Press - Rather than focus on dividends only, I'd encourage you to take more of a "total return" approach to your investing. In other words, you can make "homemade dividends" by simply selling investments when you need the cash. If you focus mainly on stocks or investments that generate income, you likely won't be properly diversified as companies that pay higher than average dividends tend to be more concentrated in a few sectors possibly leaving you underexposed to other areas of the market that may have the potential for a higher long-term expected rate of return.
Press, it sounds like you don't intend to sell any of the principal--that you only want to live on the interest. Any time that is your approach, when interest rates and dividends are this low, it will take a much higher principal balance to meet your income needs. Most people reinvest their interest and dividends back into their portfolios (using mutual funds) and take out a fixed dollar amount for what they need. Unfortunately, unless you are willing to take more risk, it will be difficult to push past the 3% dividend barrier. Even 10 year Treasury bonds are yielding under 2% now.
Dick because you are coming off COBRA, this is considered a "change of status" and you don't have to wait for an open enrollment period.
Press, I SO agree with Tyler. Don't think of "income" in strict terms. Indeed, if you have a portfolio of 100K that has 3% income you will get 3000/year but will still only have 100K in 10 years if you spend the entire 3000. Total return is the name of the game. I did a worksheet that showed this to one of my conservative clients. If you can make 6% before inflation and only spend 4% (part income and part capital gains) you will hedge against inflation and your annual "income" will grow. And, this is big, you will reap tax benefits by paying some of your taxable income at capital gains rates vs. ordinary income rates (as charged on most interest payments). My client has been so pleased over the past 5 years, especially with the very low income tax she pays relative to her net worth/"income."
drb - that link to TreasuryDirect was for you. You should be able to find the answers you need there.
Press, so many wills are written to pay income only to the beneficiary that in GA, they passed a law years ago that said these could be changed to a 4% payout without litigation....a payout that would exceed income and liquidate some capital gains.
Rita, You can withdraw your contributions from a Roth IRA tax a penalty free. Withdrawing the earnings prior to age 59.5 will incur a 10% early redemption penalty...http://www.forbes.com/sites/ashleaebeling/2014/05/27/the-roth-ira-mistake/#78315edd3322
Also, Rita if you CONVERTED money into the ROTH instead of CONTRIBUTING it you have to wait 5 years to avoid the 10% penalty even though it is not earnings.
Rita - One possible way to get around the early withdrawal penalty might be to use something called "substantially equal periodic payments." Depending on how much money you need, this might be a good option. The rules around this strategy though can be complex, so I'd encourage you to talk with a financial advisor and/or CPA before going down that road.
Jim - With only five years left on your mortgage I'm guessing that you are putting much more towards principal than interest. That means that your mortgage interest deduction has been dwindling over the years and may not be all that much anyway. Your tax return holds the answer. As long as your other deductions like real estate tax and charitable contributions are lower than your standard deduction, then you will "lose" the deductibility, but again, check your tax return for the clues.
Jim, it depends how much your other itemized deductions would be. If you contribute significantly to charity and have other itemized that lead to exceeding the standard deduction, you can still itemize without having mortgage interest. That being said you would want to consider where the c
ash is coming from to pay off the mortgage. If you have to pull out of IRA or retirement assets to pay off the balance it is likely to be counterproductive as you will have to pay tax on that income which may bump you into a higher bracket.
Jim, if you only have 5 years left, I strongly suspect that your interest deduction isn't very big any more. At the beginning of the mortgage, interest is most of the payment but by the end, principle is most of the payment. So if you are still itemizing, it might be because your real estate taxes, charity, and other deductible items are high. I suggest that as you do (or have a professional do) your tax return, you try it with the mortgage interest and then see what it would be without the mortgage interest. That will give you a good idea of how to proceed. BTW, some will say "that is cheap money and you can make more than that over time by investing it." I say the "feel better" part of your question says it all.
Dr. Peters, model this when you do your return for 2015. Remember, you can always have withholding taken from your social security OR your RMD. And you can hold onto the tax money until the end of the year if you do this. For instance, let's say you will owe a total of 5k in taxes (per the results when you model this). You can take an RMD of 15K at any time of the year without any withholding. Then you can have another RMD for 5K in Dec and have it all withheld for taxes. Withholding is treated as if it were paid throughout the year even if it is all taken in Dec. BUT DON'T FORGET THAT SECOND RMD.
Jim - I agree with my colleagues and Bobbie especially brings up a great point! Many times the peace of mind of owning your home outright will trump a little bit of tax savings.
Dr. Peters - I agree with Bobbie. You wan withhold enough in tax from SS and the RMD that you shouldn't have to pay estimated taxes.
Jim and Tyler, i tell clients there is a right answer a a good answer and sometimes they aren't the same. The "right" answer is all about the technical bits and pieces but the "good" answer serves what you perceive as your overall well-being.
HML-Dodge & Cox does charge a transaction fee at many brokerage firms, but the overall fund expenses are very low and it is a great fund company. In cases like this I would just avoid small transactions in that fund (less than $10k). While it is important to be conscious of fees, in some cases it is worth paying a small transaction fee for a great fund.
Tyler, it is knowing stuff like that which will separate human advisors from robo advisors. Robos can certainly serve many technical functions but people are people and addressing that one issue often brings the most value to a relationship.
HML - If the transaction fee is applied for a monthly contribution, you may want to use a similar fund without the transaction fee. Sometimes custodians will waive the fee for regular monthly contributions but apply it for one-time transactions. Check with Fidelity. The fact that you're paying attention to the fee side of the equation is very smart.
HML, Fidelity might charge a transaction fee on a single purchase. BUT they might allow you to automatically make purchases on a monthly or quarterly basis without a transaction fee.
HML - Balancing costs and convenience is certainly easier said than done at times. As others have mentioned, many brokerage firms offer discounts on recurring transactions of the same amount and/or mutual fund. If you're set on a particular fund or fund family, you might also consider checking to see if that fund family allows you to open an IRA directly with their firm. Another option is to shop around and check out other discount brokers to see if the fund or fund family you want is available at another firm for lower or no transaction fees.
Jim, some of the other holdings you have may include REITS inside of them. Indeed, I can do a portfolio report for a client and even thought they don't own a REIT, they have perhaps 2-3% in real estate via another fund. For clients who have a lot of real property, we don't usually use REITS. For clients who own at most their home, we might. MAKE SURE it is a publicly traded REIT if you do decide to use one.
Jim - There are conflicting views among advisors on whether REITs should be considered a separate asset class or not. I personally allocate a small portion of my client's portfolios to REITs, but it is just a small part of an otherwise globally diversified portfolio of various asset classes (e.g. U.S stocks, international stocks, emerging market stocks, U.S. bonds, global bonds, etc.). As Bobbie mentioned, if you do include REITs in your portfolio, make sure it's a publicly traded REIT!
Ryan - Assuming you're otherwise eligible to contribute to a Roth IRA, then as long as you don't contribute more than the maximum allowable amount, you should be fine. Assuming your rollover account with Vanguard is a traditional IRA (e.g. pre-tax dollars), then you'll have to open up a new Roth IRA for post-tax contributions. The government won't let you stick Roth IRA contributions into a Traditional IRA. I'm also assuming you haven't contributed to a traditional IRA (outside of the rollover). If you have, then you'd have to make sure your combined total IRA contributions between the traditional and the Roth don't exceed the annual max.
jillch - If I were your advisor, I'd want to know what % of your portfolio these shares represent. In other words, don't let the tax decision impact the investment decision too much. If having the proper asset allocation and being properly diversified means getting rid of a good portion of the stock, it might be time to get rid of it.
Jill, do you meet the income requirements/participation at a workplace retirement plan needed to be able to deduct your contribution to a traditional IRA? If so, the deductible contribution should offset the taxable gain. Also, know that I have seen many couples save so much in those last 10 years before retirement (and worry about the ones who didn't have children until late and think they will retire with kids in college:-). Be diligent with the catch up and you should be fine. Don't take more risk that you need to with your portfolio. This would be a great time to see an advisor (many work hourly) to work through a goal funding plan. That should tell you how much you need to save and how you should invest to achieve the best probability of success.