Ep. 2009: Finding Your Fiduciary

SPEAKER_04 1:04

Where are you, my fiduciary? Yeah, finding a fiduciary, it can be a bit of

Finding the Right Fiduciary Advisor

SPEAKER_04 1:12

a challenge. And what do we mean by a fiduciary? Well, we mean someone who is always supposed to look out for your best interests, supposed to do what is best for you, not them. And why do we talk about fiduciaries? Well, because uh investors should expect nothing but fiduciary advice. And we're going to talk about that today, how you find the right kind of financial advisor. I'm Don. That's Tom. This is Talking Real Money, the show that makes money make sense so you can make more money.

SPEAKER_01 1:43

And uh make more money musically. You got to put that.

SPEAKER_04 1:46

Make more money musically and financially and physically and physics.

SPEAKER_01 1:51

And by the way, one add to your fiduciary thing. We're talking about a 100% fiduciary, which is something you pointed out like 10 years ago. Not 98.9%. There's a lot of people out there that hold themselves out as a fiduciary, and they are sometimes, and then sometimes they're salespeople.

SPEAKER_04 2:08

Yeah. The impetus for this topic today came, of course, from a recent article we read in the Wall Street Journal by a gentleman, uh reporter by the name of Brian Hirschberg. And he starts his article off by saying this is, and this is so typical, and that's normal. It's not bad at all. He says, for 25 years I managed my family's finances myself. Then I had one of those milestone birthdays. Oh, you mean the getting old birthdays that make you think about life, death, and retirement.

SPEAKER_01 2:44

Yeah, it's a fascinating piece. So, what did he do? He decided that uh maybe he should get an advisor. He said, What if I die tomorrow? Would my wife know what we owned, where everything was, and what to do next? My wife would not. I love my wife dearly, but she knows who to call.

SPEAKER_04 2:59

Uh we have an advisor. You have an advisor. And that's just, by the way, that's just one of the reasons, but it is a big reason. When you're getting when you have built wealth over a lifetime, as many of you have, I know that our audience does not reflect the average American because the average American, I hate to say, hasn't built wealth, but the average American also has absolutely no interest in listening to a financial podcast, I've heard.

SPEAKER_01 3:27

Or I can tell from a musical financial podcast.

SPEAKER_04 3:32

We are nowhere near the number one podcast. That and that podcast, the number one podcast, does not talk about money.

SPEAKER_01 3:39

Guess what it talks about? We're not even going to go there.

SPEAKER_04 3:42

It makes the host a lot of money.

SPEAKER_01 3:43

Oh, yeah, that's true. So he also, by the way, worried that after several, this is his own writing, Brian's several strong years for U.S. stocks, our portfolio had become too concentrated and exposed to a crash or correction. Now, this is something that we talk about fairly regularly because there's a lot of concentration risk in the in the

Where to Search—and What to Watch For

SPEAKER_01 4:04

market in my mind. But he decided he got to find an advisor. He wanted to find a fee-only advisor who would act, as Don just pointed out, a fiduciary. Where'd he go? I think he went very reasonable to the National Association of Personal Financial Advisors. That's known as NAPFA. I think you could also go to the uh it's I gotta look this up, I always forget. FPA, Financial Planning Association, similar. CFPs, they write plans, they they manage money, et cetera. So that's what he did to find an advisor. Um, what he found is to me, I think what you would find if you went to those organizations to find one. Number one, and by the way, the big birthday, he's still kind of a young guy. He's only 50. That's very good.

SPEAKER_04 4:50

Well, but you know, at the time, that seemed like a big birthday.

SPEAKER_01 4:53

Yeah, at the time. It did. It doesn't now, but it did then. Yeah, exactly.

SPEAKER_04 4:58

But also 30 felt like a big birthday, and it was it minor.

SPEAKER_01 5:02

It was big, it was big while it lasted. Then I went, anyway, it's a whole other story. But the thing is, he went and looked at these firms. So the first one he went and talked to, he kind of liked them. Uh, but he found out they only work with clients of a certain asset level and he wasn't even close to it.

SPEAKER_04 5:18

So Well, and by the way, that is gonna be the case uh with a lot of advisors because uh uh you may look at the amount of money they charge and go, that's a lot of money. But having founded together a financial advisory firm, we know that small clients, while you may you may feel like it's a lot of money at your level in life, your point in life, for a firm in the financial advisory business with all the regulations and all the legal requirements and all of the things you have to do and the employees you have to have and the technology you have to employ, the costs, you you're if you have less than a half a million dollars, you're a money losing client.

SPEAKER_01 6:02

That's so funny because that's the number I wrote here in in the in on the article. Is if you don't have half a million, you're gonna have a hard time finding an advisor. And frankly, if you do find one, I worry a little bit because uh what kind of business are they running? So anyway, so he he talked to one firm, they said you don't have enough, you're you're not there. Um then he said he found another one, but he got worried because it's a loan advisor who is relatively new to the industry. Yeah, I gotta agree with him there.

SPEAKER_04 6:31

Think about that for a minute. If if I was a firm, or let's say Tom was a firm, because uh he's healthier probably than I am, although not right now. If let's just say Tom was a firm, you meet with him, you go, yeah, okay, I don't care that he's pushing 70. Oh um I I like I like what he does, but you know, there can be a big surprise a year, two, three, four down the road that could put him out of commission if he was a sole practice. Yeah, who's gonna help? You want a firm.

SPEAKER_01 7:04

You think that's a risk? That's a risk in two ways. Number one, that they don't have a lot of experience, because you do need somebody who knows a lot of stuff, right? Even though we started, we didn't have a lot of experience in day-to-day stuff, we figured it out.

SPEAKER_04 7:16

Not it, not the day to we had a lot of experience in the portfolio management business, but not in the day-to-day operations. Boy, do you get surprised when you open a registered investment advisory firm with the stuff you have to do. You have to have a compliance department.

SPEAKER_01 7:32

Shockingly. Gosh. Gosh, I remember we had a guy come in and go through every piece of paper. Oh, shocking. Anyway, that's one aspect. And the other is what you just said. Something happens to that advisor, you really kind of want to have backup. It's it's risky. So um that little bit of little

What a Good Advisor Should Review

SPEAKER_01 7:53

bit of trouble there. But then he liked, by the way, uh the way they summarize the financial situation, the approach to managing money, which was uh passively managed index funds. I really do like that. That was that made sense to me. So you got to find the right fit uh in that regard. And then the thing that really, I think, surprised him, Don, was the fact that he writes for the Wall Street Journal. He thought he had his finances and everything in order. And he found out, well, they want more than just your portfolio. They want to look at your insurance, your employee benefits, materials, your estate documents, tax information, other records that frankly, he in his own words, he hadn't looked at in years. And this is something a good advisor is gonna make you pull all that stuff out because it's got to be part of the overall plan.

SPEAKER_04 8:44

A good advisor, as opposed to product salespeople who really don't do they they they hold themselves out to be advice providers, but they don't want all that stuff. They don't want to know everything about your financial life, they don't have time for that. They got to get prospecting. It's time to move on to the next sale. Um and and uh again, all of those services that need to be provided by an advisor, well, as we said, they don't come

Understanding the Cost of Advice

SPEAKER_04 9:14

cheap.

SPEAKER_01 9:14

No, they don't. And that was the surprise number three for him. He said, I knew I wanted a fee-only fiduciary advisor because I didn't want conflicted commission-driven advice. What I hadn't fully comprehended is how much an ongoing financial advisory relationship would cost. This is where it gets interesting. Now, he the firm he hired charges an annual fee ranging from between half a percent a year to one point two five percent a year. Now, which is one that we're it's in the reasonable spectrum.

SPEAKER_04 9:44

The one two five is a little too high.

SPEAKER_01 9:46

Yeah, I still think that's 25% more than you need to pay. And that's the way you should look at it. Because I think you can find very fine firms that cap out at 1%. Um and he he got over it by thinking about the big picture. It's not just portfolio management, it's retirement planning, accumulation, decumulation, tax, insurance, estate planning, sounding board for decisions, which I think is something that's well worth it as in in addition. So he got around all that mentally, emotionally by saying this is more than just building a portfolio and rebalancing it. I think that's absolutely right. Right.

SPEAKER_04 10:22

And and while you you look at the fees, let's use a a a 1% advisor. You have a let's just mix the numbers easy. You have you have a 1% advisor, you have a million dollars, you pay $10,000 a year. You think to yourself, ah, dang, that's a lot of money. Yeah, that's a nice trip somewhere, even with Tom. And we get it. You're paying that. You actually see it. You see a bill, you see it. It's on your statements, like comes out and you go,

Advisory Fees Versus Hidden Fund Costs

SPEAKER_04 10:48

uh it would be like it's an analogy for it is let's say every paycheck, you had to write a check to the IRS for the taxes.

SPEAKER_01 10:57

Imagine that.

SPEAKER_04 10:58

25%. You'd be going, I pay that much in taxes, but you see, it's taken out, so you don't. And the the analogy to that in the financial industry is the actively managed mutual funds, some of which have commissions. For example, let's use the American funds. Let's say you went to a broker, you went to Ed Jones. Yep. Okay. Uh and Ed Jones uh oh oh, let me do it, let me do it with the C hole.

SPEAKER_01 11:24

Because they're gonna be able to do that. But no, I'll use it. I'll use the Eds.

SPEAKER_04 11:27

Let's say you go to Ed Jones and they say, tell you what we're gonna do, because remember, if you don't buy, if you don't hire them as an ad a fee-only advisor, they do fee-based work. But if you're just hiring them as a regular old broker kind of person, and they say, well, tell you what, because I don't really want to manage your account, because I can't afford to do that because I got to be selling the next client, let me put you into this American funds target twenty fifty-five fund. The class A.

SPEAKER_01 11:54

Yep.

SPEAKER_04 11:55

Okay?

SPEAKER_01 11:56

Class A front load.

SPEAKER_04 11:58

And I'm gonna look up, yeah. The the f the load, the upfront commission is five point seven five percent. Now that's on a hundred thousand dollars. You get breakpoints in a million. Break it up. So let's use a hundred thousand. You you put a hundred thousand. You had a hundred thousand with a fee-only advisor at one percent. That's a thousand, right? Yep. That's right. Is that right? No. That is no, it's a hundred. No, it's a thousand at a hundred thousand. You had it right the first time. Yeah, I had it right the first time. You got questioning me. Don't question me. I no, I questioned me. I was gonna Did I do that right? You put a hundred thousand in the American Funds 2055 target date class A fund, you've just handed out fifty-five, almost fifty, six hundred dollars. And you don't get the ongoing advice. You don't get any ongoing advice. And you're paying the advisor one percent per year, you're paying American funds seven-tenths of a percent a year. There you go. So on a million dollars there, you'd be paying seven thousand as opposed to ten thousand, and you're not getting any personalized advice.

SPEAKER_01 13:01

Simply the management of the money in that fund. That is it. That's outrageous in my book.

SPEAKER_04 13:07

But well, it's not, it's not it's the norm, but when you've got to think about this in the right way. Paying that fee can often be, even though it feels like a lot, a lot cheaper. And I think that's part of the reason that Vanguard, I know it's part of the reason. We've talked to them, that Vanguard arrived at the conclusion after great uh amounts of of research and study that having a fee-only advisor actually has proven to make you more than the fee.

SPEAKER_01 13:43

Yeah, uh it's somewhere around 3% a year. I don't want to get too far into that study because you go look it up.

SPEAKER_04 13:48

Yeah, but I want to get into that because again, he raised this issue that fee only doesn't mean inexpensive, but actually fee only can mean if you find the right fee only, who uses the right kind of products, it can mean paying less money and making potentially more money.

SPEAKER_01 14:05

Yeah, I concur. Study has shown. But let's go on to a couple of these other ones here before we go to some questions that we have

Risk, Control, and Letting Go

SPEAKER_01 14:12

waiting. Number four, he says risk is in the eye of the beholder, which is kind of an interesting discussion, which stocks are riskier, et cetera. To me, that's not as important as number five, which I think is for most people that have spent time on all this, have devoted a portion of their lives to managing their money, is uh letting go of that of the money because we ran into many of you, and that's part of the reason you listen to the podcast, because I want to be knowledgeable enough to manage my own money that have been do-it-yourselfers, which is fine. I talk to many do-it-yourselfers. And by the way, they always apologize, like, I'm not gonna hire you. Yeah, okay. We knew that's fine. That we knew that. That's not a problem, but they have a hard time letting go, they have a hard time selling things that have done well, and they have a hard time letting somebody else be the planner and let things take off on their own.

SPEAKER_04 15:05

He said something that really resonated, and I know it resonated, it has to resonate with you. He said, Then I hired someone to essentially tell me that some of those decisions were wrong.

SPEAKER_01 15:19

It's hard.

SPEAKER_04 15:20

You do it all the time when you meet with people. They go, I've been following all of your advice, I've been doing everything you said, and then you look at it and you go, Who were you listening to? Which advice were you following?

SPEAKER_01 15:31

It wasn't ours. I think you have the wrong show. Yeah. It's it it it can be, but just and then having to sort of swallow and say, Well, I guess you're a professional, you know better. Well, it's not just me, by the way. It's not this isn't my I didn't write the book on all this stuff. I read it, but I didn't write it. Well, um, so it hurts the ego.

SPEAKER_04 15:48

It is. It it does our egos are very fragile as human beings, and it hurts when we've been working really hard or we think we've been making great decisions, and some idiot like Tom Cox says, Yeah, none of these were good.

SPEAKER_01 16:04

How do you think I feel Saturdays, you know, when I'm out there refinging and I hear from you know some idiot that tells me I'm wrong about that, too?

SPEAKER_04 16:10

Well, but you are, you're a referee. Come on.

SPEAKER_01 16:13

You're always wrong.

SPEAKER_04 16:14

You guys I think you just you guys are just purposefully. You're just constantly you're just doing it to annoy people.

SPEAKER_01 16:20

You know me well enough to know that's probably the case. This is a great piece. This is this spells things out in a very realistic manner. Here's what I will say at the end of it all. He's 50, he's still fairly young. So I don't know that if you've been the person managing the money all the time, that that's critical at that point. I've often said I think you should get a plan after 50 and that you should consider an advisor, depending on what how the plan looks. But I will say this I think after 60, not that 60's old, because it looks young all the time, but you should consider having an advisor then for the reason he stated before. Number one, can he always be there for the other person in his life? Number two, are there enough things that the advisor could do differently that will make you money, save you money, and keep you out of trouble?

Advisor Bias and Evidence-Based Planning

SPEAKER_01 17:09

Probably is the answer.

SPEAKER_04 17:10

And I love the very, very, very human conclusion of his article. The very last paragraph. I'm just going to read it verbatim because it tells you what's wrong with us. Okay? In the months since we began working with our financial advisor, I've mostly adhered to the plan and taken the prescribed actions. I'm not going to blindly follow the advisor. After all, his judgment could be flawed, and he has biases just like I have mine. But even if I don't have this advisor forever, the lessons I've learned in working with him have been well worth the time and the money. Okay. The advisor the advisor if if you have an advisor whose biases are reflected in his or her work, then you have a bad advisor. Because an advisor should not let his or her personal biases enter into the process at all. It should be based on solid, academically vetted research, not on the advisor's biases, which imply feelings.

SPEAKER_01 18:20

I'll add to that. In any good firm, the advisor, what the advisor can do in terms of the investments, very little, because that is all vetted. In other words, they couldn't tell you, I think the next two years are going to be great for emerging markets, put it all in that. That at a good firm, you can't do that. You can't make those kind of decisions. They're made for you. Part two, any good advisory firm has a if you walk in the door here in Bellevue, Washington, or if you walk in the door in Reston, Virginia, the experience should be similar. The planning devices, all the software, all that stuff should be similar. So the outcomes should be pretty close to being the same. So you're right, that bias is whatever they might have might have.

SPEAKER_04 19:01

Yeah, bias should be wrung out of the process. That's the problem as a customer, as a client, as an investor on your own, is you allow those emotional biases to determine your decisions. Hiring an advisor is something you uh you do to try to eliminate those. Uh we love to get your questions. We enjoy answering those things that you need answered. And you can do that by sending your questions in at talkingrealmoney.com. And then Tom goes through those questions, and every once in a while, well, he goes right over there and finds look, he finds his phone, he picks it up, and he calls you. Oh, wait, he's calling someone

Adding Bonds Before a Career Change

SPEAKER_04 19:44

right now.

SPEAKER_01 19:44

Let's go to Lucas, who joins us on Talking Real Money. Thank you for being part of the program. How can we help you today?

SPEAKER_02 19:52

Hey, Tom, hope you're doing well. I'm doing great. Great. I had a question about uh some possible bond allocation within our taxable brokerage. So my wife and I were 35 years old. We've got about $300,000 saved in our taxable brokerage account. That's mostly split out between SP $500, fun calls, 15%, uh 15% international, 10% small cap, and 5% net cap. We're looking at possibly taking our feet off the gas in the next five to 10 years, maybe downshifting into careers that don't pay as much, uh, and potentially drawing from our taxable brokerage. So I wanted to ask you about the potential of bringing in bonds to our portfolio.

SPEAKER_01 20:36

Yeah, I think that's a really smart idea, especially if you're going to be in a position where you may have to draw from that portfolio, because you don't want to be having just stocks there and have the stock side go down and then say, gosh, we don't want to be hauling money out of something that's gone down. So I think that's a good strategy. Here's the challenge you face. Two parts. Um, if you're gonna have to sell something in the stocks, you're gonna have capital gains, right? Because stocks have gone up quite a bit here over the last five, six years, really, basically, since 2022. So that's part one. Part two is owning bonds in taxable accounts is tricky in terms of the income, the interest income you're going to get. So if you're in a tax rate of, I think even like 30% or higher marginally, you might want to consider using, you know, uh uh municipal bonds so that you're not paying tax on that interest. If not, if you're lower, then it generally works out okay, you're gonna get a higher interest rate, right? Uh then you would be on the municipal. So go ahead and just use taxable bond fund. So, no, I think that makes a lot of sense, especially in light of the fact that you may need to, you know, as you say, take your foot off the gas a little bit if you change professions and you do something else that you're not familiar with. There's gonna be, there's, and you correctly point out, you may have to go back before you go forward. I think that that does have. Happen to people in professional situations. So now I think that's a fine idea. I mean, here's the other thing you could consider is as you're saving today, just start buying some bonds rather than having to sell something. So if you had the money and you're just putting it in that taxable account, um, then you could go ahead and um you know and start saving it there that way without having to sell something necessarily in that portfolio. So I think that that might work as well. But man, I mean, you and I have talked before, you're doing a great job on saving, and you guys got the young family going, all that stuff. You've just done it right. So I I certainly wish you well in your your career change and uh and yeah, buy a few bonds just to stabilize things a little bit. I don't think that's a bad idea.

SPEAKER_02 22:47

Yeah, I appreciate that. And maybe one clarification. Yeah. Can you uh go over uh how bonds are typically taxed? Is it uh normal income or is it something like capital gains?

SPEAKER_01 22:58

It's interest income. So I think it's treated just a little different than regular income. Gosh, please don't pin me on that one. I always forget because I'm not a I'm not a CPA or a tax guy. So, but I believe it is interest income, and I think it is taxed slightly differently than regular income. But again, it would be something to consider um in light of the fact that you know you're gonna you're gonna get that. Uh, I'm just trying to look it up on the fly here because ordinary income tax, most interest income fully taxable at your federal marginal rate. Okay, so it is it is regular like regular income tax. So again, but uh people have a tendency to want to do it for any interest income, but but because of the interest rate difference between a municipal bond fund and a regular taxable type bond fund, for most people it makes sense to go ahead and just get the regular income, uh, the regular interest, pardon me, pay the little bit of tax you're going to it on it because the difference is enough between, you know, tax-free income, if you will, and the uh taxable that it makes sense to go ahead and just have the regular taxable bond fund in that taxable account. That's a lot of words, but I hope you get all that straight. You're a smart guy, you probably did.

SPEAKER_02 24:14

That makes perfect sense. Thank you, Tom.

SPEAKER_04 24:16

And then if he can't get in touch with you, he piles your questions up in a big stack of paper on his desk. Every once in a while he shuffles through them or pounds them on the table like he just did, like that. Yeah. And he chooses one or two to read aloud to all of us.

SPEAKER_01 24:34

Yeah, and by the way, this is the read aloud part of the program. And by the way, we you make it sound like we select. We answer every question. So there was some by the way, there was somebody who wrote today about every question. Well, uh with very, very rare exception. Um guy wrote today about he couldn't read the answers in your book to the questions, well, et cetera, et cetera. Yeah, I think that's a good question. That's right. I printed them.

SPEAKER_04 24:55

I printed them faintly. They did. So that's obviously so that you can't see them through the page.

SPEAKER_01 25:01

He thought there was some mysterious, you know, that we were subtruge that we're trying to convince, you know, you got to call us to get the answers and we're gonna pay for it. No. The answers are free, so we actually typed the answers and sent them to them. How about that for service, huh?

SPEAKER_04 25:15

People jump to conclusions all the time. We we had a uh a homeowners association meeting recently where a woman came up to speak in the owner comment period. She doesn't like the way we do things because we didn't do them her way, which is kind of human. You know? We didn't do it the way I think it should be done, and I'm smarter than all of you, so it's my way or the highway. And she said, You are either you're either incompetent or you're crooked. Or we just don't agree with you. Yeah.

SPEAKER_01 25:46

Is there a third option?

Emergency Funds and Retirement Accounts

SPEAKER_01 25:48

I'll take that one. Let's go to the paper questions from Duluth, Minnesota. Uh Joel, by the way, there used to be a guy I knew from Duluth. You know what he called it? Dull youth, Minnesota. He didn't like growing up there. But anyway, uh we're making no accusation about Duluth. I've never been to a wonderful place.

SPEAKER_04 26:09

Dull feelings in the fingers and toes.

SPEAKER_01 26:12

Yeah, for about six months a year would be for me. Hi, he says, love the show. Question about our emergency fund. I'm 44, my wife is 42. General recommendation seemed to be for an emergency fund that covers three to six months of expenses. We have 36,000 set aside at our local bank as our emergency fund, which covers three months of expenses. It makes minimal interest, and we fortunately haven't touched it in years. We also have 200,000 in a 457B and 700K in our 401k. So it sounds like almost a million bucks, which is really great at 44. To what extent can we consider the 457 or 401k emergency assets?

SPEAKER_04 26:55

Zero percent of the time. Absolutely not emergency assets. They should never be considered part of your emergency portfolio. I get that the money the bank is not making anything. That's not the point, first. But if you have it at your local bank and you didn't ask them about their secret, we don't tell anybody about it accounts that they have at most banks. Did you know that most banks have a top secret account that they don't automatically put you into? You have to ask for. And those we found out one of our banks for the HOA, we were getting like a half a percent in their regular savings. We found out there was a 3.75% account that they didn't tell us about.

SPEAKER_01 27:35

Had to ask. Yeah. Yeah.

unknown 27:37

Yeah.

SPEAKER_01 27:37

Um by the way. Thank you. And if they don't have it at the bank, yeah, you can go online and get use your put your emergency fund over there and make today like four percent. Four plus. It's back up over four. Yeah, there you go. So that's easy. Uh so yeah, Joel, because uh the the reasons that Don did not mention are number one, that should be about your future, those 401ks, 457. Number two, not only are you gonna pay the tax to come out, they're gonna pay a big penalty to take it out. So you don't want to do that.

SPEAKER_04 28:07

Very expensive emergency money.

SPEAKER_01 28:09

Yeah, it wouldn't be the way to go.

SPEAKER_04 28:10

And not just expensive from the the standpoint of the lost taxes and penalties, but the the the tax advantaged growth you're giving up. Yeah. That is a very valuable portion of the process.

SPEAKER_01 28:24

Exactly. Ah, from Memphis, Tennessee. I was just in Nashville. I'm walking in Memphis. I love Nashville. James writes, hi Donald. Oh, shoot. Yeah, because it's been if I'd been to Memphis, you know where I would have gone, right? You wouldn't. Yes. Would you have to be able to do that? It's just one of those things I would have done if I'd been there. I even looked at the map thinking, what if I it's it's like a five-hour drive from the city.

SPEAKER_04 28:47

Yeah, no, it's a long way. Nashville's central Tennessee and I don't know. Tennessee is Tennessee is if you look look at Tennessee on a map sometime, it is as wide as Georgia, Alabama, and Mississippi combined.

SPEAKER_01 29:02

That's crazy. Well, there you go. You got your little lesson. Geography. So anyway, uh, he says I enjoy your podcast, not only for the important information and advice your relay, but also for the musical explorations and general vibe of the program. So now do you feel better about yourself? Uh he says thank you.

SPEAKER_04 29:21

It's gonna be my new air name. General vibe. Spin of the hits, it's general vibe.

SPEAKER_01 29:25

Uh general vibe. I want to be general. You could be Colonel somebody. Uh thank you. Colonel

Roth Conversions and Retirement Timing

SPEAKER_01 29:30

Sanders. I'm 69, retired at 66. My wife is 49, still enjoying her career, plans to work until age 62 or so. Our accounts contain $3 million. We live on my wife's earnings and social security, which I which I began drawing at 66 and a half. Okay, so he's living on her earnings and his social security. We essentially have the mindset where they're planning for her retirement. We talked about this on a recent program, right? About having two different dates around retirement and have to figure out doing it.

SPEAKER_04 30:00

Yeah, because she's gonna wait and collect the larger amount.

SPEAKER_01 30:04

Exactly. He says my plan is to do several Roth conversions for the next few years until I'm required to begin RMDs. I just transferred tax deferred funds from my TIA to my Fidelity rollover IRAM. Plan to buy a target date fund with my wife's projected target date in fine. What do you think of this plan? Hmm. You know, Roth conversions, here's the thing about this is we've discussed this ad nauseum, but generally, I think Roth conversions are over prescribed. I do, I think they're over those things.

SPEAKER_04 30:35

Well, because it seems like, oh, this is just an easy way for me to get tax-free money, but it doesn't really pay the tax on it.

SPEAKER_01 30:42

Number two, if your wife is still working, now if she let's see, she's six oh 49, yeah. So she's gonna work until is is RMD. So that because I was thinking as soon as she quit working, your income would go down, then maybe it would make more sense to do the conversion at that point. But that those those are lines are not going to intersect. So, you know, yeah, maybe it's okay to convert a small amount of this. And he didn't get into saying how much of the three million was in pre-tax or post-tax. That might be something reasonable to consider.

SPEAKER_04 31:12

Yeah. Again, it needs to be approached, as we keep saying, with some semblance of a plan.

SPEAKER_03 31:18

Yeah.

SPEAKER_04 31:18

You don't just willy-nilly do it because, oh, gee, it just seems like a good idea. Make sure that there is a tax benefit to you or a potential tax benefit to you in the future by running some projections about future income and future tax brackets and that kind of thing. Um, but uh okay, on the surface, it's not a terrible idea. It's not a great idea. It's just an idea that might might do something for you. Might not.

SPEAKER_01 31:44

That was right down the middle, Don McDonald. Voting for Congress, you gotta write him in, apparently. Uh the thing is it should be done annually every year, looking at that income to see if it makes sense. And as you point out, it's gonna be closer than you think in terms of what it's really going to mean, is my guess. In terms of taxes.

SPEAKER_04 32:05

But but with all that stuff said, I it's funny, just before the show, literally right before the show, I read an article on Apple News, and I just wanted to see if I can remember who it was by or who it was from. But essentially the article said uh most people need two million dollars to retire comfortably, and very few people have it. Well, you have comfortably exceeded that number, and you are in no matter what you do. Good point.

SPEAKER_01 32:40

This could be at the fringe, is what you're saying.

SPEAKER_04 32:42

Yeah, it's perimeter fringe stuff. No matter what you do with this little stuff along the way, congrats, you

Taxes, Household Finances, and Planning

SPEAKER_04 32:49

made it.

SPEAKER_01 32:50

And remember, by the way, remember the days when your CPA used to tell you pay no taxes until you have to?

SPEAKER_04 32:55

Yeah.

SPEAKER_01 32:56

This completely ignores that rule. They can throw that out. And you have no idea what future tax rates are gonna do. There's a whole bunch of wild card things we don't know about.

SPEAKER_04 33:03

My my wife today, God bless her, she's she's a sweet thing. Uh, but you know, she goes, Well, now, you know, now that you're making more money, and you know, I am I'm for the past few years I've been making a very good living.

SPEAKER_01 33:15

Yes.

SPEAKER_04 33:16

Uh she goes, there must be something we can do to reduce taxes, IRAs, something. I said, honey, there's nothing. We can up our charitable giving. I said, You're not gonna up our charitable giving enough unless you get into the tens of thousands of dollars.

SPEAKER_01 33:30

No, you really can't. Yeah. So that's fascinating. By the way, that's there are no tax breaks anymore to speak of.

SPEAKER_04 33:36

There just aren't any. They're gone.

SPEAKER_01 33:38

By the way, what I love about the what you just said is so important because my wife, God bless her, sweet thing, it she doesn't know the money, right? She doesn't know. So I just went through our tax return. She was shocked as to how much came in and how little was left at the end. I go, let's go through each. Let's this goes here, this goes here. Oh, yeah.

SPEAKER_04 34:00

When you get into those over over $200,000 a year uh uh surtaxes and et cetera, et cetera.

SPEAKER_01 34:10

Yeah, that we get at 30 seconds before it has to be. Gosh, I hate K1s. So anyway, the 150 pages or whatever it is.

SPEAKER_04 34:17

Oh, it's ridiculous.

SPEAKER_01 34:18

On and on. So yeah, uh that's a but it's a good time to educate the non-financial person in your household about how all this works. I love that part of it. Really do.

SPEAKER_04 34:30

So I think that took us to the end of the question pile for today.

SPEAKER_01 34:35

That did. That's it for the questions, because we had the recorded one. We got the we're gonna go long today.

SPEAKER_04 34:39

Oh my, we are gonna go long.

SPEAKER_01 34:41

Oh boy, shut

How to Reach the Advisors

SPEAKER_01 34:42

her down, man.

SPEAKER_04 34:42

I better shut this thing down. Send your questions into talkingrealmoney.com if you uh would like to speak them. There's a mic button. Those will go on the Friday podcast. Uh, if you want to meet with Tom or any of our other advisors, truly for free, and don't apologize if you're not gonna become a client. It's okay. We like helping people. Just go to talkingrealmoney.com and click on meet an advisor. And remember, we are here every weekday anyway.

SPEAKER_03 35:06

Talking RealMoney.

SPEAKER_00 35:16

The opinions and views expressed on this podcast were current on the date recorded. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice, including any forward-looking estimates or statements which are based on certain expectations and assumptions. Although information and opinions given have been obtained from or based on sources believed to be reliable, no warranty or representation is made as to their correctness, completeness, or accuracy. Information presented on the podcast is not personalized investment advice from Apollo Well. The views and strategies described may not be suitable for everyone. This podcast does not identify all the risks, direct or indirect, or other considerations which might be material to you when entering any financial transaction. The podcast is not trying to get you to buy or sell any financial products or securities. Instead, the program is provided as a public service by Appello Wealth, a fee-only registered investment advisor. Please see Appello Wealth ADV Part 2A on our website for information regarding Appello's fees and services. Appellate Capital, LLC DBA Appello Wealth, is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in the states where it is properly registered or excluded or exempt from registration requirements. Registration with the SEC or any state securities authority does not imply a certain level of skill or training. Appello does not provide tax or legal advice, and nothing either stated or implied here should be inferred as providing such advice. Thanks for listening, and please visit talkingrealmoney.com for more information and important disclosure related to performance of any specific index or fund quoted in this podcast.