To Rebecca Baldwin: Prior to your move, it would be good for you to find and establish a relationship with an attorney here who is experienced in international law and who will have established relationships with counterparts in your new country of residence. A few issues that come quickly to mind are that: (1) Medicare does not provide coverage out of the U.S., (2) Investments get a little tricky because certain products may not be held in accounts outside of the U.S., and U.S. citizens may not own certain investment products outright. Your U.S. attorney can advise you in advance of U.K. laws affecting you. For example, I have U.S. citizen clients who own real estate in France; they may not exclude their children from inheriting that property.
Hi SL - Yes, you can convert your IRA to a Roth The question is should you? There is no definitive yes or no for that question. You would need to pay taxes on the conversion and it's better if you don;t pay taxes from the converted amount. It also depends on your tax rate going forward. The calculations I have run show the more you convert, the longer you let it grow tax free and the higher your tax rate, the better a conversion works. My suggestion is to go to wwwdinkytown.net and plug in your numbers in their Roth conversion calculator to see how it looks for you.
S.L. - Yes, you can convert your Traditional IRAs to Roth IRAs. The income limits were taken away a couple years ago. Be careful, however. You will have to pay income taxes on the conversion and the higher income may put you in a high tax bracket. Depending on where you live, the conversion may also be subject to state taxes. Also remember to fully understand the new tax rules starting this year (phaseouts, Medicare surtaxes, etc.) before you make any moves like this.
@SL: You could consider converting just enough of your traditional IRA so that it absorbs your current tax bracket without getting pushed into the next higher bracket. You could consider doing this each year until you are 70.5 when required distributions start for the traditional IRA. By having converted some of the balance over the years to a Roth, your required distribution will be lower.
Alright, when you're ready here's our next question from Liz
Here's a question from Larry
To Larry: To best respond, it would be best to know how much money you need from your $450,000 portfolio to live on annually. For example, you might receive $27,000/year at 6%; but your needs and other income might be different. What are your needs and other income sources?
Hi Larry - Your question creates many other questions. There isn't a quick answer for you on this. If it's a question of income in retirement, please contact a NAPFA fee-only advisor in your area to explain your situation. That way they can give you appropriate recommendations. Please go to www.napfa.org and search for an advisor in your area.
Larry, Thank you for your question. An annuity may or may not be the right product for you use. The benefits and costs of an annuity need to be weighed against your goals and cash flow needs. For example, what other resources do you have, like a pension? Will the annuity payments allow you to keep up with inflation? How much of your portfolio are you considering putting in the annuity? Will you be able to meet your goals better outside of the confiines of the annuity structure?
We have a few questions from Sue up next
Sue - Social Security is the primary source of income for most people as they age. If you are under FRA and claim your benefts, there is a reduction applied to your benefits. That reduction will also apply to spousal benefits (this is a VERY simplified answer). The new rules allow you a 1 time "do-over" with your benefits (you must do this within 1 year of starting your benefits). You need to understand how to coordinate your benefits with your husband to get the the highest possible benefit amount. Making a wrong decision can cost you hundreds of thousands of dollars. I STRONGLY recommend hiring a fee-only advisor who can help explain those options and run various scenarios so you can make an informed decsion. Because of the time limit on the "do-over", this should be a top priority for you.
Thanks, Jeff. Great advice
Sue - Rolling over your USPS money may make a lot of sense since I remember your choices are rather limited. You can roll it over to any big firm..Schwab, Fidelity, TD Ameritrade, ETrade.
To Sue: At first blush, the amounts you would collect under the two scenarios are rather close ($856/mo for you currently vs $1,000/mo as l/2 of your husband's SS). This would mean that your cash flow would be similar under either scenario. The next question would be to calculate the amount your SS would grow over the next 3-4 years if you chose the 1/2 option, delayed your own, with the payback. This is a critical calculation, which you can do this with the aid of a fee-only financial planner or directly with Social Security. I would urge you to do it sooner rather than later. As regards the retirement funds you have left with USPS, that same financial planner can assist with your choices; I usually recommend rolling those accounts to an IRA for several reasons. You can direct the investments, there are usually more investment choices, and your can access the money more easily, in general.
Sue - I don't think I understand what you mean by "money invested with the USPS". Is this a retirement plan?
Here's one more from Julie before you have to sign off
Julie I'm a fan of spreading money among the three main tax treatments: taxable, tax-deferred and tax free. It appears you're in primarily tax deferred, therefore i would consider more tax-free. I've always said it's not so important where you invest..it's how much you save that really matters and it sounds like you're doing great on that front. Well done.
Readers, please bear with us as we welcome a new round of advisors to the chat
Hi, this is Pat Jennerjohn CFP, in Oakland, California where the weather can't make up its mind between rain and sun.
Hello! This is Rich Bryan, CFP®, of Partners in Financial Planning in Roanoke, VA providing fee-only financial planning and wealth management at www.partnersinfinancialplanning.com
Alright, Rich and Pat, here's your first question from Gale
Hi Gale, your Social Security benefits will already subject to income tax since your joint income is over $44,000. But you are at normal retirement age, so at least your benefits are not being reduced due to your income. You should also both be on Medicare (you were eligible at age 65), and I assume you also purchased supplemental insurance ("Medigap"). Would the health insurance from TRS replace your supplemental insurance, and at no cost to you? As long as you will be able to cover your living expenses at retirement, you could wait until 70 for the pension if that insurance benefit is worthwhile. But the pension itself might cover your current supplemental insurance after you retire at the end of the year, therefore be worth taking since your income drops. At that point, your Social Security will probably not be taxable, so adding the pension may not bump up your taxes at all. So I think the decision boils down to how well you can cover expenses post-retirement, and the nature of the health insurance, in terms of a Medigap supplement.
Gale, regarding Medigap, if you are receiving health benefits as employees, that would be currently considered your Medigap coverage. Once you retire, you will need to shop for supplemental coverage.
Alright, here's our next question from FrankM. This is a good one that's likely on a lot of readers' minds
FrankM, With low interest rates and low bond yields, future bond returns will most likely be lower than they have been in the past. That being said, it is important to have some bonds in your portfolio to reduce the volatility of stocks. As interest rates rise, you will lose some value in your principal of your bond funds, but over time your yields will rise. If you are reinvesting your interest, you will be buying cheaper shares of your bond fund. It is very important to make sure you have the right asset allocation. People always get into trouble when they make their portfolio too aggressive. If you are just retiring, you could easily have another 30 years to invest this portfolio. To make the portfolio too aggressive in stocks and then suffer the losses of a bear market at the beginning of retirement could jeopardize the amount of money you can withdraw from your portfolio. Stick with the basics… the correct allocation, a diversified portfolio, low cost and tax-efficient investments, rebalance on a regular basis.
Thanks, Rich! some great advice for Frank
While the planners answer Frank's question, here's another one from Bob
Bob, a number of studies have stated that 4%, thereabouts, is a safe withdrawal rate for a portfolio. That of course will translate into a specific dollar amount, depending on the size of your portfolio. And, is that specific dollar amount enough to meet your expenses?
I'm not sure what you are expressing with your 200% and 135% numbers - I'm not sure how you can spend more than 100% of investment income without also taking principal - can you clarify?