Question: I am considering adding an immediate annuity to my retirement portfolio. My research suggests these annuities make sense, but I wonder whether it would be better to purchase it from my 401(k) or my Roth IRA. What would you suggest? More
dependable spendable income
As you pull together your records to prepare this year’s tax return, it might mark the first time in a while that you’ve really examined your finances.
If you are one of the many retired Baby Boomers, perhaps the amount of your interest income caught your eye. You were probably surprised, because if you’ve got $100,000 of your retirement assets in a bank savings account, the tally of monthly interest amounts to a little more than $20 per month. For the year, you earned around $250.
Your money isn’t working for you. More
Everyone’s goal is to pay as few taxes as possible, but when planning for retirement many investors and even their advisors neglect a basic concept:
Die broke in your IRA or 401(k) account and
die rich in your personal investment account.
The tax rules dictate where to die broke and where to die rich. With a little planning and asset management, anyone can do it. Instead of fighting the tax code, take advantage of it by putting each of your retirement investments – stocks, bonds or income annuities – in the account that benefits you most.
With smart allocations, you will realize potentially huge gains. More
Sarah loves the house she has lived in for 35 years. She and her husband bought it together and after the couple divorced, Sarah raised her two daughters there. The years have passed quickly and at the age of 72 she wants to downsize. Happily her girls still live nearby with their families so she is going to stay in the area.
Now Sarah is tackling the classic question:
Should she rent or buy her next home?
Sarah will have to consider how her money will serve her better. Can she sell her house and buy another for a lower price, which would help her finance the rest of her living expenses? Or would renting free up more of her capital?
One flaw with traditional retirement planning is the assumption that your expenses – the type and amount — will be the same (plus inflation) each year, from your final day at work to the end of your life, and that all you have to do is “replace a percentage of your pre-retirement income.” As people live longer, we have proof that isn’t true. Healthcare costs, especially, increase in our late retirement years, and if we don’t plan for them, we risk running out of money.
The solution is to consider retirement as a two-stage process. In the first stage, you do want to cover a reasonable percentage of the final salary you earned before retiring, although the percentage may need to be more than 100%. Your Social Security payments, any pension, interest/dividends and payments from income annuities ideally will cover that. If you need to withdraw principal, make sure it’s for a temporary period and from a secure source.
For the second stage, you will want to maintain those payments to meet your essential living expenses – and add another level of income to cover the gap for things like home healthcare and additional costs that occur as we age. More