Mike T, you are correct that if you were in a lower tax bracket when you retire, it may work out just fine. I can't predict the future state of congressionally mandated tax codes but I would venture a guess taxes won't be coming down anytime soon or in the future. You may want to consider a method of tax diversification with your retirement accounts whereby you have both a Traditional IRA and a ROTH. As you take money out during retirement, the money would first come from your Traditional IRA account until you get pushed up into a higher income bracket and if you need more money, take it out of the ROTH
Stu, An annuity should be evaluated in the context of your overall plan and retirement income strategy but I can give you some general thoughts.
Hi Trecia - As you know being debt free is a wonderful feeling. It is important to have some financial flexibility in emergency savings too, so if you don't have liquid savings your can tap, I'd suggest building up a nest egg before paying off your mortgage. If you can easily handle your mortgage payment now and if it is at a very low rate you might consider paying it on schedule and even investing the savings. If you earn a greater return than you are paying on the mortgage you will be ahead of the game and yes, you will preserve the expense to partially offset any rental income.
Jacob, do you have any savings besides the ROTH? I usually suggest that clients put the fixed income and REITS in retirement accounts, tax favored investments that get capital gains or qualified dividends in taxable accounts, and their most aggressive investments in their ROTHs as, though those investments will be the most volatile, they are likely to produce the biggest gain over time (and thus the biggest tax free amount). But if the ROTH is your only investment, you want to maintain a diversified portfolio. A simple way to do this is to use a Vanguard Target Retirement Fund. For instance the Vanguard Target Retirement 2050 fund VFIFX has just over 10% in cash and fixed income and the remainder in equities. The expenses are a low .18% and the fund minimum is only $1000. If you want to be more conservative (and even though you are young, you only want to take as much risk as you can stand as you do NOT want to sell when the equities markets decline), you would look at a fund with a shorter target date, perhaps 2035.
For Mike T...a married person generally must have been married for at least one continuous year prior to applying for spousal benefits.
Jacob, I did not look at the Kiplinger article until after I wrote my reply. I was interested to see that they recommended the Vanguard Target Retirement 2050 as well. That should make you feel even better about our suggestions.
Doug P, The simplest and best way to diversify is to invest in low fee indexed stock and bond mutual funds. I recommend Vanguard or Fidelity broad based indexed funds what have very low fees. For example, there is no manager needed to manage a Standard & Poors (S&P) 500 index fund because the companies are already known. Choose the broad based funds, set your target portfolio, dollar-cost average into the funds each month, and rebalance the target mix when it gets out of whack.
Generally speaking, those that offer guaranteed rates such as 7% are increasing the withdrawal balance that is used to calculate the future annuity amount. In that case, you are correct that the "balance" cannot be withdrawn. One of my primary concerns is the possibility of future inflation. Once you annuitize the contract, your payment is most likely going to remain level forever, losing purchasing power. The may be OK in the context of a plan, but many people think that they will be earning 7%. If you or an advisor build a spreadsheet showing the projected values and income over time for several options, it will help visualize the product performance over a number of years.
for Ken, age is not a factor in taxing benefits -- your income is what determines if your benefits will be taxed.
Hello SJR - From what you shared, it seems that you are in good shape for retirement in 11 years.
Thanks for your patience, Maria!
cgh, of course you should read Kiplinger:-) I don't say that just because they are sponsoring this. Indeed, I read them and always learn something. Also, I love the books by Jack Boogle, Founder of Vanguard (low cost mutual funds and ETFs which changed the industry): The Little Book of Common Sense Investing: The Only Way to Guarantee your Fair Share of Stock Market Returns. The morningstar.com site also has a wealth of educational articles (some are premium content). Finally remember that other financial planning topics like risk management and estate planning are just as important as investing. You might want to check out the book: The Ultimate Financial Plan: Balancing Your Money and Life by Jim Stovall and Tim Maurer.
Hi Trecia -- Looks like it was just answered: Hi Trecia - As you know being debt free is a wonderful feeling. It is important to have some financial flexibility in emergency savings too, so if you don't have liquid savings your can tap, I'd suggest building up a nest egg before paying off your mortgage. If you can easily handle your mortgage payment now and if it is at a very low rate you might consider paying it on schedule and even investing the savings. If you earn a greater return than you are paying on the mortgage you will be ahead of the game and yes, you will preserve the expense to partially offset any rental income.
DWC, when it comes to settling an estate, things can get a bit messy. I would defer to an estate attorney who has expertise in setting up self-directed IRAs. Think about if you really want to purchase this property. Is it something that would be a good investment and if so, would it be best to purchase outside the IRA/ROTH? Otherwise, is it something you could walk away from. Would you purchase this home if it were not in your father's estate? (hypothetical question).
Hello Lee - How much are you spending? You have $742,000?
Jacob it sounds like the advice I gave re asset location would be especially helpful for you given the different accounts you have. In such a case you might choose to put your small/mid cap, emerging markets or tech stocks in your Roth IRAs as they are the most aggressive (AND most volatile).
Hi Connie, We think it is a losing proposition to try to time the markets so we usually approach similar decisions from a strategic perspective with at least a five year horizon. The first question to consider is how much you are going to need to withdraw from your 401(k) and other investments in the first few years of retirement. You still have a 4-5 years until retirement so you might want to keep that amount relatively conservative but with a very small amount of stock exposure for growth. Beyond that, it is critical that you estimate how much you need to earn on your assets and how much risk (up and down) you can tolerate while sticking with your strategy. Your assets will need to support you for a number of years and you will likely need a fair amount of growth. Everything comes back to a having a plan - your assets are merely a tool to help you along the way.
Lee - You do have a lot of cash and seemingly low expenses. If you aren't drawing down your portfolio you might consider investing some of the cash as its hard to imagine your needing to spend $375,000 in a hurry.
Hi David - It is a good idea. You have 12 years before retirement which I would consider long-term. Also, given today's tax rules, you won't have to take required minimum distributions from a Roth ever so the time horizon on that is even longer. When you tap your savings in retirement you will be required to draw down your 401k assets.