Welcome to September's Maximize Your Money Q&A!
During the event, expert financial advisors will answer questions across an array of personal finance topics.
The floor is open for questions if you'd like to submit one ahead of time by clicking "make a comment" above.
Talk to you soon!
Good morning and welcome to September's Maximize Your Money chat. Let's give everyone another moment to get logged in.
Welcome everyone! For the next 8 hours, NAPFA planners will be on hand to answer your questions. You can find a Fee-Only financial planner in your area at www.NAPFA.org.
With is this morning are NAPFA advisers Bonnie Sewell, Robert Schmansky, Frank Boucher and Mark Coffey. Thank you all for being here!
Here's our first question:
Good morning Kiplinger's and consumers!
No, for married couples you are able to exclude $500k in gains for sales of a primary residence.
David, as long as you have used that home as your primary home for two out if the last five years, you should not have to pay taxes on any profit.
David, IRS Pub 523 is your guide here, I believe MFJ is your $500k exclusion with all others being $250k and as Frank pointed out you may be able to avoid any taxes. See the guide (Pub 523) to walk through your particulars..
James, that is exactly what I recommend. The 60/40 allocation depends on your personal circumstances but the three year bucket is a sound strategy.
James, That sounds like a good plan. We would recommend rebalancing more often than once a year. Perhaps review quarterly.
James, that sounds reasonable on its face although whether it suits your particular situation would require more information and you hit on a very important point - managing cash so you can keep whatever allocation working and you don't have to sell into trouble because you are managing your cash.
James, that certainly sounds like a reasonable strategy, but a few thoughts... I think you want to also look at tax planning - maximizing your tax bracket, rather than just taking a minimum distribution. Also, 60/40 is certainly reasonable if you don't need too much in withdrawals, but I still recommend getting more conservative over time. At 70.5, 60% in stocks may be somewhat heavy.
James and that 40% presumably in bonds bears watching as the bond market is not and has not been a 'market' since the downturn.
Sheila, A good target for an emergency fund is a minimum of 6 months' worth of living expenses.
Hi Sheila Ch, you're doing the right thing by have a cash reserve to separate your long-term investing from emergency needs. I don't use rules of thumb for how much cash is necessary, but base it on your personal risks. I would consider how long it may take to find a new job. Perhaps it will be difficult to find a job in your field. You may find that cutting back on long-term savings (but still getting any minimum match) and building up that cash reserve is a good idea. Also, have emergency credit available just in case. You don't want to need credit and have to apply while unemployed.
Sheila, build up that emergency fund until it covers at least six months of living expenses. Pay off as much debt as you can as quickly as you can. By the way, that's the same advice I would give you if you were not in fear of losing your job. After you have done these things, increase your retirement savings as much as you can or allowed. Good luck to you!
Sheila, best strategy for economic uncertainty: Stay healthy, keep your human capital (ability to work) fresh, focused, and flexible. The emergency fund idea can range from 3 months - 24 months depending on a particular situation: 3 months (I'm a gov't worker, mid life, live well below my means) 24 month (I'm a sales person in a volatile industry and l live above my means)
Hi getting there, with the marginal tax brackets, any dollars that fall into the next tax bracket will be taxed at the higher marginal rate. The only exception is Alternative Minimum Tax, which is a flat tax rate system.
getting there, moving up in brackets can be a good thing! I agree, it's not something to 'avoid at all costs' but it is something to try to have a game plan for. I like to review what our current and future rates may be. Many spend too much time trying to minimum taxes today, and forget to consider taxes in the future! If you have a pension or even just with Social Security, you can pay more in the future which nullifies the benefits of pre-tax savings. Look at having a good mix of accounts - pre-tax, Roth, and taxable.
Getting there, I think you're referencing tax planning that avoids a higher tax hit by postponing income, investing in funds/stocks with qualified dividends, tax-exempt interest . . . This is good planning. It becomes less than great planning when "time value of taxes" is not considered. I agree with my fellow planners that taxes are not to be avoided at all costs but where it makes sense to do so (its consistent with your overall plan and investment strategy) it can be worthwhile.
getting there, we have an accountant replying to this board and he will probably not like this but I agree with you as long as the incremental creep into the higher bracket is small. The best way to manage taxes at RMD time is to plan earlier.
KC, your pension income does not affect your Social Security benefit. Only earned income. It looks like you want to take your Social Security benefit at age 62. For most people that's not a good idea. Your benefit will be permanently reduced. Think about what you want to do in retirement and how much money you need right now. It might help if you consulted with a NAPFA professional who can explain your options. You could be making a very expensive mistake.
Kcbrewmeistef, Any taxable income (including your pension) has the potential to increase the amount of your Social Security benefits that will be taxed. However, pensions are not considered earned income for purposes of reducing your SSI benefits before full retirement age.
Jeffrey, Yes it does get stepped up.
Scott, maybe - it can be nice to have rental income and it can be a pain to have a long distance rental. After you interview and price property managers to be the landlord in your absence, do the numbers still work?
Scott, If you're unfamiliar with the area you're moving to, renting can be a smart option for the short term. This gives you the flexibility to try out different areas without having to make any immediate long-term financial commitments.
K - I'm only in Virginia and I plan to retire to warmer NC!
Scott, I think you are doing the right thing. If a client tells me they want to move to another location in retirement, I tell them to rent for a year to see if they really want to live there. If so they can continue to rent or buy as they see fit. During that year, you may want to rent out your current home or sell it and be prepared to buy something else or rent if you return to your current area.
Scott, I misread your question - sorry, yes, Summit is correct - or you can check out Ideal Living and other similar companies as they will invite you down for little $$ to check out areas and their developments.
Scott - the only major downside in my mind is stability of your residence is out of your hands. There are plenty of landlords looking for people like you that will be respectful of their property; there's also a lot of boomer landlords looking to retire themselves and sell their homes. I agree with Summitt, it's a great first step in a new area to find where you want to settle.
Peggy - I don't recommend stop losses. The downsides are you have to decide when to get back in, and most people do not do that well, and the loss can trigger and the market bounce back as it did recently with Brexit. You should find out how much you may need over 10 years, and try to have as much of that in bonds. If you have at leave 5+ years of withdrawals in safer investments, a diversified portfolio, then it doesn't matter what the market does. If you are conservative and can get to a point of having 7-10 years of needs covered in safe money, you shouldn't worry at all about the market.