Whole Lotta Questions

SPEAKER_01 0:05

We're gonna do a really great financial future. Tom and Don are talking real money.

Introduction and Podcast Overview

Questions from Listeners

SPEAKER_05 0:11

Well, it looks like our move to podcast only, at least in terms of questions, is paying off. Because our inflow of questions, particularly the kind I like best, the recorded ones, is way up, which means in this episode, I can fit six in. Maybe more, but I'm going for six. That's what I've decided already. I've got six already, and I I don't pick them out, I just take them in order. Whatever order they come in, I take them. Now, bear in mind, if there is a technical glitch, you may not hear it, but if there's a technical glitch, I don't know what happened. So you're gonna have to re-record it. If you don't hear your question after a while, it and you recorded it with your voice, you didn't hear it on any of the Friday podcasts, then try another one. Just go to talkingrealmoney.com, click on the button that says ask a question, and then record your question. And I'll put it on a future Friday podcast. And it's usually only a few weeks out. Max about three to four weeks out, so it's not a long wait. Send them all in at talkingrealmoney.com. And uh also I wanted to remind everybody that uh now you can get the Kindle edition of my book from uh my my 2022 edition of my book Financial Physics, F Y S I C S. And you can read it for free if you're a Kindle Unlimited member. So that's a deal. And you can also buy the book, the paperback one. But here's the trick: when you go to Amazon to look for these and you type in financial FYS I C S, it will correct it to P H Y, and then it'll say, Did you really mean FY? And you have to click yes, and then it'll give you the right book. It's there, their their thing is a little confused. I've tried to clear it up, but it's not working. So anyway, that's what I have for you. I have a bunch of calls, I have a bunch of questions. I'm Don McDonald. This is the Talking Real Money Friday QA podcast. And again, send those questions in at talkingrealmoney.com on the ask a question or the contact form. You can also call us at 855-935-talk. That's 855-935-8255 with your questions. It's so easy. So many ways to do it. Now let's get to the first question of the day.

Inherited IRA Options

SPEAKER_07 2:34

Good morning, Dawn. This is uh Dan from Minden, and I have a question regarding uh IRAs. Uh my father recently passed away. Uh he was uh approaching 95, so he's 94. My mom is 87, and so my mom is looking at uh taking my dad's IRAs and rolling them over into her name. Uh the question I have is that uh the um company that they're working with, which I believe is Fidelity, has put forward two different options. One, that uh they could be treated as an inherited IRA, or it could be treated as a rollover IRA and roll it over entirely into my mom's name. Um my understanding is that uh based on her age, it's better to do it as a rollover. And again, my understanding is that with the inherited, that makes more sense if you're uh under the age of 60. I don't quite understand why that's the case. Um I'm curious to get your take. And then the other thing is that if my mom were to treat it as an inherited IRA, does the 10-year rule apply? Or is it just treated as an inherited IRA? And then when my mom passes and that is then passed on to her children, do the children then have to um uh honor the 10-year rule? All right. I appreciate your time.

Retirement Loans and Credit

SPEAKER_05 4:11

I think without Congress, we'd probably be out of business. I I these things are so confusing. Let me try to make it as simple as possible. The the simple answer is taking the inherited IRA is almost always in this kind of a situation with an 87-year-old beneficiary, the better option. Because it's going to mean she'll just continue withdrawals at her life expectancy. And that should mean smaller withdrawals on an annual basis. They should be larger if she takes it as an inherited IRA. And the inheritance thing from her to you guys really cinches the deal because if she takes it as an inherited IRA and you then inherit the inherited IRA, then you're gonna have to take it out at the same rate she has been taking it out. Therefore, you're better off too if she rolls it over. The rollover option is the better option. Paying less in taxes, more flexibility, better situation for those who might inherit it if she doesn't draw it down, which she probably won't. So um, yeah, you as you as beneficiaries would get a uh the 10-year rule when you got it, because it was her IRA, not an inherited that she started taking under the inherited rule. So it's all very confusing and frustrating, but I gotta tell you, if this was my mom, I would suggest that she keep it as an as a uh rollover IRA, that she make it a rollover IRA, because the inherited IRA is more complicated, has more taxes, is more restrictive, and there's really no meaningful benefit to it. So that to me is the best advice. Thanks for your question. It was a good one, and now we'll grab another one on our way to getting six questions in this week.

SPEAKER_06 6:09

Hi, Don. This question is one that I tried to leave a few weeks ago, but I think there was an error with the system. It concerns being able to get credit for purchases in retirement. I'm thinking in this case about our ability to get loans for a car or maybe a house in retirement. I'll have a pension that covers our basic living expenses, as well as investment accounts in a 401 and a Roth. Since we have great credit now, can we expect our ability to get a loan in the future to be the same or diminished or maybe even problematic? So the rest of the question is how do lenders consider income when it comes to somebody who's retired? Our total income in retirement will be probably 70 to 80 percent of what I earned while I was working. Thank you. I appreciate you taking the question.

SPEAKER_05 6:58

Retirement does impact your ability to borrow for a number of reasons. Your income, as you just mentioned, it's gonna go down. So your debt-to-income ratio is going to change. It means you can borrow less. Also, a lot of lenders don't take into account the value of assets because assets can fluctuate. Sometimes they'll impute an income to the money in your retirement plans and your other savings and investment accounts. Uh, but others may not impute anything to that and may ignore it completely, which they can do. They're gonna be more conservative because you don't have the ability to take on another job, or at least they think it's less likely that you will. So mortgages, they say, are one of the hardest, are harder to get and one of the hardest things to get when you're in retirement. Shorter term loans are easier. What some people do is they borrow differently. They borrow against their portfolio, for example. Um or you want to find a borrower or who lets you impute an income, who lets you say, well, I'm gonna be pulling 4% out, and count that as uh as as your income in calculating the debt-to-income ratio. So um it's tougher, yeah. It's gonna change. And that's why it's very typical for retirees who've saved a lot of money to just pay cash. And, you know, it actually, unless you get like a great mortgage rate, a 2% mortgage rate, in most cases, just paying cash is the better way to go. Thanks for the question. Here's the next one that came in at talkingrealmoney.com on the contact form or the ask a question form.

SPEAKER_00 8:47

Please tell me where on your website I can find the uh names of Bellevue and Greater Seattle uh fee uh fee-based only advisors. I would appreciate it. Thank you.

Finding Fee-Based Advisors

The Importance of HSAs

SPEAKER_05 9:04

Much like uh Santa Claus and Miracle on 34th Street, yes, we do give you the names of some gimbal's people. We're the Macy's, and then of course they'd be gimbals. Uh if you haven't watched the movie, it's that's right over your head. Anyway, it's pretty easy to do. You just go to talkingrealmoney.com, the website, and you'll see a button in the Talking Real Money quick links area that says find a fiduciary. Click on that, scroll down the page a little bit. On the right hand side, you'll see a section that says check out these advisors. And these are some advisors that we looked at that we believe uh act as fiduciaries all the time, have a fair fee structure, that don't offer actively managed funds. We're pretty sure they don't. We don't know that for a fact. We're not recommending them. We don't know everything, we just check them out. Uh, and so we've got a few there. And of course, we included our firm in there because we do recommend us. We we recommend us. So, yeah, check it out talkingrealmoney.com, and then look on the very, very first page at the button that says find a fiduciary, then scroll down. You'll see check out these advisors, the button says a few good ones, click on that, and there's the list. Thanks so much for your question. Here's our next one.

SPEAKER_04 10:22

Hi guys, this is Tom from Maryland. I heard a caller from a recent podcast dial in, and as he was listing his assets, he uh listed his HSA as an asset with about sixty-five thousand dollars in it. Uh, I'm wondering how do HSAs uh fit into overall retirement planning? Uh, I've never really bothered to look into it. I know I could go to YouTube and watch a couple videos, but I'd rather hear you guys talk about it on the podcast.

Understanding Pensions

SPEAKER_05 10:47

Thanks. HSAs are the most amazing thing out there, and uh they'd be amazing for me if I wasn't such a dummy and then signed up for Medicare Part A at 65, which messed me up, which means I can't, even though I'm on private insurance, I can't use an HSA. Darn it. It was my stupidity. I didn't think. HSAs are amazing. You get a tax deduction on the money you put in. Which is m-just wonderful. Then you get tax-free growth, potentially. You can get tax-free growth if the money is used for medical expenses. And what is one of the biggest expenses in retirement? Medical expenses. So you save that triple tax advantage account where you got a deduction and you get tax-free growth, and you spend that in retirement on your medical expenses instead of spending taxable money, or money from your IRA that's going to be taxed, or money from your Roth that didn't get a tax deduction. So they're just absolutely wonderful. They can cover, they can cover your, they can pay your Medicare premiums. They can pay, they can pay your deductibles and your copays and your dental and your vision care. They can, to some extent, even go toward long-term care. All of that. Absolutely tax-free. And then if you use it for other things, you can use, you can, after 65 uh pay taxes on it. But again, you're going to pay medical expenses. I guarantee you're going to have substantial at times medical expenses in retirement. So that's what it's best for. Love them to pieces. Wish I had one. Thanks so much for your question. We still have two more left to go. Look at us. Send them in, talkingrealmoney.com or call us at 855-935 Talk. Hello, Tom and Don.

SPEAKER_02 12:43

I am 35 years old. Young. And my employer offers a pension. Wow. Could you describe or maybe have a podcast for your listeners about pensions? Most of the information I hear is related to 401ks or portfolios and stocks and bonds. Specifically, if I work till age 66, my pension would provide me with about 80% of my normal working wage. Social Security would make up the difference. And I should have about a hundred percent of my normal working wage at the time of retirement. Wow. Lucky. This makes it pretty easy to decide at age 66 it would be okay to retire, since the combination of the two, Social Security and pension, would equal to 100%. But as I try to solve this for ages 62 to 65, things aren't so easy. The combined total of pension and social security is less than 100% at those ages. My pension is reduced by about 7% each year. I retire before the normal working age of 66. What percentage do you guys recommend a person retiring at? Lastly, if I want to invest into a Roth IRA to make up the percentage amount, what should I invest in? With my age, I still have about 30 years or so of working left.

Concerns About Robinhood

SPEAKER_05 14:30

Thanks. You can afford at your age to be aggressive. I mean, I would I would look at uh DFAW and AVGE, these total stock market funds where you own the whole stock market. Yeah, they're gonna fluctuate a lot, but you're gonna be buying in when they're down, and uh that's what you want. You want you want to you're gonna be averaging in as you earn money and as you put money into your Roth. And I do believe the Roth is the solution to your dilemma. Because here's the deal. You're looking at this the right way. Uh you're gonna lose 7% every year you take it early. That's too much to give up because that's a guaranteed return on your money. Just waiting is a guaranteed return. You can't get a guaranteed 7% these days, and probably not in the future. So it pays to wait on the pension until 66, and it pays to wait on Social Security until 70. So here's what you should do. We need to sort of calculate this backward. Determine how much money you're going to need, and you could draw, if you wanted to, you could pretty much draw all of it down. I wouldn't do that. I would keep some of the Roth IRA for you know other needs down the road. But you could conceivably, between 62 and 70, that eight-year period, use just the Roth IRA money to live on or other monies you've saved. And you'll be surprised, you will have saved a lot of other money that you didn't even think about, more than likely. So here's how you should look at it. Oh, and by the way, this is a rough, rough, rough look at it. Because you didn't give me the numbers. If I'd had the numbers, I could probably get a little closer. But what you what you need to do is contribute as much as you can to your Roth, as much as you can afford, and if you can afford all the way to the max every year, whatever that max is, because remember that max adjusts for inflation, which is a good thing because you have to adjust for inflation, because we don't know what inflation is going to do to the current income in the future. But you basically need an eight-year bridge plan. So if you put$400,000,$500 a month into a Roth IRA starting at age 35, and you earn just about 6% per year, and you're making$100,000 a year, that's what you have to replace, then you'll probably have enough at age 62 to replace that income, retire at 62 and replace that income. Again, we don't know what the future's gonna bring, we don't know what the rates of return are gonna be, but the reality is that is a great bridging strategy. And that's why I say save as much as you can afford to save. Can. So it it's not precise, but you're on the right track. I see what you're trying to do, and it's absolutely doable. But I would do two things. I would contribute a lot now as much as I can. I would wait until 66 to take the pension, and I would wait until 70 to take Social Security, because remember, you're only gonna be filling for four years at the whole income. Once you start taking the pension at 66, you're only gonna be filling in that 20% hole, and that's gonna be small. And if this goes well, which it should if you save a lot, then you also have extra money in retirement for other needs. So you you gotta just do the best you can because we don't know the future, but you're on the right track. Thanks so much for your question. And now, folks, here's the last one of this question laden show. Came in from talkingrealmoney.com, of course, on the ask a question button there.

SPEAKER_03 18:38

Hey, fellas. Uh, been listening for a long time and appreciate the information you all offer, and I appreciate Tom's entertainment value. Sounded like quotes around that. I know you talked about this recently, but I'm just trying to circle back to it. Hopefully you're willing to do this. Robinhood. They're offering two percent on IRAs transferred to from another brokerage to Robin Hood. I'm trying to figure out if that's if there's any red flags with that. Specifically Robin Hood as a custodian, and whether or not there's some extra inherent risks with having Robin Hood as a custodian versus say Fidelity or Vanguard. Um I can't I yeah. I can't figure it out. Thanks.

Closing Thoughts and Resources

SPEAKER_05 19:25

Appreciate it. Bye. I I I can. I can figure it out. It's pretty easy, actually. Uh Fidelity, you mentioned them. Great example. They don't rely on what is called payment for order flow for much of their profit. They are so big that they can just live on spreads. Payment for order flow means that some other market maker is paying Robin Hood, and Robinhood relies heavily on payment for order flow. They're paying them to execute their trades on Robinhood. They're saying, we're going to give you a little money if you execute our trades on your platform. And they are going to try to get the best deal for themselves as the market makers, not for the clients. So on some securities, particularly lightly traded ones, you might get worse prices. That could detract. You have to also be part of their gold club, but that's only 60 bucks a year. You have to leave it there for a very long time. And some people like to have the freedom to move. Um, but if if if you don't trade much, and if you're using only securities that are heavily traded so that the spreads are very tiny and there's not going to be a much incentive to pay for order flow, it can be okay, particularly if you know you're talking a substantial amount of money. You know, where these where these become five-figure amounts. I mean, if it's three-figure amounts, their uh their annoyances and their extra gold club fees are gonna eat up some of that, and it makes it not worth it. But if we're getting into high four, five-figure amounts, yeah, it might be worth it if you can put up with some slight annoyances. They do, and oh yeah, don't trade. Don't trade because they they're not gonna get you the best pricing. Well, you don't want to trade anyway. It's just a bad idea to trade. But yeah, it's free money, and I know it's tempting. I even thought about it. It's free money, I went, but I then I went, no, no, no, no, no, no, no. Uh it's some free money, but is it worth the hassles and the potential headaches? And I just decided it wasn't. Sometimes it just pays to sit tight. That's what I'm doing with my Schwab account. So thanks for the question. It was a good one. Thanks for all your questions. They're all good ones. And we really appreciate you asking them. And we Very much appreciate you listening to our podcasts, which are five days a week. We make a lot of podcasts every week so that you can stay informed about money and we try not to be annoying. We yes, we are part of an investment advisory firm, but we don't plug our firm very often. Yeah, we do sometimes. But even then, it's more as a tool to help you. It's not as a way to get you into an office or to get you onto a call so that we can twist your arm and f and make you feel bad about not becoming a client, which we don't do. We do help everybody who asks. Free. Honestly, ask anybody who's been helped. They'll say, Yeah, it was free. Uh, and there's no high pressure sales pitch. And you can get that help by going to talkingrealmoney.com and clicking on the button that says meet an advisor. Otherwise, if you just want to ask questions, go to talkingrealmoney.com and click on the ask a question button or the contact us button and ask those questions, or call 855-935-talk, 855-935-8255. And if you do want to help us out, tell people about the podcast. That's the thing that you can do most for us. That's the thing that we that really helps us the most, growing the podcast. One, it makes us feel good, and two, it makes everything we do worthwhile. So please do that. And thanks for being a part of Talking Real Money.

SPEAKER_01 23:32

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 our subjects 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 Opel Owell. 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. Past performance does not guarantee feature results, and profitable results cannot be guaranteed. We hope you realize that the information provided on Talking Real Money is for informational, educational, and hopefully enjoyable purposes only. 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's ADV Part 2A on our website for information regarding Appello's fees and services. Appello Capital, L L C D B A 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. When the lawyers get richer.