JH, my first take is that it's usually (but not always) best to delay collecting Social Security for as long as possible since the benefits are permanently lower if you start early. If you were working with an advisor, I'm surprised that he or she didn't tackle this question for you (looking at taking Social Security earlier versus opting for the ACA subsidy, to see what the best outcome could be). You will be waiting about 3 years before you qualify for Medicare, at which point your cost should come down - I can't tell from the information that you provided whether or not your spouse is already on Medicare (with your retiree coverage serving as Medigap coverage). So, you might want to consider delaying Social Security benefits for 3 years in order to qualify for the subsidy, drawing from your portfolio to cover living expenss. Then, you can apply for Medicare and consider starting Social Security coverage (for you and your spouse) at age 65, as the subsidy may be less valuable at that point. Without knowing your expense details it's a bit hard to give you a more comprehensive answer - I would suggest taking this question back to your advisor (or finding one that can run a more personalized analysis for you than we can do here).
Hi Pete, it is would to assess whether you are on track without knowing your expected expenses in retirement. That said, you appear to be doing all the right things as far as savings. Depending on your current income and tax bracket, a Roth IRA might be a nice tool to give you some tax diversity to your 401k. Your allocation is very aggressive. Even at your age I would recommend at least 20% in diversified bond funds. You should also have enough after-tax savings to tap into should an an emergency or opportunity arise. Keep up the good savings habits.
If you aren't able to stick around until your question is answered, don't forget that the transcript will be available here after the chat!
HI JWH. Congratulations on your upcoming retirement. sounds like you and your wife will be in good shape! The 1% you will be paying to the Ameriprise advisor will be to manage your investments, whatever they may be. This will probably not include any other financial planning advice. My suggestion is to shop around a bit if you feel you want some advice, but aren't sure what you need for ongoing management. Check out NAPFA's fee-only advisors in your area - they won't be tied to a specific company who sells proprietary products and many have graduated fee levels that could result in you paying less than 1% for investment management). Or if you prefer to have someone get you set up in a portfolio you can manage yourself, you should also look at hourly CFPs. Check out NAPFA and the Garrett Planning Network for hourly fee-only planners in your area.
No problem Confused, your answer should be up momentarily!
Confused. Start by paying off the 8% credit cards and then reduce the balance on the 6% cards. If you needed to fully pay off the 6% cards before starting on the 8% cards to reduce your payment, that is also an option. If neither option gets
you below the thresholds, I would think very carefully about whether it is the right time to buy a house. I don't have all of the information about the stability of your income and expenses ut I would be concerned that a unexpected housing repair/expenses could pop up.
Hi Roman, Therese has signed off for the day, but we will see if any of the other advisers can take your follow up.
Thanks for participating sharon!
Confused, it sounds as though you have some flexibility to manage your tax bracket. If you are already in the 25% bracket, I'll assume you have other taxable income sources. If that is the case, consider taking fro the retirement accounts up to the limits of the 25% bracket and then using the Roth IRas for additional funds. Just keep in mind that the inherited accounts have a Required Minimum Distribution - you will want to take at least that amount.
Julia, Great job on your savings rate. The answer to your question is somewhat complex. You might consider reducing your 401k contribution and putting money in a Roth IRA if you thought you would be in a similar or higher tax bracket when you retire, relative to today. If you think you'll be in a lower tax bracket in retirement, putting all of your retirement savings in a 401k works great. Be sure to have money saved outside of retirement accounts for liquidity. Roth IRAs do allow you to get at your principal prior to 59 1/2, so their is some liquidity there. I hope this helps.
xxxx, Given that your pension income exceeds your expenses by a health margin, I would tend to agree that early retirement is very possible. The ability to find work if needed or desired would also bolster your ability to retire sooner.
Ellen, A lump sum allows for greater flexibility if you need access to large sums of money (buy a house, health expense, help a child, etc) quickly. If you don't spend all of the lump sum, it continues for your beneficiaries via a stretch IRA (two generations of tax deferral. Taking the pension as a monthly payment helps with budgeting and allows you to be more aggressive with the rest of your assets because you have this guaranteed income source. When you and/or your spouse dies, depending on the survivor option you choose, then the pension stops.
HI Dan. I've been noodling over your question on the Roth conversion. There is probably a very sophisticated mathematical equation we could create that would answer your question better than this but it seems to me that if you are paying an incremental 10% in year one to convert the dividend paying stock to a Roth and then receiving 6% a year after that tax free, you have recouped your "cost" by year 2, a pretty short timeframe. If you then add on what the tax burden would be to keep it in the IRA and take it out as RMD at 70 1/2 I suspect you will have an even clearer indication if paying 25% now is worth reducing what you will pay at 70 1/2 and beyond.
Julia, you're right in asking if your 'future self' would benefit more from the Roth IRA than the 401k. The answer requires us to make several assumptions and make several projections, but that's what we do. The answer varies from client to client depending on your entire situation.
xxx, now I am getting a little jealous. I have a garage full of woodworking tools that I am dying to use more.
Wayne, it sounds like your wife will retire at age 69, has already begun social security and is still working. She'll need to begin her Required Minimum Distributions (RMDs) from her 401k/IRA at age 70 1/2. This income will be added to all of your other income (both social security checks, pensions, dividends, etc.). Depending on the size of your wife's plan, the RMD could push the two of you into a different tax bracket. You'll want to evaluate this issue and potentially 1. retire early, 2. or retire at 69 and take the distributions as needed. This is an overly simplified answer, but it's a good start.
Dean, unless you have significant debt that can't be covered by assets, there is virtually no need to carry insurance after you have retired. Since you don't have debt, you don't need the insurance. Some people like to carry insurance past retirement to provide an inheritance for their loved ones, but that's an expensive proposition. If that is part of your intention, then stop the term policy and covert the whole life policy. Otherwise, you can safely drop it all (and may get some cash value back from the whole life).