Sometimes fee only financial planners can be a benefit. That was how I got our one and only consultation when I was an employee and could choose a benefit from an array of choices. It was interesting to hear her suggestions and projections but we had a lot of unknowns and things worked out much better than we had anticipated. There was no charge to me as I opted for this over the other options that were offered.
Since you are financially supporting your aging relatives, might an annuity be helpful to help that be a steady stream of income? Just a thought.
Well part of the problem is that we donât know anything about annuities or some of the other things mentioned in this thread. So I feel like maybe the first step should be to better educate myself. Dh is too busy to figure it all out.
Annuities are essentially insurance contracts. They take a lump sum of money, and in return give you monthly payments back. They make their money by keeping whatâs left over when a person dies before the actuarial tables estimate they should. The term is mortality credit. There are a bunch of annuity types, but the SPIA is the only one worth looking at. USAA offers one that is good. They are predictable and will insure against running out of money.
The problem is that they are illiquid. You canât change your mind. In a low interest environment, the monthly payment per amount invested isnât great. It is a way of guaranteeing youâll never run out of money though.
There is a narrow window where Roth will be completely tax free. Typically when students are in high school and college, they donât make enough to pay income tax. If they can squirrel some into a Roth, it will never be taxed.
You can do Roth conversions if you are means tested out of direct Roth contributions. You can put up to $27,000 in qualified into a 401K with catchup contributions, but you can put a total of $64,500 in if you also use after tax money. Then, you can do Roth conversions of that money. Look up âMega Backdoor Roth.â
Look into putting new retirement payroll deduction into Roth accounts. For simplicity, we opted to have all our 401k money go to traditional (tax deferred). But having a mix of taxable / non taxable can be handy, so weâve been doing Roth rollovers in retirement.
Taxes are hugely important. Get a good CPA. My advice would be to get someone who is mid-career say 40-50. Has lots of experience and still going to be there for a while. We have one who specializes in small businesses. Not all are the same. Some are very good at saving you money, others fill out the forms. At the end of every year, you should be able to see things ( in the form of savings) that you would not have known if you filled out your taxes via turbo tax. There are tons of savings, esp if you own a business or are very high income.
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Sounds great. I would add. The number in the 401K can be cut by 25-40% depending on where taxes land. And even a paid off house can be expensive in property tax and home expenses. So donât underestimate how much you need. Iâm of the opinion inflation is going sky high so plan to do less spending over the next few years despite having large savings and paid off home.
For finding a good FP< find someone similar to your husband in terms of income and age.Ask them who they use. Much better if itâs someone who has done extremely well and could retire. You donât want to use someone who follows advisors advice completely but someone who works with the advisor. Your husband might have a mentor at work who can suggest. My husband worked with several guys who were 15-20 years older than he was. In his early 30âs found several mentors and these folks had lots of good advice. They were mentors in his career and had already raised families. Most retired young so they were doing smart things.
Last thing: IF you have a FP and you donât like them, dump them quick. They are not going to change and you need to work with someone who has your interests in mind. I like the boutique firms that have other professionals close by ( CPA, attorney etc). Weâve sometimes used our FPâs suggested folks but sometimes it didnât work out. We keep people 2 years, if they are doing well, great, if not they are gone ( Some are gone much sooner).
Iâm curious what your rationale is for this. As they say, a tax deferred is a tax avoided. Money goes in pre-tax, compounds, often by a lot, and then is taxed in the future, when the dollar is worth less due to inflation. From a tax planning point of view it doesnât make sense not to fill the qualified buckets first.
As for the house, I wouldnât pay it off unless you need the cash flow. It doesnât sound like you do. My suspicion is that your mortgage rate is low. Short term treasuries are paying over 4%. If the interest rate on your mortgage is lower than that. It makes more financial sense to put the amount of the balance into T-bills, at least until interest rates come back down below what your mortgage rate is. Theyâre safe and relatively liquid considering youâll likely choose something thatâs a year or shorter. There is an interesting psychology though to having it paid off.
This all assumes that you have the cash buffer you need to live for a pre-determined number of months should your husband lose his job. I generally recommend that you have 6 months of living expenses sitting in a high interest savings account.
A good financial planner is going to be proactive-- " I see you have a whole life insurance policy- can I take a look at it?" Life insurance can be a form of liquidity, you can stop paying in and the policy âpays for itselfâ while keeping the coverage intact, etc. âBoth your parents had early onset dementia- can we take a look at what it would cost you to purchase long term care insurance?â âI see you made a large donation to your alma mater last year- I can help you meet your charitable goals at a lower effective cost, letâs talk about how that could workâ.
if theyâre just chasing returns, and your just worried about fees, youâre missing a big part of financial planning.
I think you are mixing buckets or perhaps my post didnât spell it out. Sure, you should likely save as much as possible in your 401K bucket pre-tax. What I am saying is that people think hey I have 2 million in my 401K, Iâm set. But taxes have to be taken out and though they told us taxes would be lower in retirement, they arenât for all people. And they are rising. You add in some inflation and that lovely retirement looks different. People donât always know how much theyâll need in retirement. Hereâs an example, my Dad retired in his early 60s. He was fine until inflation jumped in and prices for oil and property taxes went through the roof. Now his simple retirement is harder.
Seems like the OP is high income and saving a lot. But a lot can happen in retirement.
As for our house, weâve alway had low interest rates and donât even look at it as an investment though it is. Weâve even had a LIBOR when we were young and paid a ton of the mortgage on our first house off that way ( rates were 7% and we paid 2% or something). I think as one ages and has more options, they can pay off their house or not. Sometimes itâs worth it to have something to write off and sometimes itâs good to be able to have no bill and more cash flow. And that can also shift back and forth. Our house is paid ( we planned this for cash flow for college). We might take out a mortgage at some point if rates fall. Would help with income taxes.