Emily, Good question. I spent 12 years working for one of the major credit bureaus. Credit scoring systems, and more importantly, mortgage lenders, consider the time frame in which inquiries are made to your credit report for a given purpose. So if you were shopping for a mortgage with three lenders in 1 week, for example, mortgage lenders can see that and won't hold it against you. That said, I do think you should keep inquiries to your credit report to a minimum. I like to first check rates and terms through websites such as www.bankrate.com to give me a general idea of what rates are like. I also go to vendor sites such as www.amerisave.com because they'll give you a LOT of details on rates and fees without having to make an application. I give that last one just as a point of reference, not because I'm recommending them as a lender.
Tom, why is an annuity essential to this strategy? I've certainly heard of a bucket strategy, but the annuity part confuses me.
Hi Nathan. Best to seek out expert advice here, as taxation and investment issues for ex-pats are a specialized area. There are CPA firms and NAPFA financial advisors firms who focus on these issues.
Tom, withdrawals from your own savings accounts are also tax free, and FDIC insurance provides protection of the principal. If you're in your mid-40s then you would face early withdrawal penalties from IRAs, so that's why I like to use taxable money for those early years. I would suggest that instead of the variable annuity you consider using low-cost tax-efficient index funds and a laddered fixed-income strategy for that first bucket.
Tom, that fixed income could be first the FDIC-insured accounts; then short-term government or investment-grade bonds or munis.
Hi Tom. First, it is impossible to say what works for each client until a full review. But retiring in your mid 40's with $1,3 million seems risky --- again, that doesn't mean it won't work. Everyone have different life styles, but I have clients that are much older, have that much money or more and are iffy from my perspective. My biggest issue with the bucket strategy is that at some point, as you approach the third bucket you are 100% in stocks (assuming I half understand the concept) at an older age. Regardless of age, I don't like anyone 100% in stocks, so for me the bucket strategy falls apart at some point. At what point does the annuity "project" to run out? Is it a variable annuity? If so, proceed with great caution. The strategy seems simple, but proceed carefully.
Nathan, Working overseas is beyond me. I just had my first US client overseas and learned of the income credit (not sure that's the correct term). My client worked with a Very competent CPA specializing in US/overseas tax returns. I recommend ponying up the dollars.
Dennis, a lot of us have thought the same thing, and certainly anything is possible. After all, the government once promised that Social Security income would be free of taxes.
Hi Nathan. Absolutely nothing wrong with do-it-yourself if you're interested, committed, and have the time! If you're a Registered Investment Advisor, I suggest networking with planners who have expertise in this area: start with NAPFA and FPA. The right connections will point you to books/websites/articles, etc.