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Welcome to the Jill on Money Show.It's Monday, November 11th.It's Veterans Day.
So whatever you were feeling last week, whatever your feelings of euphoria and fear and anxiety and sadness today, channel those feelings and think about the people who fought wars to help us get where we are today.
We are still very grateful for everyone in the armed forces.And for those of you who serve, thank you.For those who don't, be grateful for what these people give up for us.All right.
Now, let us get on to what we are here to do, which is to try to help you make better financial decisions or maybe less bad ones.And one of the big ways that you can improve your own financial life
is to pay attention a little bit to your money issues before the end of the year, and we're here to help you out with that.We are going to be conducting our next Jill on Money live webinar this Thursday, the 14th, and this is going to be great.
We've got a CFP and CPA, Michael Goodman, who's going to help us think about year-end planning tax loss harvesting.
Now that we have a sense of the fact that maybe tax rates are going to stay the same, that perhaps there are some things you should be thinking about right now over the next few years, this is going to be a great one.
But you can only join us if you are a member of Jill on Money Live, 35 bucks, and you'll get not just this webinar, three more, the back catalog, lots of fun. Okay, so that is all on our website JillOnMoney.com.
So is our contact us button where you can just click that button and ask us a question.Today we are joined by Monica who listens to us from upstate New York.Hello Monica, how are you and what can we do for you today?
Hi, Jill.Hi, Mark.We're so excited to be able to talk to you again and get some feedback again.My mom and I called probably two and a half years ago at this point.We were trying to figure out her finances.
My dad passed away 10 years ago, and she worked for his company.So she was kind of trying to wrap up. and be able to retire and you helped us kind of organize what was going on at the time, but there's been some changes.
So we wanted to touch base and see what you would suggest.She's in a much better spot now and not as scared with what to do with the funds or having funds, but just kind of wanting to make a plan now.
That's so great, though, that like I love when you come back with us and we kind of get through this because I remember your mom was a little skittish.And so we're so happy that she's in a different place.So tell us how we can help you out.
What what is the situation and what can we do to help improve it?
OK, so at the time we were just kind of making ends meet with wrapping up that business and making sure she had enough month to month to get by until she started, you know, turning on all the retirement options that she had saved at that point.
Since then, she's closed up the company and was actually able to sell it, which was a surprise.We really didn't expect that to happen, so that left her in a much better spot.
The agreement was that annually until 2029, it would be $50,000 a year, which more than made up the salary she had, so she was in a much more comfortable spot. And that's great.So that's kind of where we were as of last week.
But then last week, the person who purchased the company said he had a separate company that he's looking to sell, but needs to clean up now and make sure they're very cleanly separated two separate companies and needed, you know, a lot of feedback from her and her lawyer.
And her lawyer suggested the time to try to get it bought out like completely so she wouldn't have to worry about year to year if he defaults or something.Yes, exactly.To lean on.Not that there's a worry of that, but just legally you want to be safe.
Absolutely.I take less money up front to have the security of having as much as possible up front.
Right.So it sounds like that's pretty much good to go.As of this week or next week, she should have a big lump sum.And we're trying to figure out what to safely do with that.
We never really had like a good emergency fund kind of thing for her set aside.So maybe keeping some of it clean for that if there's, you know, recession down the line coming up, but where and what and how do we handle that income?
Okay, so what will the lump sum amount be? It'll be $250,000.Oh, wow.Okay, great.Will that be taxable to her?Do we need to pull some money out for taxes?Yes.Yes.How much should we keep out for taxes? 50 maybe.Okay.
Just for, I mean, well, I mean, it's the sale of a business is about, it's just like any asset, right?So the IRS is going to say, Hey, Monica's mom, what was the business?Like what's the cost basis of the business?
I presume that she and your dad, I mean, they built it from nothing.So it's probably not that big of a cost basis.
You'll have to ask the accountant or the person who's the lawyer to kind of help you just get a sense because you're going to have to report it.So obviously, if we report it, we have to put some number down there.
I don't know what that number is going to be, but it has to be something.I mean, again, if your cost basis was zero and you sell it for $250,000, the worst you're going to do is the $50,000.It will not be more than that. but I bet it's less.Okay.
So we know 50 grand for taxes.What about the emergency fund?Like what does she spend on an ongoing basis?
She really doesn't spend that much.We were just going through her numbers and it looks like three to 4,000 a month.
She received social security right now.
She right now gets a thousand dollars a month for herself, but starting middle of 2025, she'll be picking up my father's like survivor benefit, which will bump her up to that 3000.So she's in really good shape there.
Okay.That's good.And so any other money that she has invested right now?
Yes.She's got about a million dollars in IRAs.
Yes.How old is mom?I for, I, I for neglected to ask you that question. 61. Okay.So she's young, she's healthy.How much does she have in the bank right now?Okay.So we'd like, I mean, do you agree?
that there is some comfort level that you would have in just keeping, say, 50 total in the bank just as an emergency reserve?Would you feel, she would feel better with that and you would feel better with that, right?Yes.Do you think more?
Because, I mean, look, there's a case to be made we should put a little more in there because, you know, two years of her living expenses, she owns a home, right?Right.And what's the house worth?
No mortgage, right?No mortgage.Just, I don't know, like things break in the house, stuff happens.
So maybe I would say 50 we keep aside for taxes, then maybe, maybe just for the time being, until we get through tax time, maybe we keep like 150 in the bank.So meaning that we put 50 aside for taxes, add 90 to her bank account,
We let that kind of, let's let that play out a little bit.Now, I don't think you should sit in cash.I think she should have some CDs.
Um, I think she should probably have like a, a one year and a two year and maybe a three year CD with most of the money.And then she's going to have another hundred thousand dollars to invest into a plain old brokerage account.
Does she have any money in a brokerage account right now? Not in a brokerage, no.Okay.And is that freaky to her?Is she going to be able to handle this?Just in terms of like, should we invest?
Or is that going to be beyond what she could take right now in terms of risk?
I think she she would be fine doing that.I'm familiar with that.So Could you even break it down further?Like the CDs, how much should we put in a one year and a two year?
OK, Mark, you want to hop in here?Do you think I'm being overly conservative by having of the money?So let's say that we put 50 aside just for taxes and maybe it'll be less than that.You should definitely let's get that number.
But let's say that in this account total in the bank, there's 150 grand.So we know that there's got to be some amount, the tax money should be in a three-month CD, right?Because that's all that you can afford, right?
We have to file taxes in a few months.Then Mark, how do you want to ladder the rest of the CDs?
I mean, and the tax money, it's like, you know, if you even want to do a three-month CD.
If you don't, you don't have to.Just let it sit there until you pay your taxes in the spring. I mean, she, you know, she doesn't spend a lot of money, so this is gonna set her up for a while.So she can go pretty far.
You know, you can do a six month, you can do a year, you can even put some in the two year.
I was gonna say, yeah, that's what I would say.I would say that like for the, I'd like her to, for a CD, let's just pretend we, I'm gonna, again, we're making this up, right?
Let's say there's 50 grand that's in taxes and you don't even have to put it in a CD. And then what we can do is just leave the amount of money out that we think she's going to need.
Because, you know, she'll need money for the first six months of the year if it goes, you know, until it goes to $3,000.So we know that we'll need
like 30 grand accessible after the taxes, okay, just to pay her for stuff, maybe a little, but so 30, okay.
So now of the remaining 80, maybe we put 40,000 in a one-year CD and 40,000 in a two-year CD so that in one year that CD comes due and then like that's her spending money, she's good, just in case, she may not even need it.
We're just giving you the optionality.And I think that that makes more sense in terms of just, and if she feels more comfortable with that, you know, she could just do it for like 18 months instead of two years.
But like what we're trying to do is we're trying to set her up so that whatever we put in this brokerage account, that she doesn't have to touch it for a couple of years.Because the money that is coming as the lump sum makes a real difference.
That's her living expenses essentially.And that gets her through the first couple of years.And then we'll get a better sense of what her spending looks like
And maybe at that point, we're gonna then start to say, after a couple of years, then we can start using the money inside of the IRA account, if we'd like, just slowly but surely.
I wanna get through this tax year because she's gonna get hammered a little bit.But then, essentially, whatever money she needs, she can just pull out of the IRA account slowly but surely.It doesn't have to be a lot.It could be like,
A year from now, she might say, I'm good.I didn't even spend all this money.I don't need money from the IRA account.That's fine.We can basically have her pull whatever she needs out of that IRA account a little bit at a time, pay very low taxes.
I mean, essentially she's going to be in like the 12% tax bracket.She pulls the money out and you can either live on it or add it to the brokerage account.And that I think could be really helpful for her because she's going to build that account up.
You know, look, I don't think she's ever going to be in a bad tax situation.I kind of feel like she's got it now.
It's a shockingly fabulous development that she gets this money because what I do think it does is it helps us get to that get through this first year.But, you know, she can take out 40.
She could take 50 grand a year out from her IRA account and be in the 12% tax bracket and everything's fine and dandy.Hey, how's she getting healthcare right now?Uh, medic.Wait a minute.
She's only 61.Not Medicare.She's not 61.
I did my math wrong.She's 65.Oh, so she's Medicare.
I know she's Medicare.Okay, great.Okay.That's good.You did the math wrong.You're so lucky. But that's even better.So, you know, I think that I don't wanna go crazy with the investing part of this.She's got plenty of money, nothing bad's gonna happen.
I'm just saying for the first like 18 months, I don't want her to necessarily just tap into the IRAs.Let's see how her spending goes.Maybe you're like, hey, I said it was three or four grand a month, but now it really is like 4,500 a month.
That's what she's doing.Like, I want a better sense of what the dollars really are. But there's nothing going on here that causes me any consternation.She doesn't.
She's got 10 years to get money out of this IRA account before the government will force her to do so through required minimum distributions.And she'll get that money out.She'll pay her taxes and it'll be a very low rate.
That spells success in terms of her financial life.So you think that she can be on board with this?You think this is a good plan?
Yes, very much so.I just want to better understand the brokerage account myself.So within the brokerage account, we then get the CDs?
No, I mean, you could, you know, where does the IRA account held right now?
Well, she's got it split between this was one of the reasons we called the first time she's got it split between Mass Mutual and Vanguard.And I was trying to get it all to Vanguard, but she wasn't comfortable moving at all.So it's still split.
Okay.What is it invested in inside of MassMutual?Do you know?Because MassMutual is an insurance company, so that could mean that it is in variable annuities, but it also could just be like MassMutual mutual funds.
I'm interested because maybe what we'll do is you'll just open up a brokerage account at Vanguard.They may be able to buy some CDs, but maybe she just does it at the bank.I don't want to stress her out too much, you know.
You would open up a brokerage account in her name.Okay.Are you the only child?
Okay.She should make this brokerage account something called a transfer on death account.Whereas if she were to pass away, it would pass to you guys in equal shares, just so it could avoid probate.
I think that it would make a lot of sense for her to then have a very low key Vanguard brokerage account, which would be like an individual account that is half in a stock index fund and half in a bond index fund.And that's it.
All right, so I just pulled up her MassMutual.
Split between MML American Funds Growth.
Okay, that's just a plain old large growth stock fund.
MML Equity.Okay, another stock fund.Invesco VI Global Strategic Income.Okay, that's an international bond fund.MML MidCap Value.
Good, we want your opinions on this.I know.MidCap Value.Okay. MML inflation protected in income.Okay, that's all right inflation protected bonds And then there's a fixed account and an MML u.s.
Okay, but do me a favor So you're looking at the top of this statement.Can you just read what the statement is how it's titled?It's like Monica's mom.Is it for the benefit of Monica or was this your dad's?
we're at 1.2 but now it's this is just market type ira uh-huh and it says it say say it again what's it annuitant oh okay you just gave me the okay so it's an annuity okay this is an annuity contract so what this means is this is an insurance company product all right
There are a number of things that we can do with this The annuitant is your mom meaning your parents put money into this product called an annuity and It's really all the damage has been done meaning there was high fees blah blah blah blah blah So it's not like the worst thing in the world at this point.
I don't want to I again I don't want to make her crazy But this has a very high fee structure compared with say the Vanguard How much money is in the mass mutual and how much money is in the Vanguard?
Mass Mutual is about $625, and Vanguard is about $400.
Okay.So would she be okay if we moved some of the money into the Vanguard a little bit at a time, maybe?
Um, begrudgingly, I've been trying for years, but I think maybe it may, I mean, it may not be.
So here's what my, here's what I think you should do.I think after next year in 2026, okay.I'm going to change my mind a tiny bit.I think in 2026, you should start pulling money out of the mass mutual account, 50 grand a year, about. Okay?
And you can pull it.It doesn't matter.You can say to them you want to annuitize it or you can just pull the money out and she'll pay tax on it.She has to pay tax anyway.Just take it out of that one first.Leave the Vanguard.Only pull from MassMutual.
I hope that we kind of get through, I hope we can plow through this money over the next five, six, seven years and just get it out of the mass mutual environment simply by pulling the money out and then it closes down and then you've got one Vanguard retirement account and then you'll have the one Vanguard brokerage account.
Just an account in her name, not a retirement account, taxable brokerage account.
Okay.So if she were open to moving the mass mutual or a chunk of it to Vanguard, would you suggest
A hundred percent I would move the entire 625 into Vanguard right now because it would save her in fees.She's going to save probably one and a half percent a year.So of that 625, say, hey mom, you want to save six grand a year?It's possible.
It is possible. Just to be clear, you're going to have her listen to this, and then you're going to get back in touch with us.If she needs a little, like, gentle nudging from, you know, her niece, Jill, I'm really her age, you know what?
That pisses me off that I just realized that I'm basically her age, a little bit younger. Her, you say, Aunt Jill wants to talk to you.But like, this is a great outcome financially for her.It really is.And the brokerage account is like that $250,000.
It's, think of it as instead of getting the 50 grand a year from the company,
We're going to set this aside and she, say to her, Jill says, instead of taking 50 grand a year out of dad and your company, you're going to take 50 grand a year out of the IRA from MassMutual.And that's going to be what you live on.50 grand a year.
I want you to get on top of that.That's the same number.It works so well.It'll be perfect.
Okay.Now the one other hesitation I know she had was the mass mutual on paper looks like it was returning more each year.It was more aggressively, it was more stocks versus bonds where the Vanguard I set up for her was more bonds.
So it was returning less, but that was a reason. How can I help her?
Just take the money.So how much in the Vanguard, what do you have?What's the, is it 40, 40 stocks, 60 bonds?So have her take money in the mass mutual, just say, Hey mom, as you get older, it's fine.We don't have to do it.We don't have to kill it.
We can just be 50 50.And that's probably what she is overall. So take some from the stocks and some from the bonds in the mass mutual.And the Vanguard, you can shift it.You can make it 50-50 if you want.You shouldn't worry about that.
You can be happily 50-50 in that Vanguard account.I want to get out of that mass mutual so badly right now.But we're going to do what we can do, right?
I think this is good.I think this is great.You let us know if mom wants to come and get a little handholding.
I think this is a good outcome, though.All right.If you have a mom who needs some help or if you have an adult daughter who needs some help or you just need help for yourself, go to our website, Jill on money dot com.Click the contact us button.
Write us a note.Let us know if you'd be willing to come on the air live.Hey, while you're on the website, don't forget Don't forget to sign up for the free weekly newsletter because it comes out every Friday and Mark does a great job with that.
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Thank you for listening and we'll talk to you tomorrow.
I'm Jenna Fisher.And I'm Angela Kinsey.We are best friends.And together, we have the podcast Office Ladies, where we rewatched every single episode of The Office with insane behind the scenes stories, hilarious guests, and lots of laughs.
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