Jump-Start Your Retirement Plan, June 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, June 18, from 9 a.m. to 5 p.m. ET.
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Should we have 6-9 months of take-home pay or expenses saved up for an emergency? -
The actual NAPFA link for planner search is -
Fees vary by region, could be anywhere from $75/hr on up, depending on the issue and scope of the engagement. And be sure to ask if they give hourly or project advice. Some advisors want a retainer or other relationship. -
If you're looking for a personal finance adviser near you, check out www.NAPFA.org, you can also learn more about wealth building in our newly launched Wealth Creation channel at wealth.kiplinger.com. -
FDWalker, I suggest that hourly clients visit me every two years for a checkup, just like the dentist (but more fun of course). I suggest that you try to do your first planning engagement soon as it will help you prepare for that retirement which will be here before you know it. Not all planners work hourly but many of us do. The rates vary quite a bit. An urban area is likely to cost you 150-250/hour while a rural area might be less. Your first engagement will likely be longer than subsequent ones as the advisor will already be familiar with your circumstances
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fdwaller - Although true fee-only advisors do not sell products, not every fee-only advisor will work on an hourly basis. Check out napfa.org and make some phone calls to find out which will provide advice this way. Unfortunately, fees will vary greatly so you will have to ask. -
fdwaller - Regarding how often to use their services that depends on your situation. We typically recommend every few years given your timing of retirement. You may want to consider more often if a material change to your plan occurs. Rates do vary by planner and location should make sure to check around. -
Hey folks -- My new wife and I have a number of different investment accounts -- IRAs, 401(k)s, brokerage accounts, etc. We also have vastly different risk tolerances. How should we approach saving for retirement? Do we pick an allocation that works for both of us and adjust all of our accounts accordingly? Do we look at this as one big portfolio?
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Lolitta, my general guidance for an emergency fund is three to six (or nine) months of normal expenses saved up for an emergency. In other words, if your annual budget includes a vacation, you wouldn't necessarily include that need in an emergency fund. -
Ryan, I try to come up with an overall portfolio that will address the needs as a couple. Then, when there is a big difference in risk tolerance, I put the more aggressive investments with the spouse that has the higher tolerance and vice versa.
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Ryan, have you and your wife actually measured your risk tolerance? The Vanguard Web site has a risk tolerance questionnaire. That will help with allocations. I agree with Bobbie that you can do a "his and hers" allocation that, combined, makes sense for both of you.
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I am 56 & retired but doing some per diem contracting. My pension pays all my basic expenses including 75k 3.75% mortgage. I also am paying 20k per year for 3 yrs for college. I have savings to pay off all this debt. With the stock market high & interest rates low would I be better to pay it off, pay only college out of savings or have my daughter take out student loans & just make installment payments on them?
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Ryan, you also want to be mindful of asset placement. Put investments that are not tax favored in tax sheltered accounts: fixed income with interest and REITS for instance. Then put investments that are tax favored in your taxable accounts: things with capital gains and qualified dividends. This will actually make a significant difference over time. Now, it won't work out so that everything can be placed optimally but do what you can and increase your overall after tax return.
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Ryan, if you have ROTH IRAS, I often suggest that the most aggressive investment be in that account to hopefully produce the most non-taxable income over time.
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Congrats on your marriage, Ryan! Along with Bobbie's and Pat's advice, here are some smart money moves for you newlyweds to consider. May you live happily ever after :) -
Ryan - Wasn't this addressed in your wedding vows? ("In sickness and in health, in aggressive and conservative portfolios...") :)
Your issue is common. Try to work together to come up with a plan *ahead of time* that will allow you to build an overall portfolio that you both can live with. Too often, couples change account risk/reward at the wrong times (i.e. selling when the markets drop). You'll want a mix that you both can sleep with over time. -
Ken, I love the idea of having your daughter take out student loans because then she will feel like she has some skin in the game. You could do this with the entire intention of paying them off in full when she graduates (what a great gift). That said, I would probably go on and liquidate the amount needed sooner and keep cash even though it isn't paying much. 3 years is a short time horizon and I would keep any money I needed by then invested.
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Lolitta Gevorkova, you might try this new tool from HelloWallet to figure out exactly how much you should save for an emergency:Hope it helps!
How Much to Save for an Emergency
www.kiplinger.comA new tool from HelloWallet helps you calculate the right dollar amount for you. -
Ken, I would have her take out a loan. Most don't start charging interest until after graduation and since you have a low interest rate on your mortgage (that might be giving you a tax break), I wouldn't pay the mortgage just yet. This will give you some flexibility to pay off your daughter's loans in 3 years or if your circumstances change, the ability to fund your retirement -
Ken, as for the mortgage, I think a paid off home in retirement is a fabulous thing, tax benefits be hanged. But is all this money (mortgage and education costs) coming from a taxable account? Do you have gains that will create a tax liability when you sell? If so, you need to visit with your CPA/tax preparer and/or financial planner to make sure you do this in a "tax wise" way. You don't want taxes to drive the boat but you do want to know the consequences and minimize the tax bill if possible. BTW, you are right that the market is up. But I thought that a year ago...and two years ago:-) You never know. But don't feel bad at all about selling at these high prices even if the market continues the bull run after you sell. Hindsight is 20/20.
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I have about $40K in my emergency savings account (in addition to money already invested.) What do you think about putting some of it in an online savings account and/or a CD to try to earn more in interest?
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Ken, for the student loans focus on subsidized student loans as they don't charge interest until after graduation. Unsubsidized loans charge interest while in college and current rates are around 4.5% for an undergraduate student.
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Lucy you can often get better rates online. Have you looked at Ally Bank?
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Lucy, congratulations on having your emergency savings accumulated. You can certainly do better with an online bank - and try checking out credit unions as well (as long as you qualify for membership).
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Awesome, Lucy! Here are some online banks for you to check out...
Best Deals in Online Banking
www.kiplinger.comOur top picks for checking and savings have low (or no) fees and attractive yields. -
I have a question about Required Minimum Distributions that I have not seen answered – when is the second year?. I know that in the year one turns 70 ½, one must start taking distributions. If your birthday is July 1st or later, 70 ½ occurs in the following year. But is the second distribution taken when one turns 71 (and thus have two distributions in that second year), and then 72, 73, etc. or when one turns 71 ½ (so that there is only one distribution in the second year), then 72 ½, 73 ½, etc.? For the purposes of this discuss, let's elimninate discussing taking the first RMD by April 15 of following year.
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If my first goal is to max out one of two retirement savings, should I focus on maxing out my Roth IRA or 401K first? Thank you!
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When I was single, I placed my brokerage account in my and my mother's name (JTWROS), as a means to avoid probate. I have contributed about $20K and the account has grown to about $30K (My mother has not contributed anything to the account). I'm now married and would like to add my wife to the account and remove my mother. How should I retitle this account with my wife (JTWROS?) and are there any "gift tax' considerations with removing my mother's name and replacing it with my wife. Of note, my mother does not want or have a requirement for these assets. Thanks
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I have a SEP IRA retirement plan with my new employer and they contribute a % of my income to the IRA at the end of the calendar year - my understanding is that I can still continue to max out my Roth IRA, correct?
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Hey Kay, here's more information about funding IRAs:
7 Things You Must Know About Funding IRAs
www.kiplinger.comYou can make contributions for 2014 as late as April 15. But why wait? -
Maggie, you've packed a lot of very specific questions into your post. These are probably best answered by sitting down with a financial planner and reviewing your overall situation so the planner can give you investment advice that fits your plan.
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Maggie - I have concerns with your annuity and large REIT position - you need to get more specific advice than we're able to provide here. Your Vanguard holdings look like a good start, but will be very volatile when the markets get bumpy. I'd recommend you find a local fee-only advisor who will work with you on an hourly basis.
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Maggie - I agree with the other advisors here as I'd recommend sitting down with a fee-only financial planner to develop a financial plan to review your entire situation.
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Maggie, these are complicated questions with little information. 1. Index annuity...I just wonder how much you are paying in expenses for that product. That said, there is probably a significant surrender charge for anywhere between 7 to 12 years so you may just to stick with it.....at least until surrender charges are low. This is a good time to note that all of your investments should be coordinated to provide a total portfolio that suits your needs. 2. Unless you have a lot of money that is a big sum to put in one place. I would sell it all when possible and then diversify. If you want REITS which do pay a good income, I would look at the low cost Vanguard REIT VGSIX which owns a broad basket of REITS. But remember, if real estate goes down, so will the value of this holding. Again you should be diversified. 3. If you are purchasing for the long term, don't worry about short term market moves. BTW, I've thought interest rates would go up for over a decade. You never know. So again, having a diversified plan that fits your needs is your best course of action. I strongly suggest you talk with a planner.
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I am 23 years old (with no debt due to very fortunate circumstances) and will be beginning a job with a salary of 100K+. I plan on saving and investing aggressively throughout the early stages of my career but am apprehensive. How much should I be saving? And, where should I be investing in this market?
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tot91 - you are in a great position to be graduating school with no debt and such a high salary. When you are young you can take a lot more risk as you have plenty of time to make it up. I would not worry about a drop in the market as that would be to your advantage as you would be buying stocks at lower prices. I'd recommend investing in a 401k plan (if available) and Roth IRA (if your income is not too high). Regarding investment strategy I'd recommend target date retirement funds if you do it by yourself. These funds invest in a mix of stocks (large, small, US, foreign) and bonds. It avoids the temptation of trying to pick an individual stock or certain mutual fund.
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lol91, congratulations! It sounds like you have a great start on your financial life. And after being a student, your salary will probably be much more than you need so max out your savings. The money you save now will have so much time to grow. For certain, use a ROTH to the extent possible (you may make too much money for a full contribution). But remember that you can also save in a taxable account. I do work with many young adults as if you start your financial education now, the future should be very rosy. Find an hourly planner just to go over some things. They can do a quick plan that will should you how much you need to save to have a certain amount when you are older. But even more important, they can educate you on risk management, estate planning needs, and investments. A good relationship with a planner will also help you when you need to buy a home or almost any other financial action that you may take. You don't know it all now but with the help of a good financial mentor/planner that can certainly change over time.
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tot91 - Congratulations! If you can save 20% of your salary, why wouldn't you? Life will throw curve balls at you so you will not regret saving early and often. Since you will be saving on a monthly basis through your company 401(k), IRA, Roth IRA or taxable investment account, future stock market bumps will not be as painful as you will be buying more at those times. I'm a big fan in globally diversified "all-in-one" funds. Look at Vanguard's LifeStrategy funds (www.vanguard.com) or iShares's Core portfolios (www.iShares.com) for some well-build, low cost, index-based options.
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Good for you, tot91! If you're looking for some mutual funds to invest in, along with Mark's recommendations, here are some good choices for young investors like you:
Great Mutual Funds for Young Investors
www.kiplinger.comFrom core funds to sector funds, these portfolios are well suited for people with long time horizons. -
MY wife will retire next year at age 70,she will have to take RMD from the IRA,is it better to to switch it over to a 401K, or just pay what she has to pay.
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DBW - your wife will have to take a distribution from her 401k and her IRA as they both require minimum distributions.
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DBW -- and those RMDs are considered taxable income. If one of you is still working you could offset the tax hit by making a tax deductible contribution to a retirement plan.
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DBW - RMDs are required from both traditional IRA and 401k accounts when one is no longer working. Also, RMDs are typically much lower than folks expect. Drawing roughly 4% of her account balance will not typically cause too much of a tax headache.
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Charlotte, because it's not what you make, it's what you keep.
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Charlotte, that said, returns are typically stated net of internal fees and expenses. Do be sure to check on any other fees, such as commissions, and to compare your investments to others to determine if you can do better with a like-kind investment that has lower fees.
