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.
3rd & 7 37yd
3rd & 7 37yd
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Any ideas on what to do with ordinary income that is accumulating in a commercial non-qualified fixed annuity at a guaranteed floor of 3.5% and a maximum cap on contributions of $6,500 a year which ordinary income will be taxed in the upper tax brackets if there is an unexpected death?
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Should I consider purchasing a home now (I'm 40) that I will live in during retirement, even if it's in another city or state? Or do I save cash to buy a retirement home outright when I'm ready to retire? I currently rent because it's more affordable than buying where I live.
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My husband has no Social Security because he was self-employed during his career. He has little to no retirement savings. I do, but worry that it won't be enough. We're in our early 50s and would like to know what else we can do other than open an IRA for him. He hasn't worked since the recession, for health reasons.
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Due to a very generous employer plan, I have a considerable amount already saved in a 401K, an IRA, and ESOP plans and I'm in my late-twenties. I now put in 10% of my salary with a plan to increase by 1% each year I get a raise. However, I really don't want to have to work past retirement age. The thought of still having to work for as many years as I have been alive is depressing and it isn't that I don't like my job, but that I would probably want to do something more flexible and fun when I get older. What other investment options are out there? I know that the biggest benefit to 401K contributions are that they are pre-tax. Are there any other types of investment plans geared towards someone who would want get to their money earlier??
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I'm 52 and want to retire at 67. Given this 15 year window, I have my entire retirement account invested in stocks. I need the growth, am risk averse, and will just keep putting money in every month and leave it alone no matter what the stock market does. Am I being foolish? Everyone keeps telling me to diversify and put 20 to 30% into bonds, but that just seems to me to be taking money off the table that could be growing in the market. As long as I don't panic and sell during a downturn, what's the point of bonds?
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Hi, I'm 58 years old, self employed, own a home and am beneficiary of one of my late father's IRAs. I do have credit card debt and am paying it off slowly but surely, making payments of generally 1.5 to 2X the minimum, more when I can. The interest rate is 9.9% Because my father was over the age of 71.5 upon passing over, there is a required minimum withdrawal. The amount left after this year's will be just below $8000. I have one other Roth IRA totalling about $2000, with TIAA Creff. No other retirement $. Finances have yet to become a strong suit with me, obviously. I do have a strong Spiritual side, which has brought me to the realization that I need to have something invested for growth for the future. I had a dream where my father told me to take the money which is in a liquid account at present, making practically no interest, and invest, rather than use it to pay off debt. I do not plan to retire anytime soon. Watching Suze Orman gives me hope and a sense of urgency at the same time. I also would like to find a Financial Planner here in the Gainesville FL area who will work on a fee only basis. Thank you for any help you can offer!
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we are retired 60 years old leaving our 401k plan in the company. Presently invested in 85% Blackrock 2020 target fund. Just read the Bogleheads guide to retirement planning should we invest in index funds. We have available Fidelity Spartan 500 idx adv cl, or Fidelity Spartan ext mkt ind adv. We will be be leaving it there for 4 more years. If so I was thinking of a 55-equities 35 bond mix . thanks MR Paquin @moepaquin@yahoo.com
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David and Robert, it is interesting that I have retiring clients that want to stay aggressively invested. But when we do the planning work, we often see that is the only thing that could create a situation where they won't reach their goals. And reaching your goals (rather than building the biggest pile of money) is the point, isn't it? But it can be hard to back down especially when being an aggressive investor is what got you where you are. I tell people to think about it this way: you are playing in a football game and your team has the ball and the lead. There are 20 seconds left in the game. Will you pass or take a knee?
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Marvin, now to part two of your question about gold bullion as an inflation hedge. Maybe another advisor can jump in here, as I haven't looked at gold specifically (other asset classes that can serve as inflation hedges: stocks in general, real estate, commodities, and TIPS). Can another advisor point Marvin to some resources here?
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Harry: I would suggest visiting Vanguard.com and exploring "insights" tab. You can find helpful calculators and information about withdrawing money from a portfolio (withdrawal rate). However, if you take all of your sources of income and add up your expenses, you will get a net number. If you need $ from the portfolio to pay those expense.... what is that number? Take that number and divide by your investable asset balance. If you less than 4-5%, you should be ok.
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CP -- Our Starting Out column Why You Need a Roth IRA might help.
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CP, I think you should do both. The money you save when you are young will have so much time to grow. Continue to contribute the 4% to your employer plan (for other readers....at least enough to capture an employer match) and use any remaining money to retire your student loans. Set a goal for paying off the loan within 5-10 years even if this might mean delaying other things like a house purchase or increased standard of living. Indeed, keep living like a student for the next couple of years (which usually means "on the cheap") and get that thing paid off. It is so sad when I have a 50 something come into the office who still has student loan debt hanging over their heads.
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KC Both IRA and annuities provide ways to defer taxes. I am not sure why anyone will however buy an annuity within an IRA as there is no double tax break. Depending on your particular contract and how long you had it for, you may have some surrender charges etc. You may however be able to exchange the funds for a money market fund and hold it until the back end charges have lapsed OR rollover the funds in an IRA without any back end charges depending on how long you had it. Check with the product carrier to see if this is possible . See what your options are
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Thanks for answer. One other question. When I retire next year (at 60.5) I will still have a mortgage (14 more years) as we recently moved. Is it better to pay off the 3.5%% mortgage out of accumulated cash OR instead of depleting cash reserve, simply pay mortgage out of that cash reserve as it comes due? I will have a pension but expenses+mortgage will use up or slightly exceed pension. I do have other non cash investments (401k, ira's, etc) with about a 50/50 mix of fixed versus variable. I'm a little uncomfortable entering retirement with mortgage but like wise hate the thought of taking the hit on cash. Drawing down the cash over time for mortgage would still keep me way below a 4% withdrawal of portfolio.
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Bobby, so I take it you're saying I should take a knee and get more conservative. I lost 50% of my 401K in the last bear market and only by sitting tight and waiting it out did I recover. I had time back then on my side then but I can't afford another 10 year flat spell if the market tanks now. The problem is I don't know much about bonds and keep reading things that now may not be the time to jump into bonds.
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David, I definitely think a planning session with a fee only advisor would help make this decision. And you certainly did the right thing by hanging tight when the market dropped. But the market has been up for years so transitioning to a more conservative portfolio might be just the thing to start right now under the "don't get greedy" theory of life.
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Nate: longevity is the issue, by waiting from FRA until 70, you increase your benefit by 32%. The crossover of taking at 62 vs. 70 is about 15-17 years. So, if you feel that you will live into your 90s then research suggests that waiting will provide a higher total payment than receiving early. However, you must factor in your health, your cash flow needs. For example, do you have other sources of income where you will not sell assets in your IRA and incur taxes.. Finally,i
s your family health history strong where you feel 85 and older is a real possibility -
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Hi AR. You need to run tax projections with tax software to answer this question. Roth conversions don't incur tax penalties (if you're thinking of the pre-59 1/2 penalty on IRA distributions), but they can certainly add to taxable income. However, given your low earned income, it is possible you'll be able to convert some IRA dollars in a zero tax bracket (or low tax bracket), but you have to run the numbers to figure that out. The good news is that if you overshoot the conversion, you have a chance to undo all or part of it via a recharacterization.
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Ronald, thank you , Generally you can go back three years to amend your taxes for a refund, However A wash sale losses are disallowed for the year you had that transaction. The wash sale rule generally limits losses incurred within 30 days of an acquisition of the same or substantially identical stocks or securities. However, there is an exception for the acquisition of a stock or security by a tax-free exchange, by way of inheritance, or through a gift as this does not invoke the
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I asked a question a couple hours ago - is this still in queue to be answered? It was concerning my mother's use of a CFA for managing her finances, and what to expect from him and if his 6.25% rate of return was realistic. I can send the full question again if you did not receive it.
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Bob -- Our writer Sandra Block offers some advice on why you may not need a living trust.
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Robin -- It actually looks like Deb answered that not long ago, let us know if you have a follow up: I am a nervous Nellie when it comes to investing for retirees. Having said that, it is my opinion that 80% equities and 20% fixed income is too aggressive for my tastes. There a a million ways to design a portfolio, but at age 74, that much in the market would really hurt if we have another significant drop. There is no harm in revisiting this with her adviser.
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Hi Bob. Well none of us are lawyers here, but both of those numbers seem way off the mark: one too high, one too low! If you want a living trust, go to a reputable estate planning attorney in your community -- get referrals from your CPA, any other attorneys you know, any other professionals you know. Look at their education, experience, credentials, community involvement, involvement with their professional organizations. A good estate attorney can talk to you about your estate goals, and whether a living trust best serves them.
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kgm, I often talk to clients about the "right" answer vs. the "good" answer. Many times keeping a mortgage can be the technically right answer as you do get a tax deduction for the interest. But that tax advantage will diminish over time as most of the payment becomes principle instead of interest. Indeed, depending on what your state taxes are and how many other deductions you have, you might get to the point that you do not itemize well before the mortgage is finally paid off. So the tax advantage disappears. Now let's talk about the good answer. It sounds to me like you would sleep much better at night if the mortgage was paid off. And, in my experience, clients with a paid off mortgage are much more likely to weather market downturns with less anxiety. Again, this is a situation where a brief meeting with a fee only planner could help you come to the right answer for you. At the very least, I would strongly consider paying off the mortgage with current money in taxable accounts when the tax advantage is no longer an issue. Things to consider: would you have to pay much tax to raise the cash (re gains on investments?), is the taxable account currently in cash and making almost no money (which would make paying the mortgage off more attractive); could you pay off the mortgage and still have cash reserves for emergencies (knowing you still have retirement accounts you could tap if needed)?
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Bobbie, it does make sense. However, I don't have children and so leaving funds isn't a priority. Nevertheless, I understand your point about growing tax free. My thinking though is (assuming I eventually withdraw everything) while I am withdrawing funds from my traditional IRA and paying taxes, I could be drawing from my Roth IRA and not paying taxes. Anything I withdraw from either could be invested and I would have the gains (if any) taxed until I realize the gain.
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