Jump-Start Your Retirement Plan, February 2015 - Live Chats, Q&As: Free Advice on Retirement, Investing, Personal Finance -- Kiplinger

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Jump-Start Your Retirement Plan, February 2015

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, February, 19, from 9 a.m. to 5 p.m. ET.

  • Why are dividends glorified if the stock price drops by the dividend amount on the ex-dividend date? I would think the total return would be the same if the earnings were retained and not distributed as a dividend.
  • Hi @Bob, I'm a believer in low cost index mutual funds and ETFs so I can't speak to a particular investment that is dependable year in and year out. I would be cautious about investing in a particular equity fund if you plan to withdraw it in <5 years because otherwise it is too short term.
  • Bob, in a low yield environment such as now, there is a tendency for investors to deviate from their basic strategy in an effort to "reach for yield". Doing such can be dangerous and put principal at risk. Rather than think of bonds as a pure yield play, look at them as the stable portion of your portfolio and a way to keep "dry powder" aside in a time of market volatility. We recommend clients consider the total return on their portfolio rather than just look at yield. Most advisors use a 4% withdrawal rate as a benchmark for a total return type of portfolio.
  • Hi Kevin, people like dividends because over time they can add a lot of value to the overall gain. They wouldn't be particularly helpful in trading situations - did I understand your question to be how good are they if you're selling shortly after the ex-dividend date?
  • Kevin, some see dividends as a guaranteed return of your money and a source of income. For all of the research though on what is a good dividend payer, during the downturn dividend rates were slashed. I agree that a total return approach to investing is likely going to provide a better result than focusing on dividends.
  • I'll retire soon, with an adequate pension and savings. I can continue the group policy term life insurance my spouse and I started when our now-adult kids were young (income replacement protection back then). But should I? My spouse will receive my pension after my death so income replacement isn't a factor any more. My instinct says cancel, but can you elaborate on how to make a good decision on this? Once I cancel the coverage can't be re-established (I'm grandfathered in to group plans no longer offered). Yes, the rates go up every year or two...
  • Hi ADW - congratulations! And a good question so first CYA language. Never cancel an existing policy until 1) you have replacement coverage or 2) you have been through a decision tree on what your coverage needs are and have determined you do not need the existing policy and it's safe to cancel. That said, it is often true that the oriiginal need has been addressed and coverage is no longer required. Would you want it to fund any estate planning for kids/grandkids? We usually run an exhaustive question/answer conversation to see if it is/isn't needed. But I think you're thinking is good - you'd want to make sure you or someone you trust is looking at your total situation before canceling.
  • Almost Done Working, when evaluating life insurance, one should always start with evaluating the need for the insurance. If the need is no longer present, the insurance is not needed.
  • Almost Done Working, you have insurance on your pension, what else would your spouse need from you if something should happen that your savings and assets do not cover? Assuming you have enough for you both, I would guess you also have enough for one. Life insurance is meant to cover the promises to others that your assets do not currently cover. If your assets cover your promises... insurance seems to be duplicative. I of course do not know that for your circumstances. Consider also that your GROUP life insurance continuation has some negative assumptions about your health that it likely is not the lowest price way to obtain insurance as you age and certainly after you leave employment.
  • Hi @AlmostDoneWorking (love the name), insurance can be used for a few different reasons. Income replacement, coverage for debt and as a gift to children. I can't say that you should cancel the policy but if it is not used for a particular goal then you should think about it. I would have someone do an insurance analysis to make sure you do not need the coverage anymore.
  • iam 82 years old retired I need help for my portfolio.10%vti,5%vxus the rest in bonds.is total bond idex ok adding to it inflation protection and yield or seek bonds like pondx mwtrx.thanks is balanced funds safer than vti
  • Barry - Not only is a high deductible Health Insurance Plan that offers a HSA about the only way to go in bridging an Early Retirement, but I think you can also use to HSA to fund Long Term Care Insurance with pretax dollars up to the limit.
  • iam82, a balanced fund lets someone else control the investment mix. I can not give advice on what you should invest in without being a client. In general, I prefer to see more inflation-protected bonds, foreign bonds, shorter duration bonds, and real assets than most simple balanced funds. I would prefer to control the mix, and do so in a tax-efficient manner over your accounts, rather than leave it to a fund company, but there are also benefits to the simplicity of balanced funds.
  • Hi iam 82, I know you know we're not able to provide specific investment advice for a specific individual in this format, however, your question about whether balanced funds are safer than something else can be addressed. We can look at each fund and make a determination of the risk we think you'll be exposed to. But in times like this where we flop inside a 1000 point trading range on the Dow, it can feel like things are safer than they are. Stocks are risky, bonds have credit risk, etc.

    Risk and Diversification: Different Types of Risk | Investopedia

    InvestopediaLet's take a look at the two basic types of risk: Systematic Risk - Systematic risk influences a large number of assets. A significant political event, for example, could affect several of the assets in your portfolio. It is virtually impossible to protect yourself against this type of risk.
    explains all the different kinds - so they are different but not inherently less risky. I hope this helps.
  • For CathyLynn, Employee Benefits Research Institute puts out good research - here's the latest on how well we're all doing saving . . .
  • i am 82 years old retired.I need help in building a conservative portfolio.15% equity,6% internation stocks.the rest in bondstotal bond idex adding inflation and hy or bond funds like pondx,mwtrx and balaced funds instead of stocks please help
  • Hassan, is there a reason you have not addressed setting up such a portfolio with a fee-only planner who has incentives (compliance) to serve you well in that capacity? We cannot give specific advice in a public forum. There are hourly planners as well if that suits your needs better to get something set up. The challenge then would be maintaining it, watching it and rebalancing it over time. What have you been doing to this point?
  • Thank you Bonnie, Robert, Michael, Summit - good input!

    What do you think of variable preferred ETFs (VRP, PFF, etc.)?
  • Hi Hassan, Bonnie mentions hourly planners who can help on single issues such as yours. The Garrett Planning Network would be a good place to look (

    Garrett Planning Network

    Garrett Planning NetworkWelcome To Garrett Planning Network
    )
  • Hassan, I agree with Bonnie. It may also be beneficial to create a tax-efficient strategy for your investments across your accounts. In general, I avoid high yield bonds, especially in retirement. They act more like stocks and return less. Diversifying from the Total Index to include inflation protected bonds, short-term bond funds, and other investments is often appropriate.
  • Seeking to retire Jan 2016 –will be 56.5, very good health and active.
    Husband already retired 62 on SS, not in best of health.
    401K =$640K, house paid off. Spouse = Annual B4 taxes (SS/Pensions) $39,516 if he was to pass there would still be $27,744 coming in annually just to me. Annual expenses in retirement, after tax $50K. No long term care, No life insurance, no credit card debt, debt limited to car payment.
    Questions:
    1) Am I crazy to retire Jan 2016 based on these figures listed?
    2) What is the best mix stock/bond fund mix based on situation?
    3) Any other suggestions.
  • Hi Bob, my understanding is that plenty of the preferred stock issued isn't available to ETFs so depending on what the needs/reasons are for preferred stock, it may be better to consider a good mutual fund with preferred stock.
  • Good point, Bonnie - that's always an issue with ETFs... what are you tracking and what are you missing out on, in any particular ETF
  • Dear HJ, Sorry to hear your husband is not in the best of health. in order, 1) not crazy of course but you may want more time to work/accumulate, 2) this would be considered in the context of your relative youth (56.5) and the rest of your situation including a full risk profile, 3) can you keep working and spend enough time doing what you love with your husband (vacation, a sabbatical vs. retiring)? One gap is your own health insurance - have you priced this?
  • HJ, have you explored the cost of healthcare for you if you retire now? Assuming you factored that into your expenses, it would appear that the demand for income from your 401k would not be burdensome but you need to take into consideration additional costs for any leisure activities as well as out of pocket medical expenses before and during Medicare years.
  • HJ, I think you would benefit from sitting down with a professional. I can not say that it is crazy to consider retirement with the numbers you have here, but there certainly could be threats you may not be considering, or strategies that may make sense now or in retirement. Your age here is a threat as we have a long time needing to rely on the portfolio. So, my suggestion is to seek help. I don't have static stock / bond mixes for retirement as everyone's situation is different, and the types of stock and bond funds also should be considered. It sounds like you will need current income and growth
  • Yes Bob, so you're helping us also make the larger point that 'rule of thumb' or short answers to a specific financial question is a place to start but often not the conclusive or best answer - thanks for putting it in plain words
  • can I establish a retirement plan on my own
  • Bonnie - Thanks. Looking to spend time with hubby, could still work - yet not enjoying long days, sabbatical is out for now.
  • Hi farfromretire, yes, you can. do you work for yourself or someone else? Saving for retirement can be done in a taxable account, Roth IRA, SEP IRA, Simple IRA, IRA, 401(k), solo 401(k) etc. depending on your situation. But you can absolutely establish retirement savings on your own.
  • farfromretire - you can always contribute to an IRA or Roth IRA. Which is appropriate depends on current and future income, whether or not you are covered by an employer plan. If you are self-employed you have many more options.
  • Summit/Bonnie - yes health care would run about $400 / month and is included in my annual $50K
  • farfromretire - yes and no. If you have self employment income you have many options for setting up a self employed retirement plan .If you do do not have self employment income there are tax qualified IRAs and Roth IRAs which you may use.
  • Hi @FarFromRetire, based on your name I'll assume you have a number of years until retirement. It is possible to create a plan on your own. However, there can be lots of moving parts so be careful. I'd start by setting up an account on Mint.com, set goals and stick to them.
  • HJ, is there something specific you want to get done in the next few years (trip to Italy, repeat something you and your husband enjoyed in the past, etc. ) or is it more general - just wanting to spend time together given that his health is not the best? If it's something specific, find a way to do it. I have had clients miss an opportunity to do things they really cared about because they thought they had more time. If it's general time you'd like to spend, see if you can work less, perhaps but not retire? It's really a more in-depth conversation but I hope this gets you thinking and perhaps to a planner to determine all your options. Good luck.
  • Robert - Thanks. Have considered it, primarily I read everything I can. There are so many variables, that it seems you would never retire if you anticipated them all.
  • I have a pension and my finiancial adviser keep telling me I should start an annuity? I max out my TSP and I also max out my IRA. Please advise
  • Dear I have a pension . . . new mantra - ask more questions, expect better answers. Ask your 'financial advisor' what they will earn on your new annuity. Then ask to see the contract and have it reviewed by someone not invested in the outcome of that sale. One of the advantages (truly!) of working with a fee-only Certified Financial Planner is that we are prohibited from accepting commissions. We sell no product so we better be excellent on the only thing we do sell - advice.
  • HJ, as advisors I think our main job is to give clients the information they need to make the best choices, and help them consider all of the risks they may face. You're right, there will always be risk! The question is if you have someone that knows your goals and what's important to you to understand if it's feasible for what you want out of life. I had a boss that said you can always retire... it's more a question of if you'll have enough to be happy!
  • Hi IHaveAPension, I'd want to know what the goal of the annuity is. Is it to provide income in your later years? If so, do you have enough with your pension/investments to reach your retirement goal? You adviser should analyze your entire plan and present the best options for you. If he's just selling products then he doesn't have a clear picture of your entire plan.
  • Is it better to use HSA/Roth IRA funds to pay for child's education versus starting 529 fund?
  • As with any financial product, annuities can be appropriate in certain situations for certain individuals. What purpose does this annuity serve in your case? How much does it cost? What are the guarantees offered through the product? Are there any penalties to consider? Why is this annuity better than others? How much commission is involved in the sell of this product? Those are a few questions you should ask your advisor.
  • One other general issue with annuities - you buy the contract, not the nice conversation with the salesperson. You're going to live with the terms of that contract. And while they may be appropriate for some people some times, in my opinion they are oversold in the extreme. We often have our hands tied while clients who come to us with annuities evaluate exchanging them for lower cost annuities, taking a tax hit by unwinding them if they're small enough or waiting out the surrender period to make a change. In a presentation I give, I show the 9000 square foot lake home of a salesperson at a well known annuity firm. Then I ask the audience if any of them have a 9000 square foot home on a lake with their annuity. Nobody so far.
  • @Ihaveapension. You likely should be speaking to a fee-only advisor about your circumstances. Because you have a pension, you may find your pre-tax TSP and IRA are not diversifying you enough. I have clients who pay more in taxes in retirement where they probably should have considered saving more to the Roth RSP or a Roth IRA. It is very personal, however, more tax-deferral is the first thing I would consider. Annuities are also very broad, so it isn't easy to discuss the trade-offs or if you even have a need for insurance in your circumstance.
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