And Rich, here's one from Anjali
Hi Judi, Great question. The cool thing about being a planner is we know how to answer these questions, the bad thing about being a planner is we know out to do it our way. I'm sure Kiplinger and I know T Rowe Price has some reitrement calcuators -- but I haven't used them. In general, the pension is treated just like Social Security -- it's a strem of income each year -- and being a teacher, you will likely get some inflationary increases overtime. In these formats, I think the lame answer is to advise that you visit a planner, but before you pull the plug on working -- an visit to an advisor (Fee-Only of course) could pay dividends in avoiding mistakes (retiring too ealry or working too long). Any one know of good web based retirement calculators. Jamie
Robot House, I assume that your question had a joke aspect to. You need to decide how much you need for a downpayment and when that purchase would happen. If, say you need $20,000 for a downpayment in less than 5 years, segregate that money into a short term bond fund or keep it in money market funds. Be very cautious about investing the rest. Since this money must feel like "found" cash, treat it as though it is hard earned money. Invest it wisely in good funds with some guidance from a fee only planner or self education. Do not expect it to turn into $1million.:)
Any planners want to add on to Jamie's great response, re: web-based retirement calculators?
Jamie, here's a question from recently widowed
Paying off student loans vs savings for retirment. Wouldn't it be great to be able to do both. LIke many things it depends. If your studnet loan debt is higher than 8%, pay off the debt. If it lower than 8%, like 4-5%, then I like getting that retirement savings started as soon as possible.
Anjali, putting 20% down is a great idea if you have it, as you avoid paying mortgage insurance. However, right now you can take advantage of incredibly low interest rates and low house values. I think it would be more important to take advantage of these and put a smaller percent down then wait a few years. In a few years if you build up enough equity and save, you could always refinance to get rid of the mortgage insurance.
Also, check with your state about first time homebuyers credits.
Thanks, Debbie! :) Here's a question from Dan VanWinkle
BMG, first understand that you are not alone. I suspect that many of your neighbors and friends who look like they are financial successful are also struglgling with overspending and debts. The good news is that for now the credit card debt is reasonable. Make a pledge that you will not let it go higher. First take a look at the things you have to pay. If you rent, could you reduce that next time your lease is up by moving to a less expensive place? Do you have car payments? Could you break even by selling the car and then buying a very used but serviceable replacement (I drive a 1994 Caddy. I do remember when a new car was very important to me but those days are long gone and I wish I had all that money back). For savings, realitstically to replace your current income in retirement you need to save (with employer matches) about 15% of your income (OUCH). If that is impossible now, it is a goal you should work toward. When making a budget be sure to make allowances for unusual or irregular items like care repairs and vacations. Put that money into savings to wait for that rainy day so it doesn't destroy your monthly budget when the expense shows up. Finally for all of your descretionary items (how much you are going to spend on groceries, going out, clothing, gifts, personal care, clubs, entertainment, hobbies..you get the idea) figure out how much you have in the budget per week for those items and make a weekly cash withdrawal. When the cash is gone, so is the spending. Now, you need to remember that some of the items I mentioned like clothing are irregular, so if you don't save some of that cash in a envelope somewhere and you need a new pair of shoes, you won't have the cash to pay for it. BTW, to make it a little easier, my clients take a little extra at the first of each month and even a little more extra at the beginning of each quarter. This acts as sort of a safety valve if you will. Good luck! I am certain you can make this work. But you will have to change your lifestyle (game night with friends and spaghetti at home rather than a night out to dinner...make it a contest as to who can throw the best party for the least amount of money).
Wow! Bobbie, are your fingers getting tired yet? ;)
Rich, here's a question from KW
I haven't received question from VanWinkle
Oops, thanks Debbie! Trying to keep up with this all. Here it is
Hi Recently Widowed, Great questions. Assuming an up stock market (a seemly poor assumption in the last 10 years), I like mortgages and generlaly do not feel a need to pay them off quickly. But, often clients feel better being debt free. If that is you, pay off the mortgage. If you have a high mortgage interest rate, pay it off or consider refianancing. Of course, I don't know the size of your mortgage either. In my area (Vermont) mortgage are generally not very big ($250,000 and less). As long as you are working, I'd keep a mortgage -- and I would not use IRA money to pay it off. The tax hit is too much, expecailly sicne you are working. I'll tackle the asset allocation next.
Well my fingers are getting haphazard as my spelling errors confirm.
Matt, here's a question from Mark
Well keep it up, all the advisors are doing great! Bobbie, here's the next question from DaveK
If you find the right property now, I would see what the banks can do for you on the loan rate. Don't just assume that it would be too high. I do think rates will continue low into next year, but anything can happen since the world is so interconnected.
KW, if you have an emergency fund to with withdraw from where you can take money out of to get through tight times, that is where I would take it from. Thats what its there for. I would not advise taking out loans to cover living expenses as this can lead to bad habits. Also take a look at your expenses, there may be some wiggle room to save there.
KW, sorry, it got broken up. I was trying to say "withdraw from...
Debbie, here's the next question from JS, also about credit scores
Rich, here's a question from jjc
Recently Widowed -- I like to determine asset allcoation by first knowing the strength of ones retirement spending plan. What I mean by this, I have clients that have pensions, social security and do not need much from their portfolio each year. These client typically do not need to be agressively invested -- and for some reason they seem as a group to be more risk adverse. I have other clients like yourself that do not have a pension, so a larger portion of their retirement spending will be from their portfolio. If I projected a retirement plan, (I'm guess here) we may find that if we invested your money ($1.5 mil) for a targeted 5% return, than you may deplete your portoflio before you want. This tells me you need to at least consider a portfolio with higher risk (maybe 50-65% allocated to stock/stock mutual funds). Now remember, I do not know enough about your to say this is your target, but it is a reasonable target for many retires. Once you retirement, I recommend allocating a portio of your portoflio (probably 5 years of spending need) to cash (saving/money market accounts/CDs). This cash protects you from some of the portfolio volitility and hopefully will help you sleep at nights when you hear on the news the market dropped 500 points today. The cash assure you know how you will pay your bills. Jamie
JJC, We have always used Vanguard as they have great funds and low expense ratios. Transferring them usually is just a transfer form with a recent ED Jones account statement once your account is set up.
Thanks, Matt. Here's the next question from Raulb
Very detailed response, thanks Jamie. Here's a question from Jeff