Hi Seth. If I'm just looking at the cost of funds, I'd say pay down the mortgage. On the other hand, If I had extra money and a 3.5% mortgage, I'd be tempted to increase my retirement savings or even invest on an after tax basis if I was in for the long haul. Sometimes this can be an emotional as well as a financial decision. Need to look at the bigger picture.
Seth, There's no financial incentive to pay off a 0% debt. 3.25% mortgage interest is also about as low as you can expect to pay at this point. If you are determined to pay off one of them, however, paying down the mortgage would make more sense (though you would lose your mortgage interest deduction). Alternatively, you could consider investing for retirement with your extra cash flow. The rationale there is if you can earn more than 3.25% in the portfolio, you'd come out ahead. This excludes any tax planning implications.
Hi Reed - your wife can not collect benefits on your earnings record until you file for benefits. She could file at 62 to receive her own benefit and then switch to yours once you file.
Reed, I agree the answers to these questions are complex, and therefore I don't like to give advice on SS without seeing all of the numbers, however, you've lost many of the strategies that were once available between spouses. There are calculators online that you can pay for to figure out what may be the best approach for you, and many fee-only advisors will take the time to go over all of the options.
Hi Lindsay, Congratulations on smart savings at a young age. A couple of things come to mind - have you done any goals based planning (i.e. start a new business, someone leaves the workforce for some period, 2nd home, charitable gifts)? That's one way to sift the possibilities of how our money can work for us - what do you and your husband personally care most about funding? Also, savers often focus on retirement (tax-deferred) accounts to the exclusion of a taxable retirement account - these are very useful at the distribution phase and can be built using smart tax strategies.
First of all Lindsay, congrats on getting to 15%! That will make the world of difference. I would look at your options, and if you think your taxes may be similar in retirement (or perhaps higher, I see it more and more) to diversify your savings to include Roth. Now, what you are eligible for depends on your income, it could be an IRA, it could be your 401(k) offers an option. I would also look at having some funds in a taxable brokerage account, though after any Roth ideas. Finally, there are sometimes options to shelter and save more into 401(k) accounts than just the regular contributions. This is plan specific, and specific to you, but there are a lot of options. I would recommend sitting down with a NAPFA planner to look at all of yours.
Lindsay, I'm not sure how much 15% of your income is but you are able to contribute up to $18,000 a year into your 401(k)s. If you haven't maxed them out, that would be one option for additional savings. I agree with Bonnie that starting a non-retirement account would be another great option. You can open a brokerage account, which is just like a bank account in which you can buy stocks and bonds, and put any extra money you have there. Unlike retirement accounts, there are no age restrictions on when you can take money back out of a joint brokerage account.
Lindsay, you guys are turbo savers. Regarding the 401(k) plans, you are not limited to 15% of pay. You can contribute the lesser of 15% or $18,000 as long as your plans permit. As for your other savings, have you thought about your goals. What do you want and when do you want it? Answering both of those questions will guide you. If you want to retire early, sock more money into no load mutual funds or ETF's. If you want to buy a second home in three years, a money market account is right for you. I can see that my colleagues gave you some really good advice (They can type faster than me).
Hi Bob. Since your wife was 62 by December 31, 2015 she should be able to do what you've laid out. At her full retirement age she would file what they call a 'restricted application' to receive only her spousal benefits. This would allow her own benefit to grow to the maximum age 70 benefit. This rule was recently eliminated so you guys just barely made the cut!
Hi Paul, which 15? Do they pay dividends? That wouldn't be enough for me partially because the normal, expected volatility might still feel like too much pain at times, defeating any discipline because I may jump out of the allocation
Hi Paul. This is one of those questions where a hundred people will give you a hundred answers. If you owned Berkshire Hathaway, you might be okay but for the most part I do not believe you can attain adequate diversification with 15 names.
Paul G, if you listen to Jim Cramer, yes. he would say so. I would argue you're taking on risk if any one of the companies is an Enron, GM, or any of the other many examples of companies that you never can know all of the motivations of everyone within a company. You may enjoy stock-picking, I've always found it to be an activity though that doesn't offer the rewards for the risk.
Thanks for the question, Paul. Diversification is not just a matter of having more than one of something. It is a way to spread the risk among asset classes and risk levels. You may have 15 stocks invested in small cap technology companies, which would not be considered a diversified portfolio. Consider using mutual funds composed of many stocks and diversify among asset classes in this manner.
Hi KMM, For a known expense (like a down payment), collect your cash now by as smart selling as you're able to do with your funds (look at your cost basis to calculate your gains). The market is withing striking distance of all time highs so why not get your cash ready now for an expense you intend to make in a relatively short timeframe?
KMM, if you're going to need funds within a few years, if they aren't in very short-term bond funds, I would get them there, or better yet an FDIC-insured, high yield money market account. You shouldn't invest for short-term / mid-term goals that you need the money for.
KMM - I'm of the mind that you can't really time the purchase or sales of mutual funds. Perhaps you'll get lucky but none of us knows if the market will go up or down for the next year. In your case, I would think about selling soon - not because it's necessarily the best time for the market but because you need the money so soon. Generally, it's best to keep money you'll need in the next 1, 3 or even 5 years in cash or conservative investments. Stocks are too risky for such a short time frame.
KMM, you don't say what the mutual funds are invested in but if you need to have that down payment in your hands in a year or two, you need to start selling now. Nobody knows what will happen to the markets in the short term and you certainly don't want to find yourself needing that down payment when your investments are only worth 80% of what they are worth today. Could you get more by staying in the market? Yes. Could you not have enough buy staying in the market? Yes. I would take the safer route.
Lynn, it is my understanding that qualified charitable distributions can only be made from IRAs.
Great question, Lynn. Consider rolling over a portion of your 457b to an IRA and make your qualified charitable distribution from that account.
Hi Lynn Smith - yes, it's a QCD - qualified charitable distribution. Pub 590-B from the IRS provides details. And yes, roll to an IRA first - these also count towards your RMDs.
These first two hours flew by so quickly! Thank you to the advisers who were with us this morning.
Joining us now we have Danielle Seurkamp, Vid Ponnapalli and Timothy LaPean. Welcome!
Victoria, one thing I would suggest is putting money into an IRA for your husband. He doesn't have to work in order for you to do that; you can put money in there based on your earnings as long as you make less than $184k per year. It sounds like he's over 50 so you can contribute up to $6,500 a year for him.
Victoria, you can also save money into a non-retirement brokerage account. It's actually beneficial to have pre-tax accounts like 401ks and IRAs as well as after-tax accounts. It can help you minimize taxes in retirement. You could open an IRA for your husband and a joint account somewhere like Vanguard and start saving there.
Victoria - As Danielle said, you can contribute to an IRA for him. Since you are legally married it probably doesn't matter too much who's name is on the accounts but contributing for him could increase the overall amount you are allowed to save into retirement accounts by up to $6,500.
Howard, the article has it correct - you will need to take a separate RMD distribution from your 401(k). If you had multiple IRAs, you are allowed to total the RMDs and take from just one account but the rules are different for 401(k)s. There is an FAQ page on the IRS website if you'd like more info.
Victoria, maybe others have a different view but I don't think there is any way to answer whether it's better to buy a stock pre- or post-merger. Each case would have to be evaluated independently and even then there is no guaranteeing you would make the right decision. Not a very satisfying answer, I know!
Joseph, that is correct. Your wife would receive your larger benefit in the event of your passing. That is one reason the higher-earning spouse will often delay their benefits to age 70, allow
s their benefit to grow as large as possible
Victoria - I generally recommend against investing in individual companies in favor of low-cost, passive index funds. As to your specific question, I don't believe there is a reliable general answer.