C. Curtis Financial Group
Michael Windle is a Partner/Financial Advisor with C. Curtis Financial Group in Plymouth MI. He and his team specialize in retirement planning based on securing their client's income in retirement and getting the needed amount of growth while taking the smallest amount of risk. Every recommendation is made based on the client’s goals and objectives. Michael and the team offer client strategies to minimize tax on Social Security, as well as income. Additionally, C. Curtis Financial Group has developed educational programs for corporations and charitable institutions helping them to better serve their clients and members. Michael has achieved the designation of Retirement Income Certified Professional (RICP) which has given him more insight on how to best help his clients with their retirement and ensure that they are structuring their income to have the most benefit.
Michael started his career as a banker and branch manager with Huntington Bank and transitioned into the advisor role when he realized how much he enjoyed working with clients and being able to problem solve for their goals. Being the youngest advisor at the firm, Michael is able to gain knowledge from the over 30 years of experience Curt Whipple (owner and founder) has in the industry, when combining that with his ability to see and understand both today's retirement needs and his generations' viewpoints of what they want while saving for retirement, he can help make that dream a reality! Michael holds multiple securities and insurance licenses and is responsible for providing the best solutions for client based on their unique needs.
Assets Under Management:
Securities offered through Kalos Capital, Inc. and Investment Advisory Services offered through Kalos Management, Inc., both at 3780 Mansell Rd. Suite 150, Alpharetta, GA 30022, (678) 356-1100. C. Curtis Financial Group is not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc.
Great question. I wish more retirees took the time to ponder this. As you mentioned with changing from the accumulation phase to the draw down phase, your mindset and focus needs to change as well. The number one goal here is income. Not just any income, but NET income. Drawing from your accounts (Traditional IRA, Roth IRA, Non-Qualified Funds, Social Security, Pension, 401k) in the right order and in the right amounts is key. Structuring your income to give you the narrowest gap between gross income and net income is what will make sure that those funds you have accumulated will last the longest. Making decisions on when to pull income from each of these accounts along with when to turn on Social Security, and always keeping in mind the 70-1/2 age as well as what your Required Minimum Distribution will be is paramount. Ensuring that you are not only being tax efficient now, but will also allow yourself the ability to be tax efficient once your RMD starts will make your portfolio last longer and provide you will a more enjoyable retirement! After all the goal of retirement is to still get a check, but not work for it. Next is to re-look at your risk in the portfolio and make sure it still lines up with your goals. Taking too much risk could cause you to lose what you have accumulated, not enough risk can lead to returns that aren't going to sustain your portfolio. First look into what you need to get your income goals taken care of, then you will know how much extra funds you have to invest and meet your discretionary goals.
1.) Net Income
2.) Social Security Planning
3.) Layering of income (which accounts to pull from when)
5.) Other goals
Congrats on Retirement and Good Luck,
Let's look at each of these questions separately.
Question 1-When a bond is selling at a premium, it means that the price of the bond (par) is higher than $1,000. This will happen when that bond has a higher coupon (or interest rate) than other bonds of the same grade and term. You will see this mainly when interest rates are going down. For example, say Bond A is paying an interest rate of 3% over a maturity term of 10 years. When interest rates go down to a new 10 year term bond, Bond B will come out with say a 2% interest rate. When this happens I'm going sell my Bond A for more than $1,000 because that is what Bond B is selling for. Since I am paying a higher interest rate, I can get more money for my bond.
Question 2-To determine whether it is a good investment you have to look at a few different things. First is the yield of the bond. Bonds have a stated coupon or interest rate and a price. If you are paying more for the bond (buying it at a premium), then the interest rate needs to be higher. The yield tells you what your actual return will be based on what you pay for the bond and what the interest rate is. For example: You buy ten 10 year bonds at a premium of $1,100 each or $11,000 and they are paying a 3% coupon. If you hold the bond to maturity, when it matures it is only worth $1,000 or par. So if you hold the bond for 10 years paying you 3% a year or $3,000 and it matures paying you back $10,000 (10 bonds at $1,000 each), you will have paid $11,000 and have a return of $13,000 which is a yield of 1.8% per year for those ten years. The yield is the most important part in figuring your return on investment(ROI) with a bond. If you could've bought ten bonds at par paying 2%, in this case, you would've been farther ahead.
The second thing to look at is knowing if you are going to hold the bond until maturity. If you are, then you can figure out very easily what the yield will be. But if you are thinking that interest rates are going to continue to go down then you could look at purchasing a bond at a premium to hold and then resell at a higher premium if indeed interest rates do continue to go down. Typically the higher your bond is paying in interest the higher the premium will be for it. Be aware that if interest rates start to go up then your bond will now only be able to sell at a discount because investors can purchase new bonds for par (remember par is $1,000)and paying a higher rate.
I hope this gives you a little more clarity, there are plenty of other factors to gage when deciding which bond to purchase, so please work with a financial advisor, but this will get you started on the right path.
Thanks and Good luck
The answers you've already received are great answers, so instead of giving more of the same advice, I would suggest you look at it in a different way. Say you do maximize what you can contribute, somewhere in the range of $18K-$27K and you save paying taxes this year on that amount (let's round to $20K for easy math), at the 25% tax bracket. That will save you $5,000 a year on your tax bill. If you make this same contribution to your 403(b) for 30 years, saving the same amount on taxes will have saved you $150K over 30 years. Now if you were able to get a modest 4-5% return on that $20K a year you were contributing, it would have grown to about $1 million. Great Right? Maybe not. Your Required Minimum Distribution (RMD) amount on $1 million is around $37K a year. If you combine that with your Social Security benefit, you are guaranteeing yourself to not only stay in the 25% tax bracket (at a minimum) but also 85% of your social security benefit will be taxed as well. If you live until 90 taking your RMD for 20 years averaging $35K per year, you will have paid $185K in taxes JUST on your RMD, plus more on your SS benefit and any other income. So lets break it down.
403(b) contribution per year= $20,000
Taxes saved per year= $5,000
Total taxes saved over 30 years of working= $150,000
RMD amount you MUST take and pay taxes on (approximately)= $35,000
Taxes paid per year= $9,250
Taxes paid over 20 years in retirement= $185,000
You saved $150,000 in taxes while you were working and could make income to pay them. So you could pay $185,000 during retirement when you were on a fixed income and could least afford to pay them...
Some people will say that they will be in a lower tax bracket when they retire, but I ask: Do you want to have less income when you retire? I don't, I would like to keep my same income and enjoy my retirement.
So what am I trying to say by showing all this? Sometimes maxing out your 401(k), or 403(b) contributions doesn't make sense when you look at how it will effect your retirement, which is really why we are putting the money away in the first place isn't it?
Instead look at using other tools you have, which might require a little more in taxes owed now, but will help save you when it comes time to retire. Talk with your advisor about Roth IRA's, LIRP's, and other retirement planning tools that will benefit you more.
I hope this at a minimum helps you get another view point and gets you asking questions.
Realistically, in this economic time that we are in, there are very few, if any conservative investments. This is especially true if you set aside annuities, investments that can give you 5% return with zero risk. One option is looking at different alternative investments. These are typically a time deposit like annuities, and definitely carry some risk, but are not tied to Wall Street and the market. I would not recommend a REIT as these are ill-liquid and backed in many cases by loans that may default, therefore fairly risky. Talk to your advisor about options such as Preferred Apartment Communities and BlueRock. These investments still carry risk, but they both hold tangible assets to back up the investment, which can limit that risk. You are capped at only 10% of your investable assets being able to be invested though. To keep the funds in a liquid position you still have the opportunity to invest in the market. Being diversified and implementing an actively managed strategy vs. a buy and hold can also help limit your risk.
Way to think ahead! Unfortunately this is a tough question to answer without more details. Some of the things you need to think about are: When will I use this money? What is the purpose of this money? By answering these two questions you will be able to give yourself a much more specific plan of what to do with these funds. Depending on how long you have before you are using the money, and what your personal risk tolerance is, you can decide if you need it in a liquid position-banks, paying typically less than or around 1% interest, or if you can tie it up at all-bonds, annuities, or other time deposit accounts. If you have a longer time horizon (5 years or greater) then you may want to think about investing it in the market for the best potential of growth. If the money is indeed nontaxable then you would only pay on any growth you have. A good idea, if this is going to go towards retirement money, is to start moving some of it to a Roth so you can get tax free growth on it going forward. Roth limits are $5,500 if under age 50 and $6,500 if over age 60. Also keep in mind that you can split this money up into several different accounts that would be specific to meeting different goals.