, aiming to bolster his brokerage account."

Big Al's Input (14:00):

"I would be a little careful with that strategy because now you're getting close to retiring and you've got concentration risk in the company."

The hosts emphasize the importance of diversification, especially as Roger approaches retirement, to mitigate the risks associated with holding a significant portion of his portfolio in company stock.

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3. Diversification and Concentration Risk

Balancing Company Stock with Diversified Investments (14:12):
Big Al advises Roger against over-concentration in his company's stock due to the inherent risks, suggesting a more diversified approach to safeguard his assets.

Big Al's Advice (14:12):

"One of the things that you want to think about as you get close to retirement is diversification because now it's less about earning the highest rate of return, but it's keeping what you have."

Joe's Agreement (14:59):

"As you approach retirement, you probably want to get out of the concentrated risk and get into diversified investments."

The conversation underscores the necessity of balancing high-performing assets with safer investments to ensure portfolio stability.

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4. Tax Implications and Roth Conversions

Evaluating Roth IRA Conversions (16:05):
Joe explores the tax implications of Roger's strategy, debating whether converting traditional IRAs to Roth IRAs could be more beneficial compared to investing additional funds in a brokerage account.

Joe's Scenario (16:05):

"If I go pre-tax of that $10,000, I'm going to save $2,000 in taxes, right? Or put it into a brokerage account and pay the tax now."

Big Al's Response (16:38):

"I would rather have that 10,000 end up in a Roth because you're not going to pay any future tax on the earnings and growth."

The hosts concur that, given the choice of paying the same tax, investing in a Roth IRA is more advantageous due to the tax-free growth and withdrawals in retirement.

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5. Higher-Performing Assets in Roth Accounts

Risk Assessment of Asset Classes in Roth IRAs (21:08):
Andi Last introduces a YouTube viewer's concern regarding the placement of higher-performing, riskier assets in Roth accounts, citing potential sequence of returns risk.

Big Al's Explanation (21:42):

"Putting riskier asset classes in a Roth IRA implies that you have time to ride out the volatility. If you don't, then don't do it."

Joe's Perspective (22:05):

"As you're accumulating wealth, you want to have the highest performing asset class within that account."

The discussion reveals that while aggressive investments can accelerate growth during the accumulation phase, they pose risks during retirement withdrawals. The key takeaway is to align asset allocation with the retirement timeline and risk tolerance.

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6. Final Thoughts on Roger’s Strategy

Feasibility of Pre-Retirement (08:33 – 11:46):
Joe and Big Al assess Roger's ability to retire next year, concluding that his disciplined approach and substantial asset base make his plan viable. They highlight his capability to adjust spending based on portfolio performance, ensuring financial sustainability.

Big Al's Conclusion (10:50):

"I think it's workable. There's a lot of assets here and income, and the spending could be ratcheted down depending upon how everything goes."

Joe's Confidence (11:11):

"This is the kind of guy that's going to keep computing this every year. I think he just wants to know whether we think it's workable. And I would say it's workable."

The hosts affirm that with Roger's disciplined financial planning and flexible spending, his pre-retirement plan is well-structured to support his desired lifestyle.

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7. Additional Insights and Resources

Asset Location and Tax Diversification:
The episode also touches upon various retirement plans and the importance of asset location and tax diversification. Joe and Big Al provide insights into different retirement accounts, their benefits, and how they fit into a comprehensive retirement strategy.

Viewer Engagement:
Listeners are encouraged to engage with the podcast through YouTube comments and participate in the annual YMYW podcast survey for a chance to win a $100 Amazon gift card.

Resources Mentioned:

• Financial Blueprint Calculator: Available in the episode description.
• Asset Location Matters: A free download mentioned for optimizing investment returns through tax strategies.

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Notable Quotes with Timestamps

• Roger's Introduction (02:35):

  "I've listened to nearly all of your podcasts over the last few years and love picking up your new content."

• Roger's Financial Breakdown (04:16):

  "All retirement accounts are 100. We still have a significant time horizon in liquidity right out volatility in the market."

• Big Al on Diversification (14:00):

  "If you purchased a stock, you either need to hold it for a year, maybe 18 months... diversification is good for concentration."

• Big Al on Roth vs. Brokerage (19:04):

  "I would rather have that 10,000 end up in a Roth because you're not going to pay any future tax on the earnings and growth."

• Big Al's Final Recommendation (24:49):

  "You got your head in the freezer and your feet in the oven. You're going to die. That's not diversification."

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Conclusion

Episode 539 of "Your Money, Your Wealth" offers a comprehensive analysis of pre-retirement strategies through the lens of Roger's financial plan. Joe Anderson and Big Al Clopine provide actionable advice on asset allocation, diversification, and tax-efficient investing, ensuring that listeners gain valuable insights into optimizing their retirement portfolios. The episode underscores the importance of disciplined financial planning, flexibility in spending, and strategic asset location to achieve a comfortable and sustainable retirement.

For more detailed discussions and personalized financial advice, listeners are encouraged to access the free resources provided by Pure Financial Advisors and consider scheduling a financial assessment.

Transcript

[Andi Last]

Roger in Canton, Ohio, is burnt out. Can he and his wife Jane pre retire next year in their mid-50s with $2.8 million? Joe and Big Al spitball on whether they'll still have enough money for their Go Go years. Joe's favorite today on youn Money, you, wealth podcast number 539. Roger also has an employee stock purchase plan for the best asset location strategy. Should he max out the ESPP at a 15% discount, convert to Roth IRA, build his brokerage account, or a little of all the above. Speaking of asset location, some of our YouTube viewers object to the idea of putting higher performing assets in your Roth account. They say you can't write off the losses and you'll be exposed to sequence of returns risk. Stick around for Joe and Al's response. I'm executive producer Andi Last, and here at Long Last are the hosts of youf Money, you, Wealth, Joe Anderson, cfp, and Big Al Clopine, cpa.

[Joe Anderson]

It's been a minute since we've been here live. Our studio is. Is in a massive construction zone, so we're sitting here at our desks. Andy's in Australia.

[Andi Last]

Yep.

[Joe Anderson]

Big Al, you're back from a European trip for the last five weeks. That's correct, Yes. I and I came back from a very beautiful trip from Minnesota.

[Andi Last]

So you spent some time in Arkansas too, didn't you?

[Joe Anderson]

Yeah, Arkansas, Minnesota. Yeah.

[Big Al Clopine]

That's like two family trips there.

[Joe Anderson]

Yeah. Obligations, not vacations, but.

[Big Al Clopine]

Right, right, right.

[Joe Anderson]

But yeah, it's been a minute, so it's good to have everyone back. How's. How's Australia, Andy?

[Andi Last]

It's taking a lot of adjusting, too. I haven't lived here in about 16 years, but got my driver's license now. Got signed up for healthcare. I'm learning how to drive on the other side of the road once again. So I will say as we record this, it's tomorrow from where you guys are, so that's pretty interesting. Unfortunately, I can't tell you anything about like, you know, lottery numbers or anything.

[Joe Anderson]

Like that, but, well, let's get to it. We got 50 pages that I don't think we're even going to sniff here today, but at least we can get back in the routine. Dear ymyw, my name is Roger and I live in the home of the Pro Football hall of Fame with my wife Jane. All right, that's Canton, Ohio, for those of you that are taking score there. I've listened to nearly all of your podcasts over the last few years and love picking up your new content. Every Tuesday on my way to work, I drive a 2013 F150 Raptor. Now every single one of our podcasts. What is wrong with Raj here?

[Big Al Clopine]

That would be a lot.

[Joe Anderson]

That's a tough pill to swallow.

[Big Al Clopine]

He's committed. That's amazing.

[Joe Anderson]

That is commitment. That's not interested. That is committed. My wife still drives a 2018 Toyota Sienna minivan. All right, my drink of choice, a little bourbon, big bold cabernets in hazy IPAs. James prefers a lemon drop martini or a margarita with a quality reposado Cristiano Tequila. Is that right?

[Big Al Clopine]

Something like that.

[Andi Last]

Looks like it's Cristalino Crystalino.

[Joe Anderson]

I know what reposado is. I don't know what Cristalino is. All right, I'll be 54 this year. My wife will be 55. Our three girls are off to college and we're thinking about downsizing in a career lifestyle change in exchange for pre retirement bliss. I've been working for the same company for over 30 years. And while it's been a good ride and great for our family, I'm burnt out and looking for a change. I plan on retiring for my primary vocation next year after I turn 55. I do plan on still working on a part time basis. And Jane has gone back to work after supporting our family as our field general for over 20 years. All right, all my spreadsheets would suggest we are a go, but I'm looking for a little spitball affirmation to seal the deal. In addition, I'd love to hear if you see any blind spots I'm not aware of. So here are the details. Alright. Got your pen and paper ready, Big Al?

[Big Al Clopine]

Yeah.

[Joe Anderson]

He's got $1,900,000 in a 401. He's got $280,000 in a traditional IRA, 220,000 in Roth, $300,000 cash, $50,000 in brokerage, 50,000 in HSA. I'll do Big Al a favor. It's $2,800,000. Oh, look at this guy.

[Big Al Clopine]

Oh, that's helpful.

[Joe Anderson]

Very helpful. In retirement dollars and cash and brokerage, all retirement accounts are 100. We still have significant time horizon in liquidity right out volatility in the market. I don't intend to dial that down until I'm closer to age 65. We'll need $110,000 a year in our pre retirement phase. From 55 to 65, $50,000 of that will come from our deferred compensation ladder I've been building. Then the balance will come from Income from James job as well as part time consulting income I would like to generate beyond the $120,000 budget we anticipate drawing from my 401k. Using the Rule of 55 to fund any large expenditures, travel, cars, pool, we may decide to take all. The amount we pull from that account will ideally not exceed 2% annually until we are fully retired at the age of 65. What we are doing now to prepare for the pre retirement phase. Wow, this guy's read a lot of books. Or he's an engineer. He's got the phases down. He's got the rule of 55 down.

[Andi Last]

At least he hasn't said his go go years.

[Joe Anderson]

He's. Oh, if you said go go years I was.

[Big Al Clopine]

You would drop it in my low.

[Joe Anderson]

No, no, no, no folk years. What the hell is it called?

[Big Al Clopine]

Slow go, Slow go.

[Joe Anderson]

And the no go is the no go you're dead. Or the no go is you're just.

[Big Al Clopine]

No, you're. You're just sitting around tired.

[Joe Anderson]

Just. You're just tired. Got it. All right. We are selling our home of the last 14 years. We'll downsize into a recent build with limited need for maintenance over the next 10 years. In the process, we'll also eliminate the last debt we have that mortgage asset location improvements. While I believe the amount of assets we have will fuel our retirement goals, the location of those assets could use some improvement. So I'm backing off to just the match percentage of the 401k and in turn using those dollars to max out my ESPP at a 50% discount to double our brokerage position. We'll continue to contribute to our traditional IRAs and backdoor convert. We'll keep our eyes open to opportunistic deploy some of our dry powder cash into those investments. Oh boy. Opportunistically deploy some of our dry powder.

[Big Al Clopine]

That's. That's great. He has read a couple books.

[Joe Anderson]

Guaranteed he's an mba. He's gonna lean into it, circle back.

[Andi Last]

And add some color.

[Joe Anderson]

Yeah, yeah, we gotta add some color.

[Big Al Clopine]

Yep. I think he already did.

[Joe Anderson]

Can you speak more of that? Any variable compensation will be used to pan cash and brokerage balances. Things we plan on doing with our portfolio during our pre retirement phase. Convert all traditional IRAs into a Roth this 10 year period. Continue to build our brokerage account, allow the HSA to continue to grow and use those funds sparingly as they are triple tax advantaged at 65. We would attend on fully retiring in using a combination of Social Security $54,000 estimate and other assets to fund the Go Go lifestyle. There it is. The Go go years. Between 65 and 75. We are going to give ourselves a huge pay raise to do all the things we want. All right, the anticipated budget this period of time will increase to $210,000 post 75 will downshift back to $110,000 a year in today's dollar budget. Until we kick the bucket. My new nerdy spreadsheet saying all this works with a healthy amount of money left at the end. But what do you say? YMYW do the viable. Can I pre retire next year? What are other things that we should be doing to maximize our potential to succeed? Many thanks in advance for the spitball. The Goodells.

[Big Al Clopine]

Okay, well, there's a left there from Canton, Ohio.

[Andi Last]

So what is your take on starting at one level of spending, jacking it up in the middle, and then going back down? Does it usually work out where people can be that disciplined about their spending? Maybe if they have a whole bunch of nerdy spreadsheets, Yes, I think it's.

[Joe Anderson]

Feasible for sure for some. I mean, this guy for absolutely. I mean, he's got two MBAs. I'm guessing he's an engineer. I'm guessing he grinds on these spreadsheets. And absolutely super disciplined because he's watching this like a hawk. And I think as soon as he sees those account balances shift the way he doesn't want them to shift, he's going to pull back. He'll probably go back to work, he'll consult, he'll do whatever. But you can already tell with his planning if he's going to pre retire. I mean, he doesn't need any money from the portfolio for quite some time.

[Big Al Clopine]

That's what it says. Right.

[Joe Anderson]

And then so he's got a lot of time for these dollars to continue to grow because he's not taking any of those dollars out to spend.

[Big Al Clopine]

So I would say it this way, Joe. I think he did say he might pull up to 2% annually for trips, pools, things like that. So if you look at his current portfolio of $2,800,000, and let's just say a rate of return could be 6%. So we back off 2%. Just like where could he be in 10 years? So I did a 4% rate of return for 10 years. He's got $4,100,000. Okay. So that's what he has to work with. He's got Social Security. You know, spending at that higher amount with inflation could be the 210 could be as high as 280. So 280 minus Social Security. Maybe he needs 200, 210 from his portfolio, which might be even a little bit high. But on the other hand, I completely agree with what you said, Joe, which is here's someone that would know how to back off. So maybe we can't spend 280, but we could spend 250 and still have a great time. The point is there's a lot of assets here and there's a lot of Social Security income. So it's going to be a great retirement.

[Joe Anderson]

How many years does he want to spend? $200,000?

[Big Al Clopine]

I think like 10 years. Go, go years 65 to 75. I'm quoting it.

[Joe Anderson]

Hearing that makes me cringe. All right, so he's going to have 200,000 for 10 years and then he's going to tone down and then the $110,000 in today's dollars, his Social Security is going to cover a lot of that.

[Big Al Clopine]

A lot. That's right. Yeah. So I mean, so yeah, so it's. Good point. So even a higher distribution rate, if it comes back down could be great. I mean this is. But this is the kind of guy that's going to keep computing this every year. I think he just wants to know whether we think it's workable. And I would say it's workable, Joe. There's a lot of assets here and income and the spending could be ratch down depending upon how everything goes. So I mean some of that can spend 110 to 220. Back to 110. They've got discipline, right. So they can adjust as needed.

[Andi Last]

We'll dive into asset location and tax diversification for Roger and Jane here in just a minute. Roger has an employee stock purchase plan or an ESPP as part of his retirement recipe, one of at least 14 different types of retirement plans you may have available to you. How do you know which ingredients are the best for your unique retirement recipe? This week on youn Money, you Wealth tv, Joe Anderson, CFP and Big Al Clopine CPA outline the characteristics, benefits and drawbacks of defined contribution plans, defined benefit plans and equity compensation. Whether you're a worker, a self employed small business owner or a management or executive type, they'll break down your options from 401ks and IRAs to pensions and cash balance plans. From SOLOs, SEPs and SIMPLES to RSUs, NSOs and ISOs and ESPPs. Learn about all the acronyms and ingredients that can go into your recipe for retirement. Click or tap the links in the episode description to watch youh Money, you, Wealth TV and to calculate your financial blueprint for free to learn if you're on track for retirement. Now let's play would you'd rather So.

[Joe Anderson]

A couple things in regards to his strategy from an asset location perspective to be a little bit more diversified from a taxable to a tax free to tax deferred status. So he was fully funding his 401 plan and he said, you know what, I'm going to tone that down and then I'm going to take the dollars and invest in my ESPP plan at a 15% discount. And so those dollars. So an ESPP plan is an employee stock purchase plan for those of you that don't know. And so there's some rules and restrictions around that. So he's working for probably a Fortune 500 company that has a publicly traded stock and so he's able to purchase that Stock at a 15% discount but there's holding requirements for that stock. So if he purchased a stock, he either needs to hold it for a year, maybe 18 months. It really depends on the plan document and then he could sell the stock. But he's building up his non qualified account with this ESPP plan.

[Big Al Clopine]

Right.

[Joe Anderson]

Do you like that strategy or is there another strategy that you would do if you were in Mr. Rogers?

[Andi Last]

Roger Goodell.

[Big Al Clopine]

That's right.

[Joe Anderson]

The commissioner of.

[Big Al Clopine]

Yeah, that's right. I would be a little careful with that strategy because now you're getting close to retiring and you've got concentration risk in the company right now. Maybe it's a great company. We don't even know what company is. I don't know what industry, I don't know how it's doing. But one of the things that you want to think about as you get close to retirement is diversification because now it's less about earning the highest rate of return, but it's keeping what you have. And that's what diversification is good for, concentration. If you have a company and you get company stock and the company does well, it can go up quite a bit more than the market, but it could also go down quite a bit more than the market. So I just think you have to be a little bit careful there.

[Joe Anderson]

So what about this? You're the CPA of the family here. So is I'm looking at the tax implications of I'm not going to go pre tax, I'm going to pay the tax on these dollars and then I'M going to invest it into a brokerage. Let's just ignore the fact that it's an ESPP plan that gets a 15% discount, but let's just compare apples to apples. Here is that if I was not going to take the tax deduction, so it's an after tax contribution, wouldn't I rather do a conversion and get dollars into a tax free position? I mean, I think it's the same tax implications either way. But now I'm getting money out of a brokerage account and getting more money into a Roth ira. If I'm contemplating diversification from a tax perspective is that, hey, I want more money into a brokerage account. Well, I would absolutely be fine with $0 in a brokerage account and all my liquidity in a Roth. Does that make sense?

[Big Al Clopine]

Yeah, but I think at least the way I see it, the fact that he wants, he's got $1,900,000 in a 401 and another $280,000 in a traditional IRA, that's going to be a fair amount of tax to convert that all. And he doesn't have enough in his brokerage account and cash to do that. I mean, 300,000 cash is a lot, but you're going to want to probably save 100k just for emergencies. So maybe you've got 250,000 to work with. It's not enough capital to be able to convert that much. But I would also say what I'm.

[Joe Anderson]

Saying is this, is that, all right, here's the choice I have. I have $10,000 and I could go pre tax and let's just assume I'm in the 20% tax bracket. So if I go pre tax of that $10,000, I'm going to save $2,000 in taxes, right?

[Big Al Clopine]

Yep.

[Joe Anderson]

Okay. Or the decision is, you know what, I want to go after tax and I'm going to pay $2,000 in taxes and I'm going to put that into a brokerage account, right? And then if I put it into a 401, I save $2,000 today, but then I'll owe that $2,000 later. So if I did nothing with that same $10,000 that I have in an IRA and I convert that to a Roth IRA and I'll pay $2,000 in taxes. So where my head's going, and maybe we've been on vacation too long, but it's like if I don't take the tax deduction. So he's not putting dollars into the 401k because he doesn't want money in the 401, he would much rather have it into a more tax favored account. So instead of putting it into a brokerage account, wouldn't I would rather convert part of that IRA and take the tax savings that I would have got if I would have Contributed into the 401, take that tax savings that I'm foregoing by putting it into a brokerage account, just putting it into a Roth and stay that tax neutral.

[Big Al Clopine]

Yeah. So I think I see what you're saying. So you got, you pay the same tax either way.

[Joe Anderson]

Either way.

[Big Al Clopine]

Would you rather have that 10,000 end up in a Roth or in a brokerage account? And the answer is a Roth because you're not going to pay any future tax on the earnings and growth. So yes, I would rather do that. It simplest would be to fully fund the 401k with a Roth option. Right. And then you've accomplished the same thing. Assuming he doesn't have a Roth option, I would still fund the 401k and then do a Roth conversion with the traditional IRA. Right. In the same amount. And you end up with the money in the Roth. I guess the point you're making, which I agree with, is given a choice of paying the same tax, would I rather have money in a Roth or a brokerage account? And I'd rather have it in a Roth.

[Joe Anderson]

Would you rather have. Now I feel like I'm in high school playing.

[Andi Last]

Would you rather, would you rather.

[Joe Anderson]

Would you rather kiss Hillary behind the tree?

[Big Al Clopine]

Oh boy.

[Joe Anderson]

Or so. But would you rather have like invest money into an ESPP plan at a 15% discount or Roth with diversified portfolio?

[Big Al Clopine]

Yeah. Being that I'm close to retirement, I'd probably go Roth over espp. But that's without knowing anything about the company and the prospects for the company. If the company. I guess if I felt really bullish on the company and could get the Stock At a 15% discount, maybe I might do that. I think you got to consider that.

[Joe Anderson]

Yeah, well, a concentrated risk is not all that bad.

[Big Al Clopine]

No, it's not bad.

[Joe Anderson]

That's how wealthy get wealthy people get wealthy.

[Big Al Clopine]

I'm just saying that as you get closer to retirement, you probably want to get out of the concentrated risk and get into diversified.

[Joe Anderson]

Okay, cool. Well, he's 54 and 55. I don't know. Big hot rod. He wants to retire next year. He's 100% equities. He's like, man, I'm not slowing down either. I'm just going to bang out that bourbon in My big bold Cabernets. Things get bad, I just switch to.

[Big Al Clopine]

The hazy IPA I've got, which I agree with. I like. And I like big bold Cabernets, so I'm right with them there. But I would also say, Roger, I don't think you need to convert your whole thing because here's what happens. You convert in a higher bracket, then you end up in a 0% tax bracket. And. And you might as well. You want to save some money in the IRA 401k, because what if you need it for medical? Right. Because that's going to be deductible anyway. Or what if you want to fill up those 10 and 12% brackets? Right. But you pay tax at 24% to save the 12%. So I would back off on trying to convert everything, but I like the concept. Convert as much as you can.

[Andi Last]

This all brings me to a question that we actually got on our YouTube channel, which I wanted to bring up now. Somebody said, this is in response to the conversation about holding higher performing assets in your Roth. Al, in the conversation that you had with Susan Brandeis last week, he said higher performing assets in the Roth is also taking on more risk. This needs to be understood. All stocks in the Roth right before retirement could give you a nasty sequence of returns. Just saying. And then somebody replied to that and said, true. And you can't write off the losses in the Roth. So putting your risky stocks there might be a mistake. So I'd choose to say you two about that.

[Big Al Clopine]

Well, if you look at that show, I'll answer that. Yeah, so I think I wouldn't pick like stocks, I would pick asset classes. Right. So certain asset classes tend to perform better than others. Over the long term. I would put those in the Roth. I would ignore the short term. The thing about putting riskier asset or asset classes in a Roth IRA implies that you have time to write out the volatility. If you don't, then don't do it if you need the money. If your strategy is to withdraw from the Roth, then make sure you have enough safe money in the Roth to be able to withdraw so that the riskier asset classes have the chance to kind of go down and then come back up. So that's what I would say to that.

[Joe Anderson]

Yeah, no, well said. I agree with that 1000%. If you're worried about sequence return risk in your Roth, then that is telling me that you're taking dollars from the Roth to live off of. So sequence of return risk is volatility in the overall accounts as you're taking dollars out to live off of volatility is your friend as you're contributing to those accounts. So you want to make sure that you have the appropriate strategy as you approach retirement. And if you're taking dollars from the Roth, of course you want to have safe asset classes in the Roth to determine whatever distribution that you're taking from that account for whatever years. But as you're accumulating wealth, as you're growing your wealth as well, you want to make sure that you have the highest performing asset class within that account. You don't want it in your retirement account if you have the option, and I agree with both of those statements, is that I would want more aggressive asset classes in my Roth or my brokerage account, because then of course, you can write out the losses in your brokerage account. We see that mistake quite a bit. And just the last hot rod or Roger Goodell, he's got $300,000 sitting in cash and he's got $50,000 in a brokerage account. And then he wants to stop putting money into his 401 plan and put more money into his ESPP plan. I would say put $200,000 up your 300,000 in cash and invest it if you want more liquidity or cash. He's said he was going to take the rule of 55 and take it out of his 401k. If you want a little bit more cushion, then put your 401 in cash. You want to have a little bit more volatility in those types of accounts to take advantage of taxes. But once people have money outside of a retirement account, they treat it completely different. We see piles of cash and safe investments. And then you look at their 401k plan and it's very aggressive. And then they got very little money in Roths and they think they're diversified. I'm like, well, you got your head in the freezer and your feet in the oven. You're going to die. That's not diversification. That's not how you keep warm. When people don't have money in the retirement, since it's closer to them where they can spend it, they invest more conservatively in most cases.

[Big Al Clopine]

Well said.

[Joe Anderson]

Thanks, buddy. Get warmed up.

[Big Al Clopine]

Here you are getting warmed up.

[Andi Last]

It's been a while now that Joe's all warmed up. Next week we'll pick up where we left off. Can Beth and Rip retire early, spend more and die with zero? When should they claim Social Security? Forrest and Jenny have 10 rental properties at age 31. Can they retire at age 50? Memphis needs to know the rules for spousal ira contributions and RMD, and I'll also have your chance to win a $100Amazon gift card just for telling us what you think about the podcast the 8th annual YMYW podcast survey opens next Tuesday, July 29th. Don't miss it. For more on which assets to put in which accounts, download why Asset Location Matters for free. Find out how to boost your investment returns simply by paying less tax on your investments at the right time, for the right amount of time. Link in the episode Description your Money, you, wealth is your podcast. Wade into the comments with me on our YouTube channel just like those folks did earlier and joined the conversation. Leave your honest reviews and ratings for YMYW and Apple podcasts. Mention the show to anyone who might dig it. Redditors, we see you and we love you. Even if you did call Joe and Big Al Old men. Wow. Your Money, you, Wealth is presented by Pure Financial Advisors. If you're worried about outliving your savings and wondering if you're on track for retirement, don't rely on a spitball from Joe and Big Al. Sit down face to face, either in person or online, right from your couch with one of the experienced professionals on Joe and Big Al's team at Pure. It's free, just like a spitball, but they'll take a deep dive into where you are now, where you want to be in the future, and the smart ways to get you there. Just for you. Click or tap the free Financial Assessment link in the episode description to book Yours or call 888-994-6257. Pure Financial Advisors is a registered Investment advisor. This show does not intend to provide personalized investment advice through this podcast and does not represent that the securities or services discussed are suitable for any investor. As rules and regulations change, podcast content may become outdated. Investors are advised not to rely on any information contained in the podcast in the process of making a full and informed investment decision.