Daniel, I like to say that if we've discovered you've saved too much, we can always adjust down. Saving more earlier is a great strategy.
Advisors, don't you love it when client come in and they have saved so much you can tell them to feel at ease about spending more? It doesn't happen often but it is a joy when it does. It is often hard for such clients to spend. I had a client recently who was wealthy by any standard and she was fretting over buying new carpet.
Not a bad problem to have at all, Bobbie!
Yes, I had a client who had retired and had a bundle of money and wanted a new car. His was 15 years old with 200,000 or so miles on it. I told him he could actually afford to lease a new car every year for the rest of his life if he wanted to. He was very relieved!
Kittymomma, when you convert funds from a traditional IRA to a ROTH, a new 5 year clock starts on THOSE funds. You can keep them in the same account but you have take this into consideration if you take distributions. But if you don't plan on taking distributions within 5 years, no problem.
Hi Kitty: 1. No you do not have to keep separate Roth IRAs. It's is simpler to just have one Roth IRA account. 2. I suggest simplifying and moving the Roth into one account and at the same custodian.
Kitty, all great suggestions. There are two five year rules that apply: 5 years from your FIRST Roth IRA contribution, and also 5 years from your FIRST Roth IRA conversion. Does not matter how many accounts you have - I agree with my colleagues, however, that consolidating them with one custodian makes sense.
Kitty: 3. mutual funds, ETFs, or stocks can be kept in either a Roth or traditional IRA or taxable account. Sometimes it's recommended that bond funds be kept in the IRAs due to the income they generate. The stocks or stock mutual funds/ETFs can go into the taxable account. Of course if the taxable account holds tax exempt bond funds then this this is ok. Whether to use tax exempt bond funds depends on your income level.
Kitty, I usually put some of my client's most aggressive investments into the ROTH (emerging markets, small or mid cap funds). These are likely to have the most capital gain over a long holding period and if they are in a ROTH, all that gain will be tax free
Mary, good question. There are some 0% credit cards with no initial fee where that rate lasts for 15 months, so you could try that. In the meantime it sounds like you're putting too much into retirement accounts and need to have more going towards savings.
Mary, creating savings from current income is a better strategy than borrowing against future income. You would be safe reducing your contribution for a while (yes, your tax withholding will go up) in order to cover this expense and then to build your cushion back up. 3 to 6 months of expenses in boring old cash is a good strategy at all times. And, if it's needed for an emergency, use it, then commit to building it back up again.
Mary, whatever your plan, it needs to include paying off the unexpected expense AND then saving enough in an emergency fund to avoid this in the future. IF you think you can do that in a year with a VERY low interest or no interest card, that could be a good option. If you can't find such a card, you might consider borrowing from your 401K if the plan allows (usually you will be paying yourself about 4% in interest). CAUTION: If you leave your job before the loan is repaid, any remaining loan amount will be treated as a distribution and there will be a 10% early withdrawal penalty in addition to income taxes due if you are not 59.5.
Mary, so you may well need to cut back on your aggressive retirement savings until you can find the "sweet spot" of saving for emergencies + retirement.
BTW Mary, congratulations on paying off the credit card debt. Two thumbs up.
Mary: If you own a home, you could try opening a HELOC (home equity line of credit). Then pay off this expense. Just remember when you borrow your home isn't an ATM machine. Borrowing on it should be carefully considered and not become a habit. Kathy
Cecil, does your wife not work because you have children at home? I love having the house paid off by the time you retire, but I'm also wondering if you have sufficient insurance to protect your family.
Cecil, having a paid off home by the time you retire is a fantastic goal. I hate it when I see clients who at 65 just refinanced for another 30 years. That said, you have plenty of time until retirement. I suggest that you DO fund a spousal IRA if you could eliminate that additional house payment and still have the house paid off at retirement.
Also, Cecil, Delia makes a good point. You are doing a fantastic job on your finances but remember that good planning also includes risk management and estate planning.
Cecil, at age 48 with 10 years left on a 15 year mortgage, you will have that mortgage paid off well before retirement age (if you are taking the traditional route of stopping at age 65, which may or may not be true). If this is your forever home, there's no need to rush the payments. Then, you can fund other goals (including saving outside of retirement plans). A home is not really an asset, in the sense that you can use it to fund your needs. But, a free and clear home is a good thing to have once your income stops!
Cecil: Sounds as though your mortgage will be paid off by age 58, even if you don't pay extra on it. At your age you can put $5500 into a Roth IRA per year. If your spouse does not work you could open a Roth and contribute to that. If you can afford it try maxing out the 401k.
Allan: Check out EARRX, the Eaton Vance Short-Duration Real Return Fund. I am not sure if they use inflation swaps, call them and ask or check the prospectus.
Here's another reader question:
I never paid into Social Security, and I receive a state government pension. Can I get a survivor benefit based on my husband's private-sector job?
Allan, my research turned up the same thing as Peter. There are other Real Return funds but they have long durations.
Kiplinger, probably not. You're technically eligible but something called the Government Pension Offset may reduce your spousal benefit to nothing. Take 2/3rds of your government pension and deduct it from the spousal Social Security. You may find there's nothing left for you.
Kiplinger, this is why when clients have a government pension that they have not yet taken because they're still working, it's often smart to begin the spousal benefit, since they'll never receive anything once they begin their own government pension.
Thanks for the heads up, Steve!
Allan, when my clients object to keeping their emergency fund in cash, I want them in a diversified fund with low volatility. I have been recommending Vanguard's Target Retirement for 2010. Maybe the other advisors might have some other ideas?
Great strategy Delia. And this is a wonderful example of the kinds of advantages that a planner can "see" that a financial planning software program can't.
Bobbie, yes, I was able to help one client this last year with that strategy. She was SO excited. Social Security paid her about 6 months of back benefits to boot
, and she sent me an email saying that our financial planning session was "totally worth it!"
Kiplinger: We would also recommend that you check with your tax professional.
Advisors, don't you love it when client come in and they have saved so much you can tell them to feel at ease about spending more? It doesn't happen often but it is a joy when it does. It is often hard for such clients to spend. I had a client recently who was wealthy by any standard and she was fretting over buying new carpet.
If you convert IRA funds to a ROTH: !.) Do you have to keep those funds in a separate ROTH (not mixed with a ROTH that was opened as a ROTH, not converted); 2.) If I have a ROTH at different place is each one subject to the 5 yr rule or just the first one/ oldest one; 3.) What assets are the best to keep in a ROTH vs a traditional IRA or taxable account (re mutual funds - don't have any stocks but wouldn't mind knowing about them)??? Thank you!!
Kitty, all great suggestions. There are two five year rules that apply: 5 years from your FIRST Roth IRA contribution, and also 5 years from your FIRST Roth IRA conversion. Does not matter how many accounts you have - I agree with my colleagues, however, that consolidating them with one custodian makes sense.
Find out more about Roth IRAs from our special report.
