Sorry about all the posts. I'l get the hang of it. 2. All the discretionary expenses like health clubs, gifts, personal care, eating out, groceries (yes you need to eat but how much you spend is variable), 3. This is all about the future: savings that are not included in your paycheck, vacations, big ticket purchases, downpayments for big ticket items AND money for major car or home repairs. Most people do these in order but I suggest you start with 1. the have to pay, then move to 3 to protect your future, and then use what is left for 2 the desretionary expenses.
Jamie, wouldn't it be nice to have a crystal ball? Here's a question from Dana
No problem, Bobbie. You've got some fast-fingers!
And thanks Bobbie, those are some great steps for someone just starting out. Here's a question from Mike B.
Mike, Many people want to have their house paid off at or near retirement. It is a lofty goal that many can not achieve. When making decisions on questions such as yours, I ask myself; "What do I know for sure?" In your case, you know for sure that you have a low percentage loan and paying an extra payment each year would reduce your years to pay. I like that one, but do not like using retirement funds to pay off the balance. Just work on paying as many extra months as possible until retirement.
HI Dana, I think I could have written your question. Basically, I agree with you, but every situation is different. I like to look at a portoflio from three perspectives -- Needed cash/cash reserve for a minimum of 3 years of spending needs (cash can be, savings, Money Markets and CDs).
Mike B, I am going to ask Kiplinger to ask another advisor to help you. Since I am fee only (as are we all), I have very little experience with annuities, particularly these blended products which often make it hard to see the forrest for the trees. Can anyone else help Mike B on this?
That's a good point, Bobbie. Jamie and Debbie, do you have any thoughts on Mike B's question? In the mean time, I'll try to dig up some articles from the Kiplinger archive on the topic.
The next thing I determine is the amount of risk (stock allocation) of the portfolio and my defualt allocation is bonds. Having practiced this for last 10 years, it is easy to see that the addtional risk added by bonds did payoff nicely --even though many of my clients did hold many bond/bond funds.
Bobbie, here's a long question from rs927. Take it away!
To clariify my comment on fee only, we do not sell products and typically annuity solutiions are used much more by commissioned sales people.
We have looked at these types of long term care combination policies and they are so complicated and laden with fees, that we recommend straight LTC policies.
Thanks Debbie! And great point for Mike about not using retirement funds to pay off the balance. Here's a question from Karin.
As we look forward, at some point interest rates will go up and bond values will struggle. Dana, I{m not sure you ignore bonds entirely, but avoid longer term bonds. From a different perspetive, if all you have is cash (no stocks/Stock fudns) then a diversified bond portfolio would be great diversification to just cash. Thanks for the great question. Jamie
Bonds can be tricky, Jamie. Thanks for the great advice!
Here's another question from Bill.
Mike B, I'm going out on a limb here. I believe the combination products work well when you already have annuity money or life insruance cash -- I am unable to give good advice if purchasing an anuuity and LTC is better than the combined product -- I suspect so, but ........Jamie
Karin, there are several ways to go, all with advantages and disadvantages. If you are looking to save in the $5000 range and do not make over the income limits, IRAs (Roth and Traditional) may be the easiest. Next up, do you have employees? IF you do not, a SEP IRA is another very easy to establish retirement account and the limits are much larger. IF you have employees, you can look at a salary reduction retirement, 401(k), SIMPLE IRA, etc. With employees, the percentage you give yourself in a SEP, is the same that you have to deposit into employees accounts.
Thanks to everyone who is continuing to submit questions. Due to the high volume, they may not be answered right away. With just three advisors, we're doing our best!
rs927, at age 30 I don't understand why an annuity would be a good fit for you. Guarantees and protection against market fluctuation are more of a concern for older clients (near retirees or those who have retired). Earning 3% is no deal as it will hardly keep up with inflation, not to mention the underlying fees that I suspect are being charged. While a consultation with a fee on advisor could help clarify your choices given your specific situation, my initial thought it to quit funding the annuity and put that money to work in stocks and bonds via a retirement OR taxble account. Wait until the surrender charge period on the annuity is over and then transfer that money (in a like kind of account) to a low cost provider like Vanguard. Indeed, if you find out what the ongoing fees on the annuity are you might decide to bit the bullet and pay the penalty to move on to a better situation.
Hi Bill, I'm not qualified to answer this one. First, if the 401k is still active you can not roll it unitl you have retired. To your question, the account of the pretax/post tax IRA money is up to you the keep track of. This is not necessary, but I would roll the per tax money to an IRA I'd call Pre Tax IRA and the post tax money to an IRA called Post Tax IRA. The issue in my mind is keeping the tax basis striaght as you may move the account around, change advisors, etc. Jamie
Also, those submitting questions should remember that we are here every month. So do join us again if we don't get to your question today.
Thanks, Debbie. Here's a question from Nicole.
And no problem, Jamie. I'll try to follow-up with a few Kiplinger articles. Here's a question from Pamulon on student loans
Great point, Bobbie! We host these chats the third Thursday of every month!
Bobbie, here's another student loan question from YourGoodName
Hi Paul and Kiplinger -- I better pass on this one.
No problem, Jamie. Bobbie or Debbie, are you comfortable with student loan questions?
If not, I can submit student loan questions to Kiplinger's college expert, Jane Clark (she hosted a chat on student loans about a month ago).
I'll give a couple of thoughts on the both student loan questions.
Jamie, here's a question from Laura.
Nicole, no, if you can afford the LTC care, it is not way too early. First, check at work to see if they offer a group LTC policy. If you are married, look into a joint policy that would cover you both for certain number of years. You need to decide how long you can pay for care, that determins your "waiting period". Then per diem, which is what they would pay per day. $100-$150 is typical. Read the booklet offered on the ARP website. Remember, insurance isn't suppose to cover every dollar, the more you pay yourself, the better the premiums.
Sorry Nicole, make sure that home health care is covered.
Hello Your Good Name. Keep the savings intact. Indeed, since you are a one income family (I assume) I want you to have enough in savings to cover 6 months of expenses. I know, VERY boring but if the time comes that you need it you will be very relieved to have it. I would also keep funding the retirement accounts as starting early on them is a good way to insure that you are in good shape when you get ready to retire. What I suggest is that when you get the raise, perhaps take a quarter of the net amount to increase your lifestyle (at most) and use the rest of the increase to beat down the student loans ASAP. I think you could have it all paid off in 3-4 years. Good luck!
