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.

  • TonyC Yes you can do that but if you withdraw it before attaining age 59 $1/2 or after the contribution is five years old, whichever, is later, you will lose the tax free benefit on your earnings.
  • I just retired, most of my money is in money market, and cd's, to buy stocks in this volatile market, is it best to slowly buy in over time
  • Leah,

    Your US 401K should not be stagnant if it is still invested for some growth in retirement. You are not usually required to move it to an IRA Rollover unless it is a very small sum. Therefore, it should grow even without new contributions. You should also learn about the rules for the Dutch pension--when and how will it be paid to you? Will the proceeds be taxable when withdrawn? The pension rules can differ widely between countries. Will you have any US earned income that might allow an IRA contribution? If not, you can still save toward retirement, you just cannot do it via an IRA.
  • I'll be starting my first "real" job come January. a certain percentage of my 401k contributions is matched, so I know to put away at least that much into the 401k, but how much more should I be putting in to either my 401k or IRA
  • Tony C, I believe your answer is yes (and Frank Boucher has confirmed), but you might benefit from our list of 10 Things You Must Know About Roth IRAs --

    10 Things You Must Know About Roth Accounts-Kiplinger

    www.kiplinger.comRoth accounts offer big benefits, but the rules can be complex.
  • LC, we're going to put your query in front of some of our tax experts here at Kiplinger and see if we can get you a good response in a few moments.
  • Steve: This is one of those personal, behavioral finance issues. The straight answer as to what is financially 'best' is that you should always have your investments allocated to your goals. It sounds as if you think some of your long-term money that should be in growth assets is in cash. If that's the case, the remedy is to go into growth assets. We can't know what will happen though in the short-term, so if you would be likely to move out of the market if it were to drop 20-40%, then you should go in slowly. There is no magic rate or amount other than it should be practical (not too long or too small of a regular amount). 
  • I retired a few years ago after losing my job and not finding another. So, I have a limited savings and investment. I have a regular retirement money coming in every month. However, in order to meet expenses in the future, I would like to know how to make a profitable but cautious investment of part of my savings. I plan to own a modest home in an African country also. Can you advise?
  • @KimerlyPolakGuerrero - Thanks and happy holidays!
  • Hello Kate, Taking a chunk of 401k savings out should be a last resort, for a couple of reasons. While the money is out, you will be missing important growth opportunities for your retirement savings, and if he ever left his job with the 401k loan outstanding, you would be hit with tax penalties -- your ordinary tax plus 10% penalty. I know it is tempting to see that big pot of money and prefer to borrow from yourself rather than a bank, but saving for retirement is more important than ever these days when most of us do not have gene rous pensions to protect us in our old age. With mortgage rates so low, I think it would be better for you to take out a larger mortgage than to borrow from a 401k.
  • 4 Reasons It's a Bad Idea to Borrow from Your 401(k) --

    Reasons Not to Borrow From a 401(k)-Kiplinger

    www.kiplinger.comThe hit to your nest egg may be greater, and last longer, than you think.
  • @KimerlyPolakGuerrero Thank you for your advice!
  • I am 50 years old and have been saving for retirement a while. My existing distribution is as follows: Cash - $786k, Ira's - $73k, Securities - $41k, 401k - $227k. I also have a company sponsored pension that begins when I turn 60 years old. I will get approximately $4k a month. I would like for you to grade my performance and to recommend some strategy to maximize my earnings knowing that I have to much in cash earning practically nothing.
  • jbucky Congrats on your first real job. You should certainly contribute enough to get your employer match. Beyond that, you should do a couple of things lie establish an emergency fund equal to six months of your living expenses and pay down any debt that you may have. Work out a budget to see how much more you can afford to contribute and increase your contribution if you can. A good trick to raise your contribution is when you get your annual raise, use a portion of it to increase your contribution. There are book and articles that say you have to contribute the max in order to have a comfortable retirement. I don't buy into that for younger investors. I agree the more you contribute now, the easier it will be later but young people are only young once. Be smart but don't forget to enjoy this time in your life.
  • My wife and I are maxing out our 401K which has been a long time financial goal of ours. I think we'll want to continue to increase our investments, but with the 401ks maxed out in what type of investment vehicle should I out our money next?
  • Back to Kate, since I didn't answer the "how many years to get back on track part of the question". Without knowing how much he is contributing each year and what his Company match is, and what the markets will do in the near-to-medium term, it is very difficult to answer that question. I just know that there can be some big problems with depending on your 401k as a funding source -- best to keep it growing as an important asset for your future.
  • Nicholas: It's a tough thing looking for Growth and Stability. There are assets that do each well, but they react differently. The key is to find a stable mix of things that will grow above inflation for your 5-7+ year money needs, and then make sure the money you will need in the coming years won't be subject to loss. The problem with going too much to safe and stable is with inflation you will draw that down faster if there is no growth. So, I would suggest figuring out how much you will need for the next 7 years, always put that into safer funds, and investing the rest for growth while knowing it will be volatile. 
  • @RobertSchmansky - thanks! I just realized that I actually have your site/profile bookmarked from previous searches, since I'm based in SE Mich and have thought about scheduling an appt with a CFP. Fee question: at this time, I only want to work with a CFP on fee-only basis, since we really don't have assets to manage and I don't want fees based on that -- do you work hourly fee-based, and if not, how do I find someone like that? A lot of CFPs seem to be % managed assets
  • Hello Jariz,
  • Ty, here's Where to Save for Retirement After Maxing Out Your 401(k) --

    Where to Save After Maxing Out Your 401(k)-Kiplinger

    www.kiplinger.comWhere should I save for retirement after I've maxed out my 401(k) plan and Roth IRA?
  • Ty Snouffler Good for you for maxing out that 401(k). You could fund Roth IRA's if you are below the income threshold (starts at $181,000 for married couples for 2014) and you could also fund non deductible IRA's. It's also not a bad idea to set up a plain old taxable investment account with no load mutual funds.
  • Is it a smart year-end move to roll over an old 401k into a IRA/Roth IRA? What are the considerations, limitations, advice before rolling over a 401k into an IRA/Roth IRA?
  • Thanks Marc! I'm here today representing NAPFA so I of course recommend them as fee-only advisors, though, as you note, many require asset minimums. Garrett Planning Network members are also fee-only advisors who have committed to work on an hourly, or no minimum basis, many are also NAPFA members like myself. I'm glad to sit down with anyone though to make sure it's a good fit, and if not make recommendations, so feel free to reach out when you are ready to discuss your needs.  
  • Please tell me the difference between a living trust and a regular will. Who should have what?
  • My wife has access to a Federal TSP. Very low fees. Should I roll over her IRA into the TSP? We are in mid-30s. Current IRA ($25K) is in Vanguard (0.2% fee). TSP fee is 0.03%
  • PG Rolling an old 401(k) into an IRA can be a smart move any time of the year. An IRA will give you unlimited investment choices and you have the option of taking distributions whenever you want. IRA's are usually less expensive that 401(k)'s as well. Having said that make sure you understand how your old 401(k) works. The federal gov't TSP is an excellent program and I don't usually advise clients to move it. Be sure that you set up your IRA first and have your old 401(k) rolled directly into it. This will avoid withholding taxes. If you want to do a Roth IRA, you will need to roll to a regular IRA first and then convert it. You will pay taxes on the converted amount. My favorite place for rollovers is no load mutual funds.
  • @RobertSchmansky - ok, sounds good and thanks again!
  • Dear Advisors: My wife left her old job to start a new one. Her old 401k contains a total of $80k. Her question is: Should she convert all of her 401k money into a ROTH IRA? Her financial background: Tax Bracket: 35% Income $180k, Savings: $190k, ROTH IRA: $52k, TIAA CREF Annuity: $24k. Thanks Samy.
  • That's a great question MaryLynn, though somewhat detailed, and certainly since it's legal information you're asking about make sure to meet with an attorney. I'm glad to give some information. Even if you have a trust, you generally also have a will. People use trusts for a few reasons, but the main one is often to keep control over what happens to your money. With a trust, you have more privacy, less chance for it being challenged, and more control over the use of and what happens to your assets. It's more complicated, so it costs more. I often use the analogy of a Cadillac versus a Cobalt (sorry, it's what I drive and even though I'm in Detroit not much of a car guy!). Do you need a Cadillac, or can you get by with a Cobalt? Each does a job, the question is if you would benefit from the control and security. You should meet with an attorney to know if that's the case. 
  • DK,

    While the IRS allows an IRA to be added to an employer's retirement plan, this is not frequently allowed by an employer. Have you asked if this is possible? If not, the fees on Vanguard funds inside are quite modest. The fee difference on a $25,000 investment is $42 a year. Since the federal government's retirement fund choices are index focused, you may want to choose an actively managed fund at Vanguard to diversify your holdings and learn how these two types of investment react in various markets. You should also be eligible for Admiral shares at Vanguard for slightly lower expenses as well. The key to successful investing is choosing wisely for investment strategies, fees and tax consequences. No of these should be a deciding factor alone.
  • 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?
  • It is tough to see the markets climbing while sitting heavily in cash, which is earning virtually nothing. It looks like you have about a 70% cash allocation, assuming that your IRA and 401k fully invested, and heavy in equities. I think it would make sense for you to gradually bring your equity allocation to the 50% level, by adding 1/6 of what you plan to add each quarter for the next year and a half. The equity markets are likely to see some volatility in the near future, so you will hopefully be able to benefit from some lower entry points. Also, I would suggest that you buy a diversified basket of funds, some international -- where there has been considerable pain lately. The fact that you will have a decent pension in retirement, which can be considered part of your fixed-income allocation, means that you could probably even go higher than the 50% on the equity side. Not knowing what your monthly expenses are, it is hard to see how much the $4k pension will cover. But in any case, unless the pension will be inflation-indexed, you will need to have some of your assets with growth potential, which is where a decent (well-deversified) equity allocation come in.
  • We plan to purchase a single premium immediate annuity (SPIA) with part of our savings when we retire. Having lived through the high-inflation 1970s, and seen the problems high inflation caused with retirement plans, we'd like to purchase an inflation rider with the SPIA. The optimal case would be a SPIA with an inflation adjustment based on CPI-U. But insurance companies have stopped offering such contracts, and only offer fixed annual percentage increases (e.g. 2%, 3%, 4%). I don't like taking the risk (however low it might be) that inflation might spike higher and destroy the purchasing power of the SPIA payments. How can we insure against the inflation risk with such fixed-percentage SPIAs?
  • DK: I'd advise you consider the lack of ability to diversify as a cost to the TSP. I speak to the military, and compare it to MREs. It's got what you need to live. It's not the most appealing meal however. It also in clunky on the withdrawal end. Control and ability to invest how you want has a value you should consider. 
  • Samy If she converts her 401(k) to a Roth, she will pay taxes on the conversion and she is in a high tax brackets. That alone would cause me to think twice about converting. Without knowing anything else about you, I think I would do a traditional rollover and withdraw that when she retires and presumably, is in a lower tax bracket.
  • 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?
  • Regina: It makes a lot of sense, but you have a lot of moving parts here that it sounds as if you would really benefit from sitting down with a financial advisor to find out if you're doing enough and have enough. One nuance we've touched on this morning is that couples have some options with social security that they don't have to only draw on their own record. So, just that one part is so complex that you should run some scenarios about what you are doing to not only know it's enough, but that it's efficient and right. It may be you are saving enough, but not to the best places, or investing in a diversified way. Mistakes at this level of investment can be costly. I'd advice looking up a NAPFA advisor and scheduling a meeting. 
  • hi. I have a long time horizon (in my mid 20s) so I have accepted that i will need to take higher risk than most. Recently I placed a portion of my emergency fund into the market with a 60%bond 40%stock mix. I'm now nervous that raising interest rates will turn this into a very bad situation very fast. Should I change my balance to be more stock heavy? Thanks!
  • Johnny,

    An emergency fund should be invested for a focus on safety of principal since you could need it tomorrow. Money intended for longer term goals can be invested for growth. A balanced fund like the one you described is appropriate for moderate risk investors or goals that could be 3-5 years away--a new car fund, special trip, etc. An all stock fund is best chosen for long term goals like retirement. The role of stocks in your portfolio is growth. The role of bonds is as an anchor to moderate risk and provide some income. The income part is almost non-existent today but the anchor and stability role still exists. It works best when the bonds can be held to maturity so we generally suggest a short ladder of bonds maturing gradually over 1-5 years for example. If you move from a balanced fund to an all stock fund, you are increasing volatility from changing markets and adding risk. I do not believe that is your intent here.
  • LC, sorry we can’t give you a more specific answer. You’d have to set up a complicated spreadsheet to determine if there is any tax detriment to separate filing, and then compare it with the benefit of a lower loan payment. There are too many variables for a quick answer today. We suggest meeting with a tax pro to walk through this.
  • Hello Bill, I agree that you should have inflation protection with your SPIA. I know that most companies have stopped with the CPI-linked adjustments, but I have seen a Company that is still offering such a policy, at least in NY. I have been thinking a lot about your question for myself and here is what I think makes sense. I'm planning on buying a 3% indexed SPIA when I'm 70, but before that I will likely purchase a deferred income annuity to kick in when I'm 80 and maybe even 85. I figure that that will give me some inflation protection above the 3%. I also have and will add to my TIP holdings, which earn me little in real terms, but will give me the hyper-inflation protection, (which hopefully we will really never need.)
  • My mother-in-law sold her house, and now lives with us. She is retired, in good health, and advanced in years. The proceeds from the sale sit in a bank. She receives a monthly income. What should she do with this large amount of cash?
  • Johnny, the market's probably not the best place for emergency funds. Here are 8 ways to earn more interest on your savings -- with a snapshot of risk, liquidity, and rate of return for each.

    Best Ways to Earn More Interest on Your Savings-Kiplinger

    www.kiplinger.comKiplinger lists the top spots for eking out interest on your savings, depending on your tolerance for risk and how long you can tie up your money.
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