Brad, it is overall a good idea to manage your income during retirement to stay in the lower tax brackets. When you have room, you can withdraw from your 401(k), or, if you do not need the income, convert to a Roth. Using your taxable funds first is a good overall guideline but it depends on the circumstances.
Brad, you are correct. There is more research coming out where you don't just pull from the taxable account first. You pull from a mixture. In addition, before you are retired, you may want to look into Tax Diversification where you calculate what % for taxable, tax deferred and tax exempt funds.
Brad, your question points out the importance of good tax planning throughout your lifetime. Lots of moving parts here. One thing I will say is that it is important to have taxable, tax deferred and, if possible, tax exempt (Roth) investments at retirement to allow you maximum flexibility to tax plan. This is particularly critical if you are single given the steeper tax brackets.
Brad, I agree that article was good! The issue is that setting up the taxable balances and knowing how to pull them efficiently is conplex. For my clients, I use a specialized CFP/ CFA consultant (Midwest) in this topic that has the computer models set up. The group must individualize the models for the unique client.
Cole, consider more bonds, with perhaps an allocation to TIPS..but it is hard to say without knowing you better.
Cole, when you say 1/3 in five large funds do you mean 5 Large Company(Growth, Value, Blend funds) or do you mean the the 5 largest Mutual Funds like PIMCO Bond, Fidelity Contra Fund, American Funds?
The allocation in your variable annuity-what does that look like? Mostly stocks?
Here's our next question from Bobbie
Bobby, may I ask your age? The closer you are to retirement, the more accurate you may want to be.
One idea is to look at how much you spend right now. Subtract retirement savings.
Bobbie, thanks for your age.
Bobbie, I look at living expenses before retirement assuming that reflects the standard of living you wish to maintain going forward. I also factor in taxes in retirement.
Yes, your taxes now may be different than what they are in retirement. So that likely needs to be considered.
Bobbie, at this point you should focus on saving 10% of your gross income and taking advantage of Roths and 401k/403bs at work. You should invest with a long term perspective in a well-diversified portfolio.
Bobbie, of course whether and how much you can save into a Roth or Trad IRA depends on your tax situation. The point is to save as much as you can now and take advantage of tax deferral in the process.
As you get closer to retirement your standard of living, living expenses may change. But a way to start is to look at your living costs now. Then ask yourself if you'd like to travel in retirement? Are you traveling now? What do you see yourself doing in retirement? Hobbies? rough costs? No answers required here-just brainstorming questions!
You may also want to consider investing annually in an IRA-2013 maximum is $5,500.
A Traditional IRA may reduce your income, a Roth IRA may be a benefit if you can leave the funds there for a" long time" and a Non Deductible IRA is available for those above the income limits of the prior two.
Thanks, Joe, Margot and Heidi! Looks like we have just one more question!
Cashin, I cannot comment off hand but do see it is a pricey fund at almost 1% expense ratio...
Alright, well thank you to everyone who participated today and asked such wonderful questions!
And a special thanks to Margot, Joe, Heidi, and all of the advisors who helped out today. We REALLY appreciate your service!!
This was fun. Good luck to all.