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Retirement Planning/Rolling over a 401k to a conservative option that is safe from market fluctuations

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Hi,
First, thanks so much for putting your time and experience to use to help others.

My question is this.  My husband is on the verge of leaving a career with a company that offered a matching 401k.  He worked there for 20+ years and since I took over managing our finances, I increased our contributions to where we now have a sizeable nest egg.

He is planning to leave this job in the next two months and we are trying to determine what to roll over our savings into.  

With all the recent market fluctuations, we are both wanting to safeguard our savings from a potential crash.  We want something that is conservative so that we don't lose everything we have saved, even if it means we don't see much in the way of gains.  

Do you have any recommendations or places to start?  I have been looking at VanGuard, and was advised to look into ETF's but after further research, I see that ETFs are susceptible to market fluctuations as well.

We have even toyed with the idea of cashing out the 401K and paying off the mortgage etc. Since becoming debt-free would be a kind of equity to us, we would seriously consider this option, if it were not for the hit we would take - I believe I read there would be a 20% early tax penalty + 10% penalty for taking it before he turns 59 1/2, which is a pretty substantial hit.

Neither of us are financial gurus, and we want to do what makes the most sense for us.  Optimally, since this is our main nest egg, we would prefer to save it and build on it, rather than take the hit on cashing it out, but we can also see a benefit in using it to become debt-free than to lose it in a market crash.

Thanks for any insight, advice, or pointers you can offer us!  I greatly appreciate any help you can send our way.

Answer
Richard E. Reyes, CFP
Richard E. Reyes, CFP  
Thanks for your question. I hope I can give you a little insight.

First and foremost I will tell you that this is usually not something you can do yourself. I have been in business over 18 years and have yet to see someone who can. You can "Google" information till you are blue in the face, the problem is it is difficult to figure out how all the pieces of the puzzle go together for your specific goals and objectives. You are now going into the distribution phase of life which works nothing like your current accumulation phase. Not a lot of room for error in the distribution phase.

I will not be able to answer your question directly since I would need more information in order to provide you better information. However, here are issues to contend with in your distribution phase:

1. Social Security best claiming strategy. Picking the wrong one will really cost you THOUSANDS in retirement. The Social Security office has NO IDEA how to help you with this and can't.
2. Pension best claiming strategy. How to maximize your pension benefit and make sure spouse is covered in case of death.
3. Tax efficiency of retirement distributions. Depending on where you saved your money, taxes will eat you up in retirement.
4. Reliability of income. Where is that going to come from and will it be enough? Will it cover inflation?
5. What investment vehicles should I use to get income from? Which investment vehicles do I use for future growth?
6. How are we covered for our long-term care needs? Is anyone a Veteran? There is over a 75% chance someone will need long-term care. How do we pay for that?
7. What happens to my spouses income in case of death. Will they be able to continue their lifestyle? If not then what? Remember, you can only keep one social security.
8. How do we transfer assets to kids or family in the most tax efficient manner. This is all dependent on where you saved your money. You might not have an estate tax problem but will you have a federal tax problem? How do you minimize that?
9. What if money? Retirement is expensive, long, and full of unknowns. How will you structure your portfolio.
10. Medicare enrollment and healthcare. How to best structure a plan. Medicare only covers 80% of your medical expenses. How will you cover the other 20%. If you are under 65, where are you getting coverage from?
11. Will paying off the mortgage make sense? Usually it doesn't at all by just looking at the numbers but if you do, will you have enough money left to live on for the next 30 to 40 years?
12. How do you structure a rollover? Most HR dept or custodians are not very helpful. Structure it wrong and there is no do over.
13. If your husband worked for a public company and has company stock in his portfolio, how do you properly take it out and save on taxes?

As you can see there is a lot of issues that MUST be covered with a qualified financial advisor who only works with folks in the "Distribution Phase" and is very well versed in these topics. Its important that you find someone you can trust to help you along.  

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Richard E. Reyes, CFP

Expertise

I can provide answers to questions relating to retirement especially relating to; income distribution, tax efficiency, long-term care insurance, life insurance, estate planning, asset protection, variable and fixed annuities, alternative investments and prudent portfolio design.

Experience

Through the years Richard has built a reputation as one of Central Florida's expert on retirement income distribution by providing sound, unbiased wealth coaching. We believe that Financial Planning is the problem and Wealth Coaching is the solution. The Wealth Coaching process gives you Peace of Mind, so you can stop worrying about your future. It helps you find happiness as it guides you in the TRUTH of investing, by teaching you how to make wise choices as you journey through your life’s stages. It is all about your relationships and what you value, not your net worth.

Publications
Seminole Success Magazine “Retirement Planning” Seminole Success Magazine “Small Business Snapshot” The Orlando Sentinel – Ask the Expert Financial Section (Various) Greater Orlando Broker Agent Magazine “The New It” Senior Market Advisor “Random Reader, Random Questions”

Education/Credentials
B.S. University of Florida, Gainesville, FL
CFP Certificate, University of Central Florida, Orlando, FL

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