Wayne, Partial Roth Conversions may make sense. The answer mostly depends on whether you are in a lower tax bracket today, relative to your wife's retirement. If her current income is more than her RMDS at 70 1/2, then it typically won't pay to do a Roth Conversion now. However, if your wife has an IRA with basis in it, she can roll-up her pre-tax dollars to her 401k (assuming the plan allows it) and convert her basis tax-free into a Roth IRA. This is a sophisticated strategy, but we've done it 1/2 dozen times for clients whose IRAs have basis and who have a 401k to accept the roll-up. Feel free to call me to review, 262-814-1600.
HI Lisa, Sounds like you've been great savers, despite the uncertainties with employers. Here's what I sense - you have way too much sitting in cash when you start to think about 30 years in retirement (yes, many folks live into their 90's these days). Set aside whatever you feel you really need in case you both lost your jobs (ie. an Emergency Fund) and then get the rest invested. You need to be earning at least more than the rate of inflation (avg at 3% historically) in order to maintain your purchasing power in retirement. With your current portfolio, you should be able to safely withdraw about $45,000 per year, if it's invested prudently. With an additional $24,000 from your pensions, could you live on $69,000 per year? It sounds like it might make sense for you to visit a fee-only planner to do a "retirement reality check" just to make sure you have saved enough to live on for retirement AND to give you some suggestions on investing your retirement money so it will earn enough of a return to fund those retirement years.
Vivane, congratulations on your retirement. We field this question everyday in our practice. If you can make more than 3% return on your money, I would keep the mortgage and get most of your cash money invested. Your mortgage interest rate of 3.875% is cheap, plus you get (and want) the interest deduction, so your true cost of money is less than 3%. In addition, your cash flow is so strong (WOW) that you don't have the need to reduce risk, which you do slightly by paying off the mortgage. The main benefit of paying off your mortgage is an emotional benefit. That is worth something, but financially you'll be better off keeping the mortgage and getting your cash invested.
Hi John R. The answer to this really depends on a few things - what percentage of your total portfolio is this $100,000? Are you in the 25% tax bracket or higher? And are you looking to supplement your monthly income from this investment or is it for the longer term? Having a well balanced portfolio, no matter what your age, makes sense, but you do have bonds in the Vanguard Wellesley Income fund already, so you want to be careful you would not have too much in fixed income and not enough in equities if you put the entire amount into muni bonds.
Bob, to have 5,300/mo after taxes, I'll assume you need $7,100 before taxes. Reducing for your SS, you will need $5,400/mo from your savings. If earn 6%/yr for 30 yrs and deplete all of your assets, you will need $900k. If you earned 5%/yr, you would need a little over $1m. This is a relatively simple present value calculation that you can also do in Excel.
Dean, I would agree. If your main source of income is interest and dividends and your itemized deductions do not exceed the standard deduction, you are pretty much out of options to reduce taxes. You could look at low-cost variable deferred annuities to shelter some of your investment income but it sounds likely that you would have to realize capital gains to put cashs into the annuity. Muni bonds are nice but should be just one component of a fixed income allocati
Doug, we like to invest Roth IRAs a little more aggressively than any other account because those are typically the last accounts we tap into, and most likely the Roth IRAs will become legacy accounts for the kids. These are the absolute best accounts to pass to the next generation (two generations of tax free growth). Besides that, as you get within 2-3 years of retirement you want to make sure you have some conservative investments you can tap into once you retire, in the event the equity markets are down at that time. Bottom line, Roth IRA most aggressive, carve out 1-2 years of living expenses in conservative investments if you're within 2-3 years of retirement, then invest the rest of the assets in a balanced/growth approach.
Bob, over such a long time period, small changes in the variable can produce very different answers. Good luck.
HI Lisa, Yes a CD ladder is one option for your Emergency Fund. Just do it in three or six month increments so there is always some cash coming due if you need it. Leave some (up to 3 months) in cash for a true "emergency". It won't earn much (you could look at online savings accounts or a money market account) but it's accessible immediately.
Bruce, the five year rule pertains only to Roth IRA earnings. You can always get at your Roth IRA principal. There is NO 5 year rule related to traditional IRAs. Your concerns are totally unfounded...relax. Your money is much more liquid and available than your question implies.
Evelyn, I'll need a little more information. What is being referred to as a "hybrid". Is it an variable deferred annuity or is it a rider on another type of insurance contract?
David, you get to choose which accounts or investments to pull your RMD from. If you have $100k invested in cash/money market and that asset is earning less than .5%, I would be inclined to take all of the RMD from this bucket. I would also be inclined to get more of that money working for you. Keep in mind that inflation is between 2-5% depending on who you believe and how you live, so your money market assets are producing a negative real return after inflation.
John, You may be approaching retirement but you may have 20-30 years of retirement to support. Although you may want to set aside fundsd to provide for the firt few years of retirement income, your investment portfolio may not look very different from where it is today. You may be in a position where you are able to take much less risk but a moderate portfolio of 30% - 50% stocks would not be unreasonable.
John - Yes, the transcript will be available here.
Evelyn, I will have to defer to an agent but I would caution you to proceed carefully. An annuity may be an excellent tool to manage longevity risk but at 67 I would consider the need for a deferred annuity. It does sound like you are on the right track by considering just a portion of your assets.
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Edna, Be sure to take advantage of the pre-tax retirement accounts offered by the State of CA. For every dollar you save in these plans you defer paying federal and state taxes. This can equate to a 20-40% 'return' in the sense that you would have paid income taxes on these funds if you take it in your paycheck. Regarding the $150k, be sure to carve out 3-6 months of living expenses and leave that securely in the bank for emergencies. The remainder is available for investment. Whether you invest in mutual funds or real estate is dependent on lots of factors. Will you buy a duplex? If so, are you ready for all the work that goes with maintaining rental properties? Many people are (I'm not), especially those who are mechanically inclined. Otherwise investing in a diversified mixture of mutual funds can make lots of sense.
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