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Andi: Johnny Mercer in Savannah, Georgia 
writes us back for a spitball on Social  

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Security and inflation, tax bracket changes, 
and retirement spending strategies. Can we  

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accentuate the positive for him? That’s up 
next on this bonus episode of Your Money,  

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Your Wealth, aka YMYW Extra. I'm producer 
Andi Last, and you, the YMYW listeners,  

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have sent us so many excellent retirement spitball 
requests that Your Money, Your Wealth® hosts,  

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

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senior financial advisor Rachel Foos, CFP from the 
Pure Financial Advisors office in Mercer Island,  

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Washington to help out. It's important to note 
that this is just a spitball, for educational  

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

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

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Andi: Rachel, thank you so much for taking 
the time today. I really appreciate it.

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Rachel: Absolutely. Happy to be here.

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Andi: Excellent. So, you've had a chance to listen  

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to the podcast before, you 
know how this works, right?

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Rachel: Yeah.

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Andi: So this is going to be a little different 
because for once I'm going to read the question  

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instead of Joe.  Let's get started. It says, 
“Andi, Joe and Al, it's Johnny Mercer again  

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from Savannah. Your podcasts remain entertaining 
and informative. To me, you are the car talk  

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guys of retirement planning. Please keep up the 
good work.” Thank you, Johnny Mercer. We shall.  

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“Johnny is 68 and plans to work until 71. He 
still finds his work challenging and engaging.  

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He wouldn't mind boxing with his boots on-“ 
which, the last time that Johnny wrote into us,  

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he said something about boxing and we determined 
that that meant, when he goes out in a pine box.

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Rachel: Yes, I remember that episode.

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Andi: He says, “But his lovely and 
wise wife, who is 65 and retired,  

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has other plans. No grandchildren yet, but their 
7 year old King Charles Cavalier is currently  

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filling that role. His wife likes California 
Pinot Noir.” I agree with Johnny's wife.

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Rachel: Absolutely.

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Andi: “And he was just recently 
reacquainted with Miller High  

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Life and found that he likes it just as much 
as all the fancy and imported craft beers,  

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so that is now his drink of choice. 
Rachel, what's your drink of choice?

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Rachel: I'm a wine person all the 
way. I don't touch beer at all,  

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so not a fan of Miller, but I like 
the Pinot Noir. I'm with the wife.

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Andi: There we go. All right.  “And 
the wife drives a 2018 Lexus RX 350  

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and he is now in a 2023 Toyota RAV4 
hybrid.” Very nice. Okay. All right.

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Andi: So Johnny's current income is roughly 
$300,000 a year. They've got no debt,  

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no mortgage. Their assets, their house is worth 
$1,300,000. In the brokerage account, they've got  

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$250,000 primarily in high yield money market 
at present. And in qualified retirement plans,  

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they have approximately $4,300,000, roughly 
50/50 stock to fixed income.” This is what  

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Joe and Al would refer to as a big wallet. “I 
hope the Roth IRA is minimal, but this year he  

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plans to start conversions up to the top of the 
24% bracket, at least until RMD started age 73,  

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at which point he hopes to have about $400,000. 
His plan is to start Social Security at 70,  

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67 for his wife, and Social Security 
should come to about $70,000 a year.  

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Johnny will also get a government pension 
of about $35,000 a year and will be able  

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to keep his current health insurance instead 
of Medicare Part B, therefore avoiding IRMAA,  

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the income related Medicare adjustment amount, 
monthly adjustment amount. Yes.  “It’s estimated  

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expenses in retirement, he thinks will 
come to about $200,000 after taxes.  

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He thinks that comes out to about $275,000 before 
taxes, depending of course, on whether they go up  

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in 2026. The great state of Georgia helps in this 
regard, not levying taxes on Social Security,  

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pension income or the first $65,000 per person 
of income from qualified retirement accounts.  

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Go Georgia!  So, Johnny's first question has to do 
with the Social Security primary insurance amount.  

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He's already passed full retirement age, so the 
Social Security website has basically deleted  

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his information about his PIA.  He’s been trying 
to find out if that PIA will continue to rise with  

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inflation even if he is past full retirement age. 
Common sense tells him that it does, but he hasn't  

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been able to verify that yet. He says, I've tried 
calling Social Security to see if he could find  

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a non bot that may know the answer, but to no 
avail. It is relevant to use since his lovely  

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wife is going to qualify for 50% of whatever 
that number is.” So let's start with that one.

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Rachel: Absolutely.

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Andi: Does the Social Security primary 
insurance amount go up with inflation?

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Rachel: So here's the, here's the thing. When you 
choose spousal, you get 50% of your spouse's age,  

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67 full retirement age amount. So as the- as 
your own retirement goes up all the way to 70,  

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your spouse is not going to benefit from 
that. So her expensive tastes and, you know,  

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Lexus and Pinot Noir and King Cavalier Spaniels. 
This is, this is not going to work in her favor  

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I would, I would be sorry to tell you. But 
she'll get half of your full retirement age.

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Andi: Okay. And then is there, but is there a COLA 
adjustment each year? Would that have any impact?

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Rachel: There is a COLA on the age 67 amount. 
Once she starts claiming, she'll get COLA. Yes.

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Andi: Got it. Okay. Excellent.

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Now, question number two. “I've read all kinds of 
advice regarding estimating retirement expenses,  

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but I'm still ill at ease about whether I'm in 
the ballpark with my estimates. I'm wondering with  

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your vast experience, what would be your spitball 
of the average percentage of pre-retirement income  

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your clients have used and whether they turned out 
to be correct? Johnny says, I think using median  

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or mode may be more helpful than mean in this 
case, don't you? Outliers can be so disruptive.”

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Rachel: Yes, absolutely. So generally 
people expect that they will spend less,  

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but the truth is people spend as much as 
they have been spending because nobody  

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wants to decrease their lifestyle. You can't 
cut your wife off of her wine membership,  

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right? She wants to keep that. So if 
you want to make happy wife, happy life,  

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you keep your budget the same. Not only that, but 
now you're free. Your time is free. So you want  

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to go out and do things. You want to travel. You 
want to, you know, meet up with your friends and  

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go out to dinner and do all these extra things. 
So oftentimes you might end up spending even more.  

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So I would hesitate to tell you to reduce your 
budget. I'd say if anything, push it a little bit.

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Andi: And given the amount that he's got 
in the retirement accounts and all of that,  

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it looks probably, if you were to spitball, 
like that would probably be reasonable, correct?

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Rachel: Absolutely. He can 
make that work, for sure.

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Andi: Alright, and then, let's see, the next 
one, question 3 is about the expiration of the  

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current tax rates and return to the pre 2017 
rates. He's been trying to find out what the  

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proposed brackets for income are going to be. 
Some websites are actually putting out brackets  

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that show the increased percentages, 
but are using the 2017 income brackets,  

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thereby putting many of us into even 
higher tax brackets. Do you know if  

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this is the case or are these people fear 
mongering? If it's true, I am tempted to go  

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above the top of the 24% bracket with my 
Roth conversions.” What say you, Rachel?

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Rachel: Absolutely. So they're not fear 
mongering. It's actually written into  

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law. We are reverting back to 2016 rates. You 
can look at those tables, they're published,  

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but we will adjust them for inflation. So the 
numbers won't be the same as in 2016. But yes,  

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tax rates are going up by several percent for just 
about every bracket. And the brackets are actually  

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condensing as well. So more of your income will 
be pushed into higher brackets. So it's kind of  

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a double whammy because more of your income is 
going to be pushed into a higher bracket. And  

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then once it gets to that bracket, it's going 
to be taxed at a higher rate.  So your total  

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average rate of tax, your effective rate 
we call it, is going to be much higher.

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Andi: So we don't know exactly what 
the income ranges are going to be  

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for each of those brackets yet. Is that correct?

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Rachel: We have some pretty specific estimates 
on that and our CPA would be happy to provide  

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some information on that if you'd like 
to get in touch with me after the show.

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Andi: Excellent. Cool. All 
right. question number 4,  

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"and this is the toughest one for me," 
Johnny says, “Leaving money for our children  

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is very important for us. One will most likely 
be single in a very low tax bracket and need  

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the money. The other is married and will 
most likely be financially secure. But we  

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have a tradition in my family of grandparents 
supporting their grandchildren's education and  

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career. Johnny's grandfather was a Holocaust 
survivor who saved enough to put him through  

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an expensive private college and money from his 
parents helped their children pay for school.”

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Rachel: That’s incredible.

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Andi: It is. It really is. “His goal is 
to have $2,000,000 in today's dollars  

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when we die. And I'm hoping for a spitball 
formula for figuring out what percentage  

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of our assets he can plan on spending each 
year. He read Bill Bengen's book a while back,  

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and he's a fan of the 4.15% rule. But given 
that we really need something left over,  

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I don't believe I should use that number 
for the whole amount. Thank you in advance  

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for all you do.” So let's talk about 
the leaving money to children first.  

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Is there a way that he can do that, that 
you think makes sense in this situation?

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Rachel: Yeah, and I kind of wonder about 
this because there's the liquid portfolio  

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of $4,300,000, but he's also got his house, which 
is paid off. It's worth $1,300,000. So that alone  

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will likely be over $2,000,000. So do you want 
to leave $2,000,000 liquid plus the $2,000,000  

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house or just $2,000,000 altogether?  We need 
some more details from Johnny on that. But I  

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would say the 4% rule, that’s a rule that's 
been around for a long time. For a while,  

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it got dropped down to the 3% rule because 
interest rates were so low that, you know,  

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retirement earnings weren't keeping up to be 
able to distribute the 4%. Now that rates are up,  

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maybe it's a little better, we can do that 4%.  
But that's, that's an early retirement figure  

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to kind of keep your assets growing. So if your 
assets are growing at 6% or 7% and you're only  

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taking 4%, then guess what? You've got an extra 
2% or 3% that helps your portfolio keep up with  

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those rising costs. Now, if you want to split 
your portfolio up and think, okay, let's shave  

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off $2,000,000 bucks for the kids and we'll just, 
you know, draw down the $2,300,000, then you could  

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do that. You could just take off all the earnings 
of the $2,000,000 that you're carved out. So maybe  

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you take 4% to 5%, depends on how that portfolio 
is invested, right? If it's more aggressive,  

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maybe you could take more.  And then for the 
$2,300,000, you can start conservative at that,  

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you know, 3% to 4% range and then slowly over 
time, tick up your withdrawal rate so that  

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you will eventually consume that $2,300,000. 
So that's kind of the way that I look at it.

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Andi: Fantastic. Is there anything else that you 
can think of here for the information, the fact  

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pattern that Johnny Mercer in Savannah, Georgia 
has given us, that you want to comment on here?

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Rachel: Very good question. I 
think they're definitely, you know,  

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in that big wallet category. That's 
great. They've done a great job saving.  

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You know, I think they're on track and it just 
it all comes down to budget. So, make sure  

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before you, you know, before everyone retires 
that you have your budget pinned down because  

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a lot of that's the hardest number to come 
by. It's really kind of chaotic and there's  

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spending that goes out from all different 
accounts. So sometimes it's hard to pin down,  

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but do some work on the budget before you give 
up your paycheck. That's what I would say.

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Andi: One more question. I wanted 
to ask you, he mentions the fact  

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that he's considering going top of the 24% tax 
bracket, for his Roth conversions. Obviously,  

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this is just a spit ball and this, you 
know, we, we can't give any kind of,  

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pinpointed information, but would you think 
that that might be a good idea for him?

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Rachel: Above the 24%, you know, I think 
22% to 24% is very reasonable. I wouldn't  

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go probably above the 24% in his case 
because the income after he retires,  

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he's going to have $70,000 in Social Security. 
Not sure if he's- it looks like that's both him  

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and his wife combined and then $35,000 in the 
pension. That's only $105,000. Right? $105,000,  

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but he needs a couple hundred grand to make 
his budget work. So he's pulling the rest  

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out of retirement. You know, he's probably 
going to be- for around the top of the 22%,  

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which will be 25% in the new system starting 
2026. So jumping up now all the way to the  

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32% bracket doesn't really make sense. Right? 
He'd rather just wait and take it out at 25%.

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Andi: All right, Rachel Füss, thank you so much 
for your help here on YMYW, really appreciate it.

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Rachel: Absolutely. And if your wife knows 
of a good King Charles Spaniel breeder,  

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I am looking for one. So send me the name.

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Andi: Wow. The timing on that, 
that's quite a coincidence.

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Rachel: I know. All right. Well, 
we will make a note of that. All  

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right. That is Rachel Füss. She is in 
our Mercer Island, Washington office  

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here at Pure Financial Advisors. And I 
appreciate the help. Thank you so much.

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00:13:26,760 --> 00:13:27,920
Rachel: Absolutely. Happy to be here.

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Andi: Johnny Mercer, thank you for writing 
back in, and for your patience in getting a  

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spitball. YMYW listeners, what did you think? 
Join the conversation on our YouTube channel.  

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I’m in the comments every day, responding to you 
and passing your thoughts on to Joe and Big Al,  

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because the show wouldn’t be a show without you.

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access to helpful guides and white papers,  

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most of your money and your wealth,  

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00:14:03,240 --> 00:14:07,320
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you’re ready to get serious about crafting  

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00:14:07,320 --> 00:14:12,120
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