Jump-Start Your Retirement Plan, December 2014 - Live Chats, Q&As: Free Advice on Retirement, Investing, Personal Finance -- Kiplinger

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Jump-Start Your Retirement Plan, December 2014

Kiplinger is teaming up with the National Association of Personal Financial Advisors (NAPFA), whose planners will answer questions on retirement planning and other financial challenges. Submit your questions here and get free personalized financial advice on Thursday, December 11, from 9 a.m. to 5 p.m. ET.

    I am 54 and my husband is 55. I work full time and have a little over $1 million in a 403b. I contribute the maximum each year, but not the catch-up. My husband works part time and has about $180k in an IRA. My estimated SS at age 67 is $2300/month. My husband’s is $1900. We both have long term care insurance. We have a son who just started college and two daughters who just started high school. Their 529 accounts will take them through their sophomore years if they go to public colleges. We track our expenses yearly, but are trying to figure out if they remain fairly constant over the next 8 to 10 years and we will probably remain in our home, how much will we need if I retire at either 60 or 62, and does that make any sense?
    We are in need of help to make some financial decision. We currently have annuity contracts with Lincoln Benefit Life (previously owned by Allstate) which is now owned by Resolution Life. Our investments are comprised of three fixed annuities; two IRA'S and a non-qualified joint annuity. Since they were funded in the 90's, each contract has a minimum guaranteed interest of 5 percent. We realize this is a phenomenal return by today lower interest rate standards, however, since LBL has been acquired by British company, we are concerned about the safety of our annuities. Sadly, we are not well diversified, as the annuities comprise the bulk of our retirement funds. We do not intend to annuitize the contracts, we hope to leave the IRA's "for the benefit of" our children and we basically use the joint annuity as a money market fund since we can add and withdraw funds at will. However, any funds withdrawn are immediately taxable as ordinary income due to LIFO.

    At 70 and 75, we are not really comfortable with the risks associated with being in the 'markets', even though they are doing well at this time. During the last downturn, when many investors lost their gains as well as principle, we continued to receive our five percent interest. The question is, how do we determine the viability and safety of the new company? And, if we need to diversify, where would be the best and safest investments? Any assistance would be most appreciated.
    I have a 401 k with Vanguard ready to retire next year, I will be 67 still working and took my Social Security when I turned 66,I have a TPB plus a portable,should I rollover my 401k with Vanguard? and about how much monthly income can I expect with a $385k investment?,also what is this news about these pension cuts Washington voted on tonite,will this affect me?
    Lah AH AM Best is a company that rates insurance companies. You can go to their website and see their ratings based on financial strength. States also have pools to bail out annuity holders in case an insurance company can't pay off. The 5% return is great as you say and you are not comfortable with the market. Those annuity contracts appear to be giving you all of the income you need. I'm a big fan of diversification but if your present investments are doing the job. You should already be taking money form your IRA's and you said you want to leave the residual balance to your children. If that's the case, you could transfer those IRA annuity contracts to an IRA that you set up with a no load mutual fund company and invest in low cost no load mutual funds diversified between stock and bond funds. Your children are younger than you and they are going to need investments like that in order to out grow inflation. While you may not be comfortable with the markets, they should be. Doing this won't affect your security and it will help your children. I suggest that you schedule a session with a fee only financial planner to map out a more detailed strategy. You can find them at www.NAPFA.org.
    CT Dave,

    FL has no income or estate tax at this time. CT has both so you must follow CT rules to avoid being considered a continuing CT resident. This will generally mean that you must live in your FL home a minimum of 6 months each year and be able to prove this if asked. Ask your CT CPA to clarify what information could be required by CT if this is ever an issue. You must also register to vote in FL ,etc. I would also suggest you have your wills and estate documents reviewed by a FL estate planning attorney to be sure they are in compliance with FL law. This change of residence is very common and probably a motivator for many of the new FL residents as they retire and now have a choice.
    Glad you're thinking about the state tax bite in retirement, CT Dave. While one of our planners answers your query about moving back and forth between two states, let me share some helpful resources with you and others. First, here's our Retiree Tax Map, with details on states taxes on retirees in every state.

    State-by-State Guide to Taxes on Retirees-Kiplinger

    www.kiplinger.comState-by-State Guide to Taxes on Retirees
    And our list of the States With the Scariest Death Taxes (Connecticut is #7 on the list) --

    10 States With the Scariest Death Taxes-Kiplinger

    www.kiplinger.comThese are the least tax-friendly places to die.
    Scott: Depending on the loan interest rate, I'm likely to agree that getting the maximum match will likely benefit you the most. It depends on your investment fees, the match amount (100% of each dollar?), ability to diversify, etc., but, off the cuff, I like to make sure you can save for the long run while paying off debt. 5% isn't too much to put towards retirement, you're still well below the 15-20% long-term goal you should have. Try to get that max match, then consider the interest rate on the student loans... if any are variable and high, I would make it a priority to tackle those, but I would also agree that investing for growth over the long-run will result in higher gains more so than paying off a low-interest loan. 
    ddemb2 Taking money from your 401(k) to pay down a debt like that is not a good idea because you will pay taxes on the 401(k) withdrawal and you will be spending down your retirement funds before you retire. Besides, most 401(k) plans don't allow for withdrawals while you are employed by the plan sponsor. Start with preparing a budget and pay down as much as you can as quickly as you can with your current income. If you are really gung ho, I bet there is stuff around your house that you can sell. Maybe a part time job just until you pay off the loan. Last but not least, how about the student that the loan was for? If he pays it off for you will agree not to move in with him when you retire :)
    Hello Bob, Although sitting in cash at close to zero % is not ideal, if your mother-in-law will likely be needing some of the funds each month, it wouldn't make sense to invest it too aggressively at this point in her life. If, however, her monthly income is sufficient to meet her living expenses, she has good health care coverage and even some long-term care insurance, then having some of the money in the markets would not be unwise. It is hard to answer your question without knowing her current and potential (health wise) expenses, but if she is well covered by monthly check and insurance, then buying gradually into a well-diversified basket of funds, could make sense. With the US equity market close to an all-time high, I would suggest moving in to the market over the next year or 2, with a pre-determined % each quarter -- in order to take advantage of likely volatility. But if she may need the money for long-term care at some point over the next 5-10 years, I would be conservative in the portion of $ allocated to equities. Also, if you decide that it makes sense to put some of her $ into equities, don't forget the international equity markets for some of your purchases, since they have had a rough time lately and could offer better value over the longer term. Good diversification is important.
    For anyone wondering about retirement plan contribution limits:

    Keith: I think it's important to try to work on 3 goals while working out debt. You note the first two, the third being saving for the long-run and maximizing a retirement plan match. All three are very important to try to do together if possible, otherwise you can find yourself without a solid financial foundation even as debt is paid off. Consider that money in saving can go toward debt at any time, but it can also keep you from going further into debt in an emergency. Try to have a 1-3 year target to building a 3-6 month emergency savings account. When you get a few months saved, transfer some to a long-term investment vehicle like an employer plan with a match first or a Roth IRA. A Roth IRA is a nice vehicle to save to any how as you can always withdraw contributions without penalty or tax, so it can act like a back-up savings account. 
    Hi Bill, Next year you will be able to contribute $24k to your 401(k)

    While Monte Carlo analysis can help to provide some guidelines for affordable spending in retirement, it is not foolproof by any means. It is just a guide since we cannot predict the sequence of investment returns in the future, your health, tax law changes,etc. We generally use the 3-5% affordable withdrawal rule as a guideline since it is easier to understand for most clients. We prefer to see clients withdraw 3-4% from their investment accounts at the start of retirement and adjust annually for inflation. We want to leave a cushion toward irregular and unexpected expenses. We work with lots of retirees into their 90s. While those with pension, SS and investment income are the most comfortable of the middle income clients, pensions are not reality for most younger retirees. While they can be built from annuity purchases, there are tradeoffs on legacies and inflation protection that cannot be ignored. If you are trying to do this full analysis via internet resources, you may prefer to hire an hourly rate planner for a direct discussion of your unigue circumstances to understand your choices more clearly.
    Most places I read online say to use your state's 529 plan if there are tax benefits. I'm in Idaho, so I get ~7.4% state tax savings if I use Idaho's plan. However, the Idaho plan has higher fees (0.69%) and 1-4% lower performance than other plans (ie. Utah with 0.22% fees). Seems like lower fees and higher performance which compound over time should be better than one-time tax benefits... Am I way off base here?
    Most of my retirement is in an ira. I want to move it to a roth i already have. Whats the best way to do that? Unfortunately I am within 1-2 years of retirement due to disability.
    Ronnie I always hit that return button too! It sounds like you have plenty of money and income. Why not pay off the mortgage on the Florida condo? You didn't say if this money was taxable but after setting aside enough to pay any taxes, I would put in an investment account funded with no load mutual funds. You can do this with a discount broker like Schwab or TD Ameritrade or go right to the mutual fund companies like Vanguard, Fidelity, T. Rowe Price. Most people should try to strike a balance between stock funds and bond funds.
    Roman, again, here's our guide to the best 529 plans by state. In Idaho, we recommend the state's IDeal plan, and here's why: Residents who invest in the Idaho 529 plan are eligible for a state tax deduction of up to $4,000 ($8,000 for joint returns) per beneficiary each year. The tax break trumps lower fees in an out-of-state 529. sites.savingforcollege.com
    Roman: I don't think you are off base, though as Robert Long notes there is certainly a benefit. I may suggest also looking at if you qualify for a Coverdell Education Savings Account you have complete control over investments and costs. I think the performance numbers are fairly meaningless, my personal opinion is college savings plans are overall too risk-driven and higher fees generally means they have to take more risk in order to overcome high fees. There is little room to invest safely in stocks for college, and these plans typically are investing more in stocks than I would advise. Perhaps better to find ways to control your investments. 
    savingsss Yes, I like IRA's and I think it is a good idea to have just one IRA. These days people tend to change employers fairly frequently and moving your old 401(k0's to an IRA over which you have total control will make your life a lot easier.
    Hello JJG, Having a Roth IRA in retirement can be a great asset. When moving the money from a traditional IRA (that holds before-tax $) to the Roth, you will be hit with taxes at your ordinary income rate on the funds transferred. For that reason, you will ideally make the move when you are in a low income year. If you are still working, you will likely be in a higher tax-paying bracket for these next 2 years, which will fall once you retire. Without knowing more details of your specific case, I would think that waiting until you are in those lower-tax-rate years would be the ideal time to make your transfers. Also, you will want to do it over several years, paying attention to the income amounts that will push you into a higher tax bracket when deciding the amount to move to the Roth each year.
    Lance: It's great you are starting to think about the long-run. Ideally, you both should be targeting at least 15-20% for long-term investment. Being young, I like to look at options to save to Roth accounts, either an IRA or an employer plan. If either of your employers offers a match, make sure you are taking advantage of that free money. Invest and diversify across stocks, close your eyes during corrections, and you'll retire with a lot more than you will simply by saving. 
    Jessica If you like your current plan and if the plan allows it, you can roll it over but, I prefer using a rollover IRA. Set up an IRA with a discount broker or mutual fund company and roll the 403(b) plan into it. You will have unlimited investment and distribution choices and it will probably be less expensive as well.
    Hi Robert L.: "The tax break trumps lower fees in an out-of-state 529." That's what people say, but when I do the math, it doesn't hold true - it's basically a wash, and the better returns in other plans. I'd like to see numbers/math used to support your position (and to see if/why my math is off).
    Hi Robert S.: Thanks, I'll have a look at the Coverdell stuff. Haven't run into that before.
    istworldproblems It's nice to get windfalls like this. Do you have an emergency fund to cover six months of living expenses? If not, you should set up a savings account and fund it with all or a portion of that money. I know the rates are lousy but think of it as insurance instead of an investment. With the rest, you could invest in a balanced portfolio of no load low cost mutual funds or exchange traded funds. Most people want a blend of stock funds and bond funds..
    Roman, good for you for digging so deep on 529s. We're going to put you in touch with our 529 editor here, and maybe you two can walk through the math together.
    Roman, if you're interested, email rdolan@kiplinger.com. We can put you in touch with one of our experts to discuss further. 
    I have a 401(k) with my current employer (with pretty poor choices), and a leftover 401(k) from a previous employer (with slightly better choices). The current plan does not allow in-service transfers, but I could move the previous plan.
    Roman: CESA's are a little quirky and not everyone offers, though I know Scottrade is a low-cost broker that will. $2,000 limit per year per beneficiary, and there are income limits, . You and everyone else can only do that $2,000. Won't fund all college, but you have a little more control. With government savings bonds like I-bonds you can also elect to not recognize the interest every year and it's free if used for education. So, you have something that hopefully will be safe, get an inflation kick, and won't be subject to too much risk. 
    Hi, I am a current graduate student in an engineering field- and the lab that I work in is part of the government. This means I am making a little more then my fellow students. I am having a hard time trying to decide where I should be implementing my extra cash. I have around 35K in student loans that are in deferrment, about 1.5K in savings and around 1.3K in credit card debt. Should I use my savings to pay off the credit card debt? Should I continue saving and paying off my CC debt at the same time (note: my CC debt has 0% interest for the next year)? Should I try paying some off of my loans and save and lower my CC debt? I could use some guidance!
    unicorn I would roll the old plan into an IRA. As for the poor choices in the current plan, the best you can do is make your feelings known to your employer. This happens a lot with big and small companies.
    I am single, 66, and waiting to file for SS until 70. I currently pay Medicare premiums directly and do not collect SSI (disabililty). I am thinking about Filing and Suspending. Are there any downsides that I have not considered?
    MP, here is our just-published Best Social Security Strategies for Singles --

    Social Security Strategies for Singles-Kiplinger

    www.kiplinger.comThere are steps singles can take to boost their benefits.
    Lauren: Absolutely get rid of the credit card debt. Depending on the loan interest rates, I would look at also thinking about a Roth IRA. Roth IRAs are nice because they can be used as a secondary savings vehicle that you can withdraw your contributions if necessary (contributions, not growth) without penalty or tax. If it turns out you didn't need it, then you have a tax-free retirement savings vehicle. If the loan rates are low, consider that there are many ways to pay them back and over the next 30-40 years you will gain more by investing than paying back the loans too quickly. If you have any private, variable, or high rate loans however, I would certainly try to have a game plan for paying those down and back first. The reality is though that you're likely to be in a spot over the next several years to need liquidity to take advantage of opportunities for your career. Better to have cash to take advantage of those than trying to maximize your debt pay-off. 
    I'm self-employed and have an individual Roth 401(k) plan with Vanguard. I'm keen on the Roth portion of the plan, but not so much the 401(k) portion. Can I roll contributions from the 401(k) portion into the Roth portion? Note: I also have a Roth IRA I contribute to as well?
    MP Filing and suspending is a strategy that married couples use to maximize their combined Social Security benefits. You said you were single. Unless I am missing something (entirely possible) I don't see a reason why you would want to do this. File when you are ready and collect your benefits. I see where KIP just posted an article. Give it a read.
    Mattie: Your plan may allow you to convert money from the pre-tax 401(k) to the Roth 401(k). It's relatively new, and plans don't have to allow it. You would pay income tax on the amount converted if your plan does let you. 
    The article posted is what got me to think about this strategy. I just want to be sure I'm not missing something before applying it.
    MP: Here's a strategy to file and suspend. http://www.kiplinger.com/article/retirement/T051-C000-S004-social-security-offers-lump-sum-payouts.html
    A big thank you to the NAPFA planners who joined us this morning!
    Joining us for these next two hours are Kelly McCauley, Michael Gibney, Deborah Frazier, Phil Hogg and Katherine Holden. Welcome!

    Breaking the IRA into two parts and taking 72t withdrawals from one while leaving the other alone is smart.
    Getting below the SIPC limit is a non issue as far as I am concerned.
    As always, you can find a fee-only personal finance adviser near you on www.NAPFA.org.
    Samy, not seeing it in here. Can you repost?
    Re. rolling 401(k) into a TIRA: that will effectively eliminate my ability to make backdoor contributions to a RIRa. Are there any other conversion vehicles?
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