Alright, looks like our advisors are ready for a couple more questions.
Here's one from Gale Ivy.
And another one from Nate about buying mutual funds for the first time.
If you're trying to raise cash for any reason, it is reasonable to use taxable accounts to do so and take advantage of the currently low capital gains rates. I cannot know if they will rise as everything is on the table for increasing the government's revenues.
@Nate: Buying mutual funds by directly opening an account with Vanguard is a great idea. If you want a single fund with diversification, look at the Vanguard STAR Fund (VGSTX). Expense ratio of 0.34%.
Gale - If the SS income is going to bump you into a possibly higher bracket, then could your possibly consider delaying his SS also?
Gale: Do you need the social security income now? If not, you could delay his and allow the benefit to grow (8% per year!).
Thanks for pointing out the difference between fee-only and other advisors, David. It's important to understand that fee-only advisors (like all the wonderful planners we have with us today) don't accept commissions.
K - and then the investor needs to ask how the advisor is paid - so if it's on assets under management, will they be able to advise objectively if the client wants to pay off their home? The future is flat fees :)
Gale submitted her question before the chat started, so hopefully we'll hear back from her with some more specifics soon. In the mean time, here's a question from Joseph.
We're settling arguments with the wife now, are we, Joseph? :)
Joseph, we create a retirement paycheck on paper for our clients and I have several with public and federal pensions - you're lucky - yours will likely not change which may not be true for those with public pensions. Your question is a little bigger I think than you may realize. Withdrawing down 4% on your other assets preserves those assets, but I think you might actually benefit from knowing why/how/when you'd spend each of your revenue streams in retirement?
Joseph - The most effective thing to do is keep track of your expenses for the next couple of months. Just make a chart and place it on the fridge door and write them down each day. It sounds low tech, but it's very effective and may help clear up some uncertainty. I still do it myself every year or so.
Thanks, Bonnie. And Randy, we're always fans of simple strategies :). Thanks for sharing.
Joesph: there is more than one way to look at this, but let me give you one. First, how much income do you need for all living expense? Does the pension cover that or do you need to draw from your other savings? If yes, what is the amount needed? now figure out if your other savings can properly support the withdrawals needed.
Those are some helpful questions, thanks Brent.
Budgeting is never easy -- young or old, huh?
Here's our next question from WayneDC about emergency funds.
WayneDC - up to a year if you believe a move is in your future and I would use actual monthly expenses in a time when rates are collapsed and the money earns so little - still a critical function to have the emergency account and 3 months may be enough if you have credit available, back up resources, a second income, etc. Judge it by your needs and your potential exposure.
It's actual expenses, Brent.
Joseph, you will be best off if you tell your wife, "the financial advisers on Kiplingers said we are both right, honey." Here's my pitch - You can spend more as long as you are in your safe spending zone. So, you may be spending more but as long as you are withdrawing prudently, you're safe. We typically encourage to discount their pensions by at least 1% with the assumption that these pensions CPI adjustments (govt. calculated) will not keep pace with the true increases in the cost of living. So, your best of if you don't include the full pension and the full 4%.
Wayne - I'm not a fan of rules of thumb. I've had clients who say they are not comfortable unless they have $100k in the bank, and others who say they'll have enough after their next paycheck. It really depends what you feel is right. I would say at least $20,000 regardless of income.
Matt, you have a wonderful, long marital future ahead of you - good answer!
It been almost ten years, but I'm learning!
We agree with Bonnie, great answer Matt :)
Alright, looks like we're ready for our next question.
WayneDC: Using income or expenses to figure the amount needed is really a matter of preference. What is important is to have a reasonable amount of money on hand in case of major unexpected expenses (i.e., job loss, major medical expense, etc.).
Cindy, sounds smart to me - you seem very organized, so let me just confirm, your beneficiaries are in order and you have a current estate plan including survivor choices (or not) for that pension?
Good point on emergency funds, Brent and Randy.
Here's a followup from Cindy.