Jump-Start Your Retirement Plan, September 2014 - Live Chats, Q&As: Free Advice on Retirement, Investing, Personal Finance -- Kiplinger

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Jump-Start Your Retirement Plan, September 2014

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, September 25, from 9 a.m. to 5 p.m. ET.

  • Bayem Good question. Managing investments gets very complicated when you have it all over and funds have certain built in feature where the underlying securities are held by a custodian to help protect the investor. Many brokerage service also has SIPC coverage up to 500k and beyond sometimes to protect you. The best approach for the average investor is to have a brokerage fund and design an allocation across multiple asset classes and then select the funds to match your objectives. Once your funds are regulated, you should be more concern about the asset classes. If you get that down first then you can probably diversify across four or five funds . I do not have a rule of thumb so to speak
  • I just heard about the Back door Roth yesterday and don't know much about it. I already have a traditional IRA. Can the non deductible made into the existing account? If it's non deductible aren't I paying taxes anyway?
  • Hi Trecia: Way to save like crazy! I don't know the rules about naming non-US citizen/residents as IRA beneficiaries -- either the tax impact, or custodian rules. For the latter, start by talking to the retirement planning department of each institution where you have funds, and ask them the specific question of what info they need on the beneficiaries, and how they would handle the distribution at your death. An estate planning lawyer with cross-border experience would be helpful here. Any other advisor on the call have any resources for Trecia?
  • Molly - correct you will be taxed on your earnings and income on a LIFO basis.
  • Lots of questions about annuities today! Maybe our special report can help:

    Understanding Annuities - Special Report-Kiplinger

    www.kiplinger.comGet Kiplinger's trusted advice on immediate annuities, fixed annuities and variable annuities.
  • If you're not happy with your investment company, can you take the whole thing and move somewhere else? Not wanting to sell the investments, just move them to a new company.
  • SO where do i put the converted IRA to maximize its return when i draw my RMD?
  • SISTADI, does your pension inflate over the years or does it stay the same? I ask because even if you are saving 20% of it now and it does NOT inflate, you will have to reduce those savings over time or even start tapping your savings to maintain the same buying power with the income you do spend. Indeed, that information would help you know how much you need to earn on the savings/401K money to maintain your lifestyle. A planner could help you with this. Without knowing more, I will suggest that a simple, low cost fund for the 401K money would be a Vanguard Target retirement fund. The Vanguard Target Retirement 2015 has about 50% in equities and 50% in cash and fixed income. The Vanguard Target Retirement 2010 has just under 40% in equities and the remainder in cash and fixed income. Both have VERY low ongoing expenses. As for social security, you will not reach normal retirement age until you are 66 a few months (go to

    Normal retirement age (NRA)

    Social Security delivers a broad range of services online at socialsecurity.gov. We have a proud history of protecting the integrity of our programs and service to the public.
    for the actual age or visit ssa.gov and access your specific account information). Unless you are concerned about your health, I would wait until then to draw. If your family is very long lived, I would consider waiting until age 70 as your benefit will increase 8% per year between your normal retirement age and 70. The breakeven for waiting until age 70 is somewhere between ages 84 and 87. I do have clients whose parents lived until 96 and 100. I have suggested that they wait until age 70:-)
  • Hi Bobby, and thanks for your response. Yes, PERS inflates @ 2% annually
  • Pres, hang on as this can be complicated. If you do NOT have a traditional IRA with deductible contributions, you can make non-deductible contributions to an IRA and then convert them to a ROTH. There is no tax on the conversion as the contribution to the IRA was not deductible. THIS DOES NOT WORK THIS WAY IF YOU ALREADY HAVE AN IRA WITH DEDUCTIBLE CONTRIBUTIONS IN IT. For instance, if you have 95K in an IRA that was deductible and you make a 5K non-deductible contribution, when you convert $5K to a ROTH you WILL pay taxes on 95% (95K deductible contributions/100K total value) of the converted amount. Opening a separate IRA for the non-deductible contributions will not avoid the tax as you have to make the proration based on the value of all of your IRAs totaled together. IF you are still working, you can roll your current IRA with deductible contributions to your current employer plan. Then, as you have no deductible contributions in an IRA, the strategy would work and the conversion would be tax free.
  • @ThereseGovern : Thanks for the suggestions. I have been looking into estate planning but have not contacted anyone. I will find someone with cross-border experience as you mentioned.
  • ps. how do you even begin to think about withdrawals from these accounts. Taxes care the crap out of me already .. lol
  • Hi Therese. Thanks for the suggestions. I have been looking into estate planning but have not contacted anyone. I will look for someone with the cross-border experience like you mentioned.
  • SISTADI, we love pensions that inflate. YEA! 2% is a good number given current inflation but do remember that in our lifetimes, inflation has been much higher and may be again in the future. But it sound like to you have the resources to keep your standard of living. FANTASTIC!
  • I am converting the pension into a traditional IRA so i could have the possibly $1M to retire on and draw the SS by the time i am 70 1/2. So where do i put the pension of $1M as an investment fund to get my RMD from? I will also have Roth of 500K
  • Thank you, Robert! Just want to make sure I am correct that I do not have to annuitize and will suffer no consequences, other than paying taxes, if I take lump sum withdrawals randomly until the annuities run out? And would you suggest depleting one and then starting the other or taking a little from each?
  • Thanks but I also need to know how to move those monies to limit my tax liabilities. .
  • Pres a back door Roth operates like this: You make a contribution to a NON Deductible IRA (because your income is high and there is no income limit ) and then you convert it to a Roth IRA. You however need to be very careful however as you may have some tax consequences on the earnings from the NON Deductible IRA . Also the taxable portion is prorated over all your existing IRA you cannot limit it to the NON deductible part. MY suggestion is to speak to your tax advisor because it becomes complicated in a hurry
  • RicT: so let's assume you have a large IRA, and are simply asking: how do I invest these funds now that I'm subject to RMD? Back to the basics: start with the asset allocation decision, and from there choose specific securities. The right asset allocation (mix between low risk assets like cash & bonds and high risk assets like stocks) is a balancing act between three factors: your risk tolerance (at what point will stock market losses make you seriously uncomfortable?), your time horizon for use of the funds (RMDs for the next five years should be lined up on the low risk side, at a minimum) and your required rate of return (given what you have, and what you want your money to do, do you need an aggressive rate of return, or will a conservative rate suffice)? Then select specific broadly diversified mutual funds, for example, to fill your target allocation. Again, take a look at Vanguard's materials on asset allocation -- they do a good job of walking an investor through the trade-offs, and setting realistic expectations.
  • Do you have a ballpark number in mind for early retirement that is sufficient to live on for say 30 years that we should have? I know it can depend on lifestyle, health, etc. but is there a general number you like to use?
  • SISTADI, taxes are just part of life. You will minimize taxes by waiting until you HAVE to take distributions (age 70.5) and only take the required minimum. This assumes tax law will stay the same (unlikely but who knows). Remember, you were able to reduce taxes in your working years (presumably when you were in a higher tax bracket but maybe not given that you have a pension) by saving the money in a retirement account. This is just the other side of the coin.
  • Please talk about the "file and suspend" social security strategy if the older spouse (by 18 months) doesn't have the earnings record the younger spouse has. I'm 60 and my wife is 61. She retired at 58 with about 20 good years of earnings. I have 35+ years of earnings now. Should she just file and suspend when she turns 66 and then draw on my record when I file and suspend when I turn 66 the next year?
  • Great Kiplinger piece here on the power of filing and suspending --

    The Power of Filing and Suspending-Kiplinger

    www.kiplinger.comFour ways one strategy can be put to work to boost Social Security benefits.
  • Jack, I believe AARP has an online social security strategy calculator that you can use to run file and suspend scenarios; perhaps Kiplingers does as well? The think that jumps out at me is that the file and suspend strategies only work when both of you are at your full retirement age for Social Security purposes, which is a ways off for you. The general idea: the spouse with the higher benefit files and suspends, allowing the lower earning spouse to draw a spousal benefit only. Higher benefit spouse delays drawing anything until age 70, and spouse drawing spousal benefit only delays on her own record as well to age 70. You have to run the numbers as the best strategy depends on ages, benefits, life expectancy, ability to fund living expenses with other assets while you're delaying....
  • Thanks Therese. So follow up question, is it good idea to convert my traditional IRA to Roth in a period of 3 years. I have $450K in it.
  • Susanh, there are different suggestions out there let me offer my own.. First of all you will probably need about 70 to 80 % of your current income depending on whether you will have a mortgage, college education etc to deal with in retirement. However because you will not be paying payroll taxes etc this can drop quickly to about about 58 % (providing you don't have a large mortgage). The best way to figure it out is to take 70 % of you current (to be conservative) subtract the income you will receive in retirement and then see you shortfall . You will then have to modify your lifestyle appropriately
  • Susanh, I don't know about a ballpark number, but maybe this story can help you figure out exactly how much you'll need: How Much You Really Need to Retire.
  • Molly I am stepping in for Robert. You need to check with your annuity companies but most let you take up to 10% without annuitizing but you will have to pay tax on LIFO basis. How much you need will depend on whether you use both annuities or not. If you don't need to take 10% from each, start distributions from the one with the highest on going expenses (assuming you are out of the surrender charge period). You tax preparer should be able to help you model situations. For instance, if you are drawing your social security, such distributions may make some or all of your social security taxable (if it isn't already). If you do this work with your preparer at least you will know what to expect.
  • 1. I have a Roth IRA and a traditional IRA.
    2. My wife has a Roth IRA.
    3. We file a joint Form 1040 tax return.

    I have purchased some MLP stocks in my traditional IRA. They will generate less than $1000 of unrelated business income [UBIT], hence, no taxes will be payable.

    1. Since my Roth IRA is a separate entity, can I repeat the above situation in the Roth IRA without generating taxable income?
    2. Similarly, can my wife do the same with her Roth IRA without generating taxable income?

    Thank you in advance for your answer,
  • I am not ignorant but find myself in a financial conundrum and am going to have a nervous breakdown if I don't make a decision. That being said, thank you so much for sponsoring this !!!!
  • Sistadi, you can also check out our recent story on how six types of retirement income are taxed.
  • I retired from a state retirement system and collected retirement for two years. I am back in the retirement system and have to pay back the retirement money in order to continue to contribute. I have already rolled over $30,000 and must take out a $25,000 ten year loan and pay $500 a month for five years. It will however increase my monthly pension by $15,000. However, I don't know if being that poor for the next five years is going to make me miserable. The other option is to go back to a private college and collect my $30,000 a year pension and continue to contribute to my 401K which I have $50,000 so far. I am 56 and have survived three cancers. Please help !!!! I am tortured by this. I make, lamentably, $67,000 per year. Thank you so very much. Elizabeth
  • Bill the maximum amount you can contribute to a Roth IRA for 2014 is $5500. If you are over 50 you have a catch up provision . The contribution is base on you and your wife as individuals . Look in to 401k roth for your other entity Be careful as excess contribution have a penalty
  • Elizabeth, I am thinking about your question so hang in there.
  • thanks for doing this. I don't know if this is really within the scope of what you are doing because it is not "planning" as I just started a second career in the nonprofit world after practicing law for 43 years. I'm 73. So my retirement nest egg is established, almost entirely in IRA accounts, before today $2.2 million, up to a month ago, almost entirely in equities. I got queasy about that and at my direction, my broker on the largest accounts raised cash and I am now about 25% cash. I'm just not sure where I should be. The broker said that he liked 100% because there was nowhere to go and get any return, except equities. The common "rule" seems to be to subtract your age from 110 and that is the percent of equities you should own. Given the RMDs, it seems that if I do that, my portfolio won't last long and won't generate much growth or income, especially since the interest rate environment is what it is. Everything I read agrees with the idea that being 100% in equities is not a good idea but there doesn't seem to be any consensus about an appropriate balance between cash and equities in the world as it is today. Is there any agreement on that question? Are there any guidelines? I wouldn't be where I am if I had had substantial cash in the accounts. Where can I get good answers? Thanks so much. rich
  • You guys and gals are wonderful! I am nearing retirement, don't need any money, have stock market experience, and am considering putting my IRA money in Vanguard Moderate Growth Lifestrategy Fund 60% stock and 40% bonds. The money will eventually go to my children. Is this a good strategy?
  • Thanks again to all the NAPFA advisers who are taking questions today!
  • Good Afternoon! My name is Phil Hogg, a fee-only Fiduciary and CERTIFIED FINANCIAL PLANNER (TM) Professional with Hogg-Murnighan Financial Planning located in Chicago, IL and the world wide web at www.hmfinancialplanning.com I hope to answer a few of your questions today regarding personal finance and saving for retirement.
  • For our final stretch, we have with us Bobbie Munroe, Tim Parker, Adam Leone and Phill Hogg. Welcome!
  • RicT: you need to run tax projections! Broadly speaking, Roth conversions are generally beneficial if: you have funds in a taxable account to pay the tax on the conversion (in other words, you don't have to take IRA distributions to pay the tax, generating more tax) and you believe you will be in a higher tax bracket later in life when funds come out of the traditional IRA via RMDs. It's not an all or nothing thing: I have seen many people who find themselves in a surprisingly low tax bracket in the years between early retirement and the RMD/Soc Sec phase, who have been able to do small partial Roth conversions each year in a lower tax bracket than that money will see when it comes out as RMD.
  • Rich, I can't predict the market but I would advise clients to invest based on when they need the money. If you need the money within the next couple of years, it should be in the money market certificates of deposits or short term bond funds, if you don't need the money until retirement (e.g., greater than 10 years) it should be in stocks (I like stock indexed mutual funds) and bonds to balance out the rough edges. Anywhere in between, intermediate bonds and bond indexed mutual funds. Historically, the range of stock market average returns over a 10-year period has been anywhere between a low of 0% and a high of 20% per year. If you don't need the money then a 60-40 stock mix should fit the bill.
  • I have around $900K in my 401k account. My pension is sufficent for my daily needs and I have other investments/ROTH IRA around $600K. I am 60. Do you have a suggestion what I should consider doing with my 401
  • Elizabeth, let me get this straight. You said your pension would increase 15k per month and that can't be right. Even 1500/month would be 18K per year which is a lot given that the current pension is only 30K/year. Please clarify.
  • No worries, Patricia. Will you send it one more time?
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