Jump-Start Your Financial Plan
Join us Thursday, Feb. 16 to get your most pressing financial questions answered for FREE. NAPFA financial planners will be online from 1pm-3pm ET.
- Maintaining your financial well-being isn’t always easy, and that’s why we’re here to help. Two certified financial planners from the National Association of Personal Finance Advisors (NAPFA) take your questions about retirement, investments, taxes, insurance, saving for college and more. Submit your question early by clicking "make a comment now," and join the discussion live on Thurs., Feb. 16 from 1 p.m. - 3 p.m. ET.
- Welcome to today's Jump-Start Your Financial Plan live chat! We have two NAPFA advisors with us today, David John Marotta of Marotta Wealth Management in Charlottesville, VA and Danielle Seurkamp, of Foster & Motley, Inc. in Cincinnati, OH. Thanks for joining us Danielle and David!
- Happy to be here and I look forward to chatting with you all!
- Greetings! This is David John Marotta, CFP®, AIF®, President of Marotta Wealth Management, Inc. of Charlottesville providing fee-only financial planning and wealth management at www.emarotta.com and blogging at www.marottaonmoney.com. It is great to part of this Kiplinger-NAPFA event today!
- Now, for those of you who are joining us for the first time, let me explain a little about how the live Q&A works: your questions will be submitted and held for moderation. Depending on the volume and complexity of reader comments, your question may not necessarily be approved right away. However, we will do our best to answer your question as quickly and thoroughly as possible!
- Now, let's get started!
- I set up Roth IRAs for my teenage sons a couple of years ago, picking a 2055 target fund (with T. Rowe Price) because that was the furthest date then available. Now they 2060 funds are starting to roll out. Since the boys won't have reached retirement age by 2055 (they'll be turning 62 and 64, respectively), should I/we roll the Roths over to a 2060 fund or is it worth the bother since we have a good fund?
- It seems like ESAs are slowly going away as a vehicle for college investing. I preferred these over 529s as you had more control over the types of investments included in your account. Are there other college plans that allow the investor to have control over the investments?
- @David C.: You're doing a great thing for your sons in setting them up with Roth IRA's. I like the target date funds as they are well-diversified and essentially rebalance themselves. To maximize the benefit of tax-free growth in their accounts, it makes sense to utilize a more equity-oriented type of investment so I think I would recommend that you switch in the 2060 fund.
- David C.
Your teen-age sons won't need bonds in their portfolio for a long time. The 2055 has about 10% in cash and fixed income. You can move it to 2060 or you could put everything in a global stock market fund. - David C, Kathy Kristoff recently wrote an article about target date funds in the March issue of our magazine. In addition to Danielle and David's advice, you might find it helpful: www.kiplinger.com
- I'm 24 years old and just recently landed a position with an oil company. My employer offers a 401k plan with about 30 funds. I’m currently enrolled in my company’s plan and contribute 6% of my salary. My company contributes 1.33 per dollar I invest up to 6% of my salary. I went ahead and selected four investment funds; however, I’m not sure if I have allocated my funds to the best of my advantage. The following is what I’m currently invested in and the allocation of my funds:
Large Cap index fund (15%)- Expense ratio: 0 .05
Mid-cap index fund (30%)- Expense ratio: 0.08
Emerging Markets Fund (15%)- Expense ratio: 1.14
Target-Date Fund (40%)- Expense ratio: 0 .76
Do you have any advice concerning how my 401k is structured and if it is the best fit for me at this time in my life? - The College America 529 through a fee-only advisor allows you to mix whatever asset allocation you want using the available American funds. We've used that to increase foreign stocks and tilt small and value. College America 529 has the most money in the country even thought it is a Virginia plan. We are in Virginia and clients in Virginia also get a Virginia state tax deduction.
- @PhCastil: Since you are 24, again, you don't need any bonds, and you don't need the added expense of a target-date fund. You will rebalance your portfolio and redo you asset allocation some time in the next ten years.
- @PhCastil: I like that you have included emerging markets, but what about foreign developed countries? I would split 50-50 between US and foreign. The US funds look great, you may want to tilt a little value, so instead of a mid is there a mid-value or small-value.
- @phcastil: It's possible that you are doubling up on your exposure to large and mid cap domestic markets by also having the target date fund. I would sell that and allocate more to the large cap fund and if you have one available, put something into an established international fund to round out your international exposure. I agree that you don't much in bonds right now, but you may want to add some down the line.
- what can I do toward retirement if I am working just to stay afloat and only have a couple of bucks left over at the end of the month?
- @PhCastil: We might recommend 30% US Large or US large Value, 15% Small Value or Mid-Value, 30% Foreign Developed, 15% Emerging Markets, and 10% REIT or other hard asset stocks.
- @Charestka1: Pay yourself first. Have your paycheck automatically deposited into an investment account, and then monthly transfer a slightly smaller amount to your checking account. See www.marottaonmoney.com for more information.
- I'm 25 my wife is 23. We have about $160,000 in a savings/checking account. We are living rent free with my father. We have a combine income of $90k. zero student loans, zero car payment, zero debt. we just each started a Roth IRA maxed both for the year of 2011 and area preparing for 2012 installment. We have a joint individual investment account that started with $15,000 (mutual funds) with $500 monthly contributions. I also have a simple IRA with my employer. I contribute 7% with a match of 3%. Do you feel that we are being a little conservative with our money? With CD rates so low I feel like im missing out letting my money "just sit" in a savings account. Can you offer any recommendations? Many thanks!!
- @charestka1: Assuming you can't cut back any expenses and use that toward savings, I think the best advice would be just to try not to go into debt. Hopefully at some point you will have some excess cash that you can use to first build up an emergency fund of 3-6 months of expenses in something liquid like a savings account. Then I would try to utilize an employer plan if you have one available to you and if not, fund either an IRA or a Roth IRA.
- @CHarestka1: Another tip would be to look at your monthly expenses and cut back on these. Drop all the cable features, cell phone voice mail etc. Monthly features save money monthly without thinking about it.
- @PhCastil, great advice from Danielle and David! You might also want to check out some of our Starting Out columns. One that comes to mind is "Investing Lessons for Generation Y," where we take a look at what a 20-something's asset allocation might look like: www.kiplinger.com
- @CHarestka1: If you have a budget, you can see if you have too much house for your income or too much eating out or too much car payment. Millionaires are the most frugal super-savers I know. www.emarotta.com
- What do we need to do to have enough money to last for our retirement? I am worried we will run out in about 15 years given our current scenario.
- I just submitted a question about running out of money in retirement, but didnt give our scenario. We have 250k in IRAs, 1mil in real estate, have 350k out on a loan to our son (guaranteed payback) and 1/3rd interest in several properties from an inherited family trust, worth 500k, our share. We have no outstanding debt except a 250k Mortgage. Living expenses are fully paid off monthly, including Credit cards , that total about 8k/mo. My husband retired 8/11, but didnt take SS, I am unemployed but bring in 1500/mo from rentals, and our son pays us 4800/mo for that loan for 7 more yrs. We know we need to sell off some real estate, and downsize for less expences, but what plans should we make now to ensure we dont out live our money?
- @McGinnin: At age 25 I suggest that you put much of the cash that is just laying around in a diversified portfolio of investments. Include some fixed income, but the portion that is invested in stocks will, on average, double every 7-10 years. That means 10 years from now you will have twice the pile of cash. Yes, it will bounce around, but it usually trends upward.
- @mcginnin: It sounds like you are doing a lot of things right, but $160k in a savings account is quite a bit. I'd keep aside enough for a 20% down payment on a house if you plan to buy one and then enough to fund 3-6 months of expenses. I would take the rest and add it to your investment account. If you don't want to expose all of it to the volatility in the stock market, you might want to consider a short or mid-term bond fund for some of it which will pay you more than what you get in interest in a savings account. Bonds tend to be less volatile, but there is still the possibility to lose principal. Try to pick something with a high quality rating so there isn't a lot of credit risk.
- @McGinnin: Here is a sample 20-something portfolio: www.marottaonmoney.com
- @Jane: Advisors work very hard to try to determine the maximum safe rate of withdrawal from your retirement assets. I spent a couple of years analyzing the research to come up with these safe withdrawal rates at various ages: www.marottaonmoney.com This assumes you have an appropriately invested diversified portfolio. Investing Mostly in Bonds Means a Lower Lifestyle withdrawal rate in Retirement. www.marottaonmoney.com
- @Jane: Retirement planning is complex and requires more in-depth planning than what we can do here. That said, a rough rule of thumb is that a sustainable withdrawal rate from your investment assets is about 4%. I would advise that you try to find a planner in your area to help you look at your situation in more detail.
- What are moderate risk investment options for those in their late 30(s)?
- Where can I find a chart that gives cumulative Social Security amounts retiring at various ages with different senarios. Years ago there was a website that no longer exists.
- @Jane: Also, make sure you see an advisor for when to take Social Security. The difference between the best and worst times for a couple to start Social Security can be up to $250,000 over your retirement. We wrote a six part series that begins here: www.emarotta.com
- hi i just got here. I had asked a question before but it was before 1:00p should I ask it again, or did you answer it and there is a place to find the answer?
- @Jane: Kiplinger has these two articles on Social Security as well: What you need to know: www.kiplinger.com and Strategies: www.kiplinger.com
- @ERKdad: www.ssa.gov is Social Security's official site. They have a quick calculator that can show you what they estimate your benefit to be at different ages. You can also enter you real earnings history to get an even more accurate estimate.
- Hi @Charestka1, you can find David and Danielle's answers to your question down below. Your question was the fourth one posted. Your name will appear at the beginning of their responses. Thank you!
- @Meenakshi: The markets are inherently volatile, but they are also profitable. You may have a "moderate" risk appetite, but that doesn't mean at age 30 that is the way you should be investing. You have 35 years before age 65. That is a long time horizon, and you have the time horizon to let the markets bounce around a little. The learning opportunity is how can you begin investing and get comfortable with being invested in
the markets. - Once I have maxed out my wife's 403b, my 401k, both of our Roth IRA's, and have a 12 mo. emergency plan, and maxed out my child's 529, what is more advantageous? Making additional payments on a 15 year mortgage with a 3.725% rate, or contributing additional money to a cash management account at my brokerage?
- Thank guys! I will be meeting with my advisory and make some changes!
- @meenakshi: In your late 30's you still need a significant amount of growth oriented investments - stocks- but you should also have some portion of your portfolio in bonds. If you have less tolerance for risk, you might set up a portolio of 75% stocks and 25% bonds. Within each of these groups, diversify between different types of assets. For stocks buy some large and small US as well as established and emerging international companies. Diversification lowers your overall risk and can increase your return.
- @Meenakshi: Perhaps one of the most important parts of investing is realizing, like John Bogle, that fees matter. This portfolio: www.marottaonmoney.com has low fees and expenses and is a great way to get started. Modify it as Danielle suggested with 10-25% in bonds for less volatility and still a significant amount of growth.
- @Meenakshi: I find it helpful to keep track of how much I put into the account verse what it is currently worth. It is better to measure investing from what you put in than the high water mark it happened to make a few months ago. Then I can clearly see that I have made money over my lifetime of investing.
- @Zach: I would begin building up an account of taxable investments. When you eventually retire, there is a real benefit to having both tax-deferred assets like your 401k as well as a taxable investment account. It will allow you to manage your income tax bill during your retirement years. Perhaps set up a recurring monthly contribution and dollar cost average into a few diversified mutual funds or ETF's.
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