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.

    @wreckon95: The trust is sort of like an imaginary person who will own and (through a trustee) manage the $ for your daughter. You have created the trust, does it have any $? Are there any accounts or assets that are currently owned in the name of the trust? Or will it get all its assets upon your death from life insurance, from a beneficiary designations, or from your probate estate ( i.e. your Will -- BTW, the $ amount will generally be public info if it goes via this route)? Often these types of trusts are funding essentially at death one way or another. But if that is so, then a contested will or life insurance premiums someone forgot to pay can cause big problems. So I tend to encourage people to think about making those plans as bulletproof as they can (perhaps while still leaving an out if something changes). Does that help answer your question? I know that it's almost an abstraction of an abstraction, which gets confusing.
    @Beststrategy, here are 7 smart ways to pay for college. The story's a little old, but it can give you some good ideas and help you compare 529s and Roth IRAs.
    Best strategies, you have a lot of questions on this and the only way to get a comprehensive answer on what is best for you is to consult with an advisor. Several things. 1. It seems like you have all of your money equities and you might want to include a fixed income allocation to reduce the risk. 2. You have a lot in company stock. You might consider diversifying that as well. Now to your bullet points a. Know that you can contribute to an IRA for your wife to even things up. I hope you will be in a high tax bracket when you retire so you might choose to put half in an IRA and half in a taxable account. Having different buckets of money in retirement gives some valuable flexibility. b. ROTH, this might be good for the half I suggested under a. You can always go get the contributions back but you can't take any of the earnings before 59.5 without a penalty. c. I love 529 plans and your kids are still young enough to have some significant increases in their holdings before you need the cash for college. I like the low cost Utah plan but beware of broker sold plans. I wouldn't fund the 529 for more than half the needed amount...to include room and board... as one child may not go to college or may get a scholarship (you can use anything left over for you or grandchildren who go to school). d. Waiting for the market to drop? Well I have been waiting since Jan of 2014. Such thinking humbles me, which is a good thing:-) Why don't you dollar cost average into the market over the next 12 months?
    @Beststrategy - (D) - Waiting until the market drops to make a lump sum investment is really tough. Is a 10% drop enough, 15%, more? I'd recommend averaging into the markets in a relatively systematic way. Perhaps you'll choose to invest $25k each month for the next 10/11 months. If the markets do correct (and you have the stomach), you can accelerate the investing. I'm a big fan of Vanguard's LifeStrategy funds. Have a look and pick the risk/reward level that you can stick with.
    Not sure if this will help with your situation, @Beststrategy, but just in case:

    Ways for High Earners to Contribute to Roth IRAs-Kiplinger

    www.kiplinger.comYou can reduce your modified adjusted gross income by contributing to a 401(k) or flexible spending account.
    Julie C, do not cosign please as this usually ends up being problematic. Now as for the loan, if he can't afford the higher payment how is he going to be able to repay the loan? Go into this with eyes wide open and if you do a loan, make it official by writing it up.
    Thanks all. I will take advice to call SSA. I should have mentioned I have tried ALL the calculators I could find on their website and none seemed to work. I am fairly savvy (IT and Acctg degrees) but calling is next option. If the hit will be too large, I might consider just taking a couple years off and then continue to consult again for a few years in my late 50's to keep the hit small.
    Thanks for all the advice everybody. thanks Kiplinger also. have to step away. Stay warm.
    Thanks for joining, Cash Flow!
    Mark Wilson, APA, CFP(R) 2:01 PM
    My agi dropped in 2014 and I was able to reduce it with my 401k, HSA, and wife's IRA deductions bringing it to $80,300. So I do qualify if I read the tax rule correct. Should I also take some of my cash after opening up this IRA and put some of it into a Roth?
    @beststrategy: I will echo a lot of what's been said. The odds are very high that you will not be able to accurately predict the bottom of a market dip. And even if you could, you might not make enough back to make up for the time that you sat things out in cash. I would consider investing the $270,000 systematically along the lines of Mark's suggestion. I also like using 529's for sonly a portion of education expense in case things don't go as planned.
    @Beststrategy - At that AGI level, you AND your wife can make deductible IRA contributions if you are looking to save the maximum. Running some numbers makes sense, but I'd probably stick with the traditional IRA.
    @Julie: If you can afford to, I would loan or give the $ for the down payment. I do not recommend co-signing, but if you do decide to do so, be sure to get and maintain life insurance on your son. This would allow you to pay off the mortgage if he were to die prematurely. This would still do nothing to help you if he were to, for example, become disabled which may be a higher statistical likelihood.
    by Bobbie Munroe 2:06 PM
    In regards to your advice in fixed income allocation. I agree that I do not want to have all my investments in equities. What fixed income would you recommend? Can you be specific.
    Thank you all so much for your advice.
    @Julie C, here's some advice on loaning money to family. Good luck!
    @Rick - You are completely correct, income levels do not determine spending needs. Rules of thumb should be used as rules of thumb. My favorite way to determine a good number for retirement estimates is what you are recommending: have a look at where money is going before retirement and adjust for the things that change in retirement (ie. more golf might add to expenses, less auto related expenses would reduce expenses). For a shortcut, look at your net income (take home pay), subtract additional savings (if any) and that is what you are spending. For many, that number is pretty close.
    @rick: Setting your retirement spending goal as percentage of your total pre-retirement income is a shortcut that gets used a lot. This is probably because it's easy and you don't need to figure out your expenses (which most people don't know or perhaps don't even want to know). That approach is better than nothing, but yes, estimating what your actual costs might be in retirement in today's dollars and then trying to inflate appropriately is often a better approach. Some things to think about. Your healthcare costs may be higher. You may spend less when you aren't working or you may spend more because you have more time. Most spending usually tapers off later in retirement although healthcare spending may increase.
    Beststrategy: I suggest a diversified fixed income allocation. I usually use something like Vanguard Bond Fund or ETF as the core holding. Then I might include some TIPS (inflation protected but not exciting performance) if my clients are concerned with inflation. I also use a high dividend yield fund (Vanguard has a good one) or bank loans (we use BKLN)....for a small portion I also like the Vanguard GNMA fund. We also include foreign bonds. Vanguard has a lot of low cost options and I like some of the Metropolitan West offerings. I suggest that initially to keep it simple you could just go with a total bond fund. You may even want to look at what Vanguard uses for fixed income in their target date funds. REMEMBER THIS IS A GENERAL COMMENT AND IS NOT NECESSARILY WHAT IS RIGHT FOR YOU!
    hi i am asking your opinion do you recommmend lifestrategy growth or retirement date by vanguard thanks
    @Beststrategy, you might want to consider these, too:

    Best Bond Funds for Income Investors-Kiplinger

    www.kiplinger.comThe six funds we discuss here will earn you a good yield and provide some defense against interest-rate uncertainty.
    @ Rick, I tell clients there are 3 phases of retirement, go go, slow go, and no go. During that go go phase we often include extra funds for travel and other exciting things. But after about 10-15 years in retirement, those funds are usually not needed. So as others have said, I would take a look at my current spending an make allowances for what will change (if the mtg will be paid, reduce the needed income--but allow for taxes and insurance, if additional insurance or long term care premiums will be paid, increase the needed income). Of course, you can also reduce the needed amount for job related expenses like clothing, dry cleaning, commuting expenses. Be SURE to include money for "what if" expenses like car or home maintenance, a child's plea for financial assistance. I usually have clients fund a separate account on a monthly basis for this kind of thing.
    All thanks so much for your advice. I like the dollar cost average strategy. Can you recommend where I should invest this. You know what I have in my 401k, and it seems as if ETF's are recommended. Should I invest it in a particular sector and industry and what ETF's would you recommend?
    In regards to your fixed income allocation recommendation. I agree and do not want to have all my investments in equities. Could you recommend where I should put this, being specific?
    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, would like more time with him.
    Spouse has annual B4 taxes (SS/Pensions) $39,516 if he was to pass there would still be $27,744 coming in annually just to me. Our budgeted expenses for retirement, after tax $50K. Included in that is health care premiums. No longterm care, No life insurance, no credit card debt, debt limited to car payment. 401K =$640K, house paid off.
    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.
    I have a question about Social Security for my Children. I have two children who will be 11 when I turn 62. Can they collect SS based on my work history when I turn 62 even though I do not collect SS at 62 but am deferring collecting until I turn 66?
    I plan to file&suspend Social Security, so my wife can collect spousal benefits while I wait until 70 for mine. I understand I need to have reached full retirement age to do this (66 in my case). Is this something where I can start the paperwork a few months prior to my 66th birthday, or do I need to wait until my birthday to start the process?
    Hi Bill. You've got it right that you have to wait until Soc Sec full retirement age to do this, but I don't know the timing of filing the actual paperwork. Anybody else?
    Bill, no don't wait until your birthday. File several months before. For the file and suspend option you may need to go into your SS office since this is not standard.
    Hello! I've got about 150k in savings accounts right now (part of which constitutes an 8 month emergency fund). The accounts have pretty low interest rates on them, so I was thinking of moving some of this money to CDs. What are your thoughts on CD laddering right now with the interest rates being so low? I was thinking of laddering out from 5 years, down to 1 year, maybe putting 10k in each. Is it worth tying the money up that way right now? How many years out would you take it if you like that strategy? For background, I also fully fund my TSP and IRA. The money in savings is money that I don't necessarily want to invest in my taxable account because I want it to be somewhat accessible. Is there a better way than CDs to make a little more return without tying it up?
    Bill, consider filing 3 months in advance of when you'd like your first payment to arrive.
    @Almost: You could look at reducing your expenses more radically. Brainstorm about what you might be willing to do to spend the time you want with those you love. Some have moved to other states or countries in retirement to reduce expenses. There has been an explosion of "Tiny Houses" (at least on the internet). Be radical, brainstorm how you could make $, spend less, how you could work less, what if you stopped working for a while & then went back later, etc. If it really matters, put every last possible idea on the table first. Then begin whittling down. Then have a planner help you spot potential pitfalls you may not see and help with the math.
    Murph: An alternative to CDs would be short-term government or corporate bonds. I wouldn't tie up your money too far out with the low interest rate environment. The savings beyond the emergency fund should probably be invested for longer-term goals.
    @TimothyJ.LaPean,CFP®,ADPA® yes, very helpful. thank you
    Murph, I feel your pain! There's very little return on funds that need to be very accessible. A CD ladder sounds like a fine plan; you may have regret should rates rise dramatically during the period, but who knows if they will or won't. A simpler solution is a widely diversified bond fund with a fairly short duration. You may see paper losses as rates rise, which could be tough for you. so proceed cautiously.
    Hi, I'm in a sticky situatuin. It seems I can only find temp jobs at this time. I'm concerned aboutthe next 5 yrs or so. What can I do to lower my taxes? I have 2 part time jobs and one of them lets me have a 401k, the other has no benefits. I put money in my 401k, but not sure how long I will have that particular job. I dont have kids, I dont own a house, I pay a lot per month for our health ins, but I dont qualify for a subsidy. I have a Roth and other savings acct. So what can I do to lower my taxes?
    Tisha: Assuming that you are making the maximum contribution to your 401(k), I don't see a lot that you can do to lower your taxes. Are you itemizing your deductions? If so, you should be able to get some benefit from state taxes, charitable deductions, etc.
    Hi Tisha. Deferring into the 401(k) is smart while you have access to it. When you don't, you may be eligible to make deductible IRA contributions (depends on your filing status).
    Does it make any sense to open a Roth IRA at age 60 or is it better to open a Traditional IRA that can provide an immediate deductible contribution? We are eligible for either one this year. My preliminary tax calculation results in a $3,000 increase if we open a Roth IRA. However, if a Traditional IRA is opened, a $1,000 decrease would result. So the immediate net cost difference is $4,000. Assuming my tax bracket remains the same rate in the future should I consider opening a Roth?
    I'm 31 married with a 9 month old. My wife and I do not plan on have more children. Im torn between how I should be saving. I currently save in my company's Roth 401K up to the match. Currently, I'm also saving approx. 39,000 a year. I'm also saving 1,500 in my daughter's 529. My logic is to save as much as I can in a taxable investment account which will primarily be used for retirement. When my daughter is of college age, I would use the dividend interest during those years to cover the gap that the 529 won't cover. If I max out the 401k ($18K), I won't be able to tap the dividend interest because I will only be 49 years old. Should I continue to max out my Roth 401k up to the match and save agressively in a taxable account or should I take advantage of the Roth tax benefits by contributing the full $18,000 and investing the remaining available dollars in a taxable investment account?
    For those collecting a military retirement should they still have an emergency savings? If so, how many months?
    How can I tell which is better, to begin converting tax deferred income to a Roth before my RMD starts in about 2 years and risk having to pay higher rates for Medicare now and having to pay the taxes now or just waiting until the RMD is actually required and doing the same things then? How important is a Roth to someone who is 68 if they don't have one now?
    Hello! I am 44 and have the opportunity to contribute money to TSP with up to 5% government matching. But I also have a 4 yr loan at 11.49% interest, the balance of which is about $38,000. What's the better strategy - pay off the loan in 4 years or faster (I'm on track for a 2.5 yr payoff), then add that $900 payment to my TSP or Roth IRA, - or max out the 5% matching now, and eat the interest on the loan? Thanks!
    Roth 401K vs. Traditional 401k - I have about 400K in traditional 401k. My wife has about 120K in a traditional 401K. We're both maxing out and getting max employer contribution. We're both 38. I've recently started making 401K contributions to a Roth 401K option that my work allows me to make. I make $223K per year and my wife makes about $40K per year. I think we're in the 30% tax bracket or so. We also aren't very good about saving money that we do take home. Is it a bad idea for me to be saving in Roth 401K at this point?
    Mark your calendars for your next Jump-Start Your Retirement Plan day on June 18. See you then!
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