Jump-Start Your Retirement Plan, September 2015
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 17, from 9 a.m. to 5 p.m. ET.
3rd & 7 37yd
3rd & 7 37yd
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Ty, I must say that if you do get money into a ROTH, it would be the LAST money you should spend. Indeed, it is great to extend the tax FREE growth for as long as possible. With that in mind I often have clients use their grandchildren rather than their children as the beneficiaries of their ROTHS.
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Hi Ty, Honestly, the backdoor Roth is good if you don't have a Roth available. But there are some pretty tricky hoops to jump through. I agree with Bobbie, that they are worth it and you usually draw them down the last. They work for great estate planning tools too if you're looking to pass along a good asset. But for a draw down strategy I'm a fan of building a taxable account, capturing losses when available, and withdrawing controlled amounts, i.e. within tax brackets, before 70 1/2. Maybe some from the IRA, some from the taxable account, etc. to fit you into a tax bracket.
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I tend to lean towards simplification when investing Mary. If you don't' already own a home, and you want real estate on your balance sheet, a REIT would be more simple. That said '"m biased because I've seen a lot of clients with income properties that are a hassle. Well... at least they complain about them to me ;)
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I think Mary's question points out something very important. There is often a "right" answer and a "good answer." In her case owning individual properties might provide more tax breaks and a higher return. So that could be the technically "right" answer. But she doesn't want to be a landlord, something that definitely takes a special kind of temperament and skill set. So for her, REITS might be the "good" answer. I think of this often when clients ask if they should pay off their mortgage. The "right" technical answer might be that they can use the interest deduction to offset high income AND with rates so low they might be able to make more on the money that they would use to pay off the mortgage. BUT, the "good" answer is often that people sleep better and worry less about market downturns when they have no debt. In such cases paying off the mortgage is the right move.
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Judy, depending on your income, a Roth IRA, traditional IRA, or tax efficient investment account will do the trick. I'd steer clear or insurance related products because fees tend to be high. Unless you're looking for their added insurance benefit, then find a low fee solution.
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Judy, As Bobbie and Richard have stated, building a taxable account is a great option. Long-term capital gains and dividends are taxed between 0-20% depending on your tax bracket. You can also use losses to offset gains as well as pass these accounts on to heirs with a step up in cost basis. Some other options you can look at are deferred annuities and whole life insurance but make sure you speak to someone who doesn't receive a commission (fee-only) for using these products and that they fit with your overall plan and goals.
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Donnie, fees can vary by area (even in Virginia...rural vs. DC area) and expertise. They can range from $150 to $300 per hour. You would be amazed how much you can get done in a short period of time. And always ask yourself, what are the potential costs of not getting some guidance from a person who puts your interest ahead of their own.
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Donnie, along with the range Bobbie gave, you can always check out NAPFA.org or findanadvisor.napfa.org. Ask for the advisors ADV part 2 and search under section 5 Fees. If researching a specific advisor, you might even be able to find their ADV part 2s on the SEC site by searching the advisor at www.adviserinfo.sec.gov Good luck.
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MJ, converting while it's down will save you in taxes, but you'd be best to incorporate any conversion strategy with an investment plan that is working alongside your financial plan. In other words, pick an allocations mix of investments that might include emerging, and re-balance as the market ebbs and flows.
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Good questions Edward. Another good question is how would paying for a nursing home impact your retirement?..or the health of the supposed healthy spouse? Most planners can show a large expense coming out of your plan at age 80, or whenever, and how it impacts the likelihood of achieving your goals. My experience is that most people that can afford to self insure don't' because of the low costs to protect. That said, LTC is not cheap. I've had some success when clients don't go for the cadillac of all plans, and self insure part, and insure the rest. But your best bet is to have some independent analysis done from someone without a stake in selling the policy. And weigh the costs versus sanity factor to determine if the premiums are worth it.
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Edward, this is a great question and, as it is different for everyone, it is best to work through your situation with a planner. While many people think they need to cover the entire cost that might not be true. Let me give you an example. Let's say a single woman has a retirement after tax income of $6K per month which includes travel money, gifts to children, new car payments PLUS basic living and household expenses. Let's also assume that care in her area costs $66K/year or 5500/month. Now, if she is in care, she won't be traveling, buying new cars, or maybe even gift giving. While she is in care it will cost her about $3500 per month to maintain her home and provide for her personal items. So she has 6K - 3500 or 2500/month that she can put toward her long term care. That means she needs to get a benefit that will cover the difference between the cost of care 5500/mo and the amount she can pay personally 2500/mo for a benefit of $3K month needed. Now this is a very simple example and there are lots of moving parts. It is just meant to give you an idea of what you might need to cover. When there is a couple, the amount available to pay personally for LTC might be much smaller as the spouse NOT in care will need money for living expenses.
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Hi I am just about to retire age 64 and want to sell my house up North, with no mortgage on it and move South. Wondering if it will make sense for me to keep the money from the North house tax free and have a mortgage on my South house for 400K. When I retire I will be in a high tax bracket especially over the age of 70.
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Edward, you might find out the average cost of a nursing home stay in your area, and multiply the daily rate by 1 year to 3 years stay. This might give you a ballpark for costs. The average daily cost is around $205/day nationwide, but it can vary quite a bit based on where you live. So, one year at $205 is about $75,000 today. BUT, what will healthcare inflation do over perhaps a 30 yr period? If it is 6%, that might be equivalent to $430,000 in 30 years! Long term care insurance with a cost of living adjustment built in can help defray those costs. It is worth looking into while you may be healthy enough to still obtain some coverage.
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Edward, I would also mention that there are so many different options for LTC coverage these days. Some policies are available that cover BOTH spouses with the same pool of money...often at a reduced cost. Some people hate the idea of paying LTC premiums which might increase in the future or might not be needed(but always remember we never want to have to use any kind of insurance but that doesn't mean we shouldn't pay for it). There are new life insurance policies with fixed payments (often with an upfront single premium that is large) that allow for LTC to be paid from the policy cash values with any remainder going to heirs.
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Hi EB, this is a quote from Bobbie earlier. It fits your questions perfectly. quoting Bobbie "There is often a "right" answer and a "good answer." In her case owning individual properties might provide more tax breaks and a higher return. So that could be the technically "right" answer. But she doesn't want to be a landlord, something that definitely takes a special kind of temperament and skill set. So for her, REITS might be the "good" answer. I think of this often when clients ask if they should pay off their mortgage. The "right" technical answer might be that they can use the interest deduction to offset high income AND with rates so low they might be able to make more on the money that they would use to pay off the mortgage. BUT, the "good" answer is often that people sleep better and worry less about market downturns when they have no debt. In such cases paying off the mortgage is the right move."
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EB, the South says "come on down." We are expecting a lot of you in the next couple of decades (the cost of living is so inexpensive in most areas). I posted earlier about the technically "right" answer vs. the answer that is "good" for you. I favor a debt free retirement as it usually helps retirees weather market downturns better emotionally. But you are a perfect example of someone who might benefit from the interest deduction, especially if you have other deductions and already itemize. They question is how much would you LIKE being debt free?
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Jake I was talking about this to a client just yesterday. Consolidating accounts surely simplifies your life. There are many things to consider: 1. If the expenses on one of these is high, you definitely want to get your money out of there. 2. If one of them offers a great guaranteed option (one of my clients has this at TIAA Cref) you might want to keep it as part of your fixed income allocation. 3. If you want to do a ROTH conversion and you have an account with non-deductible contributions as well as other rollover IRAs, you may want to roll the other rollover IRAs into your current plan so you can do a tax free conversion of the non-deductible IRA. But the simple answer, as Alice says, is that it is often a good idea to consolidate. SIMPLIFY.
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Jake, the best way to figure out the fees question is to look at the fine print of the plan. That said, I'm a big believer in simplifying. Consolidating accounts does this. It can be either the new 401k or an IRA rollover. Look at the fees of the 401k disclosure to determine if their are excessive. 401k plans can have a stable value fund, which isn't available in IRAs. If you like those, you might go that route. IRAs usually have a broader list of available investments and most often at lower costs. If you're moving into a 457, these plans allow withdrawal at 55 versus 59 1/2. So many things to consider.
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Jake, some plans also offer investments that you can not buy currently if you take the money to an IRA. That is, the fund might be closed except to those people in the plan. An example: I had a client years ago who had Fidelity Contrafund in one of his old 401Ks. At that time the fund was closed to new investors so we left the old 401K open.
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I've joined late. About 7 to 10 years from retirement and doing some planning. Was thinking of creating a budget for each year starting now until a few years or so in retirement, TODAYS dollars. I would also plug in those large, one time expenses in the appropriate year such as a car for my daughter, college costs for 4 years and maybe a marriage expense. Again in todays dollars. That budget then gets netted against income, today and projected. That yearly net, shows in flow or outflow yearly. With that analysis the "bucket" of positive net worth can be viewed as too little or enough, etc. Does that process make sense?
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