Anthony Capital, LLC
Matthew is an avid learner and as such, sees his role as a guide who helps clients as they navigate saving for retirement and spending in retirement. His training as an Retirement Management Analyst informs every aspect of his planning and centers every decision on the client. He has taught hundreds of seminars touching on subjects ranging from debt solutions, investing, Social Security, pensions, insurance, and other financial topics, with the emphasis being on what trade offs are made when each is selected.
Living in San Antonio, known as Military City USA, Matthew has become an expert in optimizing the financial lives of public as well as private sector employees. Matthew recognized a huge need for benefits education and basic financial planning among government employees. To serve this need, he started Federal Benefits and Retirement (fedbenretire.org) and teamed up with the nonprofit The Society for Financial Awareness to offer trainings and private consultations at no cost to federal employees. This collaboration has given thousands of federal employees access to fiduciary advice formerly reserved for the more affluent and has created millions in dollars of value for them and their families.
With everyone in the industry clamoring to proclaim their fiduciary status, Matthew is quick to point out that that actually requires more than honesty and transparency. Though without those one cannot claim to be advising, without a broad understanding of finance one cannot claim to be a true advisor.
Matthew is the 8th of 11 children, which he will tell you was an education in and of itself. He has graduated from Dixie State University and Brigham Young University, and has also taken numerous post-graduate courses including a 4 month stint in Medical School. He speaks fluent Thai and enjoys traveling whenever occasion permits. He enjoys being a father to 3 boys and husband to a beautiful and creative wife.
Brigham Young University
Assets Under Management:
Great question. Generally withdrawing early is frowned upon in financial circles- often because it is unwise for the client, sometimes because the manager is worried about assets under management. The underlying question is can I pay the taxman more right now so that I can pay the Bank less.
Let's look deeper at the numbers to determine what is right* for you (*this is hypothetical given I don't have all your financial information and is done in rough numbers for education purposes only).
If you withdraw $10,000 you will only take home roughly $7,500 after 15% tax and 10% penalty assuming you make ~$45,000 a year or less. If you need the full $10,000 and have it available in your IRA, then we would need to take $13,350 to get the $10,000 you need to payoff the card balances. Total cost = $3,350 taxes.
(Again, if you are making $97,000 or less that could be closer to $15,000 withdrawal with a $5,000 cost)
Pay $500 a month over the next 2 years to pay off the cards. Total cost = $1,709 interest
(However, if it takes you more than 3.8 years to pay off the loans then your total interest cost increases to $3,400!)
In summary, the rough numbers seem to suggest that you'd be better off cutting money out of some other part of your budget to set up an accelerated payment plan rather than take the withdrawal.
I'd have to agree with you. Though the period you are looking at includes the financial crisis, you started investing in the rebound years following the dot-com bubble which should have resulted in some great early returns. Proof of this is in the historical data for many other funds that had much better returns over the same period. You've actually received less than 2% annualized return assuming monthly compounding. I agree that moving from AXA to somewhere else should be a given. I'm not sure of your current employment status though, so depending on that- it's likely that your best option is to continue to invest in your 403(b), just with a different provider. This is because if you're still employed at the same school, you might not be able to close it or roll it over to an IRA just yet. Additionally, moving the money into a Roth IRA would also require not only a roll over, but a conversion which means taxation on the entire amount converted. If you are of age or if you have left the employment of that particular school, given the amount of money, it still might be best to leave it in a 403(b) or roll into your new employer's plan, as the case may be. Assuming you can move the money without penalty, the biggest deciding factor should be what your financial goals are, i.e. how you plan to utilize those particular funds in retirement.
No, I wouldn't advise you to simply withdraw all money and pay off your mortgage. Withdrawing some money and paying off part of it could be an option depending on other considerations. If you're married and how long you may continue working are highest on the list but here are some other things you might weigh before making a final decision. There are alot of factors that actually could and should go into this decision.
Among them are:
1. Option of refinancing. 5.25% is not normally bad but at today's rates you could likely secure a lower interest rate. Given that your total savings, liquid assets are less than $250,000, we might want to hold onto those for retirement and potential healthcare costs. Refinancing down to a 20 year note could get you rates lower by ~1.5% without having to empty your coffers.
2. Expected returns in the portfolio and expected risk to achieve those returns. The 5.25% is a guaranteed cost- you will pay it. If you are making 7% on your investments, some people might say to not pay off the mortgage and keep the 1.75% difference but that depends on if the 7% is guaranteed- probably not, but is probably rather variable which means the sure thing might be better.
3. Tax status of funding. Simply put, where you draw the principal payment from depends on your tax situation. For higher income years (or if you have a significant pension, inheritance, etc) it might be advisable to pay down your mortgage using the savings and stock account, but not the 401(k) so you do not bump your tax rate. If however, this is a low year of income and you foresee higher years in the future (i.e. social security beginning, pension begins, spouse begins getting SS or pension payments, etc) then maybe accessing the 401(k) could be the ideal solution this year.
4. Have you considered a reverse mortgage? That could be a way of eliminating the payment while still being able to continue living there. There are some conditions like you must continue living there, you're still responsible for repairs, etc. but it can be a very good option.
The best decision in your case would probably involve combining some of these ideas here. For example: maybe you take the stock account and liquidate to make a lump sum payment and then do a HECM reverse mortgage to establish a credit line with increasing value for future retirement income. Without specific information I wouldn't say absolutely that's what to do- but now you have some of the things that you need to consider.
There are two ways to look at buying stocks in this scenario:
1- $500 is not a lot of money so you can afford to speculate a bit.
2- $500 is a lot of money to you if this is all of your investment portfolio, so care should be taken. Losing $200 is a 40% loss and would devastate your portfolio.
Depending on which of these statements applies to you would determine what kind of stocks to look at. Regardless of which applies to you however, I find that a very effective strategy for entry-level investors is invest in what you know. This means if you find yourself enjoying shows on XYZ network every other night and your friends report the same, that might be a good stock to start with. Conversely, if you find that your ABC shoes are not lasting as long or are not as comfortable as they used to be a few years ago, that might be a stock from which to steer clear or sell if you are already holding it.
This strategy assumes you stick with more recognizable stocks, not penny stocks or non-listed stocks. (This is general advice given using limited information and should not be construed as individual advice- for a more comprehensive strategy or individualized advice, a fiduciary financial planner should be consulted).
To begin, annuities can be very complex with several different types of annuities available and each of those generally having a number of subgroups. To really assess what will happen to a specific annuity after death (or even to understand its features prior obtaining one), a qualified, fiduciary financial advisor should be consulted.
(The following is not individual advice nor an exhaustive list of annuities and their features but rather an oversimplification for the sake of education.)
Let's split annuities into two parts: Immediate and Deferred. (These terms refer to when the annuity starts paying you money).
Immediate: One of the most common Immediate annuities is a Single Premium Immediate Annuity. These allow you to exchange a lump sum for a guaranteed payment for certain period such as 5, 10, or 20 years, or a lifetime (the lifetime option can be on joint lives as well meaning that the last person to die of the two original people named keeps getting the same monthly check). People with a very low risk tolerance or who have a very long life expectancy often find these appealing. What is sometimes misunderstood however is that once elected, the lump sum is no longer your asset, but rather the insurance company's asset. In other words, you don't own your money anymore. You traded it for a paycheck. This makes these less desirable for people with shorter life expectancies and those desiring to leave money to heirs. Another drawback that is often understated is the fact that only a small part of the money coming in is investment income- the vast majority of it is just your money coming back to you.
Hypothetical Immediate Annuity: Pay $100,000 to ABC insurance company. They now own the $100,000. In turn, they send you $500 a month for the rest of your life. But until you've received checks for 16.6 years, you've made no money but just been receiving the original $100,000 in payments. Often these do have return of premium riders or other potential benefits you can add, but each rider usually decreases the monthly payout thus stretching out how long it takes to get your own money back to you. For most immediate annuities, when you die your estate gets nothing and payments cease (unless you were still within the guaranteed period i.e. 10 year certain and you die at year 8 then the estate would pick up payments for the next 2 years until the 10 years are complete).
Deferred: These annuities are often similar to traditional investments in that you are not generally giving the money to the insurance company but rather letting them invest it for you. In return, you can be guaranteed returns at a fixed rate, guaranteed a rate within a specified range, or given a varying rate based upon market performance. These can be cashed out when you're done with them or can be annuitized which means you switch the money into payment mode. Unlike the the majority of immediate annuities, in payment mode on most deferred annuities you are still owner of the money but the amount you "own" is decreased by each payment of your money you receive. It is possible however to add a lifetime income rider to these so that the annuity cannot stop payments to you while alive even if the account value reaches $0 but these are almost always subject to an additional cost. Hypothetical Example of Deferred Annuity: Put $100,000 into annuity, wait 10 years to draw. At that point you can take out $135,000 lump sum (with taxes due on all growth if bank money (N/A if IRA money)), start paychecks of desired amount every month until money is gone, or if the rider was elected for lifetime income $500 a month for the rest of your life. The disadvantage of these is that they generally have surrender periods which means even though the company does not own your money, they have a right to use it for a specified period (7, 10, 15 years are most common). If you decide you want it back in that specified period or if a financial need comes up that requires withdrawals above the allowed percentage (often 10%), then you can pay penalties in excess of 12%! This means that in the $100,000 example above, you could lose up to $12,000 to the insurance company if you decide to stop the investment during the surrender period. Ouch!!
At the annuity owners death, any remaining money in the actual account goes to named beneficiaries. (It should be noted that if you elect the lifetime income option on these types of annuities, they will often have two amounts listed on your statements: one is the actual money in the account and the other is how much they are basing your monthly payment on. The first is liquid; cash in your pocket money. The second is really just a theoretical number for calculating your payment and does not pass to beneficiaries as a lump sum (usually).).