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

Kiplinger Live Chat

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.

    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.
    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?
    When I gift my children and grandchildren for birthdays,anniversaries or to help with debts do I need to keep track and report on yearly income taxes...will I be penalized or they have to pay taxes on these money gifts? How does that work?
    what do you think about deferred annuities? I have seen some that guarantee 7% per year credited on the balance that can be converted to an annuity in 5 years or 10 years. The 7% is not an amount can be withdrawn, it's just to convert to an annuity. Seems like a good deal.
    Hi - am trying to balance 'ease of management' with good diversification principles. Is it better to have 5-8 broad index funds/ETFs to cover dif classes of stock/bonds/REITs vs. having 16-18 more narrowly defined asset classes? I want to manage this myself (with fee-based advice) vs. an investment manager who charges a % of assets every year.
    My wife and I have 750K in retirement savings our which 35K is in a taxable account. Each year we contribute 7% of 120K and my company kicks in 10% of my salary to a 401K and cash balance account. We also save 10K each year that goes into an HSA and a taxable account for the remainder. I will be retiring in 11 years. I will be using all of the proceeds from my paid off home to buy a new smaller home at that time. I will need 6000 a month in retirement. I estimate my ss to be 4500/month combined with my wife. Because I am a conservative investor and expect annual returns of only 5-6% do you think I am on track to meet my retirement goals? Do you think having 100K in a taxable account and 75K in an HSA at retirement provides enough flexibility or would you suggest I change my allocations.
    I want to be able to handle my own investment choices. What are the best resources to educate myself?
    I've read several advisors talk about finding a Fee Only advisor for further advice. Is there a website or someplace where you can put in your address and get a list of fee only advisors to check out?
    Where is the best place to go to understand my options with suspend options of Social Security?....also....many thanks for hosting such an event!!
    Hi-I plan on retiring next year and move to Vermont. Is it better to sell my house and use the amount for a new place or look now while I'm working and finance until retirement?
    LTC 62 w some health problems and have been turned down for actual LTC policies. What are my options for covering major hospital and/or home/rehab center costs?
    Does it make sense to start a Roth 401k or Roth IRA at age 56 if I plan on retiring at age 67? If I cut back on my pre-tax 401K to 5% instead of 10% I would still get the company match and after the increase in taxes would still be able to put $5600 into a roth account. It doesn't seem like it would add up to that much but I've heard some people say it's nice to have in case of an emergency in case you need to pull some money without bumping your taxable income.
    I already have about 800K in my pretax 401k
    When you need to take money out at 70.5. Is it best to reverse dollar cost average out the of funds or sell when the market is up?
    My spouse and I are 53 and 50 respectively. We will have the house paid off in just a little over 4 years. I will have a pension of $900 per month. My 401k is about 100,000 and my spouse has a IRA annuity that will give us about $500 a month. My spouse wants to retire in 10 years and me in 15. Once the house is paid off what do you recommend. We currently have about $35,000 in debt in addition to our mortgage.
    Hello in 4 years I,ll be swapping out our 401k to an Ira should I put it in index funds. Looking to make 6% and draw 6% a year. What would be best I live in Florida. Thanks
    My hubby and I are in our late 30s. We have roughly $2.2 million worth in real estate (all rental property except our primary home). We are selling the one rental that has a mortgage this year. Our problem is we don't have a lot in retirement. Just $100K. We are fully funding hubby's 401K and both of our Roths. What should we do with the proceeds of the rental home? We should net roughly $300K. We like being landlords so we could buy another rental but would ideally like to stash some away in retirement. Should we do muni bonds? Do a backdoor Roth IRA?
    How would you advise a 79-year-old with $900,000 in 2 in-tact annuities as his only remaining assets, other than his house, obtain income to live on for the next 10-20 years? One still has a surrender charge. And would you recommend gifting to grandchildren with large student loans? Thank you!
    Julio, so sorry about the job loss, especially at such a critical time in your lives. But there is good news here. Does the $7800/month in pension inflate (social security does have cost of living increases). Does the $2100/month include taxes and insurance? If so, that leaves you $5700/month for other things which hopefully is a good number. Now let's talk about the house first. You and many others in CA are still upside down. But if you WANT to live at the current home, know that the market will recover over time and I see that as no reason to walk away. Likewise, $20K in debt, while undesirable, should be manageable and is too small to consider bankruptcy. So let's make a plan to pay that off. Indeed, if you worked even an additional year, the retirement income could pay your expenses and you could use those additional earnings to completely pay off the debt. In the meantime, you might consider some balance transfers between credit cards (IF that is what the debt is) to low interest rate cards. For instance, if you are paying 12% interest and can get a 0-3% rate for a year from a new card, it would be well worth it to transfer the balance even if there is a transaction fee of say 3%. That would effectively cut the interest rate from 12% to 3 to 6%. Caution, be certain that the rate on the new card after the intro deal expires is not greater than your current card. I know this has been a difficult time but I do see light at the end of the tunnel for you. Good luck!
    John J, your wife will be able to take her SS retirement income or half of yours, whichever is greater. Schedule an appointment with the SS Office for you and your wife an the rep can go over all the options with you. (There are many).
    Duke -- if your wife takes her Social Security benefit before her full retirement age, Social Security will give her the highest benefit she is entitled to...since you have taken your benefit, that means she is eligible for a spousal benefit...so if half of your benefit is larger than her own benefit, she'll automatically be given the spousal benefit (note: either will be reduced because she'd be claiming early). She won't be able to take her own at 62 and then later switch to half of yours. You only get choices like that when applying at full retirement age.
    Hello Eileen - Annuities can be simple and confusing! Plain vanilla, its a contract between you and a life insurance company to pay you a certain amount starting at a certain day and it all depends on how much you pay. You can buy an immediate annuity that starts right away for the rest of your life, for at last ten years, or other choices. You can buy a deferred annuity that will grow at a minimum rate for a few years until you decide to start monthly payments. The positive is that as long as the insurance company holds up their end of the bargain you know what you will receive and if you have it paid out over your life you don't have to worry about running out of money because you will get a check every month. The negative is that they can be long-term contracts that you can't get out of. They also come with many different options you can pay which adds to the cost or lowers your returns.
    Rachael, Thank you for the pointer to the Kiplinger articles concerning LTC and funding health care for seniors. Much appreciated.
    Hi Maria - Inheritance taxes vary by state and there can be exempt amounts. From an income tax perspective the beneficiaries will need to take withdrawals over the life time and include that amount in taxable income.
    Next year at 65 I can begin guaranteed lifetime income of 5% annually from $450K. Guarantee and management fee total 2%. A fixed interest option is 3.5 % currently which is where it has been for years, could go higher. I would be in effect withdrawing 1.5 % assuming 5% withdrawals. Just debating which option is better in this 401k?
    Hum, David, it seems like we are talking about several different things here. First lets talk about automatic dividend reinvestment. If you are doing this in a taxable account be CERTAIN to keep very good records as you want to make sure you include the reinvested dividends as part of your basis when you eventually sell the stocks. If the stocks are in retirement accounts, no such record keeping needed as everything will be taxed as ordinary income when you take distributions. It seems like the latter is your case so no worries. When you retire, I suspect you will roll over the 401K into an IRA. Dividends will always be paid according to the time frame of the paying company. You may let them accumulate in your account rather than reinvesting them. Indeed, this may be a good idea anyway as you can use that cash to buy anything needed to rebalance your portfolio from time to time. My biggest caution concerns what stocks you are picking. Stock portfolios are often not diversified enough to be prudent and people often chase winners when considering stocks (I can't tell you how many people have asked me about Tesla over the past year). So I would keep the stock picks to a minimum and use broad based funds (Vanguard total stock market or total international stock market, vanguard total bond market) for the lion's share. I suggest that you do include at least SOME fixed income even though you are young. Finally, check to make sure there aren't additional expenses for using the brokerage account versus the options offered in the main plan. If so, use the main plan options for most of the money and the brokerage account just for a few stock picks. I hope this answered your question.
    For John J, note that the one who is applying for the benefit determines whether the benefit is reduced...for example, if your wife instead chose to wait until her full retirement age to take a spousal benefit, she could get half of your full retirement age benefit even if you took a reduced benefit at age 62. But if she claims before full retirement age, she'll get a reduced benefit -- whether it's her own benefit or a spousal benefit. And because she's applying for a benefit before her full retirement age, Social Security will automatically give her the higher of the two benefits.
    Traditional vs Roth 401k. I am 36 and earning currently $95k. I am contributing 15% and my company is matching 3% (0.5% up to 6%). My wife and I currently make $140k and have $80k in retirement. I read a lot regarding the right path depending on my current tax bracket and which bracket I will be in when I retire. I am not sure if I will be in a different bracket when I retire. Do you have any advice regarding which 401k I take advantage of? Thank you for any advice provided.
    Bob - The answer depends on what other assets and income you have and need. Sounds like you can annuitize at 5% for life or let it keep growing at 3.5%. All else being equal, the 5% sounds better than 3.5%.
    Hi Joe, Generally speaking a moderate risk portfolio may consist of approximately 45% Total US Stock Market, 15% Total International Stock Market, 30% Total Bond Market, 5% International Bond Market, and 5% Cash. An example of moderate risk: During the 2008 Great Recession this portfolio would have lost a value of approximately 25-30%.
    Danodob, unlike Solomon, I often split the baby. You are right, you are young and you don't know what your tax rate will be in retirement, what the overall tax rates will be, or any number of variables. You DO know that you are in a farily high tax bracket now so I would continue using the traditional 401K for a least some of the contributions. You DO know that you are young so contributions to a ROTH 401K will have a long time to grow tax free. If your wife also has a ROTH option, why don't each of you put 50% in the traditional 401K and 50% in the Roth 401K. If she does not have such an option, why don't you still put 50% or even a little more in the ROTH option. One leg in one universe and one in the other is often a good idea.
    I read recently about a contrarian method of asset allocation for retirement. The author recommended to start with a heavy % in bonds/fixed assets early in retirement (e.g., 90/10), then slowly buy into equities adding 2%-3% each year over the following 10 - 15 years. You are invested less time in stocks (less growth) but it seems safer for the early, critical years of retirement, especially if you're retiring at the end of a bull market. Any thoughts on this approach?
    I have a 45K/yr pension, and my estimated social security at 62 is 20K/yr. I recently retired at 61 and my wife will continue working for 5 more years. She makes approximately 60K/yr. Based on our incomes how is social security going to be taxed?
    Thanks Bobbie for taking my question regarding dividends and distributions. Right now I have about $35,000 in individual equities (80% of them are Blue Chips), and I do have Vanguard Total Stock Market Index as one of my mutual funds.
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