Sky, I would be cautious about plucking $400,000 into a fixed annuity right now. Interest rates are really low. You could ladder them by buying smaller annuities over several years perhaps in $100,000 increments. I would also look at the payout on Charitable Gift Annuities to see if the payout is higher right now.
To the person whose mother is 87. 4% is a respectable interest rate these days. New Annuities I've seen aren't paying under this amount. Remember if she annuitizes she is locked into that permanently.
I forgot and hit the Enter key. Sorry. Let's try this again. Figure out your emergency fund needs and leave them very liquid like your savings account. You might want to use some short term certificates of deposit. I know the rates are lousy but if you think of that money as insurance rather than an investment, it doesn't hurt so bad. As far as the rest, you can match up your savings with your needs. For example, if you want to take a really nice vacation two years down the road, put the cost of the vacation in a two year certificate. I would stay away from stock and bond funds if you plan to use this money within the next three to five years
Bob, considering that the purchasing power of your pension is likely to decline over time (if there is no inflation provision), that $2K you need per month now will increase over time. If we consider $400K in other investments plus $100K from the rental, $24K per year is a 4.8% withdrawal rate which could be high. You have a lot of moving parts. I suggest that this is the perfect time for you to visit with a fee-only planner (many work hourly) to discuss your goals and your investments and see if you need to adjust that withdrawal. In this engagement you could also include considerations like "is your home paid for?" 90 is a long way off and a little investment now could help you make sure the journey is a good one.
Hi RCJ, the answer depends on which company the annuity is with and whether the annuity is subject to any surrender charges. It the annuity is with Vanguard or with another low cost annuity provider you could leave it alone. However if it is with a more expensive annuity provider you could consider rolling it tax free into another lower cost annuity or an IRA (if this is a qualified annuity)
Hi Jeff, I would look at a projection of your annual expenses in retirement and save enough so that you will be able to meet those expenses. It is best to work with a financial advisor who can model retirement planning scenarios for you
Jeff, I don't use a percentage. I suggest you add up your actual expenses then adjust it for items like medical, travel, and other things that change in retirement. Then it is customized for you.
Jeff, I don't like to go by rules of thumb. Usually people ramp up their spending in retirement first 10 years doing what they want to do, travel etc. Need to look at possible expenses and what your dreams are and then do some calculations or simulations- a planner could help you with that or Something on Kiplingers.
Jeff, I will say that the idea you will need LESS in retirement can be a mistake, especially in the first years. Retirement has 3 phases....Go Go, Slow Go, and No Go. When we do planning, we always set two goals...one to fund basic expenses and then one to provide extra money during that go go period. Annrose is right; a planner can help you see what works for you. We aren't being coy when we say that. It's just that people are different so answers SHOULD often be different.
Hi Daniel, will you have need for these funds in 5 years (say to buy a home or other such anticipated expenses)? If so, I would be careful of investing it aggressively for 5 years
Daniel: You can contribute to 2013 and 2014 IRAs, because one spouse is working both may contribute.
Hi Jeff, This has been a huge toipc of discussion recently with all kinds of opinions. The way I see it, most people want to live the same lifestyle in retirement that they did when they worked with a few extras thrown in. If you are currently saving 10% of your income then you only need to replace 90% of your pre retirement income but, in retirement, you wont be paying Social Security taxes so now you need to replace 82% of your income. The best thing to do is take the time to really figure out your needs and wants and either crunch the numbers or have somebody crunch them for you.
Connie, assuming your income for the 2 months was not too high you both can contribute to an IRA based on the workings spouses income.
Daniel, If you had earned income, yours can cover your wife's contribution. Just check the income limits concerning the Roth IRA
Instead for fund that you will need in 5 years I would suggest that you consider high interest rate CDs at online banks like Ally, Barclays, American Express etc
Hi Sarah -- We have your question in the queue! We have a high volume of questions and are trying to get to them all as quickly as we can in the order they were received. If you have to hop out, the transcript will be here later!
Hi Terry. The answer is it depends. If you are in a high tax bracket, than a tax free muni fund can make sense. If you are in a lower tax bracket, you might be better off with an investment that pays more interest even after taxes. For instance, you could ladder CDs or use a taxable short term bond fund. Even after taxes, it may pay more than the muni fund.
Nicole: When you're thinking about converting an IRA to a Roth IRA and whether it is worthwhile think about future taxes. If you feel taxes in the future (when you're retired) will be higher than now, that is a reason to consider a Roth conversion.
Nicole, you probably should contribute to the roth for many years of tax-free growth. I would gradually convert the IRA to the Roth so it does not affect taxes too much, you are so young I wouldn't worry about tax rates 40 yrs from now, gradually convert
Nicole, at age 28 it is hard to argue against a Roth IRA (versus a traditional IRA). You have years to make up what you lose paying taxes. I would only convert the traditional IRA if I had money outside the IRA to pay the taxes.
Hi Nicole, you will want to work with your tax professional to sort out this question. When you convert the $38,000 to a ROTH IRA you will have additional income for the year and could become subject to additional taxes . Your accountant can help you figure out what the tax cost of doing this conversion will be.
ou can do a ROTH conversion any year and the deadline to complete it for 2014 will be December 31.
Hi shoejr. Your friend is doing the right thing by putting in 15% of her pay but she can put in as much as $17,500 and another $5,500 because she is over 50 years old. If she can afford it, she should do it. One note of caution is she needs to be careful with her investments and allocate them in a way that makes sense for her. Her spending will have a much bigger effect on her retirement than her investment return.
Connie, you can contribute to any IRA in a year where you have qualifying income: income earned as an employee, self employment income, military differential pay, or alimony. So if there were earnings for the first part of the year, you can make contributions for the year up to the amount of the earned income.
Stacy, thanks for throwing in those most helpful articles from Kiplingers!
TKM: There are times when keeping the 401k with your employer makes sense. As you said you feel the expenses of the funds in your 401k are less than other providers. Also if you want to convert your 401k over time into a Roth IRA it pays to move only the amount you convert to the Roth IRA. For tax purposes you will have to tell the IRS the amount you hold in an IRA but you are not required to tell them the amount held in the 401k
My pleasure, Brian! Just trying to keep up with you all!
Hi TJM. You are correct that you can access your 401(k) at 55 if you meet the qualifications. But, rolling to an IRA locks your money up until 59 1/2. As long as you have good investment options, are comfortable allocating the 401(k) yourself, and have low cost investments in your 401(k), leaving it there is appropriate.
Dick, difficult question, If you have health insurance now, great, when you are 65 and go on Medicare then count on $110 or more for MC part B prem, $100 or more for Supplemental plan and $50/month for Part D drug plan. Those are just the premiums! the rest depends how healthy you are- so staying healthy is one of the main factors. If long term care comes into the equation then lots more money. Oh boy, see what I mean?