Maximize Your Money With Kiplinger and NAPFA, June 2016 - Live Chats, Q&As: Free Advice on Retirement, Investing, Personal Finance -- Kiplinger

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Maximize Your Money With Kiplinger and NAPFA, June 2016

Kiplinger is teaming up with the National Association of Personal Financial Advisors (NAPFA), whose planners will answer questions about tax preparation, filing and more. Submit your questions here and get free personalized financial advice on Thursday, June 16, from 9 a.m. to 5 p.m. ET.

  • Hi, I'm 72, still working. Will retire in one or two years. Has the Vanguard/Bogle recommendation of 65% bond funds/35% stock funds for my age actually worked well for the last year or two where the market has been so volatile? I'm considering doing that mix.
  • Max many people with minor children have a will that sets up a trust for the children.  You list that trust as the contingent beneficiary of the life insurance proceeds.  You can do the same with any retirement accounts BUT be sure to check make sure you get the exact way to name the beneficiary and that the language of the trusts allows it to accept the retirement account assets without creating problems.
  • Max, the attorney who helps you will the will is the one who will provide the language to use for the beneficiary.
  • Ray,
     
    I am not sure how you define success in a portfolio.  A 65/35 portfolio is typicaly for a retiree, but many life factors can allow a person to take more or less risk.  
  • You might find this interesting, Ray:

    How to Build the Right Mix of Investments in Retirement

    www.kiplinger.comWe show you how to allocate your investments among stocks, bonds and cash as you approach, enter and live in retirement.
  • Ray if that is your picture you sure are holding up well:-)  A financial planner can help you determine what portfolio mix you need to maximize the chance you can fund all of your retirement goals.  That said, the mix you mentioned often works.  Vanguard has a fund called Wellesley Income (VWIAX for the admiral shares but the have one with lower minimums as well).  This is a great fund and MAY be a one stop shop for you.  They currently have the mix you are targeting but can have 30-50% equities.  They have had great long term performance results with MUCH less volatility/risk than an all equities fund.  Be sure to check with an advisor to see if this could be a good alternative for you (though you may want to add another international fund to increase your exposure to foreign investments).
  • Should I sell some stocks in my mutual funds that are winners, rebalance, and put the money in a new mutual fund for next year's MRD"s ?
  • Ray - The mix of stock/bonds in your portfolio is very important.  Bogle's recommendation is a good starting point, but there are a number of other factors that you should consider.  Will this mix provide enough growth to cover your future needs?  Will you run (sell) when the portfolio drops 15%?  Consider these questions before selecting a mix for you.
     
    Oh - and the 65%/35% mix has been up around 2% over the last year and 5.3% over the last two years.
  • Stuart, rebalancing periodically...every year or so...forces you to buy low and sell high.  So you probably should do it.  If so, why not leave enough in cash for next years RMD?
  • When I retire I will have a defined benefit pension of around $8300 per month with a COLA of 3 % per year. I have the option of withdrawing 250,000 (Before tax) from my contributions to the pension. This $250,000 withdraw would cost my monthly check $1750 subtracted from it for the rest of my life.
    My wife and I are 50 years old and in average health.
    Is withdrawing the funds a smart move? What type of investment would be a smart move in this situation (Bonds, S&P) ?
    What would I want to put the $250,000 into maximize it and avoid taxes?
  • Mark,
     
    It is hard to imagine taking the lump sum would be a better option factoring in average life expectancy and the COLA.  However, there are lots of considerings including health, income needs, estate planning goals, dependents, among others.  You could likely roll the lump sum into an IRA.  Investment recommendations would vary by goals.  I would suggest you discuss this with a fee-only advisor for assistance.  
  • i have two questions...1- i'm 66 and have opted to collect my SS at 70. will draw on my $500,00 regular IRA accounts till then. 2- also have $500,000 cash in long term CD's @ 2+% coz we have a very low tolerance for risk...kindly advise options and strategies...thanks
  • Mark - Nice pension!  The $250,000 withdrawal looks like a bad deal to me.  If you live longer than 10-12 years, the pension is a much better deal.  If you haven't already, consider a "joint pension" so you and your wife are protected against a premaure death.
  • Rajen,
     
    Have you considered drawing on your CD instead of the IRA?  If your tax bracket is low enough before starting SS, it might make sense to convert some of the IRA to Roth before taking IRA RMDs and SS.
  • There is a sector (I hope I am using that word correctly) of ETFs called "Volatility" and "Inverse Volatility" and "Leveraged Volatility". When I buy this ETF, what is in the basket of funds that I am in investing?
  • Mark, just FYI, with no Cola, the difference on the payment represents about a 7.5% return on the 250K if you lived for 30 years.  And with an inflation rider, that is hard to beat.  I might be tempted to go all pension...joint life options.  But if you don't have any money saved in other accounts it would also be nice to have a lump sum of money that you could draw from for things like big trips, house improvements, etc.  Assuming you put the money into an IRA, you will have to pay a penalty AND income tax if you withdraw it before 59.5 (there is a limited exception).  Lots of moving parts here.  The best investment you could make is to do a plan with a fee only financial planner and then you will see how to answer this question in the context of your entire situation.
  • Rajen, this is hard to answer without knowing your income needs and your tax situation.  I do know that if you wait until 70 for your social security and do not begin taking money from your IRA until you have to at age 70.5, your tax bill at that time will surprise you.  So I would probably take distributions from the IRA for living expenses until you reach 70.  Using a little of the CD money might also be a good idea (ladder the CDs so you get difference maturity dates).  Your CPA can help you decide how to mazimize the tax advantages by taking IRA distributions to max out your current tax bracket.  Give him/her a call.  Or visit with a planner for an overall strategy.
  • Dear OrenCPA, I'm not sure which ETFs you are talking about but the 3 minimum volatility etfs at ishares are all stocks.  And they probably can invest in almost anything to achieve their low volatility/risk goal.  But none of these include fixed income.  I suggest that you could reduce your total portfolio volatility by using equities AND fixed income/cash.  I've already mentioned Vanguard Wellsley Income Fund as a good alternative for a blended fund (both equities and fixed income) with relatively low volatility.  Remember you can have inidividual holdings within the ETF that have high volatility BUT if they go in different directions at the same time, the overall volatility would be low.  A financial planner can help you come up with a mix that specifically suits your situation and your goal of lowering risk.
  • Social Security Question: My wife and I qualify for SS. I am still working. Can we take her benefits for herself and me as spouse now, and then when I retire take my benefits for myself and for her as spouse?
  • Hi Barry,
     
    A couple of follow-up questions for you: How old are you and your wife?  Have you or your wife ever claimed Social Security benefits in the past?
  • Barry, social security rules just changed.  How old are you?  The key dates for grandfathered positions are 62 by 12-31-15 (there was one for another feature for those who were 66 by April 31 but it isn't effective anymore.  If you WERE 62 before 12-31-15 you will be able to file a restricted application at your normal retirement age and draw off your spouse's benefit while letting yours grow until age 70.  Maximizing social security is complex and alas, not everyone at the social security office can give you a good answer.
  • When I take MRD's from my IRA, should I take an equal amount from my winners or from all of my mutual funds?
  • OrenCPA, unfortunately an ETF name doesn't always match up with what it invests in. As Bobbie mentioned, it could be invested in almost anything. One way to see how it is currently invested is by visiting the ETF company's website or a third-party research tool like Morningstar.com. These resources should provide information about how the ETF is currently invested and what the goal of the ETF is in terms of types of stocks, bonds, etc.
  • Stuart, when you decide to sell to fund your RMDs/Required Minimum Distributions, it is a great time to rebalance.  Decide what to sell based on what allocation you want left after the RMD.
  • Hi! I'm trying to decide if I should consider a longevity insurance (deferred income annuity). I'm 40, single, and have about $480K split 70 stocks, 25 bonds, 5 cash. I'm thinking about putting a part of my bond portfolio (which is in a trad IRA) in a DIA and start annuitizing at age 60-ish. I won't get a company pension, and as I get older and accumulate more $$ for retirement, the stakes seem to get higher with every impending bear market. Any advice would be great! Thanks.
  • My DOB is Sept 1950. Wife is Jun 1951. Never claimed SS before.
  • Barry so you were both 62 by 12-31-15.  A planner can help you decide how to do this.  If you are a do it yourselfer understanding that you might miss some nuances, you can go to www.maximizemysocialsecurity.com and, for a small fee, get your answer.  Disclaimer: I do know economist Larry Kotlikoff who created this site.
  • ICS, one thing to keep in mind when deciding whether or not to go the deferred income annuity route is the risk of inflation. Since no one can predict the future, some folks would consider it very risky to make a bet on what inflation will be like 20+ years from now when you plan to start retirement, let alone the possible 20-30+ additional years throughout retirement. This doesn't even consider the risk of the insurance company who issues the annuity. Let's not forget that some of the companies that had troubles during the financial crisis were once considered "safe" insurance companies. This doesn't mean the deferred income annuity is a bad option for your situation, but you should probably have a fee-only advisor take a look at your complete financial situation before making a decision on which way to go.
  • I am 73 and have IRA accounts, about 65% stock index funds and 35% bond index funds, all with Vanguard. Should I put 5% into gold, either in funds or ETFS, to hedge against a market crash. Or should I put the 5% into gold coins? I am 73.
  • ICS, I have no idea what the specifics are for the product you are contemplating.  And to say that the features AND EXPENSES of such things can differ is an understatement.  For most of my clients we reduce risk by adding more fixed income and cash as they age.  Then, if we do want to create a pension substitute with some of the money,  we wait as long as possible (the older you are the better the payout) to buy a single premium annuity...often age 70.  Of course if you need the money before then that won't work.  Also, interest rates are so low.  Just like being older will increase your payout so will a higher interest rate environment.    You seem young to to the route of a deferred income annuity.  Disclaimer: I am not a fan of annuities except for single premium from low cost providers like Vanguard.
  • An Investor's Guide to the Gold Rally

    www.kiplinger.comAnd two ways to play a rally. Just don't bet the milk money.
  • Bob, Pricing for individual gold coins can vary significantly across dealers.  Purchasing gold in the form of an ETF or mutual fund can provide immediate liquidity and access to the gold market without the added costs.
  • I am using an HSA for the first time this year. I plan on letting it build up and not pull money out until I retire and then use it for healthcare costs when I'm no longer working. I've heard conflicting info on whether those withdrawals will be taxable or not. Can you clarify?
  • Bob, your investment mix seems aggressive for your age.  Do you have to take that much risk to fund your goals?  I tell clients it is a like a football game.  You have a 2 point lead with 20 seconds left on the clock and you have the ball.  Are you going to pass or take a knee?  Obviously take a knee which is often a good idea with your portfolio as you get older.  So think about getting an allocation from a fee only advisor that is likely to maximize your probability of success re: funding your goals.  As for gold, never really been a fan.  I think it is overrated as a hedge and the long term performance is not good and it is so volatile.  Did you know that on the last gold bull market, silver did even better?  So if you feel like you must for for precious metals, I would diversify with a precious metals fund.  But having a diversified portfolio with less in equities would be a better choice to reduce risk.
  • Bob, If you would prefer to purchase gold bullion, this site can give you up-to-date prices and a way to purchase it: https://www.golddealer.com/ (California Numismatic Investments)
  • Bob, keep in mind that if you own a total stock market index fund, you already possibly own some of the companies that would benefit from an increase in gold prices. Also, as the Kiplinger article points out, holding gold doesn't necessarily protect you from stock market declines. Market declines are normal and should be expected, but as an investor, we should expect a return on our money over long periods of time. Even at 73, you could have as much as a 20-30 year retirement so a stock/bond allocation based on your time horizon, goals, and risk tolerance is likely your best bet at outpacing inflation and maintaining your standard of living throughout retirement.
  • Denise, as long as the funds are used for IRS qualified medical expenses then your withdrawals from an HSA should always be tax-free. Just make sure to keep your receipts so you can prove the medical expenses are eligible if the IRS ever comes knocking!
  • I am selling an apartment and will get around $60k, would like to invest in mutual funds - should I invest all at once in different funds and is it better to split into 4 or 6 parts and invest once a month - if so, should I schedule or try to time the market (which is impossible for my skills) - what's the best way to handle that? Thanks again.
  • Denise, if the funds are used for qualified healthcare expense, then there won't be any tax on the withdrawals.
  • Denise, If you withdraw funds from an HSA after age 65, the distributions for any expense other than a qualified medical expense will be penalty-free but you will have to pay income taxes on the distribution.  If you use the HSA for qualified medical expenses, there is no penalty and it is not taxable.
  • Salya, we can't time the market either.  No one can.  Math shows that it is better for the money to be in the market for the best long term performance.  But, unless you are a truly aggressive investor with guts of steel, putting in the money all at one and then having a big downturn can be very painful.  I would sugget putting in an initial amount and then dollar cost average the rest into the market (monthly purchases) over 6-8 months.  Usually a brokerage can help you automate those regular purchases (after the initial investment).  Be sure to use a discount brokerage.
  • I find that I have not kept good records to be able to figure my deductible versus non deductible dollars in IRA's, 401k etc. I am sure that some of the dollars invested were non deductible since my income was high. Is there anything I could do to make sure I'm not taxed twice.
  • Seb, Did you prepare your own taxes?  If so, did you file Form 8606 each year to show non-deductible contributions.  If you used an accountant, he/she may have records going back to when you made the nondeductible contributions.  If there are no records between you or your accountant, it will be difficult to avoid being taxed again on the nondeductible contributions.
  • Seb, can you find the tax return for the last year you had a non-deductible contribution?  If so, and if such contributions were reported correctly before that, Form 8606 should tell you what your basis is/was.  If you don't have that, I'm wondering the the IRS has the magic number for you somewhere.  Worth a phone call.  I have to tell you that this is the reason I don't like non-deductible IRAs.  There is no current tax savings and the recordkeeping is onerous given it could be decades before you need the information.  Yes, the money does grow tax deferred but, since different buckets of money are desirable in retirement, I just have my clients put the money in a taxable account.  I just added this part for the readers.  No reason to feel bad about where you are on this.  The past is the past.  Good luck!
  • Hi, I am 26 years old and have quite a bit of cash in my bank account. I would like to invest but given the current environment, not sure where to put it.
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