Thanks, Allison. Here's one from Bwlin
Bonnie, here's one from pjcwmc
an easy one - thanks pjcwmc! Door number 2. Excellent, balanced approach, love the flat fee - also how I work, and having established a relationship with that planner, you can use them in coaching role as you go along - enjoy your retirement in good health.
And Rich, here's one from Sandy
Sandy, Im, sorry it sounds like you have had a tough go of it lately Devising a retirement plan is tough, especially when the unplanned happens. Without knowing more about your situation, its tough to give you specific ideas. However, I would suggest looking at your expenses and developing a good budget for yourselves. See what discretionary expenses (clothing, eating out, vacations, etc) can be cut and try to trim your expenses that way. Also, if you have a hefty mortgage payment, maybe look into refinancing to cut this down or even downsizing to a smaller cheaper home. It may be helpful to talk with a financial planner to get a better idea. I would look at the NAPFA website.
Alright advisors, here's our next question from Fortdsm
Fortdsm, you might pay an accountant or advisor to evaluate the company's financials. After that a decision may be more clear. I don't want to discount your wife's experience at the company but I would take emotion out of it and look at the numbers. If the numbers don't reveal a fundamental problem (underfunding, low cash, etc.) I would consider the full pension. It's always best, though tedious, do run the numbers so I'd look at the financials of the company and then do a side by side comparison of full pension vs. pension plus lump sum. Good luck.
fortdsm, What I like to do in these situations is evaluate the payout rate on the annuity and compare that to the rate of return you might expect to earn if you took the lump sum and invested the funds. In most cases pensions are insured by the PBGC, but it would be a reduced income if the company goes under. You may also want to consider your spousal benefit if she were to die prematurely.
Alright, here's our next question from Joe
Hi Joe, I don't know if actively managed bond funds will result in a better result as interest rates rise? I can't tell the future. I also don't know when interest rates will rise given we've been assured they will not for some time. Actively managed funds (stocks or bonds) will generally beat an index during some period of time. That period of time is often used in marketing materials. I use both and evaluate management, the holdings, and the cost for starters.
Joe M, I wish I knew the answer to that myself! We are in a very difficult environment with bonds right now. Our strategy has been to keep maturity and duration low on bond funds. You can also consider a bond ladder strategy
Joe, the best way to reduce interest rate risk is to hold bonds with shorter maturities, less than 5 years. As bond prices and interest rates have an inverse relationship, any rise in interest rates causes the prices of bonds to go down. So holding shorter term bonds will help n this scenario. I think actively managed funds help in most cases as long as they have a good bond manager. Take a look at Pimco funds managed by Bill Gross.
Thanks, all. On to our next one from Gerard Johnson
Hi Gerard, from www.irs.gov - Can a contribution be made to a SEP-IRA of a participant over age 70 1/2?
Contributions must be made for each eligible employee in a SEP, even if over age 70 1/2. Such an employee must take minimum distributions, however.
oops. Gerard, yes, if you have earned income on your schedule C then you can contribute to a SEP IRA. You should also consider Roth IRAs if you are within the income limitations as you do not have to take Required Minimum Distributions from Roth IRAs
Thanks, all. Ready for our next question from Rosik?
Rosik, max out your employer sponsored retirement plan as much as possible if you have one, make sure that you are getting the full employer match on that plan, consider contributing to a traditional or Roth IRA as well. One of the best strategies is to make your savings automatic, so make sure your 401k deferrals are coming out of your paycheck and set up an automatic monthly contribution to another retirement or savings account. Also research what other retirement benefits are available through your employer and make sure you are getting the most out of them.
Hi Rosik - two things. 1) start saving a significant amount now and 2) consider marrying well. That second suggestion is not trivial. I do a lot of divorce work and marrying well (if it's an option - this is someone who works, is stable, contributes in many ways) is a tried and true path to greater wealth than on your own (given that you haven't saved yet). The first suggestion can be coupled with seeking additional or increased earnings. Any expectation of inheritance? If not, you do have time to save - it's just getting started that can be tough. Figure out the amount you think you need in retirement based on your lifestyle spending and then figure out what you can save, and given average market returns, is it enough? If not, you'll need to add/increase earnings.
rosik, I would look at your companies retirement plan. A lot of the time companies will match a percentage of income that an employee contributes. If they offer a 401k or other alternative, then any money you contribute goes in before taxes. So you not only are saving for retirement (and possibly getting free money from your employers match), but you also save on taxes. If your company does not offer a plan, look into contributing to an IRA. I would recommend a Roth IRA if you meet the income requirements and do not need the deduction of a traditional IRA.. If you have money left over after contributing, you can always save money in a brokerage account.
Great advice -- Rosik is certainly not alone!
Here's our next question from Barb
Barb, you're asking advisors in the business of protecting and growing assets to tell you how to spend every cent - that's a dicey game at best since we don't know when you'll go. There are calibrations you can do to those withdrawal rates that will let you get very close - are you working with an advisor or trying to determine this on your own? What is the longevity in your family, your general health, etc. Is there something specific you want to spend on that takes you outside these general boundaries? Can you do that and still be okay? That's what we like to evaluate. It's your money and you can spend it all. We'll just worry that you spent it with an unexpected decade left to live.
Thanks, Bonnie. Here's our next question from Joanna Lopez
Hi Joanna, try www.ryan-insurance.net. I have no financial relationship with John Ryan - I've just used him for over 20 years and he's nationwide, independent and terrific. He also has a lot on his site regarding annuities - they are complex so there is not a way to quickly explain them except to say you give the annuity company a lump sum, they pay you back in payments. Remember you live with the annuity contract, not the conversation during purchase - essential difference. Pomaika`i
Joanna, annuities are products to where you either buy with one lump sum, or buy through a period of payments. When you are ready to "annuitize" it, this means that you now will get a series of payments. This can either be for a fixed period of time or life. There are a bunch of different ways to annuitize, so its tough to name them all here. For example, you buy an annuity for $100k. When you annuitize it you may get $400 a month for life, or you may get $600 for a period like 20 years. As for life insurance, you can go on to selectquote.com and look at different policies. I would recommend term insurance vs variable. Variable offers investments inside and is not a pure insurance.
Joanna, if its a taxable annuity (non-retirement), then a portion of each monthly payment you receive will be taxed (the fraction would be something like gain/cost) X monthly payment. That portion would be taxed). If it is a retirement annuity (do not recommend IRA annuity), then the full monthly payment is taxed.
Advisors, here's our next question from Richard.
Richard, when you say you are looking for income in an IRA and are currently taking RMD amounts now, are you asking for investment suggestions that produce income?
Richard, you don't mention your age, but a safe withdrawal rate from a diversified portfolio is between 4-6% as mentioned previously. A rule of thumb would be to calculate the appropriate annual withdrawal rate on your IRA or total portfolio and take automatic monthly distributions to supplement your cash flow. A key factor would be if your IRA is invested appropriately for your situation.
Advisors, we have a follow-up from Richard.