Retirement Planning/Retirement Planning

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Question
My husband and I are both 38/39 and are able to retire from our current jobs with about 70%pension and medical benefits in 10 years. We have some other interests we'd like to pursue and will probably be working part time. We currently have no debt other than our mortgage and are dead set on having the house paid off in 7 years before we retire. Both of us have a deferred comp account that we've been putting 10% of our income in annually since we started working and it's done well though we're apprehensive about putting more in since we'll be taxed when we take it out.  And of course, we aren't able to take it out without penalty before 59.5. Currently, after our living expenses, we have about $1000 extra that we are looking to put somewhere. We were thinking about opening either one or two ROTH IRA's but are a little apprehensive since we wouldn't be able to withdraw until 59.5 (same as our deferred comp).  Plus, isn't it too late for us to even start one?  Are there any other suggested forms of investment that we can look into that we can access in about 10 years? Is there a reputable online source that we can look at that will explain things in plain english and perhaps help us decide?

Answer
Hi Rachel,

I'm sorry I couldn't get to your question sooner. While it's not too late to start a Roth IRA, it may not fit into your timeline for when you need it. Depending on your other holdings, it may also leave you with too much exposure to the stock market since their are really no good "safe" investments at this time due to the low interest rate environment.

As far as a reputable online source, let me say that, more often or not online, radio and television financial advice contains too much of a conflict of interest, and some of these people have no idea what they are talking about due their blindness caused by these conflicts. Many people just push the products they are familiar with. Plus,"one size fits all" financial advice does not work well for everybody, especially for folks like yourselves who are in a good place financially. The biggest problem I see for you is not having a tax hedge.

Of course, without full financial information I do not like to give definitive financial advice but there is a strategy I use with many of my clients that sounds like it would be a good fit for you. This involves purchasing an Indexed Universal Life Insurance policy on one or both of you. What you would do, is figure out the amount that you want to fund it with and then set the policy up so that you have the smallest death benefit available for that amount. This keeps the cost of insurance down and will put any amount over your cost of insurance and policy expenses directly into the cash value account of the policy. So for instance, if the insurance and expenses were $2k, it may allow you to put in $10k, so $8k would go into the cash value account. The way that it credits interest to your cash value is based upon an index, usually the S&P 500. Most policies currently have an interest cap of 12-15%. There is also a floor of 0% so you can't lose money in any given year. So if the S&P goes up 8%, you get an 8% return, if it goes up 12-15%, you get 12-15%, if it goes up 20%, you get the 12-15% or whatever the cap is on your policy. If the S&P goes down, your account value remains the same. After the first year, you will have access to your cash value via loan which you can pay back or not if you choose to. Normally you would pay back the loan (at an interest rate of less than 1%) until the policy is fully funded. If you set up the policy to be funded for a certain amount of years, you can usually put more money into it. When the policy is funded to your liking, it can than support itself via interest credited and you can turn on a tax free income stream for the rest of your life. So, in essence, you get a non taxable retirement account that can not go backward, plus it is self completing since it will pay a death benefit.

The key to this strategy is that you must understand how it works and you must work with an agent or advisor who understands this concept and knows which policies are best suited to this strategy. It is highly effective and this type of strategy has been used by the wealthy for years. Plus it is free from IRS restrictions except for the amount which you can put in vs the death benefit. Since your retirement income withdrawals will be technically considered loans or policy surrenders, they are not taxable.

Virtually all stock market based advisors would never recommend this strategy because they want you to invest directly in the stock market so they can keep getting their commission year after year. Once your money is in the policy it is never subject to any type of management fee.

If you want to read a good explanation of how this works, I suggest you read "The Retirement Miracle" by Patrick Kelly. There are many books on the subject but I think this is the best one. It would behoove you to take a couple of hours to read it. I hope this helps. Best of luck!

Dave

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David M Iannopollo

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I am a professional financial advisor who can assist you with answers on mutual funds, annuities, IRA's, rollovers, qualified and non-qualified retirement plans, retirement planning, educational planning, life, disability and LTC insurances. I can also show you how to take advantage of the stock market gains without the risk of loss!

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I have over 25 years experience in the business and financial world.

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Life experience has been my greatest education!

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