Rick, there are risks to both products. In both cases, interest rates will affect the value of the investment. But if you plan to hold them to maturity, then the brokered CDs may be worth exploring. Don't forget about reinvestment risk though. With a diversified bond fund, as old bonds mature, new bonds at the theoretical higher rates will be purchased and that interest will help offset the negative impact of rising rates. With a brokered CD, you'll have to find a way to reinvest that interest in order to take advantage of the higher rates. This might be hard to do if the dollar amounts are negligible.
SR, if you do not need the money and do plan to give it to your children (wonderful strategy for ROTHS as it increases the number of years of at least partial tax free growth), AND they are in much higher tax brackets then it could make sense to rollover even more. But tax law uncertain and there is talk of changing ROTH rules. Since we can't know the future, I really like your strategy of maximizing the 15% bracket. That is so smart (good thinking) and probably what I would do for myself.
Victoria, I think what you're referring to is called the "credit utilization ratio" part of your FICO credit score. If so, there are actually multiple factors that play into this because not all credit is treated equally (i.e. credit cards are treated differently than mortgages and other installment accounts). In general though, it's best to have BOTH a low credit utilization per account and a low credit utilization overall.
George, I think that finding this answer specifically for you is one of the best benefits of working with a planner. The answer is different for everyone. A REAL planner (CFP for instance and not someone who just decides to call themselves a planner) will review what you have (retirement income and investments) and what you want. Then they can determine how you need to invest to have the greatest probability of success. Many times I am able to show clients that they are more likely to be successful IF they invest more conservatively. Why take risk if you don't need to (you are the quarterback and you have the ball and a 2 point lead with 14 seconds left in the game---will you pass or take a knee?). Being more conservative though might fund all your requirements but it will probably leave you with less terminal money. So if leaving an inheritance is important, that might change the allocation. As for 60/40, alas some of my clients are so behind on savings as they anticipate retirement that they HAVE to take more risk, perhaps even more than that, to fund their goals. Go find out the right answer for YOU.
Wade, I'm in favor of keeping duration, or the time it takes to pay off the bond, short. So I'm a fan of short term bond funds. As rates rise, short term funds will adjust faster than longer terms.
Mia, if you want a single premium fixed annuity (you give them a sum of money and they pay you a monthly amount for the rest of your life...you can take less to insure distributions of a certain number of years even if you should not live long), check with low cost vendors like Vanguard and Fidelity. There are a lot of products out there with bells and whistles that make it all confusing. These companies will offer you a plan vanilla annuity that is easy to understand. They have sound financial footing. Know that the older you are when you start the annuity, the higher the payout. Therefore, we often wait until age 75 and deplete retirement accounts to fund living expenses in advance of that. A good planner can help you discuss your options. There are a lot of good insurance agents out there put I prefer you work with a planner who is NOT selling you a product solution.
Penny, the good news it that you don't have to have fund the ROTH until 4-15 of the following year. That way, you can have your taxes done (or do them yourself) and see how much capital gain you could realize and still stay in the 15% bracket. This is important as the capital gains rate IS -0- if you are in the 15% bracket (income includes the gain but there is no tax on it). You don't have to guess and can be very exact.
Larry, how long have you had the policy? Is there still a surrender fee if you cash it in? Do you still need the life insurance component? How much tax will you have to pay on the gain if you cash it in? These are questions I would consider. If you have had it long enough that you won't have to pay a surrender charge, you don't need the life insurance, and the taxable gain won't be that large (if it is a big lump sum beware of tax consequences...check with your tax preparer), then I would move forward with this and pay off those credit cards. Then don't close the credit card accounts (that can hurt your credit) but don't use them unless you VOW to pay them in full monthly. If that may be a problem.......Sometimes I actually ask clients to put them in a container, cover it with water and freeze it. This makes it a very deliberate decision should you thaw them out to use them.
Ted, if you're eligible for a health savings account, then that is definitely worth exploring. Some advisors call it the "secret IRA" since you can max out that account during your working years and, assuming you don't need the funds, use that money for healthcare expenses in retirement. Many HSAs have an investing option available for money you don't plan on using anytime soon. There are a several other ways to minimize or defer taxes when investing for retirement depending on your situation, so it'd be worth talking with a fee-only advisor to get a second opinion.
Ted, consider a taxable investment account. In your future, it might be very advantageous to be able to access the money before age 59.5 without paying a penalty. Put most of your equity investments in the taxable account as any gains or qualified dividends will be taxed at lower rates. Keep most of your fixed income or REIT investments in your retirement accounts. That money is going to be taxed as ordinary income regardless of where it comes from.
Don, risk and return are directly related. The less risk you take, the less you should expect for your investment return. A good advisor should be able to help you find a conservative, globally diversified mix of stocks and bonds that matches your risk tolerance and time horizon. Another option that might make sense depending on your situation would be to take a portion of your savings to purchase a single premium immediate annuity with a cost of living adjustment, but only consider that after talking with a fee-only financial advisor since there are many pitfalls to avoid with annuities and the people who usually sell them. Also keep in mind that risk isn't just the ups and downs of the market. One of the biggest risks to a retiree is outliving your money so your investments need to keep up with your cost of living.
George, you are going to have to start taking distributions from those retirement accounts in a year...age 70.5. Why not use all those funds to pay off the mortgage faster. I can't know your tax situation but it seems like a big lump sum withdrawal to pay off the mortgage might create a big tax bill. You might check with your accountant and see how much you could take out (even starting now and even more than the RMD amount when that starts) without moving into the next tax bracket. Take distributions up to that amount to use to pay off the mortgage. This assumes that all of your investments are in retirement accounts. BTW, 1.75% interest for 15 more years? Where did you find that great deal? :-)
George I should have added that as you have to take the distributions before year end, you need to do tax projections with your CPA in December to figure out how much to take to maximize your current bracket. Those with taxable accounts need to be careful to figure out what the taxable year end distributions from their mutual funds/etfs will be before they do the projections as this could change the numbers significantly.
Jamie, do you have any student loans or other debt? If so, I'd use any extra money to pay those down as quickly as possible. Once any high interest rate debt is paid off, then you can look into investing. When you're at that step, make sure your portfolio should include a globally diversified mix of stocks and bonds. Typically, for a smaller amount, you can find a low-cost asset allocation mutual fund that matches your risk tolerance and time horizon for when you'll need the funds. Hope that helps! Go Cyclones!
Jamie, check out Vanguard's target date funds. There is only a $1K minimum and the expenses are very low. Great way to get diversity with small dollars.
Kristy - I have ran across some annuities such as TIAA that do NOT allow you to move funds out except 10% over 10yrs. I'd check with the HR and custodian or annuity company and verify. But because of how the investments are made in the account, it might be true that you cannot move them out. Good luck.
Dennis you are RIGHT...why take the risk if you don't need to. Typically your allocations should get more conservative as you get nearer to retirement. If you are maxing out your retirement plan, it is likely you are saving at least 15% of your income. If so, 60/40 sounds fine to me.....a generic answer and you could get a specific one by working with a financial planner.
Dennis, unfortunately, it's incredibly difficult (impossible?) to consistently know when the stock market is "too high" and it makes sense to sell some or "too low" and it makes sense to buy more. With that in mind, make sure your allocation to stocks matches your time horizon (i.e. when you'll need the money) and your risk tolerance. And you're spot on...don't take the extra risk if you don't need to do so in order to reach your goals.
Morgan, forget the broker. As they are paid on commission it takes that much to make it marginally worth their time to deal with you. Go to a lost cost brokerage like Vanguard. You can invest in a target date fund with as little as $1K. There may be some annual fees if your account is below a certain balance but at Vanguard any fees are as low as you would see anywhere.
My pleasure George. So talk to your CPA to get those projections done as it could save you money and shouldn't take much time.
Morgan, you can certainly start an account with less than $10,000. Many mutual fund companies offer low minimums and allow you to automatically purchase new shares each month through automatic transfers from your checking or savings account.
Barney - I don't believe you will have a problem using form 706 and also showing 709 as a gift to your son. For future reference, I believe you could disclaim $70,000 of the inheritance from your wife and it might go to your son, but you'd probably want to check with an estate planning attorney first.