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Retirement Income Question

Retirement Income Question

Q: Is there any way to make 3% annual income on $200,000 and still protect the principle? Or is this just impossible? I am retired and would like a bit more income each year.

There is a way to make close to 3% by buying the 10-year treasuries now that are trading around 2.85%. They are a risk-free debt instrument of the Federal Government and generally are state tax-free. In theory, as long as you hold them to maturity there is no risk to principal. Hopefully, this helps explain one of your options. There are some other options we can talk through if you would like, feel free to schedule a consultation to talk.



Q: I am retiring in 2018 and want to be sure I have enough money to last. I’m 57 years old and have saved $1M allocated as follows: 30% stock, 60% bonds, 30% cash (all investments are in index funds with low fees). My pension will be $70k per year gross and I need about $60k per year for spending. I am concerned about a stock market downturn. How can I protect myself from a huge loss, and is it likely that I will be able to generate enough income to last throughout retirement?

A: If you need approximately $40k per year to supplement your pension, a balanced portfolio should help you obtain this goal. We would generally look to a portfolio composed of 50% growth (equities- single stocks and low-cost ETFs), 40% Fixed Income, and 10% Alternative Investments. With this kind of allocation, you could withdraw 4% per year (on $1,000,000 this would $40,000- over your needs) and still maintain your principal and grow your investment portfolio at the same time. This balanced portfolio will also help to mitigate the downside market risk when and if that time comes.


Lump Sum and Pension for Retirement

Q: I am a 64-year-old male and will retire this May. Presently my only bill is my $2000/month house payment which still has 14 years to go. My company is offering me a lump sum package of my pension account of $500,000 or I can take a monthly pension of $2700 with my spouse getting $1300 per month if I decease before she does. 
Is it better to take the lump sum and turn it over to my investment planner or take the monthly pension?I also have about $500,000 divided up between my 401k and a IRA. Since my wife and I plan on traveling once we retire I would like to bring home $6000/month to cover our house, necessities and travel. My social security benefit will be around $2400/month. 

A: I think your question gets into a very significant topic of what you need versus you want and where those sources of income are coming from.  Looking at your pension, it’s about a 6% cashflow to you and a 3% cashflow to your wife if you were to decease. The latter is fairly unimpressive but 6% is a good cash flow from a pension. To take this question into further consideration, some things I would have to find out from you to give you our opinion are:

  1. Family longevity
  2. Is the pension inflation adjusted or stagnant over the life
  3. Risk tolerance as an investor
  4. Long-Term Care planning
  5. When do you plan to draw SSI and how old your wife is
  6. Flexibility of assets vs fixed income

Once we know these things, this will help further determine whether a lump sum or pension makes sense for you.


New Tax Plan – Medical Expenses

Q: I have a looming medical expense of $5500. Are medical expense deductions being eliminated under the new tax plan for 2018? Should I incur the expense this year?

A: Thanks for reaching out to us. For 2017 and 2018, the new tax law will allow you to deduct qualified medical expenses that exceed 7.5% of your Adjusted Gross Income. This was scheduled to rise to 10% of AGI under the current law so it will work to the advantage of taxpayers.


Tax Plan Question – QCD

Q: I have two questions regarding the new tax plan. Is there an additional standard deduction amount for over 65 age? Is the qualified charitable donation (QCD) from IRA’s still available?

A: The new tax plan leaves intact the additional $1,300 deduction for each filer 65 and over. It is also our understanding that the new tax plan will not make any changes to QCDs from IRAs.


New Tax Plan – 2017 Taxes

Q: Regarding the tax plan, are the changes going to affect us when we file our 2017 taxes?

A: When passed, the bulk of the changes in the new tax law will go into effect in 2018, so they will not be retroactive back to your 2017 taxes.


Tax Questions – Capital Gains

Q: Does the new tax plan do away with the 3.8% Obamacare real estate capital gains tax?

A: Thanks for reaching out to us. Under the new tax plan there will be no change to the 3.8% Obamacare surtax on investment income.


Retirement Planning Question – Backdoor Roth

Q: With the new tax plan, can individuals still perform the backdoor Roth IRA in 2018?

A: Thanks for reaching out to us. It is our understanding that under the new tax plan you will still be able to take advantage of the backdoor Roth conversion strategy in 2018.


Tax Question – Personal Exemption

Q: What happens to the $4050 personal exemption in the new tax law? I just read on one site that it goes away. If so, then the benefit from the increase in the standard deduction is partially muted, isn’t it?

A: Thanks for reaching out to us. Starting in 2018, the personal exemption will go away and will be replaced by a larger standard deduction. While this amount will still be larger than the old Standard Deduction + Personal Exemption, you are correct that it will be somewhat muted if you are comparing the old vs. new standard deduction.


Tax Question – Personal Items

Q: A friend of mine recently sold personal items (such as jewelry). Will she be she taxed on these items as income? Is there a dollar amount under which she can avoid being taxed? 

A: According to the IRS, if you sell a personal item for more than the original cost of the item, then it should be considered a capital gain on which you pay capital gains taxes. However, only the gain is taxable, so if the items were sold for less than their original cost, then it would not be a taxable event.


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