<p>Charles Schwab brokerage puts out a quarterly publication which is usually a thinly veiled advertisement for their products. However two articles in the recent issue pointed out information that I found interesting, so I’ve linked them here. Apparently there’s been an increasing correlation in performance between stock funds that used to show more diversity. Large company, small company and emerging market funds are now moving in lock-step rather than showing fluctuations independent of one another.
<a href=“http://www.schwab.com/public/schwab/nn/articles/Are-You-Really-Diversified”>http://www.schwab.com/public/schwab/nn/articles/Are-You-Really-Diversified</a></p>
<p>Thanks for the info and links on asset allocation. We’re being pushed by a financial advisor (whose company contracts with dh’s employer - his services are an alleged perk) to move out of equities. Although we’re more risk averse than many, we’re also still in our 50s and dh could very well live to be >100 based on his family history. Since dh will receive income from two pensions, we think it makes sense to postpone moving from equities to fixed income for about two decades depending on market conditions. We’re due to meet with the FA again next month and I anticipate a hard sell.</p>
<p>In working with a financial advisor I think it’s important to be sure they show you the data. We had a very good meeting with a fee-only advisor. She provided us with a binder full of “Monte Carlo” simulations based on a multitude of factors, including various periods of nursing home care for each of us and catastrophic market turns. You should come away with a more solid understanding the most likely risks. She was an advocate of low fee balanced funds, such as the Vanguard Wellesley fund, to simplify retirement saving. I was surprised that even the moderately conservative example given in the Schwab link stocks were still 40% of the portfolio recommended for ages 70-79. It’s good to go in to a meeting with the FA armed with your own research so you can ask pointed questions about the recommendations.</p>
<p>In addition to the financial picture, the health picture, having agreement on retirement ‘arrangements’. Came across this book “The Couple’s Retirement Puzzle”, 2014 publication, Roberta Taylor. We are too far away for covering this stuff together, but we definitely are thinking about options on where to live, etc.</p>
<p>@silpat I would ‘stick to my guns’ with this financial advisor. Then I would seek out some independent advice (like momsquad’s fee based FA) or another FA. You have to be comfortable with the plan.</p>
<p>Does anyone have a spouse that isn’t on board with preparing for retirement? I was talking to my brother and he is concerned because his wife thwarts many of his savings efforts. For a bit, he was quietly putting bonuses into IRAs, etc, without telling her about the bonuses because in the past she would immediately want to spend them on one of her million remodels. </p>
<p>If anyone has experienced this, what have you done?</p>
<p>Can someone explain converting a regular IRA to a Roth as if you were speaking to a first-grader?</p>
<p>The tax benefits of the Roth are appealing, but I have read that there also can be taxes on an amount that is converted? Also, I assume that the maximum amount you can convert is the same as the maximum amount you could contribute directly?</p>
<p>IF you don’t need to withdraw your IRA assets until long after you turn 70.5, it MAY be a good idea to convert, but if you are planning to withdraw the minimum or more required for your IRA at age 70.5 or above, I honestly can’t see a benefit, which is why we have NOT paid to convert any of our regular IRAs to ROTH IRAs. The Roth IRAs we do have we do NOT plan to draw on, even past 70.5, so those make sense. The other IRAs are nice to get a stream of income that H has been taking as required since he turned 70.5.</p>
<p>Some folks feel their tax rate will go up significantly so rather convert amounts from traditional IRAs to Roth IRAs now and have it grow tax free. For our situation, neither we nor our CPA feel there is much benefit in converting.</p>
<p>Assuming that you were not just posing hypothetical questions for me to ponder on my own (and because I am procrastinating cleaning out some closets), here are the answers:</p>
<p>What is your incremental tax rate now? 28 percent, I believe</p>
<p>What will your income be when you are retired? This is an interesting question because H and I are both late 40s (almost 50) and love our jobs and I could see us never totally retiring. So no plans to retire any time soon. Which is good for several reasons, including that we have done almost no retirement planning. We both have 401K plans that we are currently contributing the maximum to, but no other retirement investments. Neither one of us is very good about financial planning–and until recently (last 5 or so years) we were really just covering the necessities (well, a lot of extras is those necessities, like kids’ educations – but the youngest is in college now so those expenses are winding down).</p>
<p>What will you use the money on the Roths for? Same issues as above–do not really have a clear idea.</p>
<p>Before I decided I wanted to convert, I’d run the numbers to figure out how much I am currently spending annually on expenses, what I expect to spend on expenses when I “retire,” and where I expect to get the funds for retirement expenses. </p>
<p>If it turns out that you will need the funds from your traditional retirement accounts to live on, it may NOT make sense to pay taxes NOW to convert traditional IRA accounts to Roth. </p>
<p>Another option–Backdoor Roth IRA
If you find yourself above the income limit for Roth contributions, you can make Backdoor Roth IRA contributions–contribute to a IRA with after-tax dollars and then roll the IRA over into a Roth IRA. I have done that for 2013, 2014, since my IRA contributions aren’t deductible anyway (income too high).</p>
<p>We like having different accounts–some traditional IRA that grows tax-free until we withdraw, at which time we pay taxes. We also have some Roth IRA money that we already paid taxes on and can grow taxfree and we will NOT be taxed on when the funds are withdrawn (and currently there is NO requirement to withdraw them when the account holder turns 70.5). We have some 401K and similar funds that are similar to traditional IRAs in that they have to be drawn upon when the account holder turns 70.5 and also we have to pay taxes only when the funds are withdrawn.</p>
<p>It would be useful for you to spend some time at bogleheads.org or similar website and borrow some simple books about financial planning, to get a better idea of what makes sense for you.</p>
<p>Ok- if your incremental rate is 28%, your adjusted gross income (gross - deductions - personal exemptions etc) is in the 150K+ range.</p>
<p>It seems unlikely that your retirement income will exceed that, given your stated level of retirement savings. So your incremental rate in retirement will probably be less than your current rate. In this case a conversion doesn’t make much sense - you would pay more in taxes now to convert than you will be paying later.</p>
<p>Assuming the rates and brackets stay about the same, of course. If you think rates are going to go way up, then that is a different story.</p>
<p>Himom- the problem with backdoor rollovers is that you don’t get to just rollover the after-tax contribution if you have other IRA assets, it is proportional to the entire amount of IRAs.</p>
<p>For example, if you have $95K in tax-deductible IRAs, and you do a backdoor rollover of $5K, then 95% of the rollover is considered a distribution from the tax-deductible IRA, and you will owe tax on it. So you’ve paid taxes on the non-deductible IRA, and you are paying taxes again on 95% of it. </p>
<p>That’s true. You have to have no other traditional IRAs-- for me, I rolled my traditional IRAs into my other retirement accounts (457) before I created the non-deductible traditional IRA and then rolled it over. It does take some preparation, but can be a good tool if done carefully and correctly. Sorry, I forgot to mention those details. That’s why I’d recommend running things by a CPA before you make any changes that could have tax implications. I try to do so, as it gives me peace of mind. </p>
<p>I do a ton of research and then double-check with my CPA who does our taxes BEFORE we make any changes. So far, so good. ;)</p>
<p>I hadn’t realized that there actually are two ways to do the backdoor Roth. We don’t want to convert any existing funds (which are all in 401Ks–not sure if that counts as a traditional IRA or not (I told you I was a rank beginner)). </p>
<p>We were thinking that opening a new IRA and then converting it might be a way to save additional $ but then the tax thing kind of spooked me. </p>