Nate, generally speaking, people who have been saving 10% of their gross income are on the cusp of meeting their retirement goals. People who are saving 15% are always ahead of the curve. What would probably be most beneficial for you is to sit down with a financial planner and run some retirement projections to get an idea of the lifestyle you have set yourself up for. That should give you a good idea of whether you need to increase savings, or can afford to live a little...
Nate - you are doing a nice job. The reason you hear the 'save' mantra is that with longer life expectancies, you will likely live after you retire as long as you worked. This means that you are earning a salary for today's AND tomorrow's needs. I like the 10x salary rule of thumb, but would agree with Lon that a plan can factor in all the issues much better.
Hi Nate - I agree with the other comments. Also keep in mind that $650,000 in your 401k doesn't really equal to $650,000 in your pocket because you have to pay taxes. So it is important to sit down and get a financial plan together to better determine your retirement goals.
And another housing-based one from Jenny
Hi Jenny - I think what you're trying to figure out is how much you will have when you retire? If so, then certainly, you can include some of the equity in your current home if you plan to sell it and move to a smaller home during retirement. Just try to be realistic about how much you can sell your current home for in your calculation.
Jenny - I have found from 18 years of planning that downsize typically translates in size, but not cost. I wouldn't count on getting anything out of your home, esp after realtor commissions, etc.
Jenny, Interesting question. I generally prefer not to view a home as a source of income during retirement. I like my clients to have the "safety net" of knowing they have the equity in their home in a worse case scenario. Of course, this outlook isn't possible for everyone.
Jenny - I also prefer not to view a house as a source of income during retirement. I found that it's best to be as conservative as possible with retirement projections.
Alright, planners, before we swap out advisors one more time, you can take this question from "R"
R - almost as difficult to answer as "how long am I going to live?" R, there are simply too many factors (lifestyle needs, debt levels, kids college, etc) to answer succinctly in this format.
R - As with Nate, I'd strongly encourage you to sit down with an advisor and run some retirement projections. Your ability to retire will depend on multiple factors, namely your standard of living, your life expectancy, inflation rates, and the anticipated return on your investments. Have an advisor put together a comprehensive financial plan covering your situation before making any retirement decisions.
R - From what you describe, you seem to be in a very good position for retirement. I recommend seeking advice from a fee-only advisor to run through the different retirement scenarios. Look at your cash flow to see how much income you NEED to bring in every year in retirement. This will be the driver of your action plan. And don't forget to optimize your social security benefits.
Readers, bear with us here as the advisors change shifts
Thanks for submitting your questions! It's been a pleasure. I'm signing off now!
This is Lon Jefferies, signing off. Thanks everyone. That was a lot of fun.
Thank you, Theresa and Lon! We appreciate your help
This is George Kiraly, signing off. Thanks everyone!
Hello Everyone. I'm Francine Duke, CFP from Aqua Financial Planning, LLC in the Chicago area.
Hi everyone -- This is Steve Johnson, CFP(r), Chairman of Johnson Lyman Wealth Advisors in Palo Alto, CA. We are a "Fee-Only" comprehensive financial planning and wealth management firm serving primarily high-net worth individuals, families and small business owners.
This is Pat Jennerjohn, with Focused Finances in Oakland, California.
Alright, Francine, Steve and Pat, here's your first round of questions
Gina, sadly, investments such as bonds and CD's are paying very low rates right now. There are options for higher returns but with that comes more risk. Also, as interest rates rise (which eventually they will), bond prices will go down thus making them a more risky investment than most people realize.
Gina, I suggest that you speak with a professional who can assess your situation in more detail and determine if there are other options that will suit you better based upon your risk tolerance.
Sunny, I cannot give you really specific advice since I don't know how you or your husband feel about investment risk, but I do feel that your husband's retirement fund is invested a bit aggressively, all in stock funds. You might want to consider a good fixed income fund to stabilize the portfolio a bit, perhaps somewhere between 20-30% of the total. Also look at your annuity and try to do the same with the available subaccounts. Regarding your IRA, I don't know where it is held, but there are some very good no load mutual funds that are already balanced, providing you with a diversified portfolio for even modest amounts. Check out Vanguard and T. Rowe Price; you can invest directly with them for no fee, and it would be easy to transfer your account to them if it's held elsewhere.
Sunny: I would add to Pat's excellent suggestion that once you pick an appropriate asset allocation for your investment accounts -- say, 70% stock funds and 30% bond funds -- then plan to periodically rebalance your accounts to your established asset allocation. This will not only keep you on your chosen risk vs return asset allocation target but also lead you to "sell high and buy low"
Julie, you need to be aware that variable annuities usually have some pretty high fees built in. As far as which is best for you, I would need more details about your situation than this venue permits.
Julie: I would ask first about the relative balance between your taxable investment account (where you would hold the muni bond fund) and your tax-deferred 403(b) and traditional IRA. Although a variable annuity does indeed allow you to invest more in a tax-deferred manner, I have two key questions for you: 1) will you still have adequate emergency funds after investing in the VA? and 2) will you purchase the VA through a fee-only adviser who can help place you in a low-cost "zero M&E" annuity, or will you incur the high costs associated with purchasing through a commissioned insurance agent?
Julie: Further considerations for your question -- what is your desired asset allocation, and in what kinds of assets are you currently invested? Obviously, investing in munis will add to your fixed income exposure only, while the VA can invest in anything available in the sub-accounts offered. That is, you have more flexibility in the VA than in munis, but I wouldn't recommend buying one unless you really need a much larger tax-deferred bucket than that provided by your 403(b) and your traditional IRA.
And here's another one from Matt
Matt, using index funds is a good strategy, but be sure that you understand the index. In my opinion, managed funds are better for international and small cap asset classes, and for bonds. Indexing seems to work well for large cap stocks. But do bear in mind that if you own a fund invested like the S&P 500, that you own a lot of Apple stock, since it's the largest holding and the basic S&P Index is "cap weighted" which means that, the bigger the market capitalization of the stock, the more of it is owned by the index. You can look at other funds that do "dollar weighted" S&P indices (the same dollar amount of each stock is purchased) which seem to be smoother over time. As far as a percentage, that would depend on your risk tolerance and the resulting appropriate asset allocation among fixed income, large cap, smaller caps, and international stock.
Thanks, Pat. When you're ready, here's one from "Sitting on Cash"