Your Wealth Questions

Your Wealth Questions

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Retirement Planning Questions: Retirement Fund Options

Q: I am almost 62 and about 5-8 years away from retirement. About half of my retirement funds are in my employer-sponsored 401(k) with limited investment options. The other half is in IRAs with Fidelity. As I get closer to retirement, what kinds of mutual funds should I be moving my investments into? Do you have any specific fund recommendations, especially those available through Fidelity?

A: Please be advised we are regulated by the SEC which strongly prohibits advisors from providing specific recommendations to individuals without fully engaging in a due diligence process to determine suitability and appropriateness of a recommendation. 

However, as our clients are nearing retirement we try to recommend the appropriate mix of income generating investments including a balance of fixed income, equity and alternative investments.  This will include bonds, dividend paying stocks, REITs, MLPs, closed end funds etc. so you can create an income stream to live on.

I recommend speaking with your Fidelity advisor to see if they can offer you some advice.  Alternatively, you can schedule an appointment to come in to our office and speak with me for some guidance.

Retirement Planning Question: Lump Sum or Pension

Q: I have a company pension that will pay me lump sum of $730,000 cash or take as a pension at $40,700 per year. The pension is not adjusted for inflation; however, it is a 100% joint for me and my wife. Which do you recommend I take?

A: First off, congratulations, you are one of the lucky few that still have the option for a pension in retirement.  One of our partners, Wes Moss, just wrote about this in his book, You Can Retire Sooner Than You Think. 

Here is the excerpt:

Making the Right Choice: Pension versus Lump Sum

The current temperature of the economy is causing many companies to offer their employees the option of a lump-sum payout, rather than collecting the pension payments they were originally promised.  It’s a hard decision for people to make, especially with the big pile of money staring them in the face.  Here’s an easy checklist to help you navigate the decision:


  • Take your monthly payment and multiply it by 12.

          Example: $2,000 x 12 = $24,000

  • Divide that number into the total amount of the lump sum being offered.
  • If the number you come up with equals 6 or 7 percent of the lump sum being offered, consider keeping the pension.
  • If the number you come up with is below 6 or 7 percent of the lump sum being offered, consider taking the lump sum and creating income by investing it.

Of course, there can be other factors like health and how much income you actually need in retirement.

Investment Planning Question: The Bucket Approach

Q: I have a Rollover IRA, Roth IRA and a Simple IRA. Currently I am contributing to the Simple IRA. So when I take into account the "buckets" you refer to, do I take all of those into consideration? And out of those three accounts is there a difference in how I would invest the money?

A: You absolutely should take all of your accounts into consideration; however, different types of IRA accounts have different distribution rules.  Traditional IRA distributions can be taken at any time after you attain the age of 59½, but the required minimum distribution (RMD) rules state that the distributions must (except Roth IRAs) begin by April 1 of the year following the year in which you attain the age of 70½. In other words, you are not required to make withdrawals from your Roth IRA. 

As such, when considering the “bucket approach”, you might take on a little more risk or growth opportunities in your Roth IRA because you can let it accumulator longer.

Financial Planning Question: Asset Allocation

Q: I am 57 years old and want to retire at 60. I have a current balance $752,000 on my 401(k) and a pension of about $ 2,500 a month. My 401(k) is split 5% cash, 44% bonds, 46% large cap 1%, small cap, and 4% international. We have a new financial advice feature on our 401(k) website and they are recommending these changes: 32% bonds, 36% large cap, 7% small cap, and 22% international. What do you think? 22% in international seems high with all the problems in Europe and Asia.

A: Many of the rebalancing and asset allocation tools available use a process referred to as strategic asset allocation.  This is when you identify a target allocation based on your age, risk tolerance, time horizon, etc. and the portfolio will be positioned to stay within the specified allocation regardless of what is going on in the global marketplace. As such, a lot of the portfolios that are managed to a strategic allocation have underperformed the past few years due to the large percentage in international markets.

At Capital Investment Advisors we tactically manage for income in our portfolios.  This allows us to use asset classes that are going to pay us income while we own them.  You are more than welcome to come in for a portfolio review.

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