#77 – Rethink Retirement: Efficient Moves for Taxes, Timing, and Portfolio Shifts

Christa DiBiase [00:00:22]:
Good morning, Wes.

Wes Moss [00:00:24]:
We’re jumping into a whole swath of of random but very interesting financial questions from our listeners. And let’s just dive right in.

Christa DiBiase [00:00:35]:
This one’s from Brian in Colorado. Some background on us. My wife and I are both 53, have been aggressive savers over the years. Our home cars and credit cards are paid off. We have no debt. When is it safe to call it quits and enjoy some of what we have worked so hard to save? We have three kids and hope to fund the cost of their undergraduate education. We one child’s finishing his sophomore year in college, so we have 4 plus 4 plus 2 equals 10 years of tuition remaining to cover. With the status of the economy and the potential of ageism, should we lose our jobs, I daydream about the possibility of an early retirement.

Christa DiBiase [00:01:09]:
Here are their savings Retirement savings, mostly traditional, some Roth IRAs, 401 s and HSA 2.7 million taxable investment accounts, a mix of index funds and dividend producing large stack cap stocks 1.4 million cash CDs, money markets 1.1 million. We are slowly feeding this into the market. Maybe 50,000 a year, but it never seems like the right time for a big purchase. 529Savings 400k as a follow up question, when does it make sense to have a professional manage our accounts? I have hate to pay someone 50k per year 1% of 5 million only to be disappointed when they can’t outperform an S&P 500 index fund.

Wes Moss [00:01:49]:
Hmm. Okay. It seems like educ Brian in Colorado, I think it seems like education is paid for for the most part. I mean 10 years is a lot to pay for still. But But $400,000 already in a 529 plan, that should cover most of it unless they’re all going to expensive private schools. And it sounds like, and that’s a really good point here is that maybe I should put it on the retirement checklist. It should say get your kids through college first. Now most folks are already done with that.

Wes Moss [00:02:19]:
But when you’re a really early retiree, you maybe have a crossover with kids in school. I would say that is a really it’s something that it should be on. If I did an early retiree checklist this would be on it, meaning the kids school needs to be done because it’s a little bit like a housing project. You never know how much the year or multiple years will cost. And maybe the kids go an extra year and they say I still need more money for school. So you want to get them done and independent before you’re going to the daydream, which I love to hear about. This comes to reality. So that’s one.

Wes Moss [00:02:59]:
I check that off the list. It sounds like it’s mostly ready to be paid for. Number two, the assets add up to 271411. They add up to a little over 5 million. 4% rule means that you could spend $200,000. You could spend 200 grand right out of the gate forever and then increase that by inflation. Let me make sure I’m doing my math right here. So 5 million times, let’s call it.

Christa DiBiase [00:03:27]:
And you’re talking about my iPhone.

Wes Moss [00:03:28]:
Wanted to do an update while we’re sitting here. That’s okay. While we’re sitting here doing the show, I said we can do the iPhone update later.

Christa DiBiase [00:03:34]:
When you say the amount you can pull out, you mean gross, right?

Wes Moss [00:03:38]:
Right. So 4% of 5.1 is $204,000 a year. That’s the gross amount that you could be withdrawing from your investment account. If you’re an early retiree, the income streams aren’t going to kick in yet. So you really, you have to. You’re not going to be getting Social Security if you retire in your mid to late 50s. If you have a pension that probably won’t be kicking in. So it really is withdraw from the portfolio.

Wes Moss [00:03:59]:
But if that still covers the bills, the net amount after that 200, I think you’re in completely fine shape. So I think that retirement is absolutely possible. There’s two other quick questions. One, I’ll just address the financial advisor part of this. First of all, when you have that much in assets 5 million level, you’re usually not paying 1%, meaning that you’re usually in the.09, 0.8, 0.7. Again, this totally depends on who you’re working with, but it’s still significant. 0.7 on 500 million is 35,000 a year. Absolutely.

Wes Moss [00:04:33]:
You’re not paying an advice we you’re not paying a financial advisor ever to beat the s and P500. That is not a thing. And I say that because if you want to beat the s and P500 or any index, that’s when you’re either doing this on your own or you’re looking at a hedge fund or a mutual fund, you’re looking at an asset manager. And still most of the time that doesn’t necessarily happen either. Unless you’re taking a whole lot of risk. You’re paying an advisor to make sure that all of those things you would like to go right over time, in fact go as planned. And there’s a lot to that. It’s not just about beating the market.

Wes Moss [00:05:18]:
And if you’re worried about that, then you should probably just be a pure index fund investor and just get the market return and deal with the volatility that comes along with that. And that’s not necessarily a bad plan either. But an advisor is going to make sure all those different areas like estate planning, asset protection, withdrawal strategy, allocation that you can live with in retirement. Because when you get into retirement, investing gets scarier. Just, it’s just the reality. Again, more recent research I’ve looked at number one worry even above health. Christa. Now it’s, it’s almost tied but statistically it’s a lot.

Wes Moss [00:05:52]:
The number one concern in retirement is your finances and dealing with an uncontrollable situation like the economy going bad. Advisors there to get you through that. And that’s whatever that should be A manageable to small percentage can really pay dividends over time. Otherwise you can just find a fund or two or a hedge fund that is trying to in fact beat the market. That’s in my opinion usually not a great strategy. And then lastly, I think he asked about dollar cost averaging in it is a lot to put a million plus dollars to work. We’re in an interesting interest rate environment where rates are not low at this point. So that’s good for bond investors today in this kind of environment we’re in.

Wes Moss [00:06:37]:
But investing a tiny bit of that to take a couple of years. I think if you’re going to get invested in a balanced plan, you want to do a six to nine month weighed in strategy as opposed to a multi year way to do it.

Christa DiBiase [00:06:52]:
Okay. Cody in Florida says I’m 63 years old and retired with a $4200 pension a month from law enforcement. I have approximately $600,000 in an investment account which I really haven’t tapped into as of yet because my pension check covers my expenses. I built my house approximately three years ago and have no mortgage or debt on the house. I was told that it was valued at approximately $350,000. I plan on traveling for the next two or three years overseas and I’m considering Selling the house instead of renting it. But I’m concerned about capital gains. I may even move overseas permanently at some point.

Christa DiBiase [00:07:31]:
My question is, what would be the best course of action? As I would like to start taking money from my investment account to maximize my travel over the next five to ten years.

Wes Moss [00:07:41]:
Okay, so Cody is thinking about, did he say the pension amount? How much month?

Christa DiBiase [00:07:47]:
4200.

Wes Moss [00:07:48]:
Oh, 4200. Okay. All right. So there’s a couple different questions here. Now, Cody is in law enforcement, so thank you for your service in law enforcement, Cody, number one. Number two, you have a great pension. 4,200 bucks a month. That goes a long way.

Wes Moss [00:08:03]:
And perhaps the easier answer here on housing is that, remember, we’ve got a two. If you’ve lived in the home and it’s been your primary residence for two out of the past five years, you’re going to get each individual. So this is double if you’re married, husband and wife. But if it’s just you, it’s still $250,000 exemption on gains on. On capital gains. So I can’t imagine you bought this place for 100. Now it’s worth 350. It’s probably that you bought it for 250.

Wes Moss [00:08:34]:
It’s worth 350. So that 100 should be excluded and taken care of with the 250 exemption. So I don’t think there would be a tax issue here. So whatever you. I don’t think he put what his debt was, but let’s just say you sell the house.

Christa DiBiase [00:08:50]:
No, he has no debt.

Wes Moss [00:08:51]:
Oh, no debt. So another 350. So if you end up with you have 600 plus 350, it’s $950,000. If I do the good old fashioned 4% rule on that coding. Now we’re talking about how to withdraw from this, then you’re looking at another 38,000 from investment withdrawals, plus $4,200 a month in pension, which is 50,400. We’re talking about almost $90,000. So I don’t know if I would if I’m going to be overseas. Heck, if I was going to be in another state, even if I had a home in Georgia and I was going to move to Texas, I wouldn’t want to have rental property in Georgia.

Wes Moss [00:09:40]:
It’s just too much trouble to do that out of state, let alone out of the country. If you’re going to be traveling for a year, two, three years, maybe permanently, there’s just no way I’d want to have A rental property in the United States, too much trouble. The time change and the having to deal with property across halfway across the world, owning and maintaining a home, living in it day to day is hard enough. Having rental property in another country, I just don’t think, I think that’s realistic. So I would be selling it. I would look at taking that, adding it to my overall retirement account balance, using the 4% rule, have 90 some grand a year in income. I think you’d do a lot for that. Now, if you need more in those early years, because Cody’s young, you could even step up your withdrawal rate a little bit, four and a half to five, where you’re taking this, let’s call it a gradual approach.

Wes Moss [00:10:32]:
Then when your costs and your travel kind of comes back down to earth a little bit, you go back to the 4% rule.

Christa DiBiase [00:10:39]:
Jonathan in Texas wrote in and said, I have a 529 college savings account for my son who decided not to go to college and is now working. I’d like to roll it over into a retirement account. Any advice on how to do this would be appreciated.

Wes Moss [00:10:53]:
All right, so Jonathan, here’s the good news is I think there’s a lot of good news in this question. One, his kid is now working and either doesn’t need all the money or maybe didn’t need any of the savings. That’s okay. And maybe 10 years ago, this is a little more of a problem. But there was a new law last year that helps out with this. So there’s a new law that says if you don’t use your 529 money, you’ve got some options. So as long as you’ve had the 529 for 15 years and the contributions have been in there for five years, he can now open up or his son can open up a Roth account and he can do a tax free rollover into that. Now there’s a catch on it is the maximum you can do is $35,000.

Wes Moss [00:11:43]:
So he can take, let’s say there’s 50,000. Let’s hypothetically it’s $50,000 in the 529 of unused money. Jonathan can take that not all at once. You can only do the amount you’re allowed to do for a Roth in any given year. This year, 2025. Now it’s, it’s 7,000 if you’re under 50. So your son, you could essentially have 7,000 a year, go into his Roth. Roth for his son.

Wes Moss [00:12:09]:
So over the course of five years, that’s all 35,000. And now it’s his Roth. It’s tax free. It’s an awesome solution. Beyond that, Christa, let’s say you have 50,000 in 529. The 15,000, you can always transfer it to another beneficiary to be used. It could be used for apprenticeship or a trade school, but if you just want to take it out, you’re going to pay a 10% penalty in taxes, but only on the gain. So there’s 15,000 in there and 10 of it is gain and only the tax and the penalty is only on the gain part.

Wes Moss [00:12:45]:
So even that’s not the end of the world. Christa, we’ve got more questions. But before that, we’ve got weather, traffic and more money matters right here on wsb.

Wes Moss [00:00:00]:
Foreign Good morning. Welcome back to Money Matters. Let’s get back to some of these questions.

Christa DiBiase [00:00:28]:
Christa DiBiase, Frank in Florida says, I understand the 4% rule applies to a 30 year window. What about 25 years or 20 years? What percentages work for those? Is there a sliding scale?

Wes Moss [00:00:42]:
This is a, I, I don’t know why we don’t talk about this more. And this is the cool thing about questions is that you’re, you’re thinking about something that makes total sense, that just has, doesn’t come up a lot. We always talking about 30 year, 35, 40 year time horizons. Okay.

Christa DiBiase [00:00:57]:
We all want to live forever.

Wes Moss [00:00:58]:
Sure. Right. So we’re all assuming we’re going to live to 105, but it makes total sense to start rethinking your horizon if you’re. And how old is Frank? 80.

Christa DiBiase [00:01:09]:
He didn’t say.

Wes Moss [00:01:09]:
But okay, let’s say you’re 85. Do you really have a 35 year time horizon anymore? No. Now your money might, and that’s the argument with the 4% rule, because you’re not only investing for you at that point, you may be investing for your kids and your grandchildren. So you can make an argument that Even though you’re 90, you still have a 30 year horizon because this is kind of the family money. But realistically, if you only have a 20 year time horizon, wouldn’t it stand to reason that that whole 4% rule per year goes up? And the answer is, of course it does. And that’s the cool part about this question. Now it doesn’t go up. I’ve done the math on this and it doesn’t go up as dramatically as you might think.

Wes Moss [00:01:52]:
But it’s still the percentage per year you can take out obviously would go up. Based on historical rates of return, I’m looking at let’s still a balanced portfolio, half stock, half bond. The short answer is because of inflation and because we still want a 95% confidence that we don’t run out. Again, all based on history. If you take your time horizon test again, how do you max out what we pull out of the investments without running out? It goes up to about five and a half percent. So it’s not quite as much as you may, we may have thought mathematically. You just do the math. 100 divided by 5 is 20.

Wes Moss [00:02:31]:
But we have to remember we’re accounting for inflation. And the way these tests work historically is that you’re starting with your initial 5% and then it goes up per inflation. So you think, wait, why? How could it only be five and a half percent? It’s because of inflation. Remember, you’re giving yourself a raise for that 20 year period as well. So math wise, Christa and Frank on this question, really good way to think about it. And as you get older you certainly can increase your percentage rate of return as your time horizon shrinks. I did one more thing. I’m a big believer in really understanding withdrawal rates.

Wes Moss [00:03:06]:
I think we all want to understand how we can max out what we can pull out from our portfolios without running out if you keep it static. Now that may not be normal life, but it also may be the real world where you don’t spend as much and your spending actually comes down. If you’re looking at a static rate of return and you don’t account for inflation and you’re looking at a 20 year horizon, you can actually up it to more like seven, seven, seven and a half. Again, 20 years is still a long time. Not accounting for inflation may not be real world, but in some cases it might be. So that’s the math behind it and that’s why I love these questions. With that, we’re going to run news, weather, traffic than More Money matters right here on WSB straight ahead.

Wes Moss [00:00:00]:
Its WSB’s Money Matters with Wes Moss, certified financial planner and chief investment strategist from Atlantis Capital Investment Advisors. Wes talks to you about investing and saving for the future.

Wes Moss [00:00:14]:
Good morning and welcome back to Money Matters. I’m your host Wes Moss, here in studio with Christa DiBiasea. Thank you for being here, Christa. We’re going to dive right back into the Q and A questions that you’ve been so generous to bring us.

Christa DiBiase [00:00:30]:
Well, I have to say you get a lot of questions, Wes. People have a lot of questions for you, especially these days.

Wes Moss [00:00:37]:
Let’s jump right into them.

Christa DiBiase [00:00:38]:
This came in from Catherine in North Carolina. Hi Wes. I’m 55 and my husband is 56. I would like to retire this year. But with the recent market downturn, my husband is reluctant to stop working. We’re 100% in equities and stock. We should have shifted to a less aggressive portfolio sooner. We had about $2 million in retirement ass earlier this year.

Christa DiBiase [00:01:01]:
We were advised to start shifting about 20% to cash money market. Right now we only have 41k in cash. My husband can’t bring himself to sell stocks at a loss to convert to cash. Therefore, he thinks he needs to keep working and wait for the market to recover. Next, I have a pension that I’m eligible to draw on this year with different options. $1600 per month for life or $3000 until age 62. Then it decreases to $800 or $3000 until age 65. Then it decreases to 250.

Christa DiBiase [00:01:35]:
My pension is not adjusted for inflation. An advisor said we’re okay to retire and we could withdraw more than 4% using guardrails. Our living expenses are around 60 to 70,000 a year. We would like to spend more time traveling, home improvements, et cetera. I plan on working part time which will bring in about 25 to 30k a year. I would love to hear your opinion.

Wes Moss [00:01:58]:
Whoa. Katherine in North Carolina. There’s a lot there and a couple of things. So right out of the gate it makes me think as I’m kind of taking some notes here as you’re reading this through Christa, Katherine’s 55. 55. So you guys are young. You’re really young and it sounds like you’ve getting to that 2 million number. When you’re doing some planning, that number works for you guys.

Wes Moss [00:02:19]:
And remember if that works for you, just like we were saying earlier, financial plans are not predicated on a perfect straight line as these assets going up. So a financial plan knows that you’re going to have these big dips. The only catch to that, and this is, I think what you were trying to accomplish by, by having some balance, is that you don’t want to go into retirement 100% in equities for this exact reason. Because then you get, you almost get beholden. You become kind of a prisoner of how well the market does. I mean, you’re trying to plan your life in the next 30 years, 40 years, the market could care less about your plants. So the market says, oh, wow, we’re down 20% or 50 her, your assets are down from what, 2 million down to 1.8. They could go to 1.7, 1.6, depending on how big of a correction we have.

Wes Moss [00:03:12]:
And then now all of a sudden, you’re totally beholden to that. And the market just says, oh, sorry, you, you were supposed to retire, and now those numbers just don’t work anymore. That’s why you really do need that balance going in. And that’s why having 30 or 40% or even 50% now, you’re. I think you’re pretty young to have 50% in safety assets. But even having a couple years worth of dry powder and thinking about your spending need of 70,000, you’re going to be making 25. So you really only have a need of 50,000. Three years of dry powder is $150,000.

Wes Moss [00:03:49]:
So on 2 million, that’s only a 7 or 8% weighting towards that. So it’s almost as you started to get some balance, this market didn’t cooperate. I would lean towards the following. Your husband, I think his instinct is similar to what my instinct would be, which is, hey, we planned on having about 2 million. And it’s not just the number, but also a diversified 2 million where a big or at least some significant portion of it is in safety. So if I were Catherine, I would probably say, hey, let’s just postpone this. Let’s keep working, keep saving and allow the market to recover. You don’t want to go right into retirement in the middle of kind of economic turmoil.

Wes Moss [00:04:32]:
If you haven’t already had balance, balance would have solved for this. But you got caught a little quickly here or just a little bit too late. So I like the idea of just working a little while. It gives time for the market to recover, save a little bit more, then I think you’re in good shape. If I think about the bigger picture spending numbers, and I did some math here on the low, you’ve got this low pension amount that goes forever, something like 1650 dollars for the rest of your life. And then you have these tricky options of $3,000 or $3,500 until 62 and then the number goes down or till 65 and the number goes way down. Really depends on how long you live. If you think about it, if you’re only planning for the next 10 years, just take the highest number that lasts for seven to 10 years.

Wes Moss [00:05:19]:
But if you’re going to live till 90 and you’re trying to have some longer term protection, that lower number times call it 30 or 35 years to get to 90, that of the options that you cited has the largest amount of cash that’s given to you, even if you adjusted for inflation. So it’s got the highest net present value as well. I think that’s the choice you have to make if you think you’re going to be living into your mid-80s or 90s. I wouldn’t discount that option one, which was the lower amount, but it lasts forever. The last piece of the equation here, from what I can tell, even if I inflate your spending to 80 and you’re going to have Social Security and call it 10 years or so of call it 50 between you and your husband, that covers most of the spending and the gap is only $30,000, let’s call it $40,000. Well, even if your portfolio only gets back to $2 million, $40,000 on $2 million per year, it’s a super low withdrawal rate. It’s like a 2% withdrawal rate. And then that’s probably why you guys are thinking about retiring so early already.

Wes Moss [00:06:28]:
Is that your withdrawal need? If you really start doing the math, it’s pretty low on a percentage basis. And that’s an awesome place to be when you head into retirement. So I think you’re really close anyway. If it were me, I would. You hadn’t quite finished your retirement and investment planning because you really want a diversified portfolio by the time you start having to pull a little bit from it. So maybe work a little longer. I think your withdrawal rates in a super safe place. And I can’t answer all the questions perfectly here, but I think that gives you at least.

Wes Moss [00:07:00]:
I think I’m giving you my opinion on most of this. These don’t discount that lower option that, that lasts for life.

Christa DiBiase [00:07:05]:
And I would just add in a little something. If you do keep working, your husband keeps working. Don’t put off the home improvements and travel. I mean, while you have the higher income, maybe now is the time to do some of those things because a hundred People put off travel and things like that until they’re older. And sometimes it becomes harder when we get older, too.

Wes Moss [00:07:23]:
So the last thing you want to do. I’ve actually done research on this, Christa, where the home improvements are and renovate. Here’s one retirement. I would say this is a. This is like a. More than a pothole. This is like one of those jungle traps that you’re running along and you fall through and there’s a bunch of bamboo spikes here. It’s called a renovation.

Christa DiBiase [00:07:48]:
Oh, yeah.

Wes Moss [00:07:49]:
In retirement, that is the worst possible thing you can do after you’ve stopped working. If you’re going to do housework and it’s going to be kitchen and bath, which you think you have a budget, it never works out exactly that way. It can bleed higher and more expensive. So happy retirees, one of the things that they know to do is take care of the bigger costs while you’re still working.

Christa DiBiase [00:08:13]:
All right. Jean in Washington says, Dear Wes, a question regarding unrealized gains. I generally have $1 million in unrealized gains. This accounts for roughly 40% of the account total. I. I’m out of work, so will not be getting a W2 this year. Should I generally reduce unrealized gains as circumstances allow? And now specifically, as I have no other income, if I do, I would probably just reinvest in stocks for more growth, possibly some amount in less risky investments. Or should I just let the gains grow and fluctuate with the market and not take the tax hit?

Wes Moss [00:08:47]:
Gene, I would just, I’d start out to say the short answer is don’t let the. Do you have a dog?

Christa DiBiase [00:08:52]:
I have two dogs.

Wes Moss [00:08:53]:
Two dogs. I do, too. I actually had a family I work with bring in their therapy dog the other day. It was a little, little golden doodle. And it’s, you know, just, it really. It’s funny because you would think these therapy dogs are kind of intact, very calm, running all over my house, running all over the place. And I kind of knew, just like my dog crazy in the very beginning. And then by 10 minutes later, she was sleeping in my feet.

Wes Moss [00:09:19]:
So anyway, but what I bring that up because you don’t want the tax tail to wag the investment dog.

Christa DiBiase [00:09:25]:
Nice.

Wes Moss [00:09:25]:
You don’t, you don’t want the tail, which is less of the dog, to really manage the whole situation. So you don’t want to just say, well, because I want to get rid of some of these gains, I’m going to do it. The investment side is more important. Now, the good news here for Gene is that he can start to manage his tax bracket. We talk a lot about a lot of these questions that we get here. Go back to managing your bracket and taking advantage of periods of time when you maybe have less income. So he’s going to be a year of no income because you’re in a low or zero income from, let’s call it a year. You actually have a lot of room to sell and take realized gains and still not pay taxes.

Wes Moss [00:10:07]:
That’s the cool part about long term capital gain rates is that yes, you hear Mostly they’re at 15%, but they’re also at 0% if you have very little or have lower income. And they’re also at 20% if you really have a lot of income. So it’s not a static rate. When you sell though, Gene, it also adds to your income. So if you had zero income, it doesn’t mean you could sell a million dollars worth of gains and still pay no taxes. The gains themselves will start to put you in a higher bracket. And this is super rough math, but if you’re a couple married, filing jointly, you have room for about $127,000 for the gains because you have a $30,000 deduction. And that can keep you in a zero to super low bracket.

Wes Moss [00:10:54]:
So I would at least consider that you have to talk to a CPA here and you’ve got to run a tax projection. But he could, if he wants to eliminate some gains, you don’t do it just because you want to eliminate gains from an investment portfolio. But if you, you have the room and you can pay very little to no taxes and you want to do that from an investment perspective, which is the priority, then by all means, it’s a good strategy to do it. The second thing I would say for Gene is pull up my favorite tab, which is the unrealized gain loss tab. So any brokerage firm you’re in, you don’t just look at the positions, you go to the cost basis tab. And invariably what I would suspect here is that he probably has a ton of stocks and two thirds or maybe even 75% of them have done really well and have big gains. But there are probably a few that are flat or maybe even lower. It’s those you can sell, take a little bit of a loss.

Wes Moss [00:11:48]:
That actually gives you some leeway because a loss will offset a gain and that’ll help him identify how much room he has to sell so that he could maybe start paring back some of the positions that have gotten too overweighted. Or too heavy in the portfolio.

Christa DiBiase [00:12:05]:
So.

Wes Moss [00:12:05]:
So there’s just a couple of things to do. Know your tax bracket, how much if you sell and gain, will push you into the higher brackets. And manage your taxes by selling some of the or harvesting some of the positions that haven’t done as well. We’ve got a quick weather traffic, then more money matters with me. Chris DiBiase straight ahead.

Wes Moss [00:00:00]:
Foreign Good morning. Welcome back to MONEY matters. Here it’s Sunday morning. Wes Moss, your host, my good friend Christa DiBiase here in studio.

Christa DiBiase [00:00:31]:
We are back to answer your investment questions. David in Massachusetts says years ago a financial pundit on TV talked about the power of compounding savings for retirement. The time I only had a checking and savings account. So I opened a self directed brokerage and started putting $1,000 a month into it. I subscribed to a newsletter that followed a Buffett style approach. Buy solid companies, hold long term, avoid day trading. I’d invest in their monthly picks and only sell when they said to to. 20 years later, I’ve built over $2 million.

Christa DiBiase [00:01:01]:
With the stock market feeling turbulent, I’ve been thinking about the future, specifically retirement. I’m considering moving some money from aggressive stocks into something more stable. So in about five years when I retire, I won’t be exposed to extreme swings. But I’m worried I’ll be hit hard by capital gains taxes when I sell. Is there a smart way to shift from aggressive to conservative without a big tax hit? Would it make sense to sell from my regular brokerage and reinvest in a Roth? Since Roths are taxed up front, would I be taxed twice, once when selling again when funding the Roth, should I just leave it alone or sell what I need later? I’ve heard selling in a down market near retirement can hurt with no time to recoup losses. But won’t leaving it in tempt fate?

Wes Moss [00:01:43]:
Yeah. Look, David, this goes back to our last question. You may be an aggressive investor from 30 to 60, but when you get in retirement, you’re worried about big swings in your retirement accounts. So you want to have some sort of balance there. There’s two ways to look at this. One, we pull out our gain loss tab. Now if you’ve been investing and been buy and hold mostly for 20 years, you may not have any losses, maybe no losses at that point, but you certainly have. You’ll have a few big winners.

Wes Moss [00:02:15]:
That’s the way the market works. That’s just the way that when you’re diversified and you’re investing, you’re going to have a couple winners that really kind of carry the day and you’re going to have some that have been a little more lackluster. So you would start with anything that’s even flat to down, you may not have that. You would potentially reduce your lower winners is one way to start doing that. And you do that slowly over time. So you’re keeping your capital gains At a level where you may pay zero taxes. Right. It’s certain income brackets, long term capital gains are taxed at zero.

Wes Moss [00:02:48]:
So that’s one strategy to start chipping away. And then what you’re able to sell, even if it’s at a gain, if you’re in the right tax bracket, it could be no to minimal long term capital gains and then you reinvest that in more safety assets. That’s the way to do it. The other way to think about this would be almost reverse dollar cost averaging, meaning that you do a schedule over time that so this avoids really high peaks in the market and troughs in the market. You make a plan to say look I really want 20 or 30% of this to go to more conservative assets. So do a little bit every month. But you’re selling here. So this is like reverse dollar cost averaging.

Wes Moss [00:03:29]:
Sell 1 or 2% in any given month and that will help ride out the market swings and give you the capital to reinvest in some of these more safety oriented areas. Now the Roth idea, it’s almost really Roth is about this wouldn’t be a Roth conversion because it’s not coming from an IRA and putting it into a Roth. So that’s not, we’re not talking about convergence here. You’re really just talking about Roth contributions. And you can only do up if you’re 50 plus. It’s only $8,000 in any given year. And that would just go back to if you have earned income, if you’ve earned income of that much or more, you can make the contribution. But you’re not going to want to say that the money from my brokerage is then going to go into a Roth.

Wes Moss [00:04:15]:
That’s more of a IRA to Roth conversion, but not in this situation. Christa, thank you for that. If our listeners, if you’d like to submit a question, we’d love to hear from you. You can find us and submit a question through your wealth. That’s why contact. Stay tuned. We’ve got news, weather, traffic. Then more money matters right here on wsb.

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