Peggy, I hope you will find an advisor to guide you on a smart distribution plan specifically for you. There are ways to take distributions favorably from accounts where capital gains are heavy. Specific guidance based on your cost basis, your tax situation, your goals are important for best outcome. Good luck.
Peggy, I believe you should look at your overall allocation first. You don't say how much stock you own or if it is shares or mutual funds. You don't say how much income you can expect in retirement or how many other assets you own. You don't say if the stock is in a retirement account or a taxable account. You did say that you are nearing retirement and I think you should seek out a fee only financial planner to help you work through this. The stock question is only a piece of the overall issue. Go to www.napfa.org and seek out a planner in your area.
Peggy, The risk of using a stop loss is that it could trigger in the event of a short term flash crash. If you are worried about potential volatility you could always look to implement an option strategy that would reduce downside risk. Another appropriate course of action would be to consult a tax advisor to fully understand the implications of your capital gains approaching retirement. The capital gains tax is impacted by your overall taxable income, so you may want to delay the sale of some of the positions until after retirement depending on your income at that time.
Peggy, one more note - volatility is NORMAL, expected, and necessary to a functioning market. This is important to accept so that your decisions include this context.
Jays- The risk you run with staying in only the money market is loss of purchasing power. Inflation is historically higher than the interest paid in money market accounts. You would benefit from working with an advisor who could educate you about investing and help you feel more comfortable with getting into the market. As far as the social security goes, it's hard to know whether or not that was the optimal decision without having all of the information.
Jays, you've asked 2 questions 1) are you safe not investing and 2) did you make a mistake taking SS at 62. 1) no way to know unless we know a lot more and specifically how much you spend - that informs whether you 'need' to take any market risk for what we project is your longevity. Inflation, while low for the last several years has a historical rate of 4.22% - if we return to that or something higher, a lot of folks will struggle to buy milk.
2) Probably common knowledge now that taking SS at 62 permanently reduces your benefits and the current growth rate on delaying benefits between full retirement age (FRA) and age 70 is currently 8% (hard to duplicate in the markets as a sure thing over a < 5 year period!). And you only have to live to about 81 to have won the bet on if it was worth delaying benefits.
Jays, what do you think about inflation going forward? Our currency has changed every 50-75 years, and with it has come periods of inflation. In addition, we have never had as many unfunded future liabilities as a country as we do today, and we are not covering the costs any longer by borrowing or taxing, so we will be paying the bills via inflation. You are taking a major risk - the risk that inflation won't happen. There's no reason to have money you aren't spending over the next 5 years in a money market. Even if rates were higher, money markets always lose to inflation. I think you are likely mistaking stability with safety.
Jays, to answer the Social Security question, my answer is "most likely" but there isn't anything you can do about it now. I will say that $2.7M will get most people through a comfortable retirement but it troubles me to see you keep all of that money in a money market fund. You can do so much more with that money. I believe your issue is not understanding how investments work. You don't have to get "burned" in the capital markets. It's a matter of understanding how they work and managing the risk that goes with them. You were smart enough to accumulate an impressive $2.7M. Take it one step further and find yourself a fee only financial advisor at www.napfa.org.
Jays, one more thought - you may be smarter than many folks IF: they don't address the shortfalls soon. The last change to SS before the one in April 2016 took years to implement and the this most recent one took months. There is no 'politically protected age' at this point. They must reduce benefits, raise FICA rates, or delay benefits or some version of all 3. Who knows, you may be smart to take what you can get now.
Wade, in general, the lump sum makes sense if you don't need the funds for years, or have many other payments. For those closer to retirement, the pension payment will be much higher than anything you can get in the market, so it is usually the better option, especially if funded with the inflation rider. Pensions give you the option to consider taking more investment risk - since you have what amounts to a giant bond - if you won't need to make withdrawals due to it, and so, diversify your other assets very broadly. I would look at safer foreign bond funds and other investments for dollar hedges on the fixed income side, and diversify the rest to growth.
Wade, too specific for this forum and a really important financial question for you to answer for your family. The answer cannot be undone so please seek a fee only planner in your area to walk you through financial modeling of one or the other. Also check on the strength of your pension directly. The strength of the pension can be important. We've had clients be forced to take lump sums after choosing the pension option as their companies could not fund into the future.
Wade, Without knowing all of the information and your goals, it's hard to say for certain which is the better option. We agree with Bonnie-- you definitely need to have a fee-only planner sit down with you to make this decision. Here are some things to consider: Your life expectancy (are you healthy?), your spouse's life expectancy and the age difference between you two, and the amount of other assets currently invested and the expected return on those assets. Also, it'd be important to know if you have a Social Security offset due to your pension, which would reduce the amount of SSI benefits you are eligible to receive. These are just a handful of the decisions that make this too difficult to answer specifically in this forum.
Jays, I may be missing how they're connected. I assume you're holding the teens SS in their own accounts as you're supposed yes? We have clients with that situation and it's been a big boost in life for their kids.
Wade, based on what you said, my gut reaction is to take the pension but I'm going to tell you the same thing that I am telling other near retirees on this board. Retirement planning is a very big deal and there are a lot of opportunities to make mistakes. It is not a do it yourself project. You might have so much money that it doesn't matter how you take your pension. Then again you might not. Is the 50% joint and survivor benefit the best for you? How do you know? Do you understand that your wife has the final say regarding your pension? What does she think? Seems like you have a simple question but it really isn't. Follow Bonnie's advice and get some professional help.
Thank you for all of the great questions. We have quite a few in the queue, but we're working to get to everyone's soon!
Jay's - that can be a valid strategy. I've never had to do the calculation to know if it makes sense, and we can't really know in your circumstance. It doesn't sound like you need to get the absolute most out of your finances. If you do feel that way, the money market is going to be a much bigger issue than the SS in my estimation.
Brian, your refund has nothing to do with your mortgage payments. It has to do with how much your employer has withheld from your pay. Mortgage interest is a deductible expense but beyond that, I really can't tell how much of a refund you will get, if any.
Brian, I know you now know this, but Americans do not always tell the truth about their finances to their friends :) and when friends act on this false information, it can be detrimental to your finances. Rental income is a separate strategy that can make sense for some folks. When it makes sense it usually also makes tax sense. A good CPA can run numbers for your situation to illuminate why/why not this strategy is tax smart for you.
Brian, While mortgage interest and real estate taxes are both itemized deductions, these are no guarantees that you will get an income tax refund. A tax advisor or a reputable online service like TurboTax could help you estimate the amount of any potential refund.
Brian, impossible to know, it's not just based on interest, a large part is the property taxes and other deductions. And, you don't want a refund anyway, so you've been smarter than your friends. All a refund amounts to is a 0% loan you made to the government that you didn't have to. Meanwhile, you had your money all along. If you find your home gives you a big refund, you should talk to your employer about reducing your withholding so that you get to keep the money.
Sammo! Thanks for the softball - no.
Sammo - a more detailed answer is they are appropriate for a small number of folks who have saturated all over vehicles and can afford to overpay for the privelege.
Sammo, maybe, but not 99.9% of the type any annuity salesperson will talk to you about. This is a complex question, but they can serve a purpose for income. Most, however, prefer to not use them when they understand the trade-offs I find.
Sammo, It depends but I will say that you should never buy an annuity or any investment unless you understand everything about them. Some annuities are simple and straightforward. Others are very complicated. Be especially careful of those annuities that let you be in the stock market but guarantee that you can't lose. Always best to have them evaluated by a third party.
Sammo, I HIGHLY recommend anyone considering an annuity go speak with a NAPFA, fee-only advisor for a second opinion. I meet too many clients after they realize what they've purchased is not in their interest, and they're usually stuck with a choice of holding onto a dud annuity and likely not making very much on it, or paying a major penalty to get out of it. Annuities can be very costly, and in order to overcome that cost they can take on a lot of risk.
Sammo, I will also add to Frank's - you buy the contract, not the conversation. This is important because most annuity buyers never read the contract.
Hi John, I think they way you've asked the question is yes, however, let me invite you to ask a fee only planner to do an SS analysis for your household - it can be very illuminating.
Your wife should be able to switch to your spousal benefit once you file at age 70. As you said, she'll only get half of your FRA benefit but if it is greater than her own benefit they will allow her to switch over once you've filed.
John R, you're still in the ballpark where there are some strategies that are available to you both. I hate to give off-the-cuff advice on SS benefits, and recommend doing a calculation with a fee-only planner to look at the options. It's an area I find too many landmines to not look at the actual numbers. There are even some that you can use yourself online, though the good ones involve a fee, and the inputs may be complex.
I would suggest paying the home loan off first since you are paying interest on it and not the car loan.
Seth, you look young. A long-term mortgage and a 0% debt are in your interest to keep. They give you a lot of options to use other people's money, and save for yourself. I would first advise perhaps not paying down either (assuming the mortgage is fixed), and investing. If you're really concerned about paying down debt, there's only one you're paying interest on, so that's likely the one I would hit.
Congratulations Seth! Quick question - how is it a car 'loan' with 0% interest? In any case, I agree with Danielle, if the car loan isn't costing you anything and the only other debt is deductible low cost mortgage interest, pay that first. However if you have extra money towards debt have you confirmed your savings and investments are as high as they should be?