0:00

Andi: Cinderella and her Prince Charming have a nest egg of $2.3 million and are hoping for

0:05

retirement income of up to $150K/year. How should they coordinate paying for some big purchases,

0:11

paying off debt, and collecting Social Security benefits so they can live happily ever after?

0:17

That’s up next on this bonus episode of Your Money, Your Wealth, or YMYW Extra.

0:22

I'm producer Andi Last, and you, the YMYW listeners, have sent us so many

0:27

excellent retirement spitball requests that Your Money, Your Wealth® hosts,

0:31

Joe Anderson CFP®, and Big Al Clopine CPA can't even handle them all. so I’ve enlisted the help

0:37

of senior financial advisor Jack Dugan, CFP from Pure Financial Advisors in San Diego to help out.

0:44

It's important to note that this is just a spitball, for educational purposes only.

0:49

Even though you've given us a lot of details, we don't know everything about

0:52

your financial situation, so don’t take this to the bank! Here’s Jack’s spitball:

0:57

Jack, thank you so much for taking the time today. I really appreciate it.

0:59

Jack: Oh, my pleasure, Andi. Good, good to be here.

1:02

Andi: So tell me your status right now. Are you doing kind of the Big Al thing where

1:07

he was hoping to retire at 47 and here now 20 years later, he's still working?

1:11

Jack: Yeah, pretty much, pretty much the same. I just kind of- I've gotten rid of

1:17

the majority of my clients and I'm just kind of hanging on to see where I can help out as

1:24

needed. So I still feel like I've got enough in the game that I'd like to stay interested in it.

1:30

But on the other hand, I do like my free time.

1:33

Andi: There you go. And, and kind of like Al, he enjoys doing the podcast.

1:37

So here you are. Thank you very much for volunteering your expertise in this case.

1:41

Jack: Oh, my pleasure. Andi: All right, so let's see what Cinderella has to say. So this email comes to us from back in

1:47

January. That just goes to show how behind the guys are. So here she goes. She says,

1:51

“Love your goofiness, guys. I am Cinderella because I married my Prince Charming 38 years

1:56

ago. We now live in Washington State, moved from California to keep a little more money

2:00

in our pocket. She drives a 2014 BMW 3X, just about to turn 100,000 miles on it.

2:07

It works great. So she's keeping this old ultimate driving machine until she has to

2:11

replace it. Her husband drives one of 3 vehicles, a Ford F150 in the cold months,

2:17

a 2018 550 Mercedes in the warm months, and when they're traveling in their motor home, he drives

2:23

it and the 2012 in perfect condition Mini Cooper they tow.”  Jack, what do you think about that,

2:30

in terms of cars? I guess that's kind of heading towards retirement, isn't it?

2:33

Jack: Well, absolutely. I love the fact that they keep cars, the,

2:38

and I'm really happy to see she's got a 2014 BMW.  The U. D. M. That she refers to. I'm

2:46

really happy to hear that because my wife and I just purchased one a couple of years ago,

2:51

and I'm hoping to get that kind of longevity out of it. So I'm really happy to hear that. I think

2:56

that's great. And they and the good thing is they've taken good care of their cars.

2:59

They have the motor home, so they're gonna have some fun. So no, they've done well.

3:04

Andi: All right.  “Prince Charming prefers a small batch bourbon,

3:09

and she likes all of the spirits and will drink whatever spirit is appropriate for the

3:13

occasion. Margaritas with Mexican food, for example.” Jack, what's your drink of choice?

3:18

Jack: I like that margarita. I also like to have a little bit of a floater of Grand

3:23

Marnier on that margarita. That makes it a premium, and that's right up my alley.

3:28

Andi: I was gonna say, that sounds like it's quite the premium drink. “Their dog Gizmo lives up to

3:34

his name. He is a delight, however, and she is his emotional support human.” I like that. Very nice.

3:40

Jack: Very good. Andi: “Hubby is 67, Cinderella is 60, and she's hoping for a spitball to gauge when she can retire

3:47

and the max income they can realistically expect. She says, I'm hoping for $144,000 to $150,000,

3:54

but don't think we will get there. We're both in good health, so this money will have to last

3:58

us for 30 years, fingers crossed. Now, before you read my numbers, I know I should have saved more,

4:04

but both of my parents died before they turned 60. So we chose to live like there was no tomorrow

4:10

while trying to save something in case there was. We've traveled the world, had big homes and

4:15

accumulated a lot of stuff. Sadly, I just found your podcast and didn't have any financial goals.

4:21

Joe, go ahead and let me have it for not preparing properly.” Joe wouldn't do that. What do you mean?

4:26

Jack: Oh no, Joe would never jump on something like that.

4:29

Andi: Yeah, right. Jack: I think, you know, just by looking at what she's saying. I kind of agree with her,

4:36

but I'm going to give her a C+ on, on the savings. I think she's done,

4:40

they've done a pretty good job and, and depending upon, I mean,

4:43

when I was in undergraduate school, a C+ was, was all I ever needed.

4:48

Andi: Hey, it passes you, right? Jack: That's what all I needed.

4:52

Andi: All right.  “She says we did okay, but should have twice what we currently have because

4:57

we had incomes that would have supported saving more.” Hey, they had a good time. So let's get

5:02

into the numbers. She says “Our current spending is roughly $9000 to $11,000 a month. Total is

5:07

$2,300,000 in retirement and cash accounts. And here's how it breaks down. $100,000 in two CDs,

5:13

$60,000 in special savings accounts for a new roof and a new car, which will need to be replaced

5:18

in the next couple of years. They'll stop saving when the account reaches $115,000 in approximately

5:24

15 months.” Jack, what do you think about having separate accounts for specific purposes like that?

5:30

Jack: I think that's a great idea.  Number one, we always want to have an emergency

5:34

reserve and especially as they're getting close into retirement, they want to have some

5:41

excess money to where they have different choices to pull funds from. So good job.

5:47

Andi: All right, “$13,000 in her local credit union. Her 401(k) is valued at $1,000,000,

5:53

roughly $80,000 of that is in Roth. However, starting this year, 100% will be in Roth until

5:59

she retires. The hubby's 401(k) is $1,000,000, all pre-tax dollars. Hubby's IRA is $9000. Her

6:06

IRA is $50,000. Her Roth IRA is $8500. They've got an after-tax brokerage of $125,000. Emergency

6:13

fund $20,000, she says, which is light. Then she lists as an asset a Galapagos trip of $25,000.”

6:20

I'm assuming that's actually an expense. Although it is an expense- it is an asset, right?

6:25

Jack: It will definitely be an asset after they go on that trip.

6:29

Andi: Right. “Total annual income is $444,000. So hubby sold his business and gets $5000 a month,

6:37

but this ends in August of 2024. They're going to use the buyout to pay down or pay

6:42

off the house. And that is not included in that $444,000. Hubby Social Security is $3620 a month,

6:48

which they are putting into the new roof and car account. She also makes $320,000

6:53

plus profit sharing for an average of $400,000 a year.  Now in terms of savings, she's maxing her

7:00

401(k) at $30,500. Her employer matches roughly $12,000 a year. She puts about $21,000 into their

7:07

brokerage accounts and they've got $6000 a year going to their credit union savings account. So

7:12

total planned savings is $69,500 per year. And then unplanned with her profit sharing,

7:18

she puts money into the new roof and new car accounts and into the emergency fund. Now,

7:24

for Social Security, if she retires at 64 and 4 months, her monthly benefit would be $3,000.

7:29

If she waits until full retirement at 67, it'll be $3,700. Total debt is about $130,000. That's

7:35

$24,000 about, on the house, which will be paid off in June of 2024. and the motorhome

7:41

is about $130,000 that is owing.” So, I guess her first questions are, let’s see,

7:49

can they retire and when can they retire and what income can they realistically expect? And

7:54

then she's got another question at the end. So let's talk about her numbers. Can she, can they

7:57

retire? When can they retire and what kind of income is reasonable for them to expect, Jack?

8:02

Jack: Yeah. So let's first of all, talk about their target for retirement is the dollar amount.

8:09

And this is the one thing that I think most people, as we get closer to retirement, kind of

8:17

mess up on and the reason I'm talking meanness is she's making and I'm just going to round it off,

8:23

she's making $400,000 a year. Okay, so if I’m making $400,000 a year, she's in a state that

8:30

there's no state income tax. So that's good news but let's just say she's in the 24% tax bracket,

8:37

so 24% of the of the $400,000 is roughly $100,000. So she's going to have $300,000 worth of spendable

8:46

income today. Now she's saving almost $70,000 a year. So right now, from what I'm hearing,

8:56

they're living off of about $230,000. Where I get concerned is when somebody says,

9:03

I think we can do it at $150,000.  And it's like, well, whoa, whoa, whoa. Why did we go

9:08

from $230,000 to $150,000? What are we cutting out? And is Gizmo not gonna be eating during

9:15

retirement? So that kind of concerns me and I think it's really important for people to take

9:23

into consideration what is your income now. And realistically, how much different is that going

9:30

to be in retirement. Because most of us, we want to live the same way tomorrow as we did yesterday.

9:36

Andi: And when you got more time, that means you spend more, right?

9:38

Jack: And that's really the big thing. And plus, if she wants to retire early,

9:42

which I think she can, but she's 60, so she's going to have a gap before she hits 65. So say,

9:50

for example, she goes, I think I can work another couple of years. I can increase our savings,

9:55

which would be a great idea. But so now if I have, if I, if I'm retiring before I'm 65,

10:01

I'm not Medicare eligible. So now I've got another expense of healthcare, which depending upon how,

10:06

whether her employer has been paying it now or whether she's self-employed, I'm not sure, but if,

10:11

if the employer has been paying it, now all of a sudden we have another $15,000 a year minimum.

10:17

Andi: And that's something she didn't even take into account in this, did she?

10:20

Jack: Exactly. So that's going to be increasing the expenses plus

10:24

every day Saturday, and we get to go do things, and we like to go out to eat,

10:29

and we like to travel, and we see how expensive everything is.

10:33

Andi: $25,000 in the Galapagos. Jack: Yeah, exactly. So those are the kind of concerns that I think they're on. She's on track.

10:38

So one of the things that I think she should look at with Prince Charming, is looking at what is

10:47

a reasonable amount of money that we're going to expect in retirement. I think based on, you know,

10:54

what they do for Social Security, he is currently taking Social Security, if I remember correctly,

11:00

and he's 67 years old. One thing he might consider, and this is just a thought,

11:06

is he might be able to suspend his Social Security. Now, why would he want to do that? Well,

11:13

the reason you might want to consider that is because then if he suspends it,

11:17

he'll continue to get the increases from then on until he was 68, 69, 70. Those increases are

11:24

8% a year plus the additional cost of living adjustments that come on top of it. So it's

11:30

something to consider.  But that being said, even if they- when if she was to take it, I think she

11:38

mentioned about taking it at 64 or something like that, between the two of them, believe it or not,

11:45

they're going to have about $80,000 worth of gross income between Social Security. So they both got

11:52

pretty good Social Security incomes coming in. So if I'm at $80,000 and I needed to, you know, I'm,

12:00

I'm trying to get to be $150,000, which I think they need to go higher than that. But let's just

12:05

say with her information, well, that means I'm about $70,000 short.  Okay. Well, believe it or

12:14

not at $2,300,000, you're not that far off. You know, you're in pretty good shape. But I

12:21

think … and we want to make sure that that glass chariot lasts throughout the entire retirement,

12:30

I'd like to see that $2,300,000 to get up to be $3,000,000. That would be my target for them. Then

12:36

they have a- if we use the 4% rule, they have a distribution of $120,000 a year plus the $80,000.

12:44

Now they're living off of $200,000. That's a heck of a lot closer to where they are today-

12:48

Andi: Much more realistic. Jack: - and we have inflation, I think it might be a little bit more realistic.

12:52

Andi: Yep. Jack: The other thing from a tax perspective that I think they need to consider is she's

12:58

saying now she's putting the money into her Roth account, which we love. We love to get

13:03

money in the tax-free account, but one thing she might want to take a look at is if her income

13:09

somewhere is around $400,000. Well, if that's the case, the taxable income limit to keep me

13:19

in the 24% bracket is right around $389,000. So it might make sense if I'm deferring money

13:29

and I'm losing the benefit of that because anything over $389,000 is gonna be taxed

13:34

at 32%. It might make sense to put that money in the tax-deferred. I know we want

13:39

to get there. We want to get that out of that tax-deferred account. But if she retires early,

13:46

say at that 64, well, then if she's built up her savings in the non-qualified account,

13:54

will be able to live off of that for a couple of years and be able to convert a whole bunch

14:00

of money, $300,000, $400,000 into the Roth at that time at a much more favorable tax rate.

14:06

Andi: Fantastic. Great strategizing. Okay. One last question that she's got,

14:10

“Would it be a good idea once the roof and car account is fully funded to use her husband's

14:15

Social Security money to pay off the motor home? If we did do that, it would only take 35 months

14:20

to pay it off. Just shy of 3 years. Or should I stop saving for the car and roof and pay off

14:25

the motorhome first so it would be paid off when I'm 63, which might allow me to retire sooner,

14:31

or if the other number works out. Love, love, love your show. Andi is great. Maybe she should read

14:36

the question for Joe.  However, I love it when he reads them. He does a great job and I love it when

14:40

he makes an error because he makes a bigger deal of it than it is. Funny stuff. Love ya,

14:44

Cindy.” Cinderella. Thank you so much for that. I appreciate that. And just for you.

14:48

I'm reading the questions today. It just happened to work out that way.

14:51

Jack: And she didn't make any mistakes.

14:54

Andi: Well, I don't know about that.  So what do you think about which should be paid off

14:59

first and how do you- how do you think she should work that Jack?

15:01

Jack: Okay. First of all, you want to look at is what's the interest rate on the motorhome.

15:07

I imagine it's probably over  6%, 7%.  Might- I mean, I've seen loans that are for motor homes

15:16

that are at 10%. So I'm not sure where theirs is. But if that was the case, anything over 5%,

15:23

that's got to go. We've got it- that's gonna be a top priority. And the other thing too,

15:27

to remember is once they get into retirement, they're going to have the house paid off,

15:31

which is going to be great. If we could get the motor home paid off now,

15:35

it's debt free for me and we're in good shape.

15:38

Andi: Fantastic. Jack: Cashflow is King and you've just reduced your cashflow needs.

15:43

Andi: Yep. And then that, yeah, it all works out that well.

15:46

Andi: So what other suggestions would you have for this couple, Jack?

15:50

Jack: I think the other thing that they want to do is try to build up that brokerage account

15:56

so that when they do get into retirement, they're going to have funds that they can

16:00

pull out. So that's going to allow them to do Roth conversions once he retired or once she retires.

16:05

And her income has reduced dramatically. So I think that's the focus would be, is yep, we're

16:09

going to get into that Roth conversion, but we're going to have to put it off until she retires.

16:13

Andi: That is Jack Dugan, CFP® from the Pure Financial Advisors office in San Diego. Jack,

16:19

thank you very much for stepping in and- and filling the shoes of

16:22

Joe and Big Al here so that we could get some of these questions answered.

16:25

Jack: My pleasure. Andi: Cinderella, thank you so much for your question, and for your patience. YMYW listeners,

16:31

join the conversation on our YouTube channel. I’m in the comments every day,

16:37

responding to you and letting Joe and Big Al what you think, because Your Money,

16:41

Your Wealth is your podcast, and the show wouldn’t be a show without you.

16:46

Click the links in the show notes to get free access to helpful guides and white papers,

16:52

blogs, educational videos and more to help you get retirement ready. You can

16:57

also subscribe to the YMYW newsletter, so you never miss Joe and Big Al on the Your Money,

17:02

Your Wealth TV show and podcast. To really make the most of your money and your wealth,

17:08

you need more than just a spitball. When you’re ready to get serious about crafting

17:12

a retirement plan customized for your retirement needs and goals,

17:16

schedule a free assessment with one of the experienced professionals at Pure Financial.

17:21

Help us grow Your Money, Your Wealth® by sharing the show, and by leaving your

17:24

honest ratings and reviews in Apple Podcasts and any other podcast app that accepts them.

17:30

Your Money, Your Wealth® and YMYW Extra are presented by Pure Financial Advisors,

17:35

a registered investment advisor. This show does not intend to provide personalized

17:39

investment advice through this podcast and does not represent that the securities or

17:42

services discussed are suitable for any investor. As rules and regulations change,

17:47

podcast content may become outdated. Investors are advised not to rely on any information contained

17:53

in the podcast in the process of making a full and informed investment decision.