Hi Cindy - Having a very broad based asset allocation is what is important. Then, when on asset class is up, it buffers when the others are not doing as well. Trying to time when to get in or out of any particular asset class is very difficult. Numerous studies have shown very few people are successful at deciding when is the best time to buy and sell. My suggestion is to have a portfolio that includes some of a very wide variety of assets - from US stocks, non US stock, REITs, alternative assets, fixed income and even some cash.
Alright, let's go ahead and move on to our next few questions.
N: That requires an annual rate of return of around 9.5%. Will that happen...unsure anyone here can say that with all sincerity. Its a lofty return by any measure.
N-If you are continuing to contribute to your 401(k), you have a reasonably good chance of achieving your $1-million goal. Without new contributions, the odds are not as good. However, it's not something I can quantify for you.
Hi N - in general, if you want to grow $400k into $1M, and assuming you max out the contribution every year at $23000 (2013 rate), you will need to get around a 5.75% return on your investment. If you don't max the contribution, as Helen said, it will be 9.5% rate of return. That is really high, especially as you approach retirement and want to start persevering the assets.
And another one from Terry
Hi Terry-Your best approach is to open an account with another brokerage firm with low costs and have the bonds transferred there. Many bonds are available only in electronic form, so you can't have them issued out to you in paper. Some of the many brokerage options would include Schwab, TD Ameritrade, Fidelity, Vanguard, Scottrade, etc.
Next up, we have a question about charitable giving from Karla
Karla-When you say you want to "maximize funds in retirement funds," it sounds as though you are talking about leaving retirement accounts such as 401k, 403b, IRAs, etc. to charity at your death. If that's not what you are talking about, please speak up. When you are talking about a long time frame, there is always the possibility of tax laws changing, but the way the laws work now, you should know that if you live a long time, you cannot leave all your money in your retirement accounts until you die. You will be required to start taking minimum distributions at 70 1/2, although they can be postponed in a workplace plan like a 401k if you are still on the job. Tax law currently allows direct contributions from IRAs to charity if you are at least 70 1/2. Whether a direct contribution from an IRA is the best way to make a charitable contribution depends on your circumstances. Mutual funds are the best way for most people to invest their retirement accounts. I would go with a mix based on your own tolerance for risk. That would be the kind of thing that I'd recommend sitting down with an adviser to discuss. If you are investing outside retirement accounts, there are options to set up a charitable trust, give to a charitable gift fund or even buy life insurance naming the charity as beneficiary.
Advisors, when you're ready, you can take this next question from Wolf
Wolf: You may be making this unnecessarily complicated. If you really don't need the life insurance itself anymore, why not just cash in the policy? I believe you will be taxed on only the amount you receive that's over and above what you paid in to the policy -- not a very large sum, most likely.
Thanks, Steve. Great suggestion
Alright planners, here's our next two questions. The first one is from Joseph
Joseph: Thanks for the many thoughful questions. Here's a partial response to the easy ones. 1) Do *not* incur late fees as typically the implied interest rate is ridiculous. 2) Work very hard to make all your payments on time because not doing so can seriously impact your credit report -- which is now used for many more purposes than just granting future credit. 3) You don't say what the credit card rates are, but assuming they are lower than the student loan rate(s) I would pay off the credit cards first.
Joseph-One thing to keep in mind is that credit card debt can be discharged through bankruptcy while student loan debt generally cannot. I recommend contacting the National Foundation for Consumer Credit Counseling, www.nfc.org or 800-388-2227, to see if they might be able to assist you in creating a reasonable plan for managing your debt.
Hi Joseph - it sounds like you are in a very difficult situation. I'm curious that you said you have recently started working as an engineer. Because of the field, I'm assuming this is paying well now and there is steady employment, correct? If you are making a good salary now, then putting the dreams on hold for a while may be the best course. If you jump into another career, with the associated expenses of getting there may put you deeper in the hole.
Joseph: I agree with Andy. Switching careers typically has a lot of frictional costs -- especially from one profession to another. That said, if you *really* want to be a dentist, I would recommend that you talk to several dentists currently working in your area and ask them if they would go through again all that's necessary to become licensed. Many would; others would not. You might also benefit by talking with a career counselor.
Thanks, all. That should give Joseph a good place to start from.
Steve, great advice about talking to other dentists
And here is one from Sheila
Sheila-HSA contributions are deductible as an above-the line deduction. They are not medical expenses. You can make them directly. No need to route through your IRA. To be eligible you must have a qualifying high-deductible health plan.
More for Sheila-The IRA-to-HSA rollover option is a once-in-a-lifetime option. The amount rolled over counts toward your annual contribution limit. April 15 is the deadline for making a 2012 contribution to your HSA.
And thanks, Helen for covering Sheila's question
Alright, let's go ahead and take our next few questions
Hi Lars, Sounds like you have a really good handle on it. Will you be needing to eventually draw from the Roth and traditional IRA, or will you other income sufficient to let the Roths to continue to grow? That is a great estate planning tool.
Lars: I really like your plan -- balanced among tax-free Roth, tax-deferred traditional IRA and taxable investment accounts; tax-thoughtful asset location; maximizing your SS benefit; all that you mention. Well done!
Doug-From what I have seen, these hybrid policies are best for people who cannot qualify for regular LTC insurance for health reasons. My experience is that it is more expensive to buy a hybrid policy than it would be to buy separate LTC insurance and life insurance. (I haven't looked at a policy combining annuities and LTC.)
Doug, - the hybrid policies can provide the 'best' of both worlds, LTC coverage and the value of the annuity. But as Helen said, they are expensive. What I've seen is the because you are getting the combo package, the coverage for both is diminished by quite a bit. What is your primary goal?
One way to look at it is if you were to save the LTC premium into an account designated for LTC, if needed. See if you will be able to cover your potential costs. Does that make sense?