Laura - I'm not sure that we have enough info about your needs, goals, comfort with investment risk and overall situation to suggest future investments. What I do feel I can add is that if you considering CD's, go online to find the best rates rather than to a physical bank, make sure you are clear whether or not the CD is covered by FDIC (or NCUSIF if a credit union), and consider looking at online savings accounts as well. the interest rates are a bit lower but not that much and you are not locked into anything. That extra flexibility (in exchange for a lower, variable interest rate) might be helpful while you are facing the uncertainty of looking for new working.
Rudy, the file and suspend was a way to have one spouse file so the other spouse could collect benefits as spouse of a retired worker. Then later the initial spouse could begin their own benefits as late as age 70. Plus the spouse collecting on the retired worker benefits could file on their own also.
Rudy, you can still collect Social Security benefits when eligible. Just not through this technique in your case. I don't see how you've lost 60,000 a year from losing this strategy. You may need to have a mixture of investments in stocks and bonds to provide return potential for inflation protected income over your lifetime. A qualified advisor can help determine the investment mixture appropriate for your situation.
Hi Rudy - Your question is a little confusing, so may I ask you to clarify: Are you looking or something to provide income in lieu of Social Security? You may both still be able to file for SS at age 62, however, this may not be the best option, because your benefits grow each year you wait. If you need income though, the change in file and suspend does not change your ability to file for normal benefits at age 62.
Hi Rudy - I say "normal" benefits, but to clarify, the benefits at age 62 are reduced from the amount you are eligible to receive at "full retirement age" or FRA.
Rudy - You may want to check with a financial panner who can help you evaluate what your probable best Social Security claiming strategy is now among the remaining choices. As the answer will vary depending things like earnings histories, how long you and your spouse are likely to live, etc.
Hi Kathy - No, unfortunately, distributions from an IRA are taxed at ordinary income tax rates. Be mindful of the conversion rules. As Ed pointed out in an earlier answer, they can be tricky.
Kathy - The income generated from an IRA withdrawal vs. Roth Conversion is essentially taxed the same. Your accountant will report it differently but it all gets treated as ordinary income. Make sure you consult with your accountant prior to taking any action on this.
There are many expecting the Federal Reserve to raise the discount rate next week which could cause CD rates to increase. The increase is expected to me minimal, maybe .25%. So don't expect CD rates to increase much in the near future.
Jstatoothedr - I had clients ask me about CD rates a few days ago, my response was very similar to David Strege's.
Jstatoothedr - This is an excellent question. Banks may follow the lead of the Federal Reserve Bank, which is expected to raise rates by a quarter of a point (0.25%) in the next week or so. So, you may see an increase following this, but don't expect anything significant. Just an FYI - online banks, may currently offer slightly higher rates than the brick and mortar banks, so check online.
Ask the brokers on what amount of bonding and liability coverage they have at their firms. You can compare that to the amount you have invested there. The bonding is for employee fraud like someone embezzling money. If you have investments directly in bonds and stocks and not mingled with the brokerage funds your exposure should be limited to employee fraud. If the brokerage firm went out of business you would still own the stocks and bonds.
Deborah - Probably not. Typically, your investments belong to you not the brokerage firm and can't be legally taken to pay debts or obligations the firm has. So your risk is mostly theft/fraud by any employee of the brokerage house. SPIC helps insure against that risk see the link that Michael stead for more info.
Hello LearninginNY - a 401k rollover is not always the best answer (if you are still working it may not even be an option). I would get a comprehensive analysis of all fees and expenses from each firm (including any funds fees, not just advisor fees), and use this to start your analysis (and it should be in writing). This next part of my answer is a bit biased, but I would also seek a fiduciary advisor, that is someone who puts your interest ahead of their own, and consider a financial panning relationship rather than an investment-advisory-only relationship. As you approach retirement, you should find value in this type of arrangement
The more bonds or guaranteed rates you have reduces volatility and provides more stability. Stock investing is for long time periods where you need growth to help keep your dollars providing inflation protected distributions throughout retirement. You need to be able to withstand and understand the stock volatility to utilize them. The return potential is there long term along with more risk.
Phil - Keep in mind the risks involved with the ups and downs of the stock market are not the only risks to think about in retirement. Inflation, although it has been mild over the last several years, can erode your ability to spend if your investment principal does not keep pace. A combination of stocks and bonds is usually best - how much of each depends on your specific situation and your appetite for risk.
Hi Phil - Although you are only three years from retirement, you need to consider your lifestyle and length of time after retirement. Ideally, this could be another 20-25 years. Considering this, one of your concerns should be inflation, which has historically been about 3%. So, you need to have a portion of your investments in something that will earn more than 3%. Today, one of the only investments to offer that is stocks. A well-diversified portfolio is typically best, because it mixes a stocks, bonds, and cash, and while not immune to volatility, should fare well over the long run and beat inflation.
LearningInNY - Whatever path you choose be sure that you understand what you are paying to whom for what. Keeping your 401k as it is may be cheaper or more expensive than rolling it over, you'll have to find out the details or have an unbiased advisor help you figure it out. Also it seems unclear whether you need: A) nothing really, just help with the feeling like you are perhaps "supposed" to do something with your 401k rather than leave it be; B) advice about how to specifically to invest your 401k; or C) financial planning services, to help you figure out where you are at in terms of being able to retire, how much to save, and whole raft of other potential concerns. Getting option C may be more expensive but might ultimately provide more value. Be sure when comparing costs (which may be all over the board), you understand what you are getting in return because there are plenty of professionals who really only do B but who charge as much or more than someone who will do C (or B&C).
Hello Jake (not from State Farm) - That may make sense for you. It sounds as though a relationship with an advisor who charges on a hourly basis is appealing to you. My suggestion, try it for a year or so, and, at that point, maybe ask the advisor to compare a portfolio he/she would have suggested vs. the one form the robo advisor.
Here's a question from Am16731am: Good Morning, I am considering the purchase of a Variable Annuity with about 33% of my available 401K monies as a way to have less exposure to the stock market. The Variable Annuity will pay 5% on a yearly basis. I am not very familiar with annuities. Am I going down a reasonable path? Regards,
Variable annuity means you can select from a wide variety of investment mixtures in the annuity. You could have 100% stocks in the variable annuity. So using a variable annuity just to reduce the stock exposure doesn't make sense. The 5% rate tells me you are exploring an annuity with some guarantees, which also means you won't get all of any stock market upside. Seek more guidance and input on indexed annuities like this before you proceed.
Jake from WI, not State Farm - (great handle BTW) - That sounds like a perfectly reasonable approach to me. Reach out to several NAPFA advisers and let them know what you are looking for. For some them, it won't fit with their business model; for some, it may work well with hourly or retainer based services; and for others still, they may already offer a robo-advisor option within their own investment management services.
Hi AM16731 - In concept, annuities are a great idea; however, in reality they can be an expensive and not very liquid product. Annuities are like snowflakes, everyone in different. Most contain bells and whistles that increase the cost at the expense of your potential return. (An annuity with expenses of 2%, not uncommon, require are very high return simply to clear that hurdle.) More importantly, one of the features of an annuity is tax deferral, but you already have this in an IRA/401k. Tread very carefully into the annuity space. In our experience, more often than not, there are much better (and cheaper) alternatives. (Be very very mindful of any surrender charges.)
Deborah - This depends on the amount. The SIPC coverage by most brokerages is significant. This sounds like is may be subjective, so if it gives you peace of mind, choose more than one. Although I generally favor consolidation, technology today makes it easier to deal with multiple brokers/custodians.
Am16731am - Don't do it. At least not yet. Your question indicates to me that you do not yet understand the product you are buying well enough to tell if it's a good idea for you or not. Variable annuities with guaranteed riders are very hard for the average person to understand and can often have high or even very high internal costs (the most expensive one I have personally seen had expenses of 3.95% per year!!!). Do more research on this before buying it. If you don't feel like you are able to do that research confidently, reach out to a NAPFA advisor who does hourly planning and pay them for an hour or so to look it over and explain it to you as a 3rd party who isn't going to make any more or less $ based on whether or not you buy it.
Hi Anne - While the online calculators are good, many are "cookie cutter", and may not address some specifics of your "plan". To gain peace of mind, maybe take the online plan to an hourly-fee-based planner to get a second opinion. The planner may point out any shortfalls of the online plan, or agree with its findings!
Anne - First, great job on saving for retirement it appears you are on the right track! It is advisable to not rely on a retirement calculator to tell you how much you should and should not save. These retirement calculators are often very simple. My advice would be to utilize the NAPFA find an advisor search tool to find a planner near you, and get a second opinion. As Mike mentions an hourly relationship may work best given your objective.
Anne - I think you would benefit from working with a good planner. The online calculators can sometimes be overly simplistic or optimistic and they may do little to help you optimize what you are currently doing. "No fun" is definitely no fun and my guess is that you may be able to strike a better balance between the now and the future. However being able to empower that decision with a meaningful estimate of how much that does or doesn't move the dial in retirement is probably more than I would trust an online calculator with.
CIW - You are one of, I believe, only about 17% of individuals who will receive a pension, congratulations! The pension will help during retirement. Without knowing more about your situation, it is difficult for me to answer this question with any specificity. Broadly, a well-diversified portfolio is usually your best bet. One caveat, you may not need to invest too aggressively if you have a modest lifestyle, so be mindful of this. Inflation will be your biggest concern. Consider seeking a planner to set you in the right direction.
CIW - I could give answers all over the board on that one depending on the specifics... Also retirements can be very long these days so if it's already well-diversified and appropriately invested for your comfort level with risk, it might not be much of a change from how it's already allocated now.
Louise - AMT can be complicated, weird, hard to avoid in some circumstances, and easy to get wrong. I would definitely refer you to a CPA or other qualified tax professional on that question.
Hey Louise - AMT is a bear, and difficult to address. I will defer to those on this forum who have more background in tax planning, but one thing I can say is you may be able to defer income or accelerate income to avoid the "AMT Bump". The bump is somewhere between the $150,000 and $490,000 (fairly significant), but this offers some possibility of relief.
Laura - I'm not sure that we have enough info about your needs, goals, comfort with investment risk and overall situation to suggest future investments. What I do feel I can add is that if you considering CD's, go online to find the best rates rather than to a physical bank, make sure you are clear whether or not the CD is covered by FDIC (or NCUSIF if a credit union), and consider looking at online savings accounts as well. the interest rates are a bit lower but not that much and you are not locked into anything. That extra flexibility (in exchange for a lower, variable interest rate) might be helpful while you are facing the uncertainty of looking for new working.
Rudy, the file and suspend was a way to have one spouse file so the other spouse could collect benefits as spouse of a retired worker. Then later the initial spouse could begin their own benefits as late as age 70. Plus the spouse collecting on the retired worker benefits could file on their own also.
Hi Rudy - Your question is a little confusing, so may I ask you to clarify: Are you looking or something to provide income in lieu of Social Security? You may both still be able to file for SS at age 62, however, this may not be the best option, because your benefits grow each year you wait. If you need income though, the change in file and suspend does not change your ability to file for normal benefits at age 62.
Are IRA withdrawals treated any different for tax purposes as cash vs. withdrawals for conversion to a Roth? (age is over 60)?
Kathy - The income generated from an IRA withdrawal vs. Roth Conversion is essentially taxed the same. Your accountant will report it differently but it all gets treated as ordinary income. Make sure you consult with your accountant prior to taking any action on this.
