Thanks to all the financial planners volunteering their time and expertise today! New shift of advisers coming on board now to answer your questions...
Thanks, Robert. Readers, please bear with us just a minute here while we transition advisors
Hi all. Lea Ann Knight from Garrison/Knight Financial Planning in Bedford, Mass. signing on!
Hi Lea. Glad to meet you - Doug Michie of Ventura Coast Wealth Management here.
Hi all. Kendra with Woodward Financial Advisors in Chapel Hill.
Hello! This is Rich Bryan, CFP®, of Partners in Financial Planning in Roanoke, VA providing fee-only financial planning and wealth management at www.partnersinfinancialplanning.com
Welcome, Lea Anne, Dougie, Rich and Kendra!
Let's go ahead and take our first few questions from LattewithSkim
Lattewithskim, Don't feel like you have to turn your nest egg into income. Investing it in a low-cost, diversified portfolio of stocks and bonds should generate a decent return to complement your Social Security and other rental income.
Hi Lattewithskim, the answer to your question depends on how much you need in income from this $500,000. Do you need monthly cash flow to meet your living expenses or do you just want to make sure it grows enough so that you don't run out of money in the future? I agree with Dougie that a reasonably well diversified stock and bond portfolio could earn you an average of 7% over time, but if you need reliable cash now and don't want to dip into principal, you should only count on earning 3-4% each year. For $500,000 that's no more than $20,000 in dividends and interest per year.
Thanks, Lea Anne, Dougie and Kendra.
Dario, An income portfolio that produced 7% return with little risk would be a great thing. If there is no growth investments in the portfolio, you will have a difficult time achieving 7% with little risk.
Dario, with interest rates at thier lowest, and likely to move up in the future [decdreaseing the value of any bonds bought into your portfolio today] I would not recommend long term bonds at this time.
Dario, a diversified portfolio with utility stocks, short to intermediate bond funds, some large cap value stocks paying dividens, maybe 10% in public listed REITS would be a diversified income portfolio. But I'm afraid that this portfolio will likely yield 3.5 - 4% at best. At to Franklin/Templeton, they have some good funds, but i generally use ETFs or no load low cost funds like Schwab, Vanguard, etc.
Lea Anne and Kendra, want to take this next question from Al Q?
Al Q, have you gone online to Social Security.gov to see if it reflects a Social Security benefit for you? I'm not certain whether what's displayed there takes into account your CALPERS pension or not. I believe they do have a Government Pension Offset calculator that might help.
HI Al Q, I agree you should go onto the Social Security website and use their charts and calculators to figure out how much your benefits would be reduced by your pension. My understanding is that you would fall under the Windfall Elimination Provision. Under this provision, the maximum your SS benefit would be reduced in 2013 is $395.50/month or one half of your monthly pension amount (whichever is smaller).
Thanks, Lea Anne. When you're ready, here is another question from Sam McMahan
HI Sam. You might need to work backwards here. First, figure out how much you need in income each month above and beyond the pension income. Assuming you could safely withdraw up to 4% a year from your investments to cover that need, back into the principal amount you want to keep invested for your own future. If there is money left over, then set some aside for the house purchase. Finally, money left over after your own needs are met can be invested with a longer term time horizon (ie. more aggressively) as your legacy for your children. I do think a few hours with a fee-only financial planner can help you design the best investments to accomplish all of these goals. Look at www. napfa.org to locate a fee-only planner in your area.
Dougie and Rich, when you're ready, here is one from Brian.
Brian, 12 different funds should be enough to get diversification. Because Fidelity is in the business of marketing Fidelity funds, you should take the Fidelities fund selections with a grain of salt. I like TD Ameritrade and Scottrade as neither SIMPLE custodian is in the fund business, so their advisors do not have that conflict.
The key to building a retirement account is diversification. some investments will be performing poorly at any given time, but this altenates between investments. So the idea is to have a diversified portfolio of bond funds and stock funds. I also like to have up to 10% in real estate in the form of public listed REITs.
Brian, I am not familiar with the selections in a Fidelity SIMPLE, but assume it is open platform, allowing you to purchase Vanguard, Schwab, Dodge & Cox, etc. If this is the case, you can find a fee-only financial planner that charges by the hour. For a couple hours time that advisor could prepare an asset allocation plan for you.
Dougie, you can take this question from Dot
Dot, There is a general consensus that 4% of portfolio value can be drawn each year from the portfolio. The best thing to do is to keep a diversified bond & stock portfolio and to liquidate enogugh each year to take this 4% draw.
And Kendra, here is one from Ron Y
Ron Y, To my knowledge the dynamics of when to take SS for you and your wife aren't influenced by the fact that you were a Federal employee. I'd run your numbers using Kiplinger's SS tool or discuss your situation with a fee-only planner so you can figure out what makes the most sense based on how long you both expect to live, whether you need the money, etc.
Thanks, Dougie. When you're ready, here's another one from JK
Thanks David. I am generally oppossed to taking SS prior to full retirement age.
JK, If you expect to be long-lived, I'd defer taking Social Security until age 66 and use the money in your taxable account to meet your income gap in the intervening years. If you can, roll your 401k over to an IRA at Vanguard and leave it to grow tax-deferred as long as possible. (Not sure whether this 401k is for your current PT job - if yes, then you can't move it).
JK, We are all living longer, and if health is not an issue, working past 62 can help a lot in retirement. Because you take a significant decrease for every year before FRA (full retirement age), if you can delay the benefit until FRA it generally makes sense to do so.
Lea Ann, you can take this next question from MikePgh
HI Mike Pgh. These are tricky times for bond holders. The closer this bond gets to maturity (regardless of interest rate) the likelihood is the value will decline, but you are smart to recognize it is also forcing you to take a higher RMD now. Either way, you may eventually be forced to liquidate part of the bond to take the RMD in the future. Even though the bond value may decline, the mutual fund value will probably go up over time and, as you age, the RMD factor will increase. So either way you are looking at needing to liquidate some of that bond before maturity. That being the case, why not lock in some gain? Keep the next year's RMD in cash and invest the rest in a more diversified portfolio - one that can provide income AND growth. At 76 you could live another 15 years or more - you need to make sure you have some amount of growth in your portfolio. While 6.25% sounds great today, you won't be able to get that in bonds in this current interest rate environment, so you need a mix of stocks and bonds.
Mike Pgh. Also keep in mind since the bond is at 1.40, you are not receiving 6.25% on the value of the bond. Your yield is closer to 4%