Thanks for joining us, Jony!
Jony, this is a good question to ask of an estate planning attorney or tax professional in your state, since some states have inheritance taxes on recipients.
Jony, you also want to consider if the inheritance will be organized to go to your heirs if you pass away during the distribution years.
Emmy, we're not seeing it in here. Would you send it in again?
Emmyp, several of us answered questions for you. Did you have more than one?
Jony, the sad truth is that many advisors might tell you to take it out as a lump sum so they could immediately start making money off of management fees. A good advisor and a CPA can help you work through this. Factors are your current tax rate AND the expenses charged by the current investment company (an insurance company perhaps which could mean high fees).
Jony, make sure any advisor you use is a fiduciary as that will make them obligated to serve your interest before their own. All NAPFA advisors are fiduciaries.
Not greedy, just wanted to make sure. We are here to help you in any way we can.
EmmyP at your age I love the idea of a ROTH. As Delia said in an early post, it can even serve as an emergency fund as you can always get your contributions back without tax or penalties (caution, this for conversions from an IRA to a ROTH, you have to satisfy time requirements before you can pull the contribution out.) If you make less than $116K, you can fully fund a Roth for $5500/year. Your ability to fund a Roth phases out between $116K to 131K for single people (183K to 193K for couples.
emmyp - I would suggest rolling over your 401(k) into an IRA Rollover at a discount brokerage such as Fidelity or Schwab as there are more investment options than in your 401(k). Anytime you are able to contribute to a Roth, it is a good idea as you benefit tax free growth.
emmyp- Vanguard is a low cost investment firm with decent investment options
Emmyp, I agree with Mark's advice to rollover the old 401K. But for those who make too much for a ROTH contribution, you need to check and see if you can keep all your retirement funds in your current employer plan so that you can do a non deductible contribution to an IRA and then convert it to a ROTH. Most employers let you roll old plans into theirs. BTW, a 7% match! This is FABULOUS!!!!!
Wilson, first of all, with this much cash available, I strongly suggest you consider waiting AT LEAST until full retirement age to take your social security as if you take at age 62, your benefit will be reduced by 30%, If you wait until age 70, your benefit will increase by 32% from the benefit at normal retirement age. Most people can't wait but you can. Of course, if you are in bad health, a bird in the hand would be the way to go.
emmyp. Sorry for the delay, I am in Northern CA and we are having storm problems here. I second, third and fourth the idea of the Roth IRA if you are able to contribute. At least you know that the funds can be invested for the long term. If all goes well with the investments, they could also provide funds for a home buy or wedding. Depending on the investment choices and costs of the investments choices in your 401k (also the ability of the plan to accept rollovers from previous plans), rolling the previous plans into the current plan makes looking over your portfolio easier.
Angieh, Roth contributions are phased out between $114k-$129k for those filing single; $181k-191k for married filing jointly
Now lets look at the rest of your question. It seems like you are thinking about trying to live off the income. I suggest that you think in terms of a percentage draw every year based on the prior year end values (or an average of the 3 prior year ends to smooth out the bumps). You might consider 3.5 to 4% which would provide what you need. If your income (interest and dividends) doesn't equal that amount, make sales to come up with the difference. You will keep an overall allocation which considers your total investments and then you will divide them between the accounts for tax efficiency (Roth should have your most aggressive investments and be the last money you spend). Don't get too conservative in retirement. I usually suggest that retirees keep 3 years of cash needs ((total needed less social security or other income to be received) X 3) as part of their cash/fixed income allocation. That should make it where you don't have to liquidate in a down market which will make keeping a higher equity allocation palatable.
Emmyp, I think that couples are well served by visiting with a financial planner before the wedding to discuss investments, wills, powers of attorney, and insurance. Why don't you see if there is an hourly, fee-only (not fee-based) advisor in your area. Start your marriage off by learning to have the money conversation. It will be money well spent.
Angieh, if the wedding is soon I'd first save for it and not invest those funds. You want to be sure they're there for the big event!
Bill, built into the QLAC payment is an inflation factor for what that initial payment should be at that future age, so it's not quite right to say it's not inflating now.
Bill, there are 18 years between age 62 and 80 so I think you have plenty of time to make decisions and for any black swans to work themselves out (The S&P has tripled since 2009 so you would have made up your losses and then doubled your original money). Interest rates are so low now that I would at the least wait a couple of years before I pulled the trigger. Also, the older you are when you get the annuity, the higher the payout. I often have clients wait until their 70s and then buy a single premium annuity. Other than that, I am too unfamiliar to comment on the product you are talking about.
Bill, I also like to consider investing for growth in some stocks for those older years. It may see seem initially risky, but as you point out, one of the biggest risks you're trying to offset is inflation risk.
Bill, Bobbie makes an excellent point. Waiting until you're older shortens the amount of time the insurance company has to pay you for a lifetime benefit, which means they'll pay you more.
Bill, my point on the current interest rates is that if you wait until they go up to purchase any one of this kind of products, the payout will be larger.
Bill, again Bobbie is right. Realize that insurance companies are investing in the same markets we are, and interest rates right now are terrible. The longer you wait the more likely it will be that we'll all see higher interest rates that will net higher payouts. That combined with an older purchase date will give you the inflation hedge you're seeking.
Geo, of course, that's a very logical method. I like to start with some kind of structure like that and then customize it for the client's needs, including some one-off cash needs.
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Geo, the tables are averages. You should probably make adjustments for expected longevity which varies from person to person, family to family. I suggest that a planner could help you run the numbers and help you increase the probability that the needs are meet for each of you.
Angie, that 10k will come in handy for your masters degree. I'd consider just building on that savings.
Angie, you'll appreciate graduating without carrying a lot of debt. Will the masters directly help you earn more money? If it will then perhaps student debt might not be such a burden. But if there's no certainty then I'd want to have the funds on hand to pay for the advanced degree.
Tannon: The Vanguard Retirement date fund is a diversified fund of Vanguard funds. You should be well diversified even if both IRAs are in the same Retirement Date fund.