When you're ready, David, you can take this question from Grace
Grace, Social Security is complicated and the first thing I would suggest is that you go to a Social Security office or call the Socail Security number, or go to a financial planner to discuss your situation. I will give you some guidelines, but without knowing more about your husband's potential benefits and your benefits, this will have to be very general. You can apply for 1/2 of your husband's reduced benefits when he is 62. When you are 70, if your benefits are greater than 1/2 of his, you can then apply for benefits under your own earnings. In my experience, it would be unusual for that to be the best option but, as I have suggested, these things are sufficiently complicated and individual, I am hesitant to generalize. Your second question is easier: Yes, you can take your benefits at 62 and switch to 1/2 of his at a later time if that gives you a greater income.
Robert, looks like you're ready for another question. You can take this one from Ron Y
Ron - How is your current allocation in the TSP... diversified with individual funds or L share class? How are the expenses of the funds? Do you have investment options for many asset classes? These are a few considerations. In addition,
the higher the expenses of the funds, the long-term return of the fund will suffer. Investors are interested in yield and dividend paying mutual funds to supplement the low interest rate returns. Be diligent in investing in these funds. Be careful not to invest in just dividend paying mutual funds but consider the fund inclusion as part of your asset allocation.
When you're ready, you can both weigh in on this question from Horatio.
Horatio - it looks like you would be eligible for Medicare after just one year of marriage. i would contact your local social security office to discuss your situation and get an answer. It is also possible that you could be eligible for a spousal benefit on Maude's social security if you were to marry.
David O, here's another question for you from Craig
Craig - This is a tough one. As you know, employers choose the providers for the 403(b) programs. Participants do not have a choice. That said, under normal circumstances the provider has an interest in providing a good program for participants. Assuming you have some good relationships in your administration, I suggest you sit down to talk about the issue. You are already ahead of many people in education (after all, what we want from you is for you to do a good job teaching our children; we don't expect teachers to necessarily be well informed about investment vehicles, although that is good for everyone when it happens) in understand that fees are an important consideration whenever you invest. You may know more than the administrator you talk with so you may have to do a little education. And just to confirm, 2% is a high fee. And to remind you, there are normally two layers of fees, the administrative fee (by whatever name) and the fund management fee. We like to see a combination of both fees in the 1% - 1.5% range, although we have had experience with a Vanguard 403(b) that had still lower fees. However, Vanguard may be limiting that part of their business. David
Robert. When you're ready, you can take this next question from PA
Hi PA - I probably have more questions for you than you do for me. What is your current cash flow? How much do you currently save yearly? What are your thoughts about date of death (healthy family history). However, presented with your facts and making a few assumptions, I have projected a market value of about $1.3M (using 6%ROR) in 2020. If you maintain a 4% withdrawal rate (industry starting point), you can withdraw approx. $52k a year. This is approx. the midpoint of the $4-$5k you indicated. In addition, you will eventually take social security which will better your chances of achieving your goals. You have done a great job at saving and I would add that you are retiring at a relatively young age. With that said, consider future health care costs (do you have proper insurance coverage), increased travel when retire, additional unanticipated expenses (home repair, care purchase etc). In addition, is your market value both taxable accounts and tax-deferred accounts? - if tax deferred, consider taxes in the market value. Finally, I think a fair stock/bond portfolio mix, for your age and consideration for longevity is 55/45 or 60/40. The allocation percentage does not account for your risk level. Finally, please consider a diversified equity and bond portfolio. International equities and bonds could be part of the mix.
David O, here's one from JVO
JVO: Putting as much of your severance as is allowed into your 401(k) would be a great idea. Once you are fully retired, you can also roll your 401(k) over into an IRA. Normally that is a wise move as IRAs can be placed with a custodian that has more options. However, many people benefit by having money managed by someone else when they have the kind of assets you have. Unless you want to spend significant time with your investments, I would recommend that. You may also be eligible to contribute to a Roth IRA, and I would recommend that. You are not eligible to put all of your severance into an IRA. Finally, I suggest you defer taking Social Security. I addressed that question in an earlier reply to William. You may want to have a look. David
David, we have a follow-up for you from JVO when you're ready
JVO - If you had a chance to read my response to William I suggested that the questions around taking Social Security benefits is complicated and I recommend you sit down with someone before you make such a large and probably irreversilable decision. That said, if we look at Social Security just from the insurance point of view, waiting until both of you are 70 is the best option. But it isn't quite so simple, and your thought of you "filing and suspend" is not a bad option. David
JVO - thought I would jump in on this one. You can file and suspend then your wife can take her spousal benefit. When she is 70 she can start taking her full benefit and you can take your full benefit. I believe you are both at full retirement age?
George or Alan, perhaps you can jump in and take JVO's follow-up?
I like Vanguard both for their Index funds and low costs.
JVO- BTW you cannot put your severance money into an IRA as this is taxable income. You can of course roll your 401k into a rollover IRA. Vanguard can help with the rollover process as can Fidelity, et. al.
Hi JVO - I am not familiar with the Mutual Fund Store, but in general it's important to understand all the costs and fees associated with investment products. If they provide advice, ask if it's commission-based or fee-only. You can also ask if they are required to give advice in your best interest. Also check out the range of investment options they offer. Finally, compare it against using a firm like Fidelity, or Vanguard, or Schwab.
And Jane, here's one from William Grant
William. I expect that you have a fairly low interest rate on your new mortgage. You also can write off the taxes and interest on your Schedule E when you are doing your taxes since you are renting out your house. Do you have any other investments than the $200K? In general I would say that it is better to invest the $200K and probably get a better rate of return on your money than you would save by paying off your mortgage - especially since you also write off this interest on your Schedule E. Talk with a tax person prior to selling the rental property as there are complicated tax issues that you will need to address such as recapture of depreciation which can be significant depending on how long you have been renting the property.
David, you can take this next question from Shirley
Shirley - If I understand correctly, you are now living on $2,500+ per month AND paying your small mortgage. If so, good for you. If that is the case, you need not look to go back to work. If you recently refinaced, you probably will have to continue paying pay the mortgage for a number of years, but if your monthly income proves to be inadequate at some point, you can draw on your other savings.
Shirley- Sorry, I wasn't quite done. What should you do with your Required Minimum Distribution? Open an investment account and put the money in there. David
Shirley - And one more thought: if your retirement situation is as good as it appears, another option is to spend your RMD (Required Minimum Distribution). Take a trip; give money to the next generation; give it to charity. Do something with it that will enrich your life over a longer period than this week. David
Alright, let's move on to our next round of questions
Here is one from Chad Hamilton
Hi Chad - You're right that bond funds move in the opposite direction as interest rates. The "duration" of the fund determines the amount of change. That particular fund has a duration of about 2 years, so it will decline less than another fund with a duration of, for example, 5 years. But credit risk is also important to consider. Some short term funds have increased risk to boost returns. So take a look at the composition of the fund. Any bond fund will expose you to risk, and is not really just like cash.