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!
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.
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.
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.
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.
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.
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
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.
