Ask the Expert (Live!): Bring Your Money Questions

Got money questions? Answers are coming your way.

When is it best to convert to a Roth IRA? How much does an average American need to save to retire in 20 years? When should you pay down debt versus building up emergency reserves or investing? Stocks, options, bonds -- what's the right mix for someone heading into retirement?

Are you making the right money decisions?
From 1 p.m. to 4 p.m. ET today, Sheryl Garrett, founder of The Garrett Planning Network, will answer your financial planning questions -- in real time. (Just leave your questions in the comments box below.)

Sheryl started the Garrett Planning Network in 2000 to offer an alternative to the conflict-riddled, commission-based field of financial advice. Her mission: to bring trustworthy financial advice to the masses. She created a network of like-minded financial planners and advisors -- professionals whose independence enabled them to uphold their fiduciary duties and remove bias from their recommendations by working on a fee-only basis.

Most unique, however, is the model of pay-as-you-go, as-needed financial planning advice on the customer's terms. It gives customers the option of seeing a financial planning pro once, periodically, or on an ongoing basis. There are no hidden fees, income or account minimums, or long-term contract requirements, and no work on commission.

Today, the network has grown to hundreds of fee-only financial planners and advisors. Advisors who meet Garrett's requirements for membership (she and her staff personally vet each advisor in the network) pay an annual licensing fee and are wired together via Garrett's private intranet, giving each one access to the others' areas of expertise to offer community-driven advice. Sound familiar, Fools?

At your disposal
Dubbed "The All-American Planner," Sheryl constantly advocates on behalf of the consumer. She has testified before the House Subcommittee on Financial Services regarding predatory lending regulation, financial literacy, and Social Security reform. And for four straight years, Sheryl was recognized by Investment Advisor magazine as "One of the Top 25 Most Influential People in Financial Planning."

Here's your chance to ask Sheryl about Roth conversions, saving for retirement, annuities, or any other financial planning questions you have. (Again, just post your question in the comments box below.)

But it's not just Sheryl mulling your toughest money conundrums. You'll also get the wisdom of her network of advisors. During the live chat, she will be tapping into the Garrett Planning Network's private community to assist in providing the most valuable and thoughtful responses to as many questions as can be answered in the allotted time.

Here are a few ground rules to guide the discussion:

  • Sheryl is not permitted to provide personalized financial planning or investment advice, so those questions are off limits. (If you want advice tailored to your personal situation, then you should consult a professional, privately.)
  • The Fool editorial staff will moderate the discussion to make sure it stays on track.
  • Sheryl may own stocks or mutual funds that are discussed during the course of today's live chat. Sheryl will disclose during the discussion if she owns any particular stocks or funds she mentions.

Post your questions in the comments box below. Sheryl (screen name: SherylGarrett) will be responding in the comments section from 1 p.m. to 4 p.m. ET, so check back often!

Want to make it personal?
For more specific advice -- anything from a second opinion on a specific money conundrum to a full-blown financial plan -- we've lined up a limited-time special offer for Motley Fools: A complimentary "Get Acquainted" meeting (over the phone or in person) and a 10% discount for new clients. Locate a participating advisor in your area and look for The Motley Fool icon. The Motley Fool has a disclosure policy.


Read/Post Comments (43) | Recommend This Article (27)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 17, 2010, at 11:57 AM, edyboom223 wrote:

    I have a Roth IRA that I have fully funded for 4 years, and I intend to do so for the foreseeable future. I also have a traditional IRA that I rolled over from 2 other retirement accounts that is a very small amount of money (1,600). I am only 26 years old. Should I convert the traditional IRA into a Roth, or should I leave it in the traditional IRA for tax diversification when I am older? If it makes a difference, I hope to retire at an early age (50-60 if possible). Thanks for your advice.

  • Report this Comment On March 17, 2010, at 12:05 PM, DJDynamicNC wrote:

    Can Sheryle explain the situations in which a Roth IRA would be a better fit than a traditional IRA? I'm never quite clear on this.

  • Report this Comment On March 17, 2010, at 12:59 PM, KVB71 wrote:

    Do you tend to recommend mutual funds, ETFs or individual stocks as a general rule for individual investors? I have heard arguments for all of them but I am curious what your opinion would be. Thank you.

  • Report this Comment On March 17, 2010, at 1:03 PM, Mcstuffins wrote:

    I have 100% of my retirement money in a target date fund. Do you consider that diversified enough or not?

  • Report this Comment On March 17, 2010, at 1:03 PM, rkansas wrote:

    In most cases, people earn more money as they get older, so they go into higher tax brackets as they age. And I think the majority of us believe that we will see higher income tax rates in the future.

    One concept that is very important to consider is diversification. Typically we think of diversification within our investment portfolio however folks should also consider diversification regarding the income tax treatment on their retirement income sources. Diversification helps to spread risk that you've guessed completely wrong. At age 26 there will be plenty of time to develop tax diversification through your employer retirement plans and your personal portfolio. I think you're a strong candidate for Roth conversion presuming you answer yes to the following two questions.

    Three factors to consider regarding Roth conversion provided by my colleague Jeff Kostis of Vernon Hills, Illinois -

    1) Do you think you will be in a higher tax bracket later than you are today?

    2) Can you pay the tax for the conversion out of your current income (versus using some of the money from the conversion)?

    3) Where will you get money for your living expenses if you retire before age 59 1/2 when you can take money from your IRA penalty free?

    If the answer to the first 2 questions are Yes and you will be relying on your IRA to fund your retirement, it probably makes sense to do the conversion since you will be able to withdraw your contributions to the Roth prior to age 59 1/2 without penalty.

    Sheryl

  • Report this Comment On March 17, 2010, at 1:10 PM, rkansas wrote:

    @edyboom223

    In most cases, people earn more money as they get older, so they go into higher tax brackets as they age. And I think the majority of us believe that we will see higher income tax rates in the future.

    One concept that is very important to consider is diversification. Typically we think of diversification within our investment portfolio however folks should also consider diversification regarding the income tax treatment on their retirement income sources. Diversification helps to spread risk that you've guessed completely wrong. At age 26 there will be plenty of time to develop tax diversification through your employer retirement plans and your personal portfolio. I think you're a strong candidate for Roth conversion presuming you answer yes to the following two questions.

    Three factors to consider regarding Roth conversion provided by my colleague Jeff Kostis of Vernon Hills, Illinois -

    1) Do you think you will be in a higher tax bracket later than you are today?

    2) Can you pay the tax for the conversion out of your current income (versus using some of the money from the conversion)?

    3) Where will you get money for your living expenses if you retire before age 59 1/2 when you can take money from your IRA penalty free?

    If the answer to the first 2 questions are Yes and you will be relying on your IRA to fund your retirement, it probably makes sense to do the conversion since you will be able to withdraw your contributions to the Roth prior to age 59 1/2 without penalty.

  • Report this Comment On March 17, 2010, at 1:13 PM, gadawg403 wrote:

    I am 37 years old. I have some credit card debt. I also invest in a few stocks (JNJ,PFE,PG,XOM) via DRiP plans from my savings account. Would I be better off directing all my money to pay off the credit card debt or keep investing some of it while paying down the debt?

  • Report this Comment On March 17, 2010, at 1:17 PM, DTW100 wrote:

    I retired last year and received a bonus which put me over the Roth contribution AGI limit. I read that I have to withdraw the 2009 contrbutions, along with it's income, or pay a 6% penalty every year. As I am no longer receiving earned income is there a way that I can keep that money ($5900) in my Roth?

  • Report this Comment On March 17, 2010, at 1:19 PM, rkansas wrote:

    @DJDynamicNC

    The following are a couple of responses from my colleagues in the Garrett Planning Network discussing some of the key issues to consider with regard to the Roth decision. I concur with their responses. Sheryl

    In general, a Roth IRA is a good fit if you are a long way from retirement. The younger you are, the more time you have to come out ahead on the back end in retirement for the higher taxes you pay on the front end with a Roth IRA.

    Also, a Roth is a nice fit if you expect to be in a higher tax bracket in retirement. Some argue a Roth is a good bet because sooner or later taxes in this country are going up to cover the federal budget deficit and a Roth can help blunt the impact from that.

    Overall, I think it's good to have a bit of money in both Roth accounts and traditional IRA accounts. It's call tax diversification, covering all possibilities.

    David McPherson

    Falmouth, Mass.

    Contributions to ROTH IRAs are better for very low earners (young and others) who expect to be higher earners some day, those who want "tax diversification"), those who want have estate planning goals with young beneficiaries for the ROTHS. They are great for high school workers for example though they must opened as Custodial accounts for minors.

    ROTH conversions are particularly good for those whose taxable income is lower in the conversion year than most years – early retirees who are delaying pensions or social security and IRA withdrawals by spending down taxable investment accounts, low earners, those who have mostly nondeductible contributions in their IRAs, and those who want to leave their IRAs to beneficiaries and are willing to pay income taxes for them.

    Leisa B Aiken

  • Report this Comment On March 17, 2010, at 1:32 PM, TMFHockeypop wrote:

    Do Garrett Financial Planner advisors have access to DFA funds? How do you compare those with Vanguard or other low-cost or index funds?

  • Report this Comment On March 17, 2010, at 1:33 PM, rkansas wrote:

    @KVB71

    As a financial planning professional rather than an individual portfolio manager I tend to recommend low cost, high quality diversified mutual funds and exchange traded funds overwhelmingly for the equity component of a client's portfolio. We would augment the equity positions at times with individual fixed income products and sometimes with mutual funds or exchange traded funds or combination of the three for fixed income.

    I've worked with a number of clients over the years who had a portion of their portfolio in individual stock positions and we focused on designing the balance of the portfolio to work in coordination and to complement the individual stock positions. We focus on the overall portfolio allocation, tolerance for volatility, cash flow needs, and the investors’ interest in and desire to invest in individual stocks.

    Sheryl

  • Report this Comment On March 17, 2010, at 1:39 PM, crlsbad wrote:

    Some experts say that we are heading for a 1030's style deprecion, others say we are headed for high inflation and should not hold dollars. Who is correct?

  • Report this Comment On March 17, 2010, at 1:40 PM, Alexinthebox55 wrote:

    Sheryl,

    I'm 20 years old, and I have all of my savings tied up in stocks that are here for the distance...GE, Ford, PG, Berkshire Hathaway; do I need to reallocate my funds in order to remain diversified, or are stocks the way for me to go for the next few years?

  • Report this Comment On March 17, 2010, at 1:40 PM, Davem105 wrote:

    For general ease of record keeping we have been maintaining all of our invesment assets with one major brokerage firm. I have been told that this is not diverse enough since no one firm can do everything well. What is your feeling on this?

  • Report this Comment On March 17, 2010, at 1:42 PM, rkansas wrote:

    @stardustangel

    In theory I think the target date funds make a ton of sense for the investor who has a limited nest egg and/or doesn't want to spend any time or energy managing their own retirement account or outsourcing the management to a professional adviser. The last couple of years have shown that there is a drastic difference in target date funds. They are not necessarily a vehicle that you can purchase and ignore for life. Sheryl

    My colleague adds in his comments...

    It depends on the fund. Most of the target date funds I've seen are well diversified but the problem I see with them is that the allocations vary widely among fund companies. The other problem I have is that the reallocations that take place as the target date gets closer also vary. I only recommend them for investors who show little interest in investments or who tend to do bad things like buy high and sell low. If you're a Fool, you don't fit either of the criteria and I think you would be better off setting up a mix that makes sense for you.

    Frank Boucher

    Reston, VA

  • Report this Comment On March 17, 2010, at 1:45 PM, rkansas wrote:

    @KVB71

    Additional comments from one of my colleagues...

    I tend to recommend a mixture of ETFs and Mutual Funds. The main benefits are:

    1) Low Operating Costs – ETFs are much less expensive than Mutual Funds. The average ETF expense ratio is .41% versus the average Mutual fund expense ratio of 1.57%. That is a good 1% that can be kept in your portfolio.

    2) Easy Trading – ETFs trade just like a stock which allows you to buy and sell them throughout the day. Mutual funds can only be purchased at the close of the market without knowing what price you will pay. If many people buy that particular fund, the price will go up and you will pay what you are stuck with.

    3) Transparency – ETFs publish their holdings daily, so you are able to see all of the CURRENT investments held in your ETF. Mutual funds are only required to update their holdings every 90 days, so you have no way of knowing what the managers are currently doing with the investments.

    4) Tax Friendly – If a Mutual Fund has a good year, you will pay for it with taxable capital gains. You may even have to pay when the fund has had a negative return for the year. Mutual funds have to sell holdings when investors liquidate their shares. This happens frequently and can cause capital gains. ETFs that are indexes do not generate capital gains as much because they DO NOT need to sell holdings for investors. Because an ETF trades like a stock, the funds are transferred directly between investors, not from the ETF.

    5) Diversification & Risk Reduction – This is a shared benefit with Mutual Funds. Holding broad baskets of stocks significantly reduces your portfolio risk. Why gamble large positions in single companies?

    Angie Grillo, CFP, AIF

    Laguna Niguel, CA

  • Report this Comment On March 17, 2010, at 1:50 PM, ChrisA1004 wrote:

    Sheryl, I am currently 24 years old and considering a career change into Financial Planning. In what direction do you currently see this industry heading? What advice can you offer that has made you successful in your career that beginners can learn from?

  • Report this Comment On March 17, 2010, at 1:56 PM, rkansas wrote:

    @crlsbad

    If only my crystal ball actually worked!

    I don't think we'll know the answer until we look back in history. We actually may see something that is closer to a combination. Extremely slow economic growth, slow job recovery, increasing personal, corporate, and governmental debt loads, rising interest rates and likely rising taxes.

    I think we definitely need to be focusing on our personal fundamentals and making certain that our financial households are rock solid. We may indeed see a prolonged period of time where the best return on our investments is a return of our investment. Adequate cash reserves, strong resumes and marketable skills - enhancing our ability to earn or continue to earn money, and focusing on a prudent and well diversified investment portfolio is a must in this economic climate.

    We are definitely in an uncertain economy. Uncertainty in the past has often been a phenomenal opportunity for those with the intestinal fortitude and good luck to be in the market when it is most feared or undesired.

    Sheryl

  • Report this Comment On March 17, 2010, at 2:03 PM, rkansas wrote:

    @gadawg403

    Several of my colleagues shared their feedback on your post and I concur. Sheryl

    If the credit card debt has high interest rates, my recommendation would be to pay down those more aggressively before investing in individual stocks. However, if your employer has a company 401k, keep saving there. If the company has a match, you don't want to give up free money.

    Angie Grillo, CFP, AIF

    Laguna Niguel, CA

    I would definitely pay down credit card debt before investing in individual securities. However, you should also set money aside to build an emergency cash reserve, to prevent the need to tap into high interest credit again.

    Garry Good

    Bloomington, IL

    As much as I love those stocks and the Drip plans, I hate credit card debt more. Those interest rates are outrageous!. It would be best if you could do both but, if you have to make a choice, I'd suspend the Drip and go after those credit cards. Make the minimum payment on all of them except the smallest balance where you should pay as much as you can afford. Then go after the next smallest balance, etc. your interest rates may be higher on the larger balance cards but you will feel great when you so those balances disappear and that will incent you to keep going.

    By the way, if you don't have six months of living expenses put aside in an emergency fund, do that first. It's also a good idea to have a thousand dollars or so in an "Oh Heck" fund to cover unexpected car repairs or appliance replacements, root canals, etc. If you don't do this, you'll wind up charging those things on your credit cards and then you'll be back where you started.

    Frank Boucher

    Reston, VA

  • Report this Comment On March 17, 2010, at 2:04 PM, Retiree2035 wrote:

    If I am under 59 1/2 and withdraw the money I put into a Roth IRA after the 5 year wait period will I be penalized?

  • Report this Comment On March 17, 2010, at 2:07 PM, Retiree2035 wrote:

    Are there any penalties for withdrawing the principle from a Roth IRA.

  • Report this Comment On March 17, 2010, at 2:11 PM, rbabco wrote:

    Can you explain the thinking (math) behind the generally accepted rate of retirement withdrawal of 4% to make your nest egg last? I believe that without much risk, one should be able to beat that rate with income generating investments.

  • Report this Comment On March 17, 2010, at 2:13 PM, rkansas wrote:

    @DTW100

    You may want to consult your own tax professional about this question. Here's what one of my colleagues had to offer:

    Unfortunately, without earned income in 2010, you will not be allowed to change the contribution from 2009 to 2010. If you really really want to keep it in the ROTH IRA:

    1) You could take a temporary job until you earn the $5,900. You would have to contact the custodian of your ROTH IRA and request a form to transfer the 2009 contribution to 2010. This must be done before you file your taxes in 2010. You are allowed to extend the filing of your taxes which will allow you to extend the reporting of the ROTH contribution change as well.

    2) Or, if you have a Traditional IRA, you could take a withdrawal from that in the amount of $5,900. This is considered taxable income and can be used to contribute to a ROTH IRA. You would still need to transfer the ROTH contribution from 2009 to 2010 since the Traditional IRA withdrawal will happen in 2010.

    If you don't do one of the above, you will have to remove the $5,900 contribution before you file your income tax return to avoid the penalty. Again, you are able to extend the filing of your taxes to give you more time to correct this. You will need to contact the custodian for this as well.

    Angie Grillo, CFP, AIF

    Laguna Niguel, CA

  • Report this Comment On March 17, 2010, at 2:31 PM, rkansas wrote:

    @hockeypop

    This varies among Garrett planners. Some of us do have access to DFA funds. All of us have access to Vanguard index funds and exchange traded funds as well as all other exchange traded and nonproprietary index funds. In general we are huge fans low-cost, high-quality diversified investment vehicles for core portfolio holdings. The following are some specific remarks regarding your question of how DFA may compare to Vanguard etc. Sheryl

    DFA funds are generally for investors who buy and hold. Generally they have higher volatility and higher long run return than their nearest Vanguard competitors, but that varies.

    Garrett advisors who are signed up with DFA can all choose to use Vanguard funds and/or DFA Funds. Many of these advisors help clients choose a mix that includes some of both. However, many advisors would recommend more DFA than Vanguard.

    We compare DFA with Vanguard on the metrics of Asset Class, Expense ratios, and historical returns. Generally DFA comes first by enough of a margin that we continue to use DFA.

    We want to stress that DFA pays no advisor anywhere any compensation. The client pays our fees, so we are completely neutral between DFA and Vanguard. In other words, you the client pay us advisors the same amount whether your money is in DFA or Vanguard.

    Good luck,

    Jake Engle

    I've compared the performance and expenses of DFA funds to other funds I recommend. In my opinion DFA is just like any other fund company. They have some good funds, some OK & some bad funds. In general DFA's expenses seem to be about .23% for bonds and up to .68% for international equities. Vanguard and ETF Indexes are in the same ballpark with fees.

    Angie Grillo, CFP, AIF

    Laguna Niguel, CA

  • Report this Comment On March 17, 2010, at 2:46 PM, rkansas wrote:

    @ChrisA1004

    There is enormous opportunity as the financial planning industry evolves into a profession. I can't imagine a more fulfilling vocation then financial planning. We have an immense responsibility to our clients and the wonderful opportunity to truly make a meaningful difference in people's lives. There are very few vocations that offer an individual the opportunity to do something that they truly love, make a professional living, and make his enormous difference in people's lives.

    There are a few excellent books that I would recommend to someone interested in exploring a career in financial planning. The first is by Nancy Langdon Jones entitled So You Want to be a Financial Planner. The second book is by Mary Rowland entitled Best Practices for Financial Advisors. Another great resource are some of the books by Jeff Rattiner. And if you like my approach to working with clients on a fee-only hourly basis you can find out a lot more about how I worked with individual clients in my book Garrett's Guide to Financial Planning.

    In addition to those great resources my colleague Jake provides an additional tips...

    To our future colleague,

    1) Make sure you finish your undergrad degree, if you haven't already. An undergrad degree is a requirement for the CFP designation. And the CFP is the key to your ever being self employed.

    2) Go to a NAPFA convention. You can probably even meet Sheryl there - I did. At NAPFA put out the word that you are looking for an entry level job.

    As long as you believe in being a fiduciary, someone will give you a look.

    3) Be honest with yourself about whether you are able to tell clients the "hard truth" sometimes.

    Financial planners deal with all the same life problems of clients that attorneys do. Divorces, illness, death - I've dealt with all that in the last month.

    4) In fact, if you can't get a job in financial planning to start, you might go work as a paralegal for an Estate Planning attorney for a couple of years, while studying for the CFP exam on the side. You will be amazed at how much law you need to know.

    5) Recognize that financial planners are not bond traders on Wall Street. Over time, we can earn respectable livings. But at first you will not be profitable to your employer. And if you go out on your own, you won't be profitable for the first year. In other words, we counsel clients to be patient, and as a planner you must also be patient. It's a great job, but we never stop learning.

    Good luck,

    Jake Engle, CFP

  • Report this Comment On March 17, 2010, at 2:51 PM, rkansas wrote:

    @Retiree2035

    Dear Retiree2035,

    The following is a response to both of your questions.

    Thanks, Sheryl

    There are no penalties for withdrawing your contributions from a Roth IRA. The earnings can be withdrawn without penalty if it has been more than 5 years since the Roth account was set up, AND if one if the following is true:

    a) you are over 59 1/2,

    b) you are disabled

    c) the payments is being made to a beneficiary due to your death

    d) or you meet the first home exception

    Cynthia Freedman

    San Jose, CA

  • Report this Comment On March 17, 2010, at 2:56 PM, TMFBoiseKen wrote:

    Hi,

    I have a question about contribution maximums for my wife and I -- we both work. I have a 403(b) at work. She does not get a retirement plan at work.

    Can I contribute to a Roth IRA and have her contribute to a traditional IRA? What are the maximums?

    Thanks, Ken

  • Report this Comment On March 17, 2010, at 3:02 PM, TMFBoiseKen wrote:

    I have another question also -- My mother in law. She is 53, nothing saved for retirement -- has about 15k in cash and 15k in credit card debt.

    She said she wants us to help her create a plan. My best plan at this point is for her to save every nickel in an IRA and plan to work for as long as she can.

    Is there a point where she should consider longer term care insurance, or is her financial situation too far gone for that?

    Thanks!

  • Report this Comment On March 17, 2010, at 3:03 PM, rkansas wrote:

    @rbabco

    There is a huge body of research that's been compiled over the last approximately 15 years on sustainable withdrawal rates. I personally have collected a lot of the seminal articles and research papers on the subject. Academics as well as practitioners overwhelmingly agree that a sustainable withdrawal rate throughout one's entire retirement period is likely to be in the range of 4 to just over 5% per year. In my book, the most prudent approach would be to plan for a 4% withdrawal rate and hope for better.

    My colleagues have provided additional explanation regarding what is being considered when determining sustainable withdrawal rate numbers.

    Sheryl

    The 4% benchmark withdrawal comes from what draw your portfolio can withstand while still growing and keeping ahead of inflation.

    Assume you have a 60/40 equity/bond diversified portfolio.

    Assume the expected return on equities = 10% (quite high in this current environment)

    Assume the expected return on bonds = 6% (again, quite aggressive in today's environment)

    Therefore, the blended expected return on your portfolio is 8.4%.

    If you take out 4% and inflation = 3.5%, that is 6.5% "used" of your annual expected return of 8.4%. You need to allow for some growth (extra left in and eaten by you or inflation) as not all years will be positive return years. So 4% is a reasonable starting point.

    Also, the 4% rule originated with the historical dividend yield on equities. Of the 10% total return on equities, 6% was from price appreciation (where you got your long-term growth and keep ahead of inflation) and 4% came from the dividends paid out by the companies. It is no longer an easy task to get that 4% dividend yield from equities. Companies have cut their dividends, especially the Financials, which historically is where much of an investor's dividend yield was derived.

    Lastly, being more aggressive than a 4% withdrawal may not be prudent when one considers the longevity risk. We are living longer and longer so our portfolios must work harder to sustain us through 25-35, or more years of retirement.

    Katie Birmingham Weigel

    Concord, MA

    First, let’s reaffirm that the 4% is just a general “rule of thumb” guideline. Individual circumstances will differ. The 4% refers to the initial withdrawal rate in the first year of retirement. It then gets adjusted each year thereafter by the amount of inflation. So, 10 or 20 years into retirement, that withdrawal rate could be much larger than 4%. In order to keep pace with inflation and not run out of money down the road, one needs to focus on their “real” return - the amount earned on an investment after accounting for inflation and taxes. Most people still need a growth component in their retirement portfolio, and for that reason, equities are often recommended in the mix. The timing of returns is also critically important. Bad returns in the early years of retirement can have a devastating effect on the initial withdrawal rate and the sustainability of the portfolio. Many studies of this issue have been conducted over the years, and with some variations, nearly all conclude that an initial withdrawal rate in the neighborhood of 4% produces the greatest probability of success for the long term.

    Tom Arconti, CFP®

    Danbury, CT

    A 4% safe withdrawal rate is intended to prevent premature depletion of retirement assets - even under the following scenario:

    * Annual withdrawals keep pace (increase) with inflation

    * Bad sequence of market returns, i.e. down market during early years of retirement

    So. while this withdrawal rate might seem somewhat conservative - the consequences of failure are very severe. However, there are some steps you can take which allow moderate increases in your initial withdrawal rate. For example, the "safe" rate assumes you cannot take any corrective steps along the way. In reality, you have the opportunity to cut your budget if your portfolio drops in value, or you could modify your spending habits to hold budget increases below the rate of inflation. A big caution- this approach requires much discipline, over many years, and is not to be taken lightly.

    Garry Good

    Bloomington, IL

  • Report this Comment On March 17, 2010, at 3:15 PM, rkansas wrote:

    @Davem105

    I for one am a big fan of keeping things as simple as they should be but not any more simple. In other words, if I were using a discount broker who could accommodate all of my different types of investing strategies, had great investment selections, tools and resources, as well as, reporting functionality - all at place - one high-quality discount broker would be sufficient.

    However if you're utilizing a brokerage firm and working with a broker who is providing advice and/or managing your portfolio that's quite a different story.

    Please refer to the additional comments from my colleagues. Thanks, Sheryl

    I don't agree. Most folks are better off keeping their all their investment accounts at one brokerage firm to the extent they can. It makes it much easier to manage, particularly as your near retirement. I'd say you're best off working with one of the major discount online brokers that offers a wide array of services at a reasonable cost. True, not every firm can do everything well, but the advantage of maintaining accounts with four or five different brokers is unlikely to be worth the trouble.

    Given that, there might be circumstance where you can't or shouldn't consolidate your accounts at one firm. For instance, if your company 401(k) account is housed at a lousy firm, I wouldn't move your personal accounts there. Instead, find a top quality firm for the personal accounts and then maybe move the 401(k) account into an IRA there when you leave that employer.

    In reality, you may have to do business with at least two or three investment firms, but try to keep it to a minimum.

    David McPherson

    Falmouth, Mass.

    It is possible to be fully diversified with one investment firm IF that investment professional is considering all areas of your financial picture as part of the “portfolio.” For example, if you have outside checking accounts/money markets/savings accounts, 401k/retirement plans, real estate holdings, etc. these need to be taken into consideration when viewing the entire portfolio. It is important to make sure that your current investment provider is considering all your assets when building your diversified portfolio.

    I have seen both cases where clients have had “everything under one roof” and it not be diversified and I’ve seen clients have everything spread around everywhere with the investment professionals not coordinating strategies and it being a un-diversified mess! Diversification has nothing to do with how many firms handle your assets (although you do want to make sure that your financial firm is stable and check them out via the SEC's Check out a broker tool http://sec.gov/investor/brokers.htm) it has more to do with having the right mix of asset classes. Studies show that 92% of your investment return is impacted by having the proper mix of asset classes such as cash, bonds, stocks, & real estate. It goes even deeper to have different maturities and tax strategies (if applicable) on the bond funds, a variety of large, mid & small capitalization stocks, international exposure and so on.

    The only way you could know for sure if you are "diversified enough" is to seek As you might imagine, it could be difficult for your brokerage firm who has all of your assets to give you unbiased advice because they recommended the investments in the first place and I'm sure they don't want you to leave so seek the advice of a Certified Financial Planner (CFP). You will want to find one who is independent and who's fees don't depend on product sales (fee-only not commission) to provide a second opinion. CFP's are trained to be able to determine if investment portfolio's are fully diversified and if they are working in conjunction with your whole financial picture, goals, tax situation and tolerance for risk. They can also look at things like is the entire portfolio tax efficient, fee efficient & risk efficient. Because they are fee-only, it is likely that they will charge an hourly fee or a flat fee to do this work for you and they should acknowledge their fiduciary status -- which means acting in the clients best interest at all times.

    Melody W. Townsend, CFP®

    It depends on the firm. I think you can be very well diversified with a firm such as Vanguard. Some advantages to keeping all your funds in the same firm are:

    a) easier record-keeping

    b) potentially reduced fees, depending on the size of your account

    c) easier to keep track of the asset allocation of your portfolio

    d) easier to calculate your required minimum distributions (when you are over 70 1/2)

    Cynthia Freedman

    San Jose, CA

    Having all of your investments at one brokerage firm can simplify your record keeping but you may be putting the cart before the horse. First determine what investments vehicles make sense for your particular situation. Once you've designed a portfolio mix (and determined if you need additional strategies such as annuities or options trading), you can then choose from firms such as Schwab or Scottrade. You may be able to do everything at one firm, or you may need to make one or two choices outside of your primary firm. But the KISS strategy with a trustworthy firm may be all you need.

    Kim Jones

    Denver, CO

  • Report this Comment On March 17, 2010, at 3:47 PM, rkansas wrote:

    @BoiseKen

    RE: your 2nd question...

    Dear Ken,

    One of the first requirements when considering the purchase of insurance is the need to transfer risk to a third-party while being able to afford the premium. When looking at a situation such as this the risk is that the limited assets which may be available in later years could be wiped out by long-term care expeneses. However the cost for long-term care insurance appears to be cost prohibitive.

    My colleague Frank Boucher and I concur... a person in this circumstance should save as much as possible, work as long as reasonably possible, and if long-term care is needed in the future those of us without any assets will qualify for Medicaid. We may be forced to find a care facility that has Medicaid beds available, which is not convenient to loved ones or necessarily the most desirable facility you would choose if substantial resources were available.

    While it is certain that all of us will die someday and most of us will need to stop working at some point, we never know for certain whether we will need institutionalized long-term-care.

    Good luck,

    Sheryl

  • Report this Comment On March 17, 2010, at 4:00 PM, rkansas wrote:

    @BoiseKen

    RE: Your first question - IRA contributions

    Ken,

    You and your wife (and anyone else in this situation) may be able to contribute to a Roth IRA regardless of whether you have an employer plan. However, there are income limits. Contribution limits are $5,000 per year, with an additional $1,000 per year if you're age 50 or older, if your modified adjusted gross income (MAGI) is $167,000 or less for joint filers and $105,000 for single/head of household. The maximum contribution grades to 0 at MAGI levels of $177,000 (joint)/$120,000 (single/HOH).

    Contribution limits for regular, deductible IRAs for those covered by an employer plan are $89,000 - $109,000 for joint filers and $56,000 - $66,000 for others. However, if you are not covered by a plan and your spouse is, your contributions are deductible for joint MAGI from $167,000 - $177,000 (same as for Roth).

    So, both you and your wife could contribute to either type of IRA as long as you meet the income requirements. Both the contribution limits and the earnings limits are adjusted for inflation. The limits above are for 2010.

    Modified adjusted gross income is the AGI from your tax return, but ignoring the IRA contribution and several other items.

    There are no income limits for contributions to nondeductible IRAs.

    Once you know the income limits, you'll need to choose between Roth and traditional IRAs. This choice has been covered in previous questions.

    Best of luck

    Cheryl Krueger

    Schaumburg and Chicago, IL

  • Report this Comment On March 17, 2010, at 4:10 PM, rkansas wrote:

    @BoiseKen

    RE: IRA contributions

    Ken,

    You and your wife (and anyone else in this situation) may be able to contribute to a Roth IRA regardless of whether you have an employer plan. However, there are income limits. Contribution limits are $5,000 per year, with an additional $1,000 per year if you're age 50 or older, if your modified adjusted gross income (MAGI) is $167,000 or less for joint filers and $105,000 for single/head of household. The maximum contribution grades to 0 at MAGI levels of $177,000 (joint)/$120,000 (single/HOH).

    Contribution limits for regular, deductible IRAs for those covered by an employer plan are $89,000 - $109,000 for joint filers and $56,000 - $66,000 for others. However, if you are not covered by a plan and your spouse is, your contributions are deductible for joint MAGI from $167,000 - $177,000 (same as for Roth).

    So, both you and your wife could contribute to either type of IRA as long as you meet the income requirements. Both the contribution limits and the earnings limits are adjusted for inflation. The limits above are for 2010.

    Modified adjusted gross income is the AGI from your tax return, but ignoring the IRA contribution and several other items.

    There are no income limits for contributions to nondeductible IRAs.

    Once you know the income limits, you'll need to choose between Roth and traditional IRAs. This choice has been covered in previous questions.

    Best of luck

    Cheryl Krueger

    Schaumburg and Chicago, IL

  • Report this Comment On March 17, 2010, at 4:25 PM, TMFSchool wrote:

    Hey Fools… it’s time to bring today’s live chat to a close. (Heavy sigh.) Thank you for asking such great questions. And, of course, a big thanks to Sheryl for spending her afternoon glued to the keyboard to bring financial advice to the belled-cap masses! Also, a big shout-out to the advisors in The Garrett Planning Network for being on-call this afternoon to chime in with and share their wisdom with Fool members.

    Check out The Garrett Planning Network (http://www.fool.com/adtr.ashx?to=http://www.garrettplanningn... to learn more about how these fee-only advisors are turning the old model of financial advice upside down and making it a lot more Foolish.

    Again, thanks to all!

    Dayana

  • Report this Comment On March 17, 2010, at 4:40 PM, rkansas wrote:

    Thanks Dayana and all of who posted questions! It was my joy and our group's privilege to be able to spend a bit of our afternoon with you.

    Thanks again,

    Sheryl

  • Report this Comment On March 18, 2010, at 1:46 PM, rkansas wrote:

    @Retiree2035

    I apologize but I had one correction to the reply regarding withdrawals from a Roth IRA account. My colleague Cynthina Freedman drew this to my attention. Here is corrected reply to your question.

    Thanks, Sheryl

    There are no taxes or penalties for withdrawing your contributions from a Roth IRA -- unless the contribution was due to a conversion. If the contribution was due to a conversion, you must wait 5 years after the conversion before the converted funds can be withdrawn.

    The earnings can be withdrawn without penalty if it has been more than 5 years since the Roth account was set up, AND if one if the following is true:

    a) you are over 59 1/2,

    b) you are disabled

    c) the payments is being made to a beneficiary due to your death

    d) or you meet the first home exception

    Cynthia Freedman

    San Jose, CA

  • Report this Comment On March 18, 2010, at 6:09 PM, PKnudsen wrote:

    What's a good site for stock quotes and news?

    I used to like CNN/Money but they've changed the site layout into a horrible mess.

    Suggestions?

  • Report this Comment On March 18, 2010, at 6:14 PM, PKnudsen wrote:

    Also, this site should have the comments "threaded". That is, replies should follow the question in order.

    One solution would be to use NNTP (newsgroup) format.

    Meanwhile, you might quote the question in your reply.

  • Report this Comment On March 27, 2010, at 6:24 PM, blkbrd101 wrote:

    Any comments to someone like myself (retired) who has his ROTH IRA in a Large Cap mutual fund. Is this the right vehicle for a ROTH? How can I protect myself from another serious dip in the Fund's value, still not fully recovered from the the last dive.

    Thanks.

    MH

  • Report this Comment On May 08, 2010, at 3:02 PM, Geegstep1964 wrote:

    I have a credit card debt question

    I am way over my means in c.c. debt. My salary was cut by about 10% last year and I made a big mistake relying on C.C's to get by. My questions is this: I can not longer afford the monthly payments and wish to clear all the debt. I would like to liquidate part of my 401

    and pay the 10% hit. most of my C.c. accounts are at 30% interest rate because of late payments. I tried family members but they are having a hard time also. C.c. debt is 8700 and my 401k is 15,000( can not borrow on this type) please help...

    GTS

  • Report this Comment On May 11, 2010, at 1:44 PM, mjmmi1 wrote:

    My mortgage is $48,000 @ 7.5 % $750.00 month for 15 more years.

    Car payment is $454.00 @ 5.9% for 60 months.

    I am looking at a home equity line $70,000.00

    Pay off both loans with the money.

    Terms are 5.25% for 60 months. ($1600.00 month)

    Or 4.5% for 120 months. ( $1000.00 month

    Is either of these a smart move? I have heard that it may not be a good odea to pay off your mortgage early?? I assume I can still get my interest deduction at tax time. Jus looking for some advice.

    Thanks

  • Report this Comment On May 11, 2010, at 1:53 PM, mjmmi1 wrote:

    How do you know if anyone is on the site currently?

  • Report this Comment On May 11, 2010, at 2:19 PM, mjmmi1 wrote:

    hello????

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