AP, "conservative/safely" can be very subjective. As a general rule we speak of that initial withdrawal being about 4% of your capital, so $2 million x 4% = $80,000. Thereafter you could increase that withdrawal by inflation.
AP, But later you may find you don't need an inflation increase when other income such as Social Security kicks in.
Mark, they will issue a 1099R on the withdrawal. If you use tax software, it will report the additional tax on line 59 of the 1040. It may add form 5329 if required.
AP, on the other hand, you may want to also set aside some funds for medical costs in retirement and consider investing those more for moderate growth and income to keep up with inflation.
JTS, The traditional pension would be an important part of your retirement number, however, you will want to be aware of the terms of the pension. How long must she work at this employer? Will she contribute to Social Security in this position? What are the pension increases for the number of years she thinks she will work in this position?
Hi Donald. Nice to see you!
Tatyana, you can engage a planner just for the retirement planning part without paying ongoing fees. Many NAPFA members will work with clients on an hourly basis for just this kind of project. And they find that having an expert customize their plan to their particular situation is ideal, rather than having someone try to do it themselves and miss important components.
@guitar427: Depends on the loan interest rate. Generally speaking, you should make the minimum payment and use excess cash to build a cash reserve and then start saving for retirement. Once you have maximized your retirement savings options, look toward reducing that debt.
John Reidelbach : Depends on whether you need those funds for cash flow because you can distribute securites in kind from your account to satisfy your RMDs.
Superman: I shall assume you also want to live in the home. My first thought is to find out what the regulations for this type of business in the area you want to purchase. If you go to the trouble to purchase and regs say that type of business isn't allow, you're stuck. As far as loans you might be able to take out a HELOC, but the amount is going to depend on the mortgage you take out. If you put 20% down, that's most likely the amount you'd get for a HELOC>
John, That does make sense. Advisors often "cue up" future needed income by placing those sums in cash or short-term investments such as CDs and short-term bonds. Then we review the account periodically, especially when we rebalance accounts, to be sure that cue is always kept funded for the upcoming withdrawals/needed income streams.
Tannon, first let me say BRAVO as you and your wife seem to be in excellent financial shape at a very early age. This bodes well for your future. Now, you are young and a high wage earner and these are the things that usually make ROTH's attractive. But the current tax deduction for the traditional TSP is ALSO attractive. I think you idea of doing a little of each is excellent. Indeed, we don't know what the future tax rates will be so having a little in each bucket makes good sense. As you have a new child, I also suggest that you look at a 529 plan (I like the Utah plan with Vanguard funds if your state doesn't offer a good deduction for using their plan). If you put money into a 529 plan, you can't deduct the contribution. BUT if it is later used for education, all of the growth will be tax free. Like a ROTH, this is a hard deal to beat.
I would say to pay down the smaller loans first and take those payments you were paying an add to the next highest monthly payment.
David, you've identified a classic debt-repayment dilemma. It can be very motivating to pay off the smallest debt first, even if at a low interest rate, and then apply those payments to the accounts with the bigger balances. It feels like real progress. But if the interest is really low you're just hurting yourself; those payments could be smaller than the new interest applied to the higher-interest loans!
Well Sutapa, that depends on the organization. Would it be someplace wonderful with low costs like Vanguard (then I say go) or someplace that charges high fees like funds with sales loads or insurance companies (then I say no)? I agree that, even though you still have statements for each separate account, working with one vendor can make life much simpler. I suggest a discount brokerage like Vanguard, Scott Trade, TD Ameritrade, Fidelity, or Schwab.
David, but I say go ahead and pay off the smaller ones first and then roll the payments forward to the bigger debts. If you go to the University of Utah's www.powerpay.org site you can see how it will work for your particular collection of debts; they have a great calculator just for this purpose.
Hi Green-Eyed, Have you calculated her WEP adjusted benefit? You can do that calculation on the Social Security website. In addition, there are programs, such as Social Security Maximizer, which can help calculate the best strategy for the two of you. You will not be able to file a restricted application until you reach full retirement age, 66. Depending on the amount of her pension and your Social Security benefits perhaps there is a better strategy.
Sutapa, one more thing. You want more than one account for the cash so that you have FDIC insurance on all of it. That only covers 250K per account. But the accounts can still be at the same institution but in different titled accounts....like one for you and one for your husband.
Green-eyed, we just worked with two CA teachers who will receive STRS pensions and the optimization did not generate much in the way of projected extra funds. You will want to run the numbers with your specific information to make the best choice.
Reducing debt and increasing assets in combination is a good strategy. I assume you already have a minimum balance each month for your student loans. If you have a retirement Plan at your workplace, contribute up to the match. After that, you could start making additional payments to the loan having the largest interest rate. Just make sure you have sufficient account balance in your emergency fund (3-6 months net income after taxes). It’s all a balancing act. I do not have an opinion on Betterment.com but I am a proponent of organizations that get you excited about personal finance and propose low-cost index fund investing.
Ridgemontana, this is a big complicated. If you stayed with the same employer, I'm not certain why the money was considered a distribution. That is the only reason the IRS would tax it. If it WAS considered a distribution (because of plan rules on how long you had to pay it back....but the usually reason is separation from service) then you shouldn't still owe it ...but you would still owe the interest on the loan only. If it was NOT a distribution, then you should still owe it and the interest but NOT owe any tax on it as no taxable event has taken place. I strongly suggest you review this with a CPA. Do so before the middle of January as after that, things will be very busy for every CPA I know.
Green-eyed, Also WEP should not reduce your spousal benefit. WEP reduces the benefit to the person is receiving the non-covered pension.
Girlskout, I agree with Delia, check with an independent professional before going straight to the IRS. And not to worry. They have seen cases like yours before. It will feel SOOOOO good when you get this cleared up.
hassan dannawi : I would have a more diversified fixed income approach, but you should have an overall risk level assessment completed and develop an investment policy statement. The Vanguard Bond market can be one piece, but not the entire
JP, You want to check with an accountant or estate planning attorney in your state to see what the laws are. For Federal tax purposes you won't be taxed for inheriting, but some states do have inheritance taxes.
Your Vangaurd Total Bond Index Fund is a diversified bond fund that in addition to investing in 49% government bonds and 22% mortgage securities, it also includes 22% corporate bonds. This is a good fund for you.