“My broker wants me to invest my substantial CD in the market. Is this a wise move or should I renew it at the current low interest rate?”
You need to pump your brakes on this decision until you know what you want your investment to do for you.
Taking funds from a CD to the stock market is about the most completely opposite direction you might take. Does that make it a wrong choice? Not if you understand the dramatic differences between the risks/rewards of both these investments. If you wish to move these funds from a safe, secure (albeit low return) investment to a non-safe, non-secure (albeit with higher potential upside – and down!) then you’re fine.
If you are looking for an investment that provides safety relative similar to a CD, but with better returns you should look elsewhere. You should clarify your objectives and needs first and then decide. A second opinion meeting with a trusted financial advisor way well be a good idea.
“I would like advice. I received an inheritance and would like to put a portion into a safe account for my grandkids who are 11 and 7. I was looking at a college savings but wasn’t sure which would be best.
Another question is I plan on retiring in 3 years and most of my money is with Fidelity 401k. I am currently 70% stocks 28% bonds and 2% short term. Should I keep this ratio or start to move more towards bonds. I do not want to lose anything that is this account.”
First, you need to decide what impact you wish to have on the lives of your grandchildren. If education (whatever form that might take from a traditional four year degree to high level training in HVAC) is the priority then you should explore the use of 529 plans. They have significant potential tax advantages to you and your grandchildren.
Work with a trusted financial advisor to examine the pros, cons, and mechanics of these plans.
If you wish to simply be able to safely hand off some money to them when they come of age just keep the money in your name in a bank or credit union.
Second, your 401(k) is absolutely not right for you. Your statement, ‘I do not want to lose anything in this account’ makes your current allocation completely wrong. You should immediately explore your options both within your current 401(k) and, in the alternative, in an IRA rollover.
If you are over age 55 and if your 401(k) plan permits you may wish to exercise your option to do an in-service rollover to an IRA. You would remain in your current 401(k) until you leave your current company, but your investment balance would move to an IRA where you could choose investments that offer you the type of protection, safety, and security you say you wish.
There are many alternatives to explore. Speak with a trusted financial advisor before taking any actions.
“I watch the show as much as possible and really enjoy it. Educational shows like yours are hard to find.
I recently heard of an annuity product that provides a guarantee 5% return (or something like that) with the potential for more depending on the market. It however has a floor that it won’t go below. I’m told you also have access to the initial investment unlike an immediate annuity where that is gone after you hand it over.
Do you know what these products are called and how I might find out more information about them? I was considering an immediate annuity but this sounds like a better alternative. Any thoughts would be appreciated.”
Thank you for your kind words. We have a wonderful team working to bring quality shows to our audiences. They are doing a great job. I’m just the ‘pretty face’ and clearly I’m the weak link in this chain.
You have stumbled into the challenging world of annuities. And as is often the case with challenging topics there is much misinformation out there.
Annuities come in many ‘flavors’ and you’re comparing two. The first is a variable annuity with a guaranteed lifetime income rider. The 5% figure you mention is available from certain annuity companies. Other companies offer figures that are both lower and higher. Indeed (in exchange for a fee structure that you might find daunting) these companies will offer you investments and protections that may fit your needs.
The second you mention is a single premium immediate annuity (SPIA). Quite a different animal to be sure. Yes, guaranteed lifetime income (in many different forms – I told you this was challenging), but significant restrictions on what can – and cannot – happen after you’ve invested your finds. You may find substantially higher income, but it may also come at a substantial cost – even at the loss of your entire investment. And while some ‘experts’ claim these SPIA contracts have no ‘fees’. They would not be experts they would be salesman.
The only intelligent way to navigate the annuity seas is with an experienced and trusted financial advisor – preferably a fiduciary – who will take the time to completely understand you situation and objectives. Only then will he/she explore the appropriate annuity options that fit you.
“My husband and I have both 401(k)s and IRAs. We both turned 60 recently and are looking at retiring in the next few years. We don’t like what’s going on in D.C. and fully expect our taxes are going to go through the roof.
Should we be moving funds out of these accounts now while our tax rates are lower than they’re going to be?”
You are certainly asking a reasonable question.
It does seem that the ‘public servants’ in D.C. are intent on spending about $3 trillion more each year than they take in in tax revenues. At the moment they are promising to only raise taxes on the rich and the corporations. Most credible experts say those efforts won’t produce enough revenue to close the gap. Logically, how long before they come for you and me?
You and your husband have about 12 years (15 if proposed changes are passed into law) before you will be forced to take annual Required Minimum Distributions (RMDs). A reasonable plan might be to look at the balances in your IRAs and 401(k)s, divide by 12 (or 15), and convert that amount each year to Roth IRAs.
Done properly (attention to detail is critical – the IRS doesn’t listen to excuses), this will move the majority (perhaps even all) your funds from taxable accounts to a tax-free Roth status. You will, of course, be paying higher income taxes along the way. However, if your fears are realized and income tax rates climb over the next 12 or 15 years you may well find yourselves reaping tax savings for the rest of your lives.
You should sit with both a financial advisor and tax advisor (preferably under one roof as we have at the More than Money World Headquarters in the ‘Holy Lands’ between Bethlehem and Nazareth) to put precise detail to your plans and understand the costs and impacts to your specific financial situation.
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