Hello, and welcome to this edition of Jump-Start Your Financial Plan with NAPFA. The chat will take place tomorrow, Thursday, July 18, from 1:00 to 3:00 p.m. EST.
Before then, please feel free to submit a question in advance here. See you tomorrow!
Hello. This is Lon Jefferies, CFP with Net Worth Advisory Group in Salt Lake City, Utah, signing in!
Pat Jennerjohn, signing in from sunny Oakland, California.
Hi, Lon and Pat, thanks for joining us today. We hope it's not as scorching in Oakland as it is in DC right now!
Oakland is a nice pleasant 69 degrees right now
Well, welcome everyone to this month's Jump-Start Your Financial Plan with NAPFA chat. We have Lon Jefferies, Pat Jennerjohn and Debbie Frazier on hand today.
Great! Hi Debbie. And welcome everyone. Let's dive right in.
Hi Perry. Thanks for joining us.
Hi Jon. That is a hard question to answer without more information about your circumstances, but I would suggest considering when you will need funds from your investment account when determining what investment is best for your needs. On a basic level, constructing an investment portfolio with the appropriate allocation of stocks vs bonds to match when you might need the funds would be a good place to start.
Jon - In addition, be aware that the TSP is a great program with low fees and some great diversifying options. You may already be in good shape...
Hi Jon. To amplify on Lon's answer, you might split your resources into "buckets" with different timing needs - for example, shorter term money for possible future purchases such as a new car (cash) versus longer term goals which can be invested in mutual funds, or the options available in your TSP.
Jon, Congratulations on having no debt. Since you have been retired for 2 years, you must have some sense of what yo need to take from your investments. Keep a couple of years of needs in cash in your savings account, then you can decide if the balance is worth constructing a portfolio, I would look at Vanguard funds. Your Thrift Saving is already invested, so you should think about whether or not you need to invest in anything more adventuresome than short term bonds with the remaining cash. I woud not really recommend an annuity.
Hi Yasapta. A 403b and 401k account are similar in many ways, but not across the board. Generally speaking, you are probably ok to consider them comparable in most circumstances, but double check. Do you have particular questions about your 403b?
Yasapata, your 403b plan is very similar to a 401k plan; 403b plans are used by non profit companies. The contribution limits and withdrawal requirements are very similar. Here is a good link that explains: www.moneycrashers.com/401k-and-403b-q-a/e
ICS - You are doing great. Fidelity recently published a study saying a 35 year old should have 1x his salary saved for retirement by age 35, and 2x his salary saved by age 40.
That's a great little fact, Lon.
ICS - you should be putting enough into your retirement plan so that you get any employer match. If there is no employer match, perhaps 6-10% of your pretax dollars should go into a retirement plan. Then, you need a liquidity fund that will cover 6 months of your normal expenses (leaving out things such as vacations). After that point, you can save long term in a non-retirement account, such as a portfolio of mutual funds.
To extrapolate on that Fidelity study, they recommend people age 45 have 3x their salary saved, people age 50 have 4x their salary saved, people 55 have 5x saved, people 60 have 6x salary saved, and people 67 have 7x their salary saved.
ICS, there are many websites where you can get an idea if your savings are enough. Before you begin, take out the cash that you know you plan on spending for big ticket items as they are not really investments. Then keep an emergency account in savings, again, not an investmen category. What is left over is your money for long term needs such as retirement.
Could point Pat. Further, in my experience, I find that people who are saving 10% of their gross salary are usually on the cusp of meeting their retirement goals, while people who have save 15% are on pace to enjoy a more luxurious retirement than they were hoping for.
If you want to be a stock broker, Edward Jones has a good reputation and training program. If you want to work on a fee only basis, obtaining a CFP certification is a necessity. Depending on where you live, I would contact some NAPFA members (napfa.org) to ask if you could meet and get an idea of what is available.
Since you are asking NAPFA members, of course our suggestions will reflect our fee only approach. It could make sense to start out with a brokerage firm, yet you will be in a commission based environment. However, you could gain some experience which you could then leverage into a fee only practice down the road. AND be sure that you study for and get your CFP certification for sure, just as Deborah suggested (and yes, make friends with folks in NAPFA too).
Rocko - Familiarize yourself with the different types of financial service professions. Over one million people in the US refer to themselves as financial advisors -- this includes life insurance salesman, annuity salesman, stock brokers, financial planners, etc. Determine what you actually want to do. If you are interested in becoming a comprehensive financial planner, look into the Certified Financial Planner (CFP) designation. That will give you knowledge of a broad range of financial topics and how they relate to each other. Next, determine how you want to get paid. A large portion of the industry is paid via commission. This side of the business may have more of a sales-type feel. You could also look at the fee-only side of the business, which never collects commissions but is paid more for their time and expertise.
Lee, did you mean Million for accounts. What is your question?
Lee - Again, take a good look at when you will need your investment funds. If you don't intend to need your funds for 10 years, you can afford to be more assertive with your investments than you could if you will need money in a year or two. Again, the most important decision you can make is how much of your portfolio should be invested in stocks vs bonds. In a general study, it was found that since 1970, a portfolio invested 100% in stocks endured a loss as large as -39% in one calendar year (2008), while a portfolio that was 50% stocks and 50% bonds only endured a loss of as much as 15% (also 2008). As you might expect, a person who won't need their funds for 10 years can endure a larger loss because they have time to allow the market to recover.
Lee, your question is great; now - one of the variables that you need to consider is your current spending. I see that you are still working, and drawing Social Security. I would assume that, at your age, you are taking distributions from your IRA as well, but perhaps not your 401k. For anything that is provided from your investments, I would suggest that 18 months to 2 years of that need should NOT be invested long term. The rest could be invested more for growth, depending on the amount of investment risk you are willing to take. That protects your nest egg long term from inflation.
Lee, to clarify, the amount of money that you take from your investments to cover living expenses each year(that aren't covered by your employment and Social Security) should be equal to 18 months to 2 years of that coverage in cash/cash equivalents.
Pat, Deborah, are either of you qualified to address JR's question? I'm afraid it is a little outside of my area of knowledge...
JR, it is better to work directly with the credit card companies than to use a debt settlement firm. Although any compromise with a credit card company will affect your credit, the way that debt settlement firms work is worse, since you are not protected from lawsuits or judgments. I realize that credit card debt can be an awful burden, but if you can manage to pay off the obligations without asking for concessions from the credit card companies you won't damage your credit as much. Utah State University has a great Website (Power Pay) that you can use to figure out a rational way to pay down your debt quickly