More than Money with Gene Dickison
“Real Life Questions – Real World Answers”
“I just turned 59 and plan to retire when I hit 66. I work for a good sized company that offers a 401(k) that no one likes. The investments in our 401(k) just aren’t very good. I’ve been in the plan more than 20 years and have most of our retirement savings there.
One of the guys on my shift told us he just moved his 401(k) out. He’s the same age as me and isn’t going to retire for at least 5 years. He swears he took the money out without paying taxes or getting hit with penalties. He even said the company didn’t care. Is this too good to be true?
It is likely quite true and . . . you can likely do it too.
Your friend (from your description) took advantage of a 401(k) plan option called an
in-service rollover. In most plans, employees who are age fifty-five (55) or older can move their current 401(k) balance into an IRA without taxes or penalties. Once inside their new IRAs, the employee can do two pretty cool things. First, they can invest in the full universe of available investment options within their IRA. Second, they can continue to participate in and contribute to (and receive employer matches, if any) their 401(k) until they leave the company.
Before you decide to follow your friend with an in-service rollover you should take the time with a financial professional to review your current 401(k). A professional may find the options within your plan to be quite acceptable to meet your goals. You may find the fee structure of your 401(k) is preferable to an IRA. Please take your time and make the best choice for you rather than play follow-the-leader.
Our More than Money advisors can perform this 401(k) review for you at no charge.
“I have an investment portfolio of high quality stocks. The dividends they pay are about 2% of their share prices. How can financial advisors be telling people they can withdraw 4% per year “safely’ when stocks only pay 2%?”
You and I need to clarify two important points before I can answer your question. First, the fact that your ‘high quality’ stocks (however that may be determined) pay 2% is hopefully just part of their overall return to you as investors. If you have chosen well, the value of your stocks may rise over time. That rise in value, added to the dividends produced equals the total rate of return of your portfolio.
The second point upon which we need to be clear is the type of portfolio that most advisors would see as being able to produce 4% withdrawal rates with a reasonable degree of reliability would almost certainly not be 100% in stocks. In fact, producing more consistent, more reliable income streams would almost certainly call for a diversified portfolio of stocks, bonds, alternative assets, and cash. Naturally some of these assets (particularly on the fixed income/bond side of the markets) could produce higher than 2% annual income streams. While none of these returns is guaranteed, this balanced and diversified approach to creating retirement income streams provides the foundation to the long term 4% withdrawal pattern.
Before we leave your question, please let me at least mention that annuities are very interesting retirement income producing tools. While annuities can be quite complex and take some serious work to understand they can also offer some income options and assurances that do not normally exist within the stock and bond market. If your income goal is to build more peace of mind into your plan, you might want to take the time to get educated on the use of annuities.
Finally, just to have as much fun as we possibly can, I offer you the universally recognized answer - ‘all of the above’. Many retirement income plans are crafted of multiple components. Some in dividend paying stocks. Some in balanced portfolios of mutual funds and exchange traded funds. Some in individual bonds. Some in annuities. Each piece designed to bring a different but important value to the effort of producing a reliable stream of income in your retirement.
If you need more information on any/all of these approaches you simply need ask.
“Our financial advisor provides us with reports showing how our investments are performing. We compare that report’s numbers with our account statements and some numbers match and some don’t. And the returns he shows us never match our 1099s for our income taxes.
Would you please explain?”
In the most simple of terms, 1099s report currently taxable returns (interest, dividends, capital gains, etc.) to the IRS while your advisor reports show total returns whether they are currently taxable – or not.
Within your portfolio there may well be gains that are not currently taxable – like inside your IRAs or inside an annuity. These do not get reported on your 1099s, but they are shown on your portfolio report.
Additionally, some ‘returns’ are on paper (stocks or mutual funds that have risen in price, but have not yet been sold) and are not reported on your 1099 until they are realized (fancy IRS term for sold).
And, of course – under the right circumstances – some investments are not taxed. Municipal bonds and Roth IRAs are two that come to mind as typically untaxed.
1099s serve their purpose for income tax calculation, but they are not very useful when trying to understand rates of investment return.
“We’ve been reading and hearing a lot lately about retired Americans moving to other countries (Costa Rica and Belize we hear the most about) and living very, very well on quite small incomes. While we don’t want to leave the U.S., we’re worried about running out of money in retirement. What are your thoughts?”
I’m the wrong advisor to ask on this subject.
While I’ve never been to Belize, I have been to Costa Rica and found both the country beautiful and the people charming. I also found in Costa Rica a number of American ex-patriots enjoying their retirement there. By my observations, they seemed content and happy.
I, personally, could never be content or happy so far from my family, my friends, and the country that has given me so much. My advice to you is colored by my own feelings. It may take some adjustments to your lifestyle, it may take a part time job, and it may take some creative thinking. Whatever it takes, find a way to enjoy your retirement years inside the borders of what is still the greatest country on the planet – the United States of America.
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Words are Powerful Tools for American Freedom
These are certainly turbulent times. There are so many disturbing events that many have concluded that ‘things have never been this bad.’ I would beg to differ.
Yes, I am horrified at the atrocities we see inflicted on men, women, children, and infants around the world. Of course, I find terrorism – in its many forms – deeply disturbing. I find the unabashed ‘it’s all about me’ attitude among the ‘public servants’ of our great country disgusting. But have things never been this bad?
In 1968 alone – just fifty (50) years ago – Martin Luther King, Jr. and Bobby Kennedy were both assassinated! Thousands of brave young men and women died in a war that was little more than political theatre to those we trusted in Washington D.C. Could things have ever been that bad?
Sadly, yes. In 1860 America found itself so divided that a Civil War was fought. More than 600,000 Americans died in under five years. Our country was politically, philosophically, and morally divided. Each side claimed God’s approval. Abraham Lincoln entered that debate with a stern and important warning:
“Let’s not worry whether God is on our side, but whether we are on God’s side.”
Americans today, in the 21st century, would be wise to heed Lincoln’s warning.
Clearly most political leaders have no concern with being on God’s side. Sadly, most political leaders would have little or no clue how to identify God’s side. Average Americans are blatantly disrespected when they stand up for their belief in God, the Bible, and the Church. The media, Hollywood, and a great portion of the professors in American colleges and Universities expend most of their efforts trying to convince our young people that God should have no place in their lives. And our public schools have long ago banned prayer.
Today is the day. Now is the time. We – the American people – must lead our leaders. We must lead them back to a day and a time when we rightfully committed our life, our liberty, and our sacred honor to building a nation that was clearly on God’s side. We must demand they respect what made America great in 1776 and can make it great again in 2018 – and beyond. First, we seek the will of God. Then we make sure that the people responsible for carrying out the will of the people are on God’s side. And if they continue to refuse . . .
Please allow us to serve you and those you love.
P.S. Life, liberty, and sacred honor – aren’t these words that you would use to describe the brave men and women of our armed forces? Then we should not be surprised that they are (along with the first responders) the most respected people in our country. Our country’s self-respect will grow in direct proportion to the degree we follow those who place life, liberty, and sacred honor first in their lives.
Please thank these wonderful men and women for their service to our country.