Jump-Start Your Retirement Plan Days -- Other Financial Challenges Transcript - Live Chats, Q&As: Free Advice on Retirement, Investing, Personal Finance -- Kiplinger

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Jump-Start Your Retirement Plan Days -- Other Financial Challenges Transcript

NAPFA advisors took your questions about investing, saving for college, paying down debt, and more.

  • Kern44: A starting point is finding out the cost of your health insurance under COBRA. This will give you a sense of what an individual/family plan may cost you. From there, you can shop the health insurance providers in your state. Your cost of insurance will depend on the type of coverage and how much of the medical expenses you are willing to bear out of pocket.
  • Kern44, I've had clients mention this site for helping get a handle on healthcare costs. They have some worksheets, organizers...etc. Look on the Took Kit tab. Use these as you follow Donald's advice. www.goodcare.com
    by Bryan M. Totri, CFP edited by Amanda Lilly 2/8/2013 3:36:49 PM
  • Here are our next few questions from Gianluca
  • I am 35, I started investing few years ago right after 2009. So far I have been invested only in stocks and gold, I am considering if investing in bonds makes sense or not at this point, interest rate are so low and I am woundering that in between 2 and 5 years I could regret to have put part of my portofolio in bonds (about 20% of asset allocation). thanks
  • Hi Gianluca. I'm not a big fan of gold for long term investing. It's barely doubled in the last forty years. I think most everyone should have a balanced portfolio and a 20% allocation for a thity five year old person may be a good start. Right now, I would look for short term or ultra short finds. GNMA funds are good too. If you are investing regularly thorough a 401(k) plan, don't be afraid to allocate a portion to intermendiate bonds - remember you are dollar cost averaging . If they are available to you, I prefer managed bond funds to indexed funds at this time. Keep on investing.
  • HI Gianluca. I am a big believer in having some allocation to bonds regardless of interest rates, stock market performance, etc. They are an important diversifier in any portfolio. You are right to be cautious about the low interest rates right now, as rates are likely to start climbing. But I've been saying that for about ten years now...the key may be to limit your allocation (especially for long term retirement money) to bonds and to use short or intermediate term bonds vs long term bonds. This will allow you to react more quickly to a future rise in interest rates. A small portion in a high yield bond fund may also mitigate the lack of return on short/intermediate term bonds as well.
    by Lea Ann Knight edited by Amanda Lilly 2/8/2013 3:38:42 PM
  • Hi, I am starting over not retirement I can squeeze $200.00 per month to save maybe more hoping that in 6 months that amount will double.. I am 57 and I do have a job now. I do not own a home my retirement is gone I need to figure how to get the most bang for my buck, I want to apply for Social security at 65.
  • HI Janice. Make sure you have an emergency fund equal to 3-6 months of living expenses socked away before worrying about anything else. Once that's established use that extra monthly cash to save in your employer's retirement plan (if you have one) and/or set up an automatic monthly deposit to a Roth IRA, where you can invest it. T Rowe Price has some very good asset allocation funds, which are a good, low cost way to start investing.
    by Lea Ann Knight edited by Amanda Lilly 2/8/2013 3:38:58 PM
  • Janice: Starting over can be tough, so I commend you for taking the necessary steps to rebuild your retirement financial resources. The most bang for your buck is to avoid making major missteps by chasing aggressive returns. You didn’t say if you already have other funds for emergency, so if you don’t, make sure you save enough to cover 3 – 6 months of expenses before investing for retirement.
  • Hi Janice. We don't know a lot about you but it sounds like you may have gone through a rough patch. First build up an emergency fund to cover six months of living expenses. Put this money in a savings account. I know the rates are lousy but think of it as an insurance policy. If your employer offers a 401(k) plan, invest in a balance of stock and bond funds. If not, open up an IRA with a mutual fund company like Vanguard or Fidelity and start putting in as much as you can up to $6,500. If you don't have much in savings now, you may find yourself needing to work part time in retirement. This doesn't have to be a bad thing. Lot's of people do it for a variety of reasons. Good luck to you.
  • Janice: be careful...taking Social Security at 65 means you will be penalized for taking it "early". Your full retirement age is 66 and 2 months. So, taking SS at 65 will only get you @ 93-95% of your full benefit - for life.
    by Bryan M. Totri, CFP edited by Amanda Lilly 2/8/2013 3:39:10 PM
  • Ready for our next round of questions? Here's one from Deb
  • My daughter goes to college in 3.5 years. Current mortgage would be paid off in 4. Should I refinance my home so I still have a mortgage when she is in college, in order to maximize the aid she might get? I have done most of my savings in retirement accounts so those can't be touched, but have good income - $100K - and want to to whatever I can to get at least a little aid. She is currently straight A student but not the involved type - no extracurriculars, no use advising that, she probably won't do it! Thanks for advice re mortgage issue.
  • HI Deb. if you are looking for ways to pay for college, taking a home equity line or refinancing your mortgage at a low rate is better than taking a Parent Plus or similar student loans, but be cautious. A lot of folks lost all the equity in their home and then some when housing prices declined in 2008. I would also strongly recommend saving in a 529 plan (it's considered your asset, not your child's for financial aid purposes) for the next few years. It will provide some money for college. If this is not your concern and you are simply looking for ways to get more financial aid, I would really evaluate if you want to put yourself in a worse financial situation (debt vs no debt) for the chance at shaving some money off the tuition bill. More and more of the private universities are waiving tuition for parents whose income level is under $100k and providing more aid for those who are just above that threshold. I've seen too many disappointed parents who went through a lot of financial machinations to try and get more aid, only to realize colleges are pretty good at assessing what you can really afford to pay.
    by Lea Ann Knight edited by Amanda Lilly 2/8/2013 3:39:25 PM
  • Hi Deb, I'm not an expert in college funding. It sounds like what you want to do will help qualify for aid but I'm not sure that the trade off of the mortgage is worth it. Try to think of college planning in the broader sense. If you can't afford to pay all or even a part of her expenses, she can go to a community college for a couple of years and transfer to a four yrar school. She can work while she is in scholl. She can go to school part time and graduate in five or six years. Avoid borrowing for college. I think the best thing for you to do is seek out a fee only financial planner who works with college funding issues.
  • Deb: I would not recommend refinancing just to qualify for financial aid unless you plan to consume the money (NOT RECOMMENED) as it will not change the amount of assets used for the calculation. Go to the following website for more information on how aid is calculated and the kind of aid you may qualify for. www.fafsa.ed.gov
  • Deb: re. future Student Financial Aid: the parents Expected Family Contribution (EFC is the student contributon + the parents contribution not covered by financial aid) for financial aid is less than the students so consider that as you set down your financial aid strategy. Here is a good financial aid calculator www.finaid.org/calculators/. Also a good book to read up on is Paying for College Without Going Broke, by Kalman Chany.
    by Bryan M. Totri, CFP edited by Amanda Lilly 2/8/2013 3:39:30 PM
  • Deb-Home equity may not count as an asset when you apply for financial aid. Some colleges consider it and others don't.
  • And another one from Ira
  • Thanks for this great service! i am completely in the dark on how to find a financial advisor. My friends have recommended this guy from Ameriprise that they work with. Should i be a sheep and follow the herd, or find one on my own?
  • Ira: seek out a fee only advisor that do not sell products. A possible site for you to visit is www.NAPFA.org to locate a fee-only advisor in your area.
  • Ira, Ira, Ira!!!!! No Ameriprise. Go to www.NAPFA.org or garretplanningnetwork.com. There you will find advisors who charge fees and do not sell products. Check out some in your area and go to their websites. A good website will telll you who the advisor likes to work with and how much they charge. Call a couple and set up an appointment. When you find one who you like and trust and who communicates well with you and has the experience and knowledge to help you, you found your advisor. I'm SO glad you posted your question. Ameriprise! Whew!
  • Thanks, Frank and Don! Great advice
  • Perhaps this is a good opportunity for one of you to explain what separates a fee-only planner from the rest
  • All NAPFA planners are fee-only
  • IRA: the issue is one of compensation. If an advisor is compensated by way of selling you a product, then is the advice that led to that sale objective? If an advisor is compensated by way of a fee for advice the likeyhood of receiving objective adivice is higher. There isn't as large a conflict in play.
    by Bryan M. Totri, CFP edited by Amanda Lilly 2/8/2013 3:42:20 PM
  • Alright planners, here's our next question from cckessens
  • I am a believer in a diversified indexing strategy for retirement investing, and feel good about my current position in this regard. However, I am struggling to figure out how to handle my short-term reserves. As a 30 something with a growing family, I have ~$12k for unforeseen and longer-term needs (e.g. a van down payment). It doesn't seem to be enough to really diversify, and my time horizon is somewhat unknown. At the same time, it seems to be too much to keep as cash - I'd like to try and get some return. I was thinking about bond funds, but with interest rates already so low, it's hard to see them giving much of a return either. What should I be thinking about when considering how to handle this class of savings? Thanks in advance!
  • For cckessens, please have a look at 10 Low Risk Ways to Earn More Interest on Your Savings. Yes, it's a little dated, but the interest rate environment really hasn't changed all that much (!)
    by David Muhlbaum - Kiplinger edited by Amanda Lilly 2/8/2013 3:42:32 PM
  • HI Cckessens. Is $12,000 adequate liquid reserves to cover 6 months of your living expenses with a growing family? If not, I would not be trying to invest this in anything but a money market or savings account. Yes, you are going to be foregoing potential returns, but you need to look at this bucket of money as a safety net - for emergencies or job loss.
    by Lea Ann Knight edited by Amanda Lilly 2/8/2013 3:42:33 PM
  • Hi cckessens. It's hard to accept the lousy interest rates that banks are paying on accounts these days but you MUST keep your emergency reserves and short term money in something that is not going to fluctuat in value. Stay away from bond funds. They fluctuate and with interest rates so low, they are expected to fluctuate down. If you would like a little more return, visit a credit union or an on line bank. They offer slightly better rates. You might also think about certificates of deposit but keep the terms short.
  • Thank you for your response to my cckessens post (after 3.5 hrs of not getting a response, I decided to repost under a different username with more information for fear of having been lost or filtered out) - no need to respond to my post under username "Chad." Thank you very much for the insightful comments!
  • Thank you for your patience, Chad. I'm glad we were finally able to get to your question -- it's been a busy day!
  • Here's our next one few from clv
  • I'm 34, not married but likely on my way. I live in NY, make roughly 70K a year, and have about 110K saved for retirement. I also have ~70K in my bank and am hoping to use this to buy a house when my partner finishes his PhD. Since that's not for another 4-ish years, I'm wondering if there is something I can do with this money in this relatively short term? I'm also wondering if it makes sense to keep saving aggressively for retirement (I started working later in my 20s, so am basically maxing my 401K now), or would I be better served if I took more of the money I'm making now and saved it for a home? Thanks for the help!
  • Hi clv, Someone else posted about low savings returns. You might want to get a little more return in certificates of deposit or an on line bank but the over riding concern is that the money be there when you need it. As for retirement savings, maxing out your 401(k) at your relatively young age will most likely provide you with a whopping retirement account. The advantage is that later in life, you may be able to retire early or do some other kind of work that is less demanding, more rewarding and lower paying. The disadvantage is that while you are socking away money for retirement, you may be depriving your self of some living in the moment. You could also lower your 401(k0 contributions for a while and build up more savings for your new home. It doesn't have to be all or nothing. Run some numbers on an on line calculater (choosetosave.org) and see what it looks like.
  • Clv: money earmarked for spending in 4 years from now has a high loss aversion profile so you need to consider that and perhaps buy one or more CDs. Go to www.bankrate.com to view national offerings of bank CDs. Also, maximizing your 401k contribution sounds like the right thing to do but keep in mind those funds are fully taxable when withdrawn. So, sometimes a better strategy is to contribute to the 401k enough to get the full employer match, then contribute to a Roth (you're eligible) and a brokerage type account with the balance. You then have three legs to your retirement income stool. Funds will be fully taxable, tax free and tax favored. You can take from each when retired to manage your taxes more effectively.
    by Bryan M. Totri, CFP edited by Amanda Lilly 2/8/2013 3:42:55 PM
  • Thanks, Bryan and Frank
  • HI CLV. At 34 with $110k saved to date, you still need to be saving as much as you can for retirement. Especially if you plan on living in New York! If you want to keep the $70k for a home downpayment (and even be adding to it over the next 4 years) you will want to keep it pretty safe. Which will mean you wont earn much on it in the meantime... CD's are one option or even an ultra short term bond fund, but beyond that I wouldn't risk this money with such a relatively short time frame.
    by Lea Ann Knight edited by Amanda Lilly 2/8/2013 3:43:19 PM
  • I am 57 and am about to be downsized at my company. Not all bad though, as I stand to collect a 700k pension and also have 350k in my 401(k). I'm torn between turning this 1.1M over to our current financial advisor (who is managing about 200k for us now) and paying 13000+ per year in management fees vs trying to invest it myself. I have some financial savvy, but I wasn't able to prevent a 33% drop in our family's invested assets during the 2008-2009 downturn - conversely, this financial advisor's clients lost less than 15% during the same timeframe. At over $1000 per month, this fee would become my largest expense. We are debt free.
  • Here's our next question from ZincWhiskers
  • For ZincWhiskers ... if you do choose to go with a financial advisor to whom you're paying a lot of fees and your income drops (as a result of being downsized), you may be able to take advantage of a tax deduction. It goes like this:

    "Amounts paid for financial planning, tax or investment advice, including periodicals, investment newsletters, tax-preparation software and online services qualify as a miscellaneous itemized deduction deductible to the extent that it and your other miscellaneous deductions exceed 2% of your adjusted gross income."
    by David Muhlbaum - Kiplinger edited by Amanda Lilly 2/8/2013 3:43:30 PM
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