SUSHILAND (great name, btw) you are on deck!
@David: There are a couple of factors that you may want to think about: your risk tolerance, i.e. how much are you willing to put into the market, do you wish to leave a legacy, and your life expectancy. Currently inflation is quite low at about 1.9 - 2.1 %, however in the longer term the avg. is closer to 3%. If you are striving only to keep pace with inflation you could consider a 75% fixed income/25% equity allocation. However, if your goals is more growth , more future potential and risk then ramp up the equity allocation. Many pensions don't have inflation adjustments, so your purchasing power on the pensions may actually be eroding over time and, in fact, you may need a higher return than inflation on the 401k accounts.
@David -- Apologies. I see that you have COLA in the pensions, but for the benefit of other readers I wanted to point out that many people don't have this. You've got a very good deal there!
Mike. Your question comes down to net worth now or net worth later. Social Security is not part of your net worth. So, taking Social Security now preserves net worth, but requires more net worth to be spent in later years because the Social Security check is smaller. When we've done the math in the past, delaying Social Security tends to result in a higher net worth if you live into your 80's but lower net worth in the earlier years of retirement. So, part of the calculation is life expectancy. Also, the surviving spouse keeps the larger of the two Social Security checks, so delaying your Social Security may actually benefit your spouse if she has a long life. It's helpful to have a financial planner run your actual figures to show the comparison.
Sushiland: I like to use aggressive funds in a Roth IRA given the tax deferral and tax-free withdrawal and assume you have a relatively long time horizon before you need the funds, i.e. you can ride out the ups and downs. I would recommend mutual funds given the diversification embedded therein and not individual stocks. Asset classes with high expected rates of return would include small cap value, emerging markets, international small caps; however, the volitility is high. Kiplinger's has a list of funds that would be a good starting point
A separate account for rollovers may allow you to roll it to a 401(k) in the future. It may have better legal protections in your state.
Richard, thanks for the clarification. I still believe in a balanced portfolio for this taxable amount. We usually don't make specific investment recommendations in this format. At least I do not as I can't reach out to you, it the recommendation runs into trouble. Love vanguard funds, I would start there.
Richard, I would recommend looking at the entire mix when incorporating these funds into your plan.
Scott can you clarify your question? In your last sentence you mention a "401(k) IRA." A 401k plan is simply called a 401k, it's not an IRA.
Often times, I see cases where individuals may benefit from generating taxable income in the years around retirement.
So, it could be that distributions from IRAs, etc., are appropriate. It takes reviewing the entire mix of your assets and accounts.
Scott, if you still have room to make an additional contribution to your 401k plan, then by all means do that since you have maxed out your Roth. If there's no more room, then now is a fine time to start a diversified long term investment portfolio. Check out Vanguard - they have some very good asset allocation funds that allow you to diversify well even with a modest investment.
Scott, the 401(k) question depends on if you are already contributing, your age and a bunch of other factors. If you are not funding your 401(k), you probably should at least as much as you need to get your employer match. if this is going to be after tax money, I like index funds. You might have a problem with diversification and meeting fund minimums. Vanguard has a series of funds that they call LifeStrategy funds. You might check them uot.
Scott, I typically look at 401(k)'s first, up to the company match, and then review your options. Agree with Frank, there are many factors.
Scott, how old are you? ROTH IRAs are terrific vehicles and congratulations for choosing it. Do you have emergency money set aside? That is a very important piece of the investment pie. Before you add to 401(k), make sure you have the emergency money for 6 months of NET income needs.
For our new shift of advisers, here is Carlos' original question: Have student loan debt of 40k grand. Should I save for retirement or pay off debt? 43 yrs old. current assets: 11k savings, 30K Roth IRA. 100k equity on home.
Steven, I believe in passive allocations, so am not the best to give a tactical answer. I would always have an international target.
Scott, if you had a loss of job, had to replace car, and furnace, and the market dropped 50%... would you have access to funds?
Steven, I think Kiplinger editors will agree with me that market timing is a bad idea and buying individual stocks is an equally bad idea for most people. Investing in Europe can be a part of any portfolio diversification but in little pieces. Start with your big U.S companies and suppplement with foreign and smaller companies. Look for a good Europe fund and go for it...but not too much.
Scott, the reason you keep emergency money in a savings account or short term bond fund is so that you do not need to sell stocks at a potentially bad time (down market).
Carlos, don't completely give up on savings for retirement - it's difficult to catch up later in life. Even if you max out your contribution to your Roth IRA every year, you should have enough to work down your student debt.
Albert and AppleZ, you're on deck.
I met too many who counted on home equity, credit, or other means for emergencies. I would perhaps look to have something safe in case.
Surfsled, I would typically look at this by preparing a mock tax return. It often can be advantageous or not to tap an IRA.
Scott, holding cash may seem like a wasted opportunity, but you need to match the purpose of funds with the associated risk that it covers. Emergencies are an immediate risk and you need cash to cover immediate risks. Inflation and longevity are long term risks, and you need long term investments to match up with those types of risks.
Carlos, a new crop of advisers here now. It may not be an all or nothing decision. You could do both, some into paying principal of loan off and some into retirement.
Surfsled, if you take SS at 62 instead of waiting, you are going to get a 25% reduction in your benefit and it is permanent. Avoid doing that if you can. If you live to your normal life expectancy, you will draw more out of the system by waiting.
By 84 I assume the deferral on the SS makes a lot of sense. But, it is a multifaceted decision, involving your other resources.
Surfsled, this is a complex question. It depends on how much assets you have to draw from over the next 4 years if you wait on SS at age 66. As Frank said, if you take it early (62), you will lose 25% of your benefit.
Albert, I think it makes sense to maintain a diverse mix of Roth / pre-tax / taxable assets. I can't advise on where the market goes.
Albert, when a client asks me this, I run some cash flow projections. It depends on your age, tax brackets and other things. One area where it seems to consistently pay off in the long run is when a person has to take minimum distributions and doesn't need the money for living expenses. I would be a good idea to speak with a planner and havehim/her run some projections for you.
My Wife and I both have Defined Benefit pensions that will meet our basic living expenses. They have COLA's that max out at 4%. Assuming we have an emergency fund, how should we invest our 40k's to keep up with inflation at retirement while we are collecting the monthly pensions? We will retire and start receiving the pensions 5 years from now.
Here's a recent Kiplinger piece on 4 ways, including spousal benefit, to benefit from a file-and-suspend strategy with Social Security --
@David: There are a couple of factors that you may want to think about: your risk tolerance, i.e. how much are you willing to put into the market, do you wish to leave a legacy, and your life expectancy. Currently inflation is quite low at about 1.9 - 2.1 %, however in the longer term the avg. is closer to 3%. If you are striving only to keep pace with inflation you could consider a 75% fixed income/25% equity allocation. However, if your goals is more growth , more future potential and risk then ramp up the equity allocation. Many pensions don't have inflation adjustments, so your purchasing power on the pensions may actually be eroding over time and, in fact, you may need a higher return than inflation on the 401k accounts.
Mike. Your question comes down to net worth now or net worth later. Social Security is not part of your net worth. So, taking Social Security now preserves net worth, but requires more net worth to be spent in later years because the Social Security check is smaller. When we've done the math in the past, delaying Social Security tends to result in a higher net worth if you live into your 80's but lower net worth in the earlier years of retirement. So, part of the calculation is life expectancy. Also, the surviving spouse keeps the larger of the two Social Security checks, so delaying your Social Security may actually benefit your spouse if she has a long life. It's helpful to have a financial planner run your actual figures to show the comparison.
Richard, thanks for the clarification. I still believe in a balanced portfolio for this taxable amount. We usually don't make specific investment recommendations in this format. At least I do not as I can't reach out to you, it the recommendation runs into trouble. Love vanguard funds, I would start there.
Scott, the 401(k) question depends on if you are already contributing, your age and a bunch of other factors. If you are not funding your 401(k), you probably should at least as much as you need to get your employer match. if this is going to be after tax money, I like index funds. You might have a problem with diversification and meeting fund minimums. Vanguard has a series of funds that they call LifeStrategy funds. You might check them uot.
Scott -- Check out Kiplinger's recent Starting Out column 10 Financial Commandments for Your 20s. It highlights why having an emergency fund (i.e., liquid savings) that you can easily access in the event of job loss, medical emergency, etc., is important.
