Certified financial planners from the Financial Planning Association of Puget Sound answered retirement-savings questions for free. Here is the first set of those answers.

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Certified financial planners from the Financial Planning Association of Puget Sound answered retirement-savings questions for free.


Advice given during the hotline is for educational purposes only and does not signify that those e-mailing engaged the services of a financial planner. It relies solely on the information provided by readers.

I am 66 and work 32 hours a week and collect social security. I have no savings, do not own a home. I share a house with my daughter which we lease. I filed bankrupcy a few years ago and the IRS was part of it. I was told if I have a 401K that if I would pass away before the bankrupcy and IRS are taken care of they could take my 401k as part of the settlement.

Participating financial planners

Brad Allen
Julie Back
Rob Bjur

Joyce Bloch

Bruce Galvin

Penelope Haase

Yvonne Hall

Joe Hebert

Kathleen Huckabay

Kelly Keydel

Sally McCray

Karen Nilsson

Lisa Peters

Kevin Schulz

Brian Skaggs

Patricia Solberg

Robin Tan

Bhaj Townsend

William Webster



I know I need to put some money away but where? It seems just when I think I might have alittle extra, the car needs something or a medical bill comes in. My total income including my net salary and social security is 2500 a month. My portion of the lease and utilities is 800.00, car payment and insurance 270.00, I have three credit cards 2600.00 owing plus 1000.00 in back medical bills. The net salary includes my medical insurance, bankrupcy, and taxes.Bellevue

FP: I think that you might do well by talking to someone about your cash flow, separating your madatory versus your non-mandatory expenses and freeing up some cash flow. Remember the motto, pay yourself first.

Open up a savings account and put $10 a week into it. In a few months you will begin to see some success and might then be able to add more to that savings.


I hope this gives you a little help.

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My husband and I are both retired with Social Security and work related pensions. He is 68 and I am 61. Can we open an IRA account to shelter some of our money? We currently own a home we are planning on selling in June to relocate. How can we safely invest and when we relocate should we buy or rent?Seattle

FP: You have to have earned income to be able to participate in an IRA. In your situation this will not work. It is difficult to answer your question about how to safely invest yout money from the house sale. I would suggest consulting a financial planner.


There are so many options that one needs to consider before investing your equity from a house sale (such as time horizon and risk tolerance and need of income from the investment). Good luck on your move. There is no way I can answer your question about renting or buying, one would need to look at your whole situation and what your goals are.


Within an IRA is there a tax advantage when withdrawing from in a bond fund vs. a stock fund? What do you recommend in “minimizing taxes” when withdrawing from a taxed deferred account (IRA/401K)?Maple Valley

FP: No, distributions from an IRA are taxed as ordinary income irrespective of what assets are sold to fund the distribution.


I’m 56 and thinking of retiring at age 62, before I’m eligible for Medicare. Should I get a high deductible health savings account at 62, and then at age 65 switch to Medicare? I’m generally a healthy active person. I guess my main concern is what do I do about health/medical insurance if I leave my employer before age 65, and then what do I do when I reach 65.Seattle

FP: The Health Savings Plan is a good option. The lowest deductible that would work is $1000. There are only a couple of medical providers.


Do a google search and they will provide more information.


I am considering buying a fixed-rate annuity through TIAA-CREF but I understand that, with interest rates low currently, this may not be an advantageous time to buy one. How much might I gain by waiting to buy an annuity worth about $50,000?Seattle

FP: There are a number of variables that would affect the attractiveness of a fixed rate annuity. In general, the risk you run with a fixed-rate annuity is that interest rates will rise and diminish the purchasing power of your income stream. How much you would “gain” by waiting depends on how much rates go up. Higher rates would result in higher cash flow. Irrespective of the interest rate, an issue with a fixed-rate is that it is fixed. The plus is a constant assured income stream, the negative is the risk to your purchasing power. You should evaluate this option in context with your other investments and portfolio objectives.


I am a married 25 year old. I work for Boeing making 42K, my wife is a teacher making 32K. I just want some tips on what more I can do to more effectively save for retirement. Currently I am saving 85 into the Boeing 401K with them matching .75 on the dollar. My wife has $400 going into her 403B and another 5% going into the state sponsored retirement plan. We have in assets $4100 in savings bonds, about $3000 in cash, $5000 in my stock account. We also have about $15,000 in equity in our home. I have also started a college savings plan. Obviously bumping up my contribution and starting a Roth would be good next steps. Do you have any other tips for me? I know that I have a long horizon and I want to retire very well.Bonney Lake

FP: You are doing well. Most people have not taken the time to put together a plan at your age. YOur first priority should be to your retirement plans. Put as much as you can at an early age. The sooner you get money into your account the magic of compound interest will work. I would try to increase your percentage to the retirement plan at least 1% per year until you start maxing out how much you can put in. Currently 401(k) and 403(b) plans allow 14,000 annually.


I would put retirement saving first and college funding secondary, there are so many option for college funding that one can tap later. Also you should not consider at Roth IRA or regular IRA until max out your own retirement plan.


Good luck, you are on the right track.


My wife and I are planning on reitiring within the next year. Both are covered under State Retirement Plans, PERS I and TERS I. Both plans have a cost of living adjustment available. This provides a reduced benefit but provides an automatic annual cost of living adjustment. COLAS are limited to 3% a year. Should we take the COLA option?Bellevue

FP: My recollection of PERS and TERS is that the COLA option is not an option, it is part of the benefit. But it’s been a while since I looked at PERS I and TERS I. COLA is important since the most insideous erroder of any pension benefit is inflation. Although inflation is low now, it will continue and will eventually erode any fixed benefit significantly.


I have a non-deduct IRA with a balance of $20,000 which includes $15,000 of non-deduct contributions and $5,000 untaxed gain. Can I withdraw the $15,000 without penalty and transfer the $5,000 gain to my deductible IRA?Bellevue

FP: Great question – you won’t like the answer. the IRS sees all of your traditional IRA’s as one IRA. And when you take a distribution it is treated as part a distribution of untaxed money and part a distribution of any non-deductable (taxed) contributions. The weighting a a relatively simple ratio of the after tax to before tax amounts. In your example, assuming that the $20,000 is the total of all your IRA’s, about 25% of any distribution would be includable on your tax return as taxable income.


Bond asset diversification mix. Presently saving 80% stock and 20 % in a stable value fund earning 4.75%. Do you recommend a bond fund for an asset class? Do you consider the stable value fund the same as a bond fund? Can I beat the 4.75% with a safe conservative bond fund? If so any recommend bond fund for me to look into?Maple Valley

FP: Here is some information on stable value funds. Yes, they are comparable to bond funds though they do impose penalties if you withdraw from the fund early. You are unlikely to achieve a higher rate of return in today’s low interest environment without taking more risk. Given that it is more likely that interest rates will go up and principal will be at risk than interest rates going down, your stable value fund is a good bet for the short term.


Access to your investment. Stable Value gives it without penalty.

Stable value funds generally give you access to your investment without the loss of principal and accumulated earnings or penalty. Stable value does not require a set holding period. Even though stable value funds give an investor access to their money, some funds may restrict transfers to competing funds such as a money market or bond fund by requiring that money transferred out of stable value be first invested in a stock fund before it can be invested in a bond or money market fund.


Principal protected funds do not permit access without imposition of penalties until an investor fulfills the specific period of time required by the fund, usually 5 to 10 years according to the National Association of Security Dealers. Additionally, if an investor takes his/her money out of a principal-protected fund before the term of the fund is met, the investor loses the principal protection on his/her investment.


Fees. Stable Value fees are less.

Since stable value funds are primarily offered as part of company’s traditional defined contribution plan, their costs tend to be lower. According to a recent IOMA/RogersCasey study on fees, stable value fees average 41 basis points (excludes recordkeeping costs). According to NASD, principal protected funds have fees between 150 to 200 basis points.


What is stable value fund?

A stable value fund combines the best features of bonds and money markets: bond-like returns with the liquidity and safety of money market funds. Stable value funds remove the negative of bonds, the potential loss or fluctuation of principal.


Stable value is a conservative fixed income investment. It is offered in a variety of tax-deferred savings vehicles: defined contribution plans including 401(k)s, 529 college savings plans and now Individual Retirement Accounts (IRAs). The assets in a stable value fund are a mix of high-quality, intermediate-term bonds and guaranteed-interest contracts (GICs) from insurance companies. A stable value fund’s portfolio is protected against interest rate risk by a bank or an insurance company through a wrap.


Which is better options for my case, Long term care Insurance, annuity or own investment? I am 55 Yo, need to work 7 more years to reach full retirement pension. No spouse, no children. I would like to work till 68 and ease into part time work.I have maximised IRA and own my residense.Redmond

FP: If I understand your question, you want to know how best to fund any possible long term care expenses that you might face in the future. The answer is part a matter of personal preference and part a matter of financial planning.


From the financial planning side, we would want to look at what you have, and will likely accumulate, in the way of assets between now and when you might have need of long term care. Long term care can be expensive. So, unless you are likely to have substantial assets by that time (say $3,000,000 to $5,000,000), self insuring is less of an option.

If your assets are likely to be in the range of a few hundred thousand dollars, you will quickly deplete those assets and become elligible for medicaid. In that situation, the cost of LTC insurance will be a significant drain on your lifestyle.

My general advice is that if you will likely have several hundred thousand dollars to a few million dollars, LTC insurance makes a lot of sense to protect your assets from depletion in the event you have significant LTC expenses. If you will likely have several million dollars or more, you should be able to comfortably self insure.

If your scenario is more like a few hundred thousand dollars, LTC insurance will give you peace of mind that you will have some control over your life, but it will not likely be a cost effective way to go.


As far as an annuity – an annuity is just one of several possible ways to accumulate what you will need. It may be a reasonable part of your total portfolio, but its the likely value of your portfolio that you should consider in deciding whether or not to buy LTC insurance.


Asset diversification: Presently(age 61 retirement 62) have 70% stock/30% bond in savings. When looking at diversification, do I look at the total picture including my SS and pension in the asset mix? Do I comitt more of my saving to stocks? I am a moderate investor.Maple Valley

FP: Your asset allocation is likely over invested in bonds. As a financial planner, I would calculate the present value of your pension and social security payments and include them in the fixed income portion of your portfolio. To maintain your 70/30 split, a moderate allocation, more of your assets should be invested in fixed income. Also, you should have about 5% of your total assets in small cap stock and 5-10% in foreign equities.


I am 65 years old, a professor at a local university. My wife (11 years my junior) is also a professor and is working at the university level. In addition to a pension and social security, we currently have 403bs, and IRAs, rollover IRAs at Fidelity Investments.

Most of the accounts are totally stock oriented with a broad balance of stock categories. I have done most of my own work and made most of the decisions for our accounts.

My Question: I have in my large rollover IRA (250,000), $25,000 in cash. I am thinking about investing it in either Fidelity Puritan or Vanguard Wellington funds (both are balanced funds and conservative.

I realize I should slowly move much of my investments out of stocks into more conservative components, but many are not recommending bonds at this point. What do you suggest?Everrett

FP: Many are not suggesting bonds right now because they believe the long term trend of interest rates is up and bonds will not produce great returns. The question is why you want to own bonds. If it is for growth and these predictions are correct, you will likely be disappointed with bonds. If you want to own bonds for the reduction in volatility and safety, you will probably be happy even if rates climb.


I would seriously consider a review by a CFP certificate. Generally, the initial consultation will be free and it may give you some ideas or uncover opportunities that you have overlooked.


One initial question I would consider is whether you are better served by a prepackaged balanced fund or separate stock and bond funds.


What is TIAA-CREF? My wife is a teacher and a friend suggested we look at TIAA-CREF. I thought it was a fund but their web site looks like they are financial planners. Are the either, or both, or something else altogether?Maple Valley

FP: TIAA-CREF is an annuity and mutual fund company. They also offer life insurance. They work almost exclusively with teachers, mostly at the college level. Like many companies in the financial services industry, they are constantly expanding their offerings. They now offer some financial planning services. I don’t have any direct experience with their financial planning services but I would lean toward the services of someone who is educated in financial planning and holds a CFP designation. And I would recommend working with a planner who will meet with you face to face and take the time to look at your whole picture.


I’m 34 and my husband is 33. Neither of us work for employers with defined-benefit pension programs; just 403b plans. We work for a non-profit and a private school. We presently save 15-20%/year. We have $108,000 in retirement accounts, CDs, savings, etc. plus another $65,000 in home equity. We currently have one child at home, age 3.

My questions are as follows: We have $40,000 in extremely low-yield savings accounts, and I’m not sure what to do with the money. I worry about tying it up too much as we hope to have another child in the next year or so, we need to replace our car, and a new roof is not more than a year or two in the future. It pains me that such a large share of our money earns nothing, but I sleep better knowing it is there and I could get my hands on it tomorrow if I had too.

We currently give 10% of our salaries to charitable causes (including church). Most people we know don’t and, therefore, have a lot more disposable income than we do for more “fun” outings. The 10% mark was important to us, and has taken us 9 years to achieve, but now that we are there and see how much that dollar figure zaps our savings, I question our wisdom.

Many of the members of our extended families have state and/or federal pensions that will pay them generously in retirement (and thus don’t worry much about long-term savings), but we will have nothing but what we save, and whatever social security might look like by then. Are we being ridiculous for having this as a goal in our consumer, me-driven society, when we presently can’t max out either 403b (although we give enoguh to be matched to the max by our employers)? We set the 10% figure based on the Catholic church’s urging 10% (tithe)–the idea being to give of your first fruits, not just what happens to be convenient or left over.

What should we do about our son’s college costs? He is 3 and we have 100 units in the GET program paid, but nothing else specifically ear-marked for him. We will own our home outright in 13 years, 2 years before he goes to college. I just figured that we would tap home equity and/or bank the mortgatge payment money for that purpose when the time comes. 2 years of mortgage payments will mean $28,000 “saved” without even having to change spending behaviors which feels like a good start. Is that too short-sighted?Renton

FP: Your ability to tithe in our me-first world is very admirable. The question you are asking has both a moral and financial flavor so I’ll stick to the latter.


Your first order of priority is to save and provide for your retirement rather than college savings. As you look out to retirement, the questions that I have are 1) whether saving 15-20% is sustainable especially if you have another child and 2) whether those savings will provide you with sufficient assets to allow you to retire in the manner that you wish. This is an area that a financial planner can help you with as it deals with a making a number of assumptions – how much will you need in retirement, how much do you earn not and in the future, what is the rate of growth that should be applied to your savings, how long will you work, what if you take our a mortgage for college, will you have an inheritence, etc.


Your second question regarding the $40,000 is easier to answer. You should maintain about 6 months worth of expenses plus the amount for a new roof in a risk-free savings account as you don’t want to take the risk of holding it in an investment account that many go down in value just before you have to access it. Invest the balance in a balanced low cost mutual fund – you can investigate options at www.vanguard.com or www.tiaacref.com.


How does one choose a certified financial planner who will work with those with modest incomes and not push their own group of investments?Bainbridge Island

FP: Go to the CFP Web site www.cfp.net or www.fpapugetsound.org get a list of planners and interview them. The CFP Web site provides a questionaire you can use when you interview them.


If you are not comfortable with them, keep interviewing. It is like finding a doctor. You have to be comfortable to both ask questions and understand the answers.


I retired prematurely and have well realized my retirement goals. The newspaper stated that I should expect 6 percent for my portfolio. From a recent inspection, I am guessing about 12 percent return; however, a large part of my portfolio only gets about 2 percent. How can I raise the return on that portion with a low risk? And should I get a revocable living trust established?Seattle

FP: Guessing at rates of return in the future is just that – guessing.


We would advocate a balanced portfolio containing some fixed income investments including bonds or bond mutual funds comprising 10-50% of your total assets depending on your age and a number of other factors. In the current market, these assets are not likely to return much better than 2-5% per year. But things change.

The remainder should be diversified in a number of asset classes including some exposure to foreign markets. There are several asset classes that have experienced gains well above 12% in the last couple years. But this too will change. The likelyhood of anyone outguessing when the changes will take place is low. A portfolio constructed in this way might reasonably be expected to earn 6-8% average over a long period.

But the returns will vary. And that variablility poses the challenge to someone drawing money out of such a plan for retirement income. Most studies I have seen of late conclude that in such a portfolio, you should be able to draw out at a rate of 4-5% of the initial portfolio and increase your withdrawals each year to keep pace with inflation without depleting your assets over the next 30 years or so.

The lesson in all this is not to be too captivated by recent returns, but to develop a strategy for the long term.


As far as a revocable living trust – again it depends on your situation. This type of trust is very helpful in avoiding probate, but you may not have much of a probate problem. Or you may have other desires as far as managing assets after death that the trust can help with. You may wish to consult with a financial planner or attorney specializing in estate planning issues.


I retire next spring and want to protect my ‘nest egg’. Understanding the effect of inflation on investments, why not a laddered portfolio entirely invested in CDs that are insured by the FDIC?Anacortes

FP: You already know the answer: Inflation. If you look at the rates on CDs you are losing money in the long run against inflation and still have to pay the taxman.


What is the best way to research fees and expenses associated with mutual funds? I need to do an IRA rollover and I want to get the most for my money.Seattle

FP: I would go to the library and go to old issues of the Wall Street Journal. Once a month they do a mutual fund section that rate the funds and also show expenses.


I am 39, wife 42 daughter 8 years old. We have some savings, most in a bank account. Our household gross year income is 85k-90k. We live in Kirkland, we have no debts. We rent. We pay 1k rent a month We save 2k to a bank account each month We pay $700 health insurance each month We pay approx. $800 each month for all other expenses. We have one 401k which I contribute only 4%, as this will get the max from my employer.

Questions: 1. What will be the best option of saving for us ? (buy a house, stocks, bank, 401k, IRA, Roth IRA, Other options)

2. Can you suggest a % structure to a saving solution?

3. Any thing to change in my household description?

4. Seattle area was mentioned as one of the areas that house prices are over their real value. Buying a house will expose us to extra expenses and to the possibility of a dramatic loss in house value Any thoughts here, how can I protect my family from this, when buying a house?Kirkland

FP: Generally I recommend contributing to the 401(k) up to the point the company stops matching, then contribute to a Roth, then again to the 401(k) up to the maximum, and then to taxable accounts. I usually consider home ownership separately and for me, this is more of a lifestyle than investment issue.


I would suggest having a full financial plan put together. These plans can give you the idea of the likelihood of achieving your overall goals.


I have questions about UGMA accounts my minor children inherited. Since UGMA accounts are seldom used anymore, as the trustee I wonder if there is a better way to invest these monies – reduction in taxes and ability for children to maximize their ability to qualify for college aid. I have considered transferring the money into individual life insurance policies in the chidren’s names but am unsure if this is wise. Any other ideas?Sammamish

FP: I would first consider Education Savings Accounts (Coverdells) or 529s. You may need to spend the UGMA money for the benefit of the child and separately contribute to a ESA or 529. You can get more information at www.savingforcollege.com.


I would consider hiring a financial planner on an hourly basis to give advice on this.


I am 66, at age 70 1/2 how much do I have to take out of my 401K?Des Moines

FP: Under current rules you will add up the value of all your 401(k)’s (if you have more than one) as of 12/31 of the year you turn 70 1/2. Then divide that total by 27.4. (If you have a spouse more than 10 years younger than you at that time, the number you divide by will be different). Similarly, you will add up all your traditional IRA’s (if any) and divide that number by 27.4. Your that first year of Required Minimum Distributions, you will have until April of the following year to take the distribution.


Of course these rules could change between now and then. You can read all about it in IRS PUB 590.


I have recently retired and have money in my company 401K plan. I know there would be more choices if I rolled it over to an IRA, but is there a difference in the protection you have with leaving it in the 401K? (i.e. safe from any creditors etc.)Seattle

FP: There aren’t any different protections in the 401(k) than the IRA. You actually have more restriction, fewer investment choices and few options for withdrawal.


I would suggest moving it to an IRA.


I’m 41yrs old. I was just layed off from my job as an enginner, so I’m tackling the job search world. I have two 401k’s that sit with the financial managment company’s of previous employers. What is the current thought on rolling over 401k’s into an IRA? I have a traditional IRA and a ROTH IRA, both mutual funds…and I’m thinking 4 retirement accounts may be too many.Seattle

FP: I definitely like the simplicity of rolling all 401(k) accounts into a single IRA. This will also give you greater flexibility with investment choices.


You should consider hiring a planner to develop a financial plan to assist you with achieving your financial goals. This will help ensure you are making the most of these accounts.


My wife and I plan to retire at 60. Where can we get the cheapest insurance until we’re 65. We are both in good health but of course getting older. We just want the minimum coverage.Auburn

FP: First why do you think you need insurance? I don’t know what you consider the minimum. I think you need to hire a financial planner on an hourly basis to discuss this issue.


How am I doing financialy in terms of my age and income bracket? I am 46 years old and have been employed with the City of Seattle for 24 years and will be eligible to collect a pension when I turn 53 years old in 2011. My household income is $80,000 per year. I have no credit card debt. My retirement accounts are currently worth $308,000.00, home equity is $220,000.00 with remaining $160,000.00 balance on a 15 year mortgage.Bellevue

FP: I cannot give you an opinion. This all depends upon your financial goals. To get an idea of whether you are on track, you may want to consider the development of a financial plan.


I just turned 57. I’m single; owning a small home in Fremont. Working the same job 32 years. ~ 75M yearly. I never seem to see any financial models for single folks….any suggestions as to where I might find this sort of information?Seattle

FP: I work with many single clients. There are a number of questions to ask – what do you want to have happen with your assets. Do you want to use them all yourself and not worry about heirs? Do you have longevity in your family? Have you taken out a Long Term Care policy? Do you have a current will? Who is your executor? Who are your beneficiaries on any life policies or retirement plans? Do you have nieces and nephews that you’d like to inherit from you?

When financial models are done based upon life expectancy, either single or joint lives can be applied.


My wife and I have approximately $950,000 in 6 IRA accounts. All the funds are invested in mutual funds that include Large, medium and small cap funds as well as International and some bond funds. We are invested in a total of 27 mutual funds. The average amount in a fund is in the range of $25,000-30,000. Should we consider reducing the number of mutual funds while still maintaining diversification or should we not worry about the number of funds?Clinton

FP: One of the most important determinants in investing is diversification. To calculate the amounts in each asset class requires an analysis of each fund – many fund ‘stray’ from their style category and include assets that are far different what their titles indicate.


Unfortunately, with the large amount of funds that you are invested in, it is difficult to calculate the percentage in large/medium/small/international and fixed income. I would strongly recommend that you reduce the number of funds so that you can better monitor your diversification now and in the future.


I am 65 and plan to retire June 2006. I want to compare 403b and IRAs. (I have both)I have these questions about IRAs and 403bs. – When do I have to start taking money out – What would I cash in first. – How are taxes paid when I take money out?

Are taxes deducted before the money sent to me or do I receive the whole amount and then pay the taxes when I do my income taxes? – How can I convert some of the money to Roth IRAs. What would be the advantages and disadvantages.

Some added notes: My goal is to leave as much money as I can to my children when I die. I probably won’t need much of my savings when I retire. I would like to pay the taxes before my children inherit the money so they won’t have to. How can I best do this.Seattle

FP: First Traditional IRAs and 403(b)s are taxed the same. The money comes out as ordinary income. The tax rate would depend on how much you take out each year. Take a look at your tax table you received with your 2004 tax forms. That will give you some benchmark.


You have to start taking required withdrawls once you reach 70 1/2. If you take the funds out of the IRAs or 403(b) you can have the company withhold the taxes at whatever level you want or you can get the whole amount and pay quarterly taxes yourself but you must give the instruction.


As for converting them to Roth IRAs, you cannot convert the 403(b) to a Roth directly. You would have to transfer it to an IRA and then convert it to a Roth.


When you convert any portion of the IRA to a Roth you will owe the taxes on that balance. You don’t have to convert it all at once, you can do it in parts each year and pay the tax on that part. The benefit would be that you wouldn’t be forced to take it out at 70 1/2 and it will transfer to your children income tax free.


You may want to seriously consider converting but you will owe the tax.


I am 52, am about to inherit $30,000. Where to invest, high risk, short term? Roth IRA? My company does not have a 401K, but can I still invest in one somehow?Seatac

FP: Let’s take the issues one at a time.


A 401(k) is an employer sponsored plan – you cannot invest through one unless your employer provides one. There are other somewhat similar plans that your employer might also want to consider – SEP’s or SIMPLE’s are relatively easy for the employer to set up if you can convice them to provide a plan.


As far as where to invest the $30,000 inheritance – you should begin by determining your goals. If you have shorter term goals (for example, saving for the purchase of a house) you would want to take far less risk with this money than you might be willing to take if this money will be needed beginning 15 years from now to help with retirement needs. In either event, you must accept what most of us are reluctant to accept – there is a relationship between risk and return. Unless you can afford to lose the money, you should consider an investment strategy that considers the risk that you can afford to take.


Assuming that you do need to save for retirement, you can weigh the advantages of both a Roth IRA and a traditional IRA. With the traditional, you will be able to deduct your contributions each year (since you have no employer sponsored retirement plan). With the Roth IRA, you get no immediate benefit from the tax deduction, but you will have greater access to the money before retirement (you can pull an amount equal to your contributions out any time for any reason) and, once you are over age 59 1/2 you can access the money tax free.


Your contributions limits for 2005 for both types of IRA’s are $4500.


My Social Security benefit at age 62 is estimated by the SSA to be 1,455/mo. I’m taxed at the max. of 87,900. I’ve paid in to date 84,145. If I retire at age 60, and earn nothing the next two years, how will this affect my payout at age 62?Issaquah

FP: I’m assuming you have in at least 40 quarters of income to qualify for the full social security benefits.


It won’t matter that you don’t have earned income for two years before drawing social security at age 62. They’ll figure your social security based upon the income you have earned during your highest 35 years.


Question is relative to Taxes in with drawing from savings Have: 700k in tax deferred savigs(30k in roth) 42k/yr pension 25k/yr savings To retire in 2006(age 62) now in 25% bracket(expect to be in 25 or 28% bracket in retirement) no taxable account in savings Whats the most effiecient(tax wise) in withdrawing from savings from age 62 to 70 and after 70. Do I withdraw from my Roth first; start a taxable account? Project I need 100K/yr at 62( 3% increase there afterMaple Valley

FP: Generally, I recommend withdrawing assets from taxable accounts, then tax deferred (401k & Traditional IRAs), and finally from tax free accounts (Roths). However, I would seriously consider using a financial planner to help you address these questions. At a minimum, I would hire one on an hourly basis.


My questions regard insurance: 1. Should I purchase long-term care insurance? Will it cover home care? And if it’s recommended, at what age should I purchase it? Any particular company?

Background: I’m 53, self employed as a consulting arborist and I’m very active and healthy. However there’s family history of dementia (not diagnosed as Alzheimers) after age 80. Like everyone else, I would like to stay in my own home until I die.

My financial planner recommended long term care insurance since I have no family nor dependents who might help out. But he also fully disclosed that he sells it.

2. Would a HSA insurance program with a higher deductible be appropriate for me?

Background: I currently have Premera Blue Cross Basic One plan with a $500 deductible, which only covers hospitalization. In the nine years I’ve had this insurance, I’ve only met the deductible and used it once when I broke my finger. Although I’m pleased that I’m so healthy, I feel I’m burning my money.

The Regence HSA plan costs about the same per month as my current plan; is also just a ‘catastrophic’ plan, but has a higher deductible ($1000 I believe). As you know, the insurance premiums are 100% tax deductible because I’m self employed. Is there any advantage to the HSA?Seattle

FP: The questions that a financial planner would ask are: How long might you need long term care? Do you or will you have enough assets to pay for your long term care when the time arises – the current rate of care is $150-$180 per day? Do you want to leave assets to your heirs?


If you have sufficient assets to cover the cost of care and have no desire to leave money to heirs, there is no need to buy insurance. If not, you should consider purchasing long term care. Also, if you don’t have one at this point, you should draw up a health care power of attorney and determine who will manage your assets should you become incompetent.


I’m a 49 year old with a wife with dual incomes. I have a $40,000 credit card debt. in oct. I will have access to my 401k of appox. $55,000. all things being equal is it better to pay off the credit card debt and start a new on the 401k, paying the max into to it? or keep paying down the debt and keeping the 401k intact?Oak Harbor

FP: I would be very hesitant to liquidate your 401k. You will end up paying close to 50% in taxes and penalties. You may want to explore other options to lower the interest rate on your current debt. You also need to address the issues that put you in this situation in the fist place – overspending, the lack of a rainy day fund, etc.


You should also consider hiring a planner on an hourly basis to help answer the question.


How do we remix our investments from equities to a less risky investment as we near retirement. Retirement is eight years out and we have 401s, IRAs, and a ten year old annuity invested in stocks. There will be no defined pension, only Social Security. We are hoping, aiming for 2 million plus social security to see us through, with a paid-up at that time, ten year old home in a retirement community and no consumer debt. That is our plan. Our concerns are taxes, health care, inflation. What kinds of low risk investments can we transition into with that time frame?Redmond

FP: There are several factors that go into determining your proper mix of assets. It is not only the time before retirement but also the time in retirement. You need to talk to a planner to determine your rist tolerance and your needs during retirement.


As for taxes, your investment 401(k) and traditional IRAs will all come out as ordinary income. If you qualify for a Roth IRA you may want to consider it because your are giving up a tax break today for a tax break in the future that may be much larger.


You also may want to consider a Health Saving Plan for health care.


You sound like you are on track but need some fine tuning.


I’m 35 years old and do the following: – put $200/mo. in company 401K (my company puts in $350/mo.) – put $400 in a savings account that bears 2.6% – invest $350/mo. in stocks (mostly blue chip companys that pay dividends) My question is: am I doing enough in order to retire at 60? I’d like to have close to a million dollars if possible.Seattle

FP: You are doing a great job saving money and should easily reach your goal. However, I recommend that you increase your contribution to your 401K if your company will also increase their match. Also, if you are single and your adjusted gross income is between $45,000 and $55,000, you should invest some or all of that $350 in a Roth IRA.


Please help me get my pension back from my former employer. I was employeed by Florists’ Transworld Delivery Association from 1982 to 1997. FTD now thinks that since they distributed the 401(k) as a result of a Quatro to the ex wife they no longer have to fulfill the define benefit pension. What resources are there to perfect any rights in the pension? Documentation is limited but just reviewed the divorce decree which specifies the difference between the 401(k) and pension. The company has gone through numerous sales, M&As.Bothell

FP: I would contact your diverse attorney. They may have documentation you will need and a referral to an attorney that specializes in this area.


Equity Indexed Life Insurance-I have been approached by several insurance agents regarding using equity indexed annuities to creat an arbitrage using home equity. They are basing their approach on a recent book wriiten by Douglas Andrew-Missed Fortune and Missed Fortune 101- suggesting interest only mortgages and investing the equity in S & P 500 indexed annuities. Invest the max amount allowable under law with the least amount of insurance required, etc. What are your thoughts on this strategy? Have you read or heard about this book and the author?Cary, N.C.

FP: I just finished reading the book “Missed Fortune”. The concept is interesting and may make sense in a very few specific cases, I would be wary of its general applicability. The book fails to adequately address the risks inherent in the strategy.

The first part of the strategy I would be concerned with is the notion that you can structure interest only loans to last a long time. Interest only loans typically have an interest only period of 10 years or less.

The most “attractive” interest rates are associated with adjustable rate mortgages. Most of these have fixed rate periods of 3, 5 or 7 years. So, for the strategy to work as advertised, you will need to refinance (or sell and purchase another home)as often as every 7 years or less. And then you will have to hope that (a) you will qualify for new financing and (b) that today’s low rates are available.

The strategy presented in the book assumes that your home interest is fully tax deductable. The analysis does not account for the fact that most people actually only receive a partial deduction since their itemized deductions aside from the home mortgage interest add up to substantially less than the standard deduction (which is scheduled to rise over time).

And finally, the strategy assumes that you will earn a relatively high rate of return on the equity index life insurance cash value. Every projection the book makes has an unreasonably high rate of interest projected for a long time into the future. The strategy prospects for success are highly sensitive to the rate that you acutally receive.

If the insurance policy return is as little as .5 – 1% less on average, the strategy has real problems. And the problems can be huge.

If you are drawing “tax free” income out of an insurance policy through a series of policy loans as shown in the book, the policy surrender value drops steadily. When the policy surrender value drops to zero, which it could quickly if interest rates are less than hoped for, the policy lapses and all the interest that has been credited on a tax deferred basis suddenly becomes taxable income.

The author’s answer to this problem is to suggest that the IRS is unlikely to go after a 90 year old for that kind of tax. You wouldn’t want to test that theory.


The bottom line is that there is no free lunch. The equity index insurance products ability to credit interest to the cash value is essentially the same as any fixed insurance product. The fact that the interest credit is “linked” to the S&P 500 index is very different from actual market participation. It’s just a calculation that happens to use some aspects of the S&P 500 index performance in the formula.

While the products do provide protection against market losses, that protection comes at a price. The price is that they will not and cannot produce long term returns similar to market returns.


For people in the highest tax brackets who are not going to depend on the insurance policy performance to provide retirement income and who will save enough in income taxes to offset the inherent costs in the strategy, there may be a place for this strategy. Aside from this narrow group of people, trhe strategy is almost certainly inappropriate.

People should recognize that this is a very complex strategy with many pitfalls that are not well presented or analyzed in the book. Be very careful!


Can you provide me a short list i.e. 6 or so names of qualified financial planners who do not sell products, but only provide planning?Bellevue

FP: You should go to www.cfp.net or www.fpapugetsound.org and get a list. Then you have to interview them and make sure they fit with what you want them to do. Trust you instincts and if you are not comfortable with them keep interviewing.


I contribute 15% to my 401K currently. But I also have an IRA and a Roth IRA. Question: do I contribute a portion of that 15% to my IRAs as well? The IRAs are managed by my advisor while the 401K is through my company. I want the best bang for my buck. Is it prudent to place more of that pre-tax money with my advisor than in my 401K?Bellingham

FP: This depends on your choices within your 401(k) plan. If you have choices that are perfoming well at low fees within your 401(k), I encourage you to continue with that. I would make the same evaluation on your funds with your advisor. If they are lower costs and performing, then stay with them.


Remember your advisor should be able to explain this to you.


I just turned 62. Should I start collecting Social Security now, or wait until I get the full amount. I don’t need the money at this time. I remember hearing years ago that one should definitely take SS early. However, I haven’t seen that recommendation lately. Under what circumstances should people start SS at 62?Seattle

FP: Generally, if you live longer than age 75, you will collect more benefits over your lifetime, if you take benefits at age 62 versus age 65.


A financial planner would work with you to determine whether that cross over point would come earlier in your particular situation. They would look at the income you would earn in your lifetime by taking benefits early and invest them for the later years of your retirement or reduce the amount that you withdraw from your other reitrement savings versus delaying taking benefits at age 65.


If I have $ 300,000 to invest from the sale of my home, what investments would yield a safe return on my investmewnt without draw down on principle ? I would like to know what monthly income I could plan on in my retirement strategy.Vashon Island

FP: You haven’t provided enough information for a reasonable response. I don’t know how old you are, your life expectancy, what your expenses are,etc. You need to talk to a planner to provide more details.


I am retired and my wife is still working in the Federal Way School District. Part of her pay, she is taking in deferred compensation and putting it into a 403b of mutual funds. The District offers two plans- an annuity and the Mutual Funds options for the 403b. The problem is that she is not big on annuities and the Mutual Fund Plan they offer has extremely high management fees. Are you aware of any other options? Also, can I move this money around within the mutual funds they offer without it being taxed as sold and re-invested?Federal Way

FP: I agree with your wife – I’m not a fan of annuities. I’d recommend that your wife talk with the Federal Way School District and lobby them to add additional low cost options to their 403b plan.


There is no tax cost for moving money within mutual funds in the plan. However, you should investigate whether there the funds will charge you for moving money among funds before making any changes.


In your article you said that a retiree today should have $1 million plus to retire. I am 66 years old. If I have $325,000 in stocks, $125,000 equity in home and a pension that will not go up at $1600. and SS at $1300. today, can I annualize until I am 90 years old to make that over $1 million in assets?Seattle

FP: When you look at whether your funds are enough, you have to measure it against your expenses. If your expenses are less than your pension and SS combined you are only using your investments as a hedge against inflation. However if you are liquidating your investments to supplement your income to cover your expenses, you may have difficulty if you are in very conservative investments. What you earn on your investments also affects your potential for making your investments last.


As you can tell there are many factors and more details are needed to more accurately predict.


My husband and I are 35 & 39 and make approximately $200K/yr. We recently starting saving for retirement using our 401k accounts at work and have a combined $35,000 balance. We each save the maximum amount (although my company has a limitation of 25% of my income, which is less than the $14,000). We don’t own a house. We have approximately $80K in unsecured debt, paying an average of 5% APR, which we plan to have paid off in 5 years. My question is whether we should be putting money in IRAs now. I know we should pay off debt first, but I wonder about using the “power of time” for the IRA. I feel that the money earned in the IRAs is more than the interest paid by extending our repayment for another year.San Diego

FP: The tax deferral in the IRA is nice and you will be able to compound this for a long period of time but remember, you will not get a deduction for you IRA contributions. This is a tough call and really depends on the individual. Because I have a higher tolerance for risk and do not mind being leveraged (having debt), I would probably contribute to the IRA.


I would consider hiring a financial planner to help you achieve your overall goals.


I retired 2 years ago and have a Long Term Care insurance policy, which periodically gives me the option of increasing my premium to combat inflation. I have to choose to accept this option at least once out of every two times it’s offered or I lose the option. My question is: what is the best strategy here in terms of being prudent, but also in terms of investing my limited dollars wisely? Is there a rule of thumb that says once you reach a certain age you should no longer sign up for this option when it is offered? I can’t seem to find any written information on a strategy so any appropriate information you can direct me to on this subject would be appreciated.Seattle

FP: The answer to your question depends on how much risk you are willing to assume and whether you have sufficient assets to pay for any shortfall.


It currently costs approximately $150 a day to stay in a long term care facility and that is expected to grow at a rate greater than inflation. Basically, if your policy does not increase at the same rate or you choose not to increase your premium to cover inflation, do you have enough funds to pay the difference?


I plan to retire when I am 62, and my wife will be 63 in July 2007. In 2008 my wife and I plan to start collecting social security and supplement that with money from our traditional IRAs. It looks like my IRA withdrawls go on line 15a of the IRS form 1040 and social security payments go on line 20a. Does that mean I have to pay income tax on our social security payments? If my wife and I take out $75,000 yearly from our IRAs and we recieve $40,000 from Social Security (combined) what would be the income tax and would there be social security penalties. We will not be working, and therefore do not have W-2 forms.Redmond

FP: Your IRA distributions are fully taxable. 85% of Social security payments are taxable when your combined income is over $44,000.


I want to know if selling my house would be good for retirement. I’m behind on accumulating retirement funds. I’m also stretching to keep up with the mortgage and maintenance on my house. I may have more than $250,000 gain on the sale. Would it be better financially to hang on to the house for the appreciation, or downsize and have more cash flow for retirement accounts?Seattle

FP: It sounds like you cannot afford the house you are living in. I would consider downsizing because if you don’t maintain the property that you have your appreciation may not be what you expect. You need to live within your means and you may not get the appreciation you expect.


Do you agee that my guaranteed pension money can be included as part of the bond portion of my portfolio?Des Moines

FP: If you feel comfortable that it is in fact guaranteed, you could consider the present value of that as part of your fixed income allocation. This may lead to a more aggressive investment portfolio. You will want to feel comfortable with that.


I am a federal employee and my husband is a teacher. We both have pensions & 401K plans through our employees and we contribute 10% of our salaries to our 401K plans. We also have a young child who we have set up a 529 plan and at this time, are only able to contribute 100 per month. I also have approximately $900 in a past employer’s 401K plan that is just sitting there, earning minimally because there are no additions (it’s with TIAA/CREF). I also have approximately $1100 in an IRA that I opened years ago for tax purposes but have not contributed anything to in years. Every 3 months I am notified that I can take this IRA that is in a CD and put it into something else. It is actually costing me several dollars to maintain it due to the fees. What should I do with the IRA and the money with TIAA/CREF?Shoreline

FP: I don’t have enough information to answer so let me give you two options. One option is to open an IRA account in a no load mutual fund. Then roll the old 401K and the IRA into that fund.


The second option, if your adjusted gross income is below $100,000, would be to roll those accounts into a Roth IRA.


How do you figure out how much tax is deductible on a gasoline receipt? The receipt doesn’t itimize the various taxes -like the now deductible sales tax, non-deductible road taxes/use taxes. I want to add up all my receipts (including gasoline receipts) for 3 months and see if it makes sense to track them for the entire year rather than just relying on the IRS sales tax table in April ’06.Seattle

FP: The tax deduction details are discussed in IRS PUB 600. The deduction is for sales tax. Sadly, although there are lots of taxes associated with your purchase of gasoline, none of them are state sales tax.


Should we only be putting into our 401(k) the amount that the company matches? Then put the rest into our Roth IRA’s? Or is it better to contribute the maximum to lower our taxable income. We are in the $60 – $75,000 salary range and currently contribute 10% to our 401(k) and nothing to our IRA’s (they are from rollovers from previous jobs). Our company matches 50% up to 6% so basically they only contribute 3% to our account. We are 42 w/ 3 kids.North Bend

FP: For someone your age and moderate tax bracket, it preferable to limit your 401K contribution to the company match. The excess should be contributed to your Roth IRA where it will have many years to grow tax free as well as to distribute tax free when you retire.


I am 56 years old. For the past 25 years I have earned amounts that qualify me for the max. social security benefit. I am currently unemployed. How would my social security benefit be impacted if I didn’t earn anything between now and when I begin receiving Soc. Sec. say at age 66?Seattle

FP: Social security is calculated based on your highest 35 years. If you have less than 35 years
a zero would be put in those other years. So mathematically it would reduce your benefits.


You can also go to the www.socialsecurity.gov site for a calcualtor.


I’m 58, single and plan on early retirement within the next 4 yrs. I have a 401(k) and 2 IRA’s accounts. Should I roll both over to a Roth IRA now or does it matter at this point? My company does not match anything on my 401(k)Kent

FP: If you are eligible and converted to a Roth there would be tax consequences. Depending on the marginal tax rates involved and the assumptions that are made about investment returns and the timing of distributions, this would or would not pay. You may want to consider hiring a financial planner on a minimum of an hourly basis to help determine this for you.


My wife and I work for the same company that uses Vanguard for their 401K plan. The options include a “fixed” fund that seems to hover in the 4-5% return range,and the total bond market index fund. I’m not sure what the difference between the two is, and which would be best for our “safe” money. My wife hopes to retire in 5 years, and I’ll be working another 8 years.Woodinville

FP: I can’t identify the fixed fund that you mentioned. However, Vanguard provides excellent information about their funds and this is the reference for the site.


I am 31 years old. I have approximately $10K in a 401K plan, though do to a change in employment I am no longer contributing to it. My questions are 1. Can I contribute to a 401K plan even though I am no longer employed by the same company I started the plan with? 2. If not, what is the best personal investment plan I can invest in? 3. How much money should I be saving per year for a reasonable retirement?Seattle

FP: You cannot contribute to the 401(k) plan of an ex-employer. You can make changes in your investment choices but you are limited to the choices in that plan.


You can move those assets to a traditional IRA and then you are not limited in your investment choices.


As for new contributions for investments a Roth IRA would be a good choice due to your age. If your income is less than $95,000 (assuming you are single) or $150,000 (if married) then you can make a $4000 contribution. This is after tax money but your earnings on that money will not be taxed when you take it out in retirement.


The amount you should save would require more information because “reasonable” is not defined. What is resonable for me may or may not be the same for you. You may be able to live on $30,000 per year and I may need $100,000 to be reasonable.


My husband and I plan to retire within 5 years. My husband will then be 62 and can collect the maximum in social security. (I will be 52.)He also has some annuities that will pay out approx. $2,000 per month for a minimum 25 years/lifetime. We will each have approx. $350,000-$400,000 in our 401K’s, and we have a rental home worth about $400,000 that brings in $2,000 per month in rent. Assuming our primary residence and vacation home are mortgage-free, and we need/want monthly income of approximately $8,000 per month, or more, after retirement, how close will we be in 5 years to making this a reality? Do you have any strategies to help us maximize our possible retirement?Seattle

FP: Many planners use a consider 4% a resonable amount to take out of a portfolio per year for a 30 year retirement period. For example, a $1,000,000 portfolio would provide $40,000 per year in income (inflating each year).


I would suggest having a full financial plan put together. These plans can give you the idea of the likelihood of achieving your retirement goal.


I have inherited about $75,000. This is it for my retirement. I am mid-40s. I want to invest in stocks and not mutual funds. I know very little about this. Where can I turn for good independent advise. I like the idea of paying someone a per hour or flat fee for advice, rather than someone getting a percentage of my investments. I have been considering purchasing various lists of recommended stock picks from Fool.com because they seem straighforward and trustworthy. But I don’t know if it’s worth it or just better to consult with someoone personally.Seattle

FP: The response to your question depends upon whether you want to invest time to learn how to invest on your own or whether you are inclined to go to a professional for advice. If you do not choose to invest in a broadly diversified mutual fund or funds, the challenge that you face is diversifying your $75,000 in a way that balances risk and maximizes return.


If you are inclined to invest on your own, I would recommend that you invest in a good no load mutual fund that will give you good diversity at low cost while you take some time to read some good popular investment books and take some investment classes at your local community college.


40 years old. In school a very long time–just graduated last year. School debt 70,000 and new car $30,000. Expected income after this year’s training program: $80,000. $3,000 saved for retirement. No assets. Should I allocate 100% of available income to becoming debt free (est. 5 years), then save for house and retirement? What percent of income should go to retirement savings?Seattle

FP: The debt is very important to take care of and I think you are on the right track. However, because of your age, I’d like to also suggest a compromise by putting something, even if it’s $100 per month, into retirement funding.


There’s a concept of the time value of money. The longer it has to grow, the larger a pot you should have many years down the road.


Of course, if you have great longevity in your family, you are in excellent health, and are planning to work into your 70’s or longer, you may want to pay off the debt first and concentrate on retirement planning later.


I have two questions: 1 – A mailing we received regarding retirement planning issues suggested working with a certified financial planner and offered a link to that professional association’s web site. When I ask for a list of all CFP’s within 10 or 25 miles, I get a HUGE list. How do I choose beyond that important but initial professional credential? What factors are important? 2 – Can you suggest a 3-5 page pamphlet, web site, whatever BASIC explanation of the important (financial) retirement issues? I’m overwhelmed by all the information out there!Lake Forest Park

FP: The CFP Board puts out a nice kit that can be requested from www.cfp.net/learn/requestkit.asp. They also have links that can help answer some of your questions. One key question that can reduce the number of planners is how the planner is compensated. Do they receive a commision from the products you buy, do you pay them a percentage of the assets they manage for you, or do you pay them hourly?


Legislation is proposed to allow LEOFF II (Law Enforcement Officers Fire Fighters) to purchase additional service credit at retirement, up to 5 years. One way would be to use a 457 plan. Estimates are the cost would be in the 80k range to purchase 5 years. Would this be a worthwhile purchase?Seattle

FP: The best way to do this is with an analysis of the amount of additional income you’d receive over the years by purchasing the extra service credit.


Unfortunately, I don’t have enough information to calculate this right now. I’d have many more questions to ask also!


We purchased a home last year that we hope to continue to live in after retirement: $330k 30 yr mortgage, 5 3/8% interest. I plan to retire in 20 years @ 67. Should we 1)make extra payments ea. yr. to pay off mortgage in 20 yrs or 2)invest that money to pay off at retirement or 3)invest that money to make payments after retirement, i.e. pay-off in 30 yrs.Maple Valley

FP: There are several assumptions that can taint this decision. If your risk tolerance is higher and you can make more on your investments than you are paying in mortgage interest, then investing the extra funds with the intent of paying off the mortgage at retirement would make the most sense. However if you have a lower risk tolerance, then paying off the mortgage would probably make more sense.


From a cashflow standpoint in retirement, having the mortgage paid off gives both peace of mind and removes the burden of having to pay that mortgage when you have reduced income.


I woud like to get a second opinion on my pertfolio. My wife & I are retired, 79 years old, and own liquid assets of approx. $725,000;33% in bonds, 54% in widely diversified equity(no-load,low expense ratio) & 13% in cash equivalent. Our income last year was $84,000,expense $80,000,zero debt and we own a $400,000 house & 2004 model $15,000 car clear.We are not interested in leaving an estate for our children or grand-children.We always pay our Visa etc. on time. Any recommendation on change of asset mix or other changes?Seattle

FP: A good approach to asset allocation in retirement is to keep a cash balance that will, when added to the income generated by your bonds and investments less any social security or pension payments, equal one year of expenses. Based on the information that you provided, it appears that your cash balance is higher than it needs to be. I would recommend investing the excess equally between bonds and equities.


No matter how many times I show my wife we will be ok financially in retirement, she continues to believe we will be living in poverty. Any suggestions on how to make her more comfortable with the numbers? Age 61. Probably will retire in 5-8 years. Still trying to define retirment.Tyrone, Ga.

FP: I understand your wife’s concern – and come across this frequently in my own financial planning practice.


There are charts that show “how long money will last” at different growth rates along with withdrawal rates.


Financial planners are able to produce charts that will show your wife what will happen in different eventualities. They may be able to make her more comfortable.


If I sell my stock/mutual fund in my IRA account (but not distribute), is the gain taxable? Will the answer different, if I sell and buy in one transaction or different transaction.Bellevue

FP: Transactions within the IRA are not taxable. Only distributions cause a taxable event.


What rate of inflation does one assume for retirement planning that projects ahead 25 years? Does it make sense to do one’s planning in real current dollars to maintain perspective rather than nominal inflated costs and dollars?Vancouver, Wash.

FP: This is what financial planners debate continually – and the answer changes depending on the economic times. Currently, we’re using inflation rates of 3-3.5% and a draw-down of 4-5%. Draw-down is the amount of withdrawals from your assets during retirement. We used to use 8% but, with the current and recent past, we’ve revised that on down.


We are a couple, 51 and 52, with a 13-year-old son. Combined income of $125K, including income from 2 rental houses. The rentals and our own house are paid off. We also have 401K savings of about $500,000 combined, IRAs of $60K combined, $96,000 in other mutual funds, $30,000 in cash, and will get pensions of $24,000 and $15,000 at age 65. Our rental houses rent for combined $2,000 per month. We have a joint $50,000 annuity. We have made the maximum 401K contributions, including catchup contributions.

So the question– should we continue to invest in the 401ks, even though we don’t get a company match? Or should we put any more savings in some kind of college savings plans. And if the latter — which one? The GET? Uniform Minors? 529 plan? Or should we put the money in a Roth IRA or Roth IRAs? Or some combination? The money we would have available for investing would be about $10,000 a year– more, of course, if we didn’t put any more in the 401ks.

Originally we had planned to sell one of the houses to pay for our son’s college education when the time comes, but now we are wondering if that makes sense.Seattle

FP: Investing some money in a Roth IRA in you situation makes a great deal of sense as it will grow and distribute free of tax. However, the ability to make Roth contributions phases out when your adjusted gross taxable income exceeds $150,000 so you may have to continue making your 401K contributions to keep your AGI below the phaseout amount. If that is the case, I would use your cash to make the contributions.


As your son is 13, I would recommend a GET account. The costs of college are rising faster than the cost of living. Since he is 13, you will have to invest very conservatively to protect your savings so assets contributed to the GET will generally purchase more education than an investment account.


My question concerns my part of our retirement savings (my husband’s is doing well through his company’s 401K and a pension earned from a previous employer). I have around $50,000 in a SEP/IRA (I am self-employed) with Nations Funds (B shares) that I was talked into by BofA’s financial advisor. This is half of what I started with, apparently due to the stock crash. It is now 5 years since I did this, so I won’t owe a penalty to take the money out. What can I do with it more safely, and who with (what fund/mix of funds/bonds, etc.)? Based on what I read and my experience with B of A, I don’t trust these “financial advisors”, and read that they are only interested in people with lots of money (millions). Similarly, I have roughly $200,000 in one company’s stock (from employee options exercised years ago for $15,000) — who can I trust to do something good with it?Seattle

FP: My suggestion is to contact the CFP board at www.cfp-board.org or the FPA of Puget Sound www.fpapugetsound.org and you will be given a list of advisors in your area. You haven’t given me your age so the proper mix of stocks to bonds is difficult to determine.


However the concentration in one companies stock is not advised. You should carefully plan the diversification of your portfolio to minimize your taxes.


This will require more details to give a complete answer. Go to the websites above and contact several advisors. If you don’t feel comfortable with the first one keep interviewing. This is like picking a doctor.


My husband & I are both retired (age 59); disability benefits for my husband are a net of $32,500 annually; expenses annually of about $50,000. We own our home & have no credit card debit. We have about $600,000 in various 401k, balanced, moderately conservative mutual funds & small savings. What would be your advise on moving $120,000 from one 401k to a savings & loan to buy CD’s at about 3.1 % (maintaining it as a 401k account) for no longer than 3 yrs or putting it into a variable annuity fund with a well known, established firm?Seattle

FP: One key advantage with variable annuities is tax deferral. However, you already have tax deferral in you 401k (or IRA rollover) and will not receive an additional benefit in this regard. On the other hand, variable annuities generally have higher internal costs.


As far as moving the money to savings, this really should be considered in the context of your overall goals, your existing investments and your tolerance for risk. A financial planner can look at these issues for you.


I am retired. I have a tax deffered annuity. It has been recommended that I roll over the annuity into an IRA as the tax/withdrawl laws would be to my advantage. If I did a roll over it would probably be to a mutual fund such as Vanguard or T. Rowe Price. Could you advise and explain why or why not? Also, what would be the best way to do a roll-over?Edmonds

FP: If, by tax deferred annuity, you mean a 403(b) annuity, then I see no advantage to changing this to an IRA.


If, by tax deferred annuity, you mean a fixed or variable annuity that shelters your earnings but not the contributions, that gets more complicated. If you cash that in, you’ll have tax consequences and I wouldn’t necessarily recommend to do that.


I’d need to clarify your question more.


Hi, My husband and I are in our early 50’s, no kids, and work full time. We have paid off our home, and have investments in stocks, mutual funds, CD’s, annuities and Ibonds. We fund our IRA’s annually. We have an inheritance of approx $60K, and are thinking of selling our MS, which will give us another $65K, and buying a rental home. I’m just wondering if this would be a good investment since we have investments in other areas, and since our home is paid off, can’t take the mortgage deduction for taxes.Seattle

FP: It looks like you are setting yourself well for retirement. I’m not sure what an MS is.


I’m not in favor of putting assets into one rental home since, in my experience, I’ve found that clients learn it’s more headache than it’s worth. It’s quite labor intensive and you’d need to be prepared in that regard.


I’d concentrate more on analyzing how much monthly income you’d need to retire, do an analysis of retiring soon vs. 10 or more years from now, concentrate on getting your assets up as much as possible, and keep going on the course you are on.


I do understand the tax aspect of your question. There are a number of things you may be able to do to shelter earnings from taxes – and some ways that you can have deductions without buying a rental home.


I am 58 yr old single working woman who will retire when I’m 70. Would you look over my plan below and suggest any changes/improvements? RETIREMENT QUESTIONS: 1) I RECENTLY PURCHASED A 2 BEDROOM GROUND FLOOR CONDO WITH A 15 YR MORTGAGE. I WILL MAKE BIMONTHY MORTGAGE PAYMENTS AND I WILL RETIRE WITH ONLY A YR OR TWO LEFT TO GO ON THE MORTGAGE. 2)I HAVE A BANK IRA AND CREDIT UNION RETIREMENT ACCOUNT TOTALLING AROUND $20,000 EARNING LESS THAN 2 % INTEREST WHICH I WILL ROLLOVER INTO AN INVESTMENT VEHICLE THAT WILL EARN AT LEAST 4% WITH AN ING INVESTMENT OPTION. I HAVE $17000 IN A DEFINED CONTRIB PLAN WHICH IS EARNING GOOD DIVIDENDS AND WILL REMAIN UNCHANGED. 3) I HAVE $30,000 NOW EARNING 2% WHICH ILL TRANSFER TO AT LEAST A 4% ING OPTION FROM WHICH I WILL DRAW LIVING EXPENSES TO COMPENSATE FOR CONTRIBUTING $700 FROM MY PAYCHECK ( MAXIMUM OF $18000 PER YR) OR SO INTO A 401 B PLAN.Seattle

FP: To answer your question, the first step would be estimating your annual living expenses when you retire, including the mortgage payments. Then I would look at your expected income – pension, social security. The next step then is to determine the amount of retirement assets that your would need at age 70 to provide the additional required income.


With this information in hand, you can determine the amount that you will need to save between now and age 70 so that you can comfortably retire and have sufficient income for life. The amount that you need to save should be calculated at both a conservative and more aggressive rate of return.


How do you choose an honest financial planner who has YOUR best interests at heart? We read about rip-off artists who steal with pyramid-type schemes and ones who are only after commissions they can generate. We read about dishonest planners who have ripped off church members so asking friends may not be a good idea. Just how do you find someone who won’t cheat you?Redmond

FP: Contact the www.cfp-board.org or www.fpapugetsound.org and you will be able to get a list of people to contact. Then you need to interview several people. It is like interviewing a doctor — if you don’t feel comfortable with them then keep searching. It is very personal.Trust your instincts.


I have a Roth IRA, conventional IRA, and just starting a401(k) through my temporary employer. I need to know the absolute dollar limit on my ability to contribute to these accounts this year. Parameters follow: I am over 55 years old. I contribute $150 a month to the Roth, which is in the Vanguard STAR Fund. I am just now deciding how much of my salary to contribute to my 401(k)-this will go to the Dreyfus S&P 500 Index Fund (the best of a terrible lot of choices). I do not intend to retire until I can no longer work-I am a purchasing professional, and have a nice desk job. I am married to a Boeing engineer who is 9 years younger than I, so I have the freedom to invest for the long term. Right now, though, I just need to know how much I can contribute to my tax-deferred investments.Everett

FP: Your qualification to contribute to a traditional IRA or Roth IRA depends on your joint income level because you have a 401(k) available to you at work.


If your combined income is over $70,000 you can not make a tax deductible contribution to your traditional IRA. You can always make a non tax deductible contribution.Make sure that you file a tax form to declare your basis.


As for the Roth IRA, if your combined income is greater than $150,000 but less than $160,000 then you can make a partial contribution to your Roth. It phases out between those amounts.If it is less than $150,000 then you can make a complete contribution.


If you qualify for either contribution the total between them is $4000 with a $500 make up because you are over 50.


You can contribute $14,000 to your 401(k) along with a $4000 make up for a total of $18000.


I have the following numbers specific to my situation: I have no children. I will be supporting my mother in her retirement (in about 17 years.) Is retirement for me at age 58 or 60 possible? Age: 36 years old Income: $100,000 annual 401k contributions: — 15% of my pay this year. I max out annually (for 2005 I plan to contribute $14,000) Employer match totals to 6%. I also have: $50,000 in stocks (brokerage account) $90,000 in 401k (90% stocks, 10% bonds) $3,600 in a Roth IRA with a monthly contribution of $333.33 $60,000 — Equity in my home $215,000 — my home loan @ 15 years (just refinanced Jan 2005) $10,000 — car loan to be paid off by April of 2006 $2,000 — in credit card debt which should be paid off by the end of Apr 2005North Bend

FP: I would suggest having a full financial plan put together. These plans can give you the idea of the likelihood of achieving your retirement goal.


What is the current thought on paying off a mortgage? I’m a retired teacher, 64, divorced, and have a 403B fund that has enough money in it to pay off the house mortgage. (I’m presently helping my daughter with childcare, while she completes her Medical School training at UW. The house is in California and is presently being leased out for the cost of the mortgage payment plus $500 per month. I bought the house in 1970, so the house is under Prop 13, which froze the taxes at $600 per year. I would appreciate your thoughts on whether I should pay the house off, and keep it for investment purposes…or keep the mortgage. I have no other income other than my teacher’s retirement check per month. Long-term, keeping it would mean I would continue to rent it out and I would probably continue to rent an apartment here in Washington, to be near my grandchildren… so what would be the best decision?

A second part of this questions is this…I lived in my home for 30 years and then decided to help my daughter, which meant moving. I have now lost my $250,000 Capital Gains allowance, as I haven’t been in the house two of the last five years. If I were to decide to sell the house, would my ‘situation’ qualify for an exception or will I need to move back in the house for two of the next five years, should I decide to sell?Woodinville

FP: This question requires a bit of analysis. For instance, what rate of return are you receiving from renting vs. what rate of return are you receiving from your 403(b).


You’d also need to take your monthly income needs into account and see if you’d ever need your 403(b)for income in the future.


I’d suggest contacting fpapugetsound.org to ask for a referral to a financial planner that can help you analyze and assess the situation.


I am a widower 61 years old and plan to retire at 62. My wife passed away 4 years ago at age 53. I qualify to collect on her social security of $1186 since I am over 60. If I collect on her social security for the next 5 years, can I leave my social security alone and collect at the age 66 rate without penalty or does the SSA penalize me because I collected on my late wife’s social security benefit?Olympia

FP: My understanding is that the survivor benefit will be separate from your individual benefit and there should be no penalty. Please contact the Social Security Administration at 800-772-1213 or www.socialsecurity.gov for a more definitive answer.


My husband and I are in our early 60’s. We purchased long-term-care insurance five years ago. The premiums have gone up 50% since we purchased it, and I am concerned about being able to pay them when we are retired (which we plan to do in one year). The premiums are a total of $3,600 a year. We own our home free and clear (worth about $500,000). Would it be safe for us to drop the LTC insurance, with the idea of getting a reverse mortgage, if we should need extended care? We do not anticipant needing the assets from our home to provide income (we have approximately $800,000 in IRA and non-IRA accounts, from which we plan to withdraw 3% a year).Sammamish

FP: I would determine whether you have sufficient assets to pay for long term care as well as whether your goal is to leave assets for your heirs.


The first step would be to determine the estimated future cost of long term care for you and your husband. Then one would determine whether you have sufficient assets to provide for those costs, for the living costs of the surviving spouse as well as for your heirs.


I am retired (no earned income) and would like to deposit extra cash from SSI and IRA (taxes paid) income into a Roth Acct. Ca