Hi jfitteron - You should probably talk to your local Social Security office about your wife trying to take a spousal benefit BEFORE her FRA. I'm thinking that isn't permitted, but they are the authority. In general, you're right about trying to delay your SS benefit to provide a bigger total benefit over your lifetime.
jfitteron - Just a clarification to my earlier response: you should ask whether she can take the spousal benefit before FRA, then later switch to her benefit. I believe that's not possible, but they will give you the authoritative answer.
jfitteron-Yes, the scenario you mentioned is possible. Your wife would get a 50% benefit reduced depending on the number of months before her FRA that she begins taking the spousal benefit. If her FRA is 66 y/o, the reduction would be approximately 25% I believe so her benefit would be reduced to approximately 38%.
John, Could you please give us a little more detail, as I do not fully understand your question.
John-Any withdrawals from a Trad IRA will be taxed as ordinary income depending on your tax bracket and other income and deductions.
While we wait to hear back from John, how about you take this next question from Marie
Marie- You might qualify for SS benefits as a divorced spouse under you husband's record if you were married more than 10 years.
Marie- As you can see from my comment about the fact that you may be entitled to a spousal SS benefit, working with a fee-only adviser to look at all these issues is critical. You need to develop a retirement strategy that factors in your ongoing cash flow needs, sources of income, and taxes. This is too important to try to do alone. If you were my client, I might have already saved you my fee with the advice I just gave you regarding SS!
Marie, one question I would have first is how much money do you need to live on?
Hi Marie - If you consider your entire portfolio of assets, including your rental property, you might not be diversified enough. In other words, you might be too dependent on real estate for future income. In the current low interest rate environment, an annuity will provide much less income compared to years ago. It might make sense to talk to some fee-only advisors regarding an investment strategy for your $400K of cash. One thought about your overseas work: some countries have reciprocity with US Social Security; does your overseas work experience qualify?
Marie, Without knowing how much you need to live on, it is not possible to address the proper asset allocation. I think you should also consider selling one or both of your rental houses if they are not providing a sufficient return for you. In addition, these are quite illiquid investments, and you might be better off over time adding those proceeds to your investment portfolio.
Thanks, planners. Whenever you're ready, here is our next one from Anita
Anita- A lot depends on what the plan allows. Typically no withdrawals are allowed before age 591/2 if you are still working for the employer. If you leave your job you can of course perform a tax free rollover.
Anita, usually you can take a loan from your 401(k) or a hardship withdrawal while you are still working for the company. In my view neither one is recommended.
Anita, to follow up, a hardship withdrawal has strict requirements and a 401(k) loan is usually limited to 1/2 the 401(k) value.
Hi hornman - It's hard to predict future tax rates. Yes, they could rise, but that might be more likely for higher income individuals. You could hedge that question by converting some of your IRA to Roth. You could work with your tax professional to do some scnearios, including the tax cost of conversion now. One thought about your pension COLA: look at the calculation of the COLA. Some pensions have a very modest COLA that doesn't keep up with actual CPI inflation.
hornman-Given the nice mix of retirement accounts you have, you have the opportunity to do good tax planning and limit your taxes through a withdrawal strategy that leverages the tax attributes of these accounts. It is hard to say much definitely without knowing more about you but depending on the tax rate you can achieve in retirement as a result of leveraging your tax diversified portfolio, a Roth conversion may not be necessary or warranted.
Homman - I would transfer your 403b and 401k accounts into your traditional IRA to begin with. You have the next 7 years to do some tax planning vis-a-vis Roth conversions. What makes conversion more complex for you is that you likely will not have sufficient cash available outside your retirement plans to pay the taxes due each year. A fee-only financial planner can do some "what-if" projections for you to see the effects of Roth conversions. While your investments of $645,000 might require a mandatory distribution of about $25,000 at 70-1/2, your portfolio might double in size over the next 7-10 years, making that taxable RMD greater.
Hi Brian - Considering your age and amount in your Simple IRA, you might just consider a target date retirement fund. For your age, it would be a 2035 fund. The Fidelity fund would be Freedom Fund 2035. A target date fund consists of a diversified portfolio of stocks and bonds that the fund company thinks is appropriate for someone retiring in that year. Do some research at the Fidelity web site to learn more.
Brian, meeting with a fee-only advisor might make sense for you. The information you are looking for is available through Fidelity, but if you are having trouble locating it, perhaps paying someone to help you would be worth it.
Brian- Keep things simple (no pun intended). Owning 12 funds in a $70K portfolio is excessive. If your plan has access to low cost index funds that invest in broad markets, you can probably create a well-diversified portfolio with just a few funds.
Brian - I would first ask other employees if they feel as you do about your company investment advisor. I they agree with you, go to your HR person to voice your complaint and see if they will make a change. Also, Morningstar is a good place to find objective information about mutual funds, and their ratings system is pretty easy to understand. Also, a good place to learn about investments in general on a continuous basis is membership in the American Association of Individual Investors.
Here is our next question from Thomas
Thomas-A laddering strategy can wok well though it makes more sense to use individual bonds with face values matched to you needs. I use a combination of CDs and US Treasury Zero coupon bonds to build these. As the bonds mature, the cash can be used to meet cash flow needs if stocks have under performed relatively or the cash can be out back into the ladder if stocks have outperformed. Lots of subtleties here of course but I believe the strategy works for the right client.
Hi Nick - You might get some research from your brokerage company, e.g., Fidelity, Schwab, etc. If you are a Wall St. Journal online subscriber, you can do a search and find quite a few recent articles on MLPs.
Nick- Beware of MLPs. These have governance issues since they are run as LPs. They also have tax issues which are complicated and add to the overheard of holding these. My suspicion is that you are looking at these for higher yield and this is often a slippery slope to get on. There is no free lunch and the risks may not be worth it.
Next up we have a question from Jerffrey
Hi Jeffrey - Your situation is a bit complicated, and it would be worthwhile to meet with a fee-only financial planner to develop a retirement plan. Some variables are the amount of retirement income you'll need and the investment strategy you pursue. If you include your rental property in your overall portfolio, you may not be diversified enough. If the building has good tenants now, it might be the ideal time to consider a sale and use the proceeds to create a more diversified portfolio. You said your investments were in the stock market, but you didn't mention any bond holdings. If that's true, you could benefit from more diversification there as well. In short, I think you'd benefit from some advice from a fee-only planner and advisor.
Jeffrey, It looks like you are already living on income of $45,000 rents and $18,000 Social Security without your wife's income. Using the 4% rule of thumb for "safe" withdrawals from your investment portfolio would provide about $27,000 additional in retirement. A concern for me would be the fact that your investments are so heavily in equities--stocks and a commercial building. You should consider diversifying your investment to reduce risk and consider selling the commercial building and add those funds to your investments. These are complex issues both from an investment asset allocation perspective and a tax perspective, so it would be best to engage a fee-only financial planner to do some planning/projections with you.
And another one from gdegraaf
gdegraaf-Your wife does not need to file and suspend to claim a spousal benefit for SS. Her spousal benefit will be reduced depending on the number of months left till her FRA.