MMBB Financial Services
Financial Planning Specialist
Alina has over 14 years of experience in the financial services industry. Previously, a Vice President and Credit Portfolio Manager with a major European investment bank in New York, Alina held major roles in investment banking, ranging from portfolio management and risk underwriting to investing in structured financial products.
Alina is CERTIFIED FINANCIAL PLANNER™ practitioner and graduated from the prestigious Personal Financial Planning Program at NYU. She holds her MBA in Financial Management from Pace University - Lubin School of Business in New York, for which she was awarded a Graduate Assistantship and the 2004 NY Annual Securities Conference Scholarship. Alina earned her Bachelor of Business Administration in Finance and Insurance from the elite The Academy of Economic Studies in Bucharest, Romania.
Alina provides comprehensive financial planning and asset management services to healthcare professionals, clergy, business owners and individuals. Alina abides by the Fiduciary Standard of care, which attests to acting in clients' best interest at all times. Alina works for her clients only, does not take commissions, so she can provide high level of service with no conflicts of interests.
Alina is a member of the Financial Planning Association (FPA) and a volunteer for the FPA-Pro Bono committee through which she spreads financial literacy among the under served low-income populations of New York City.
In her spare time, Alina enjoys classical music, playing tennis and skiing with her family.
MBA, Financial Management, Pace University Lubin School of Business
BS, Finance and Insurance, Academy of Economic Studies
The answers presented on Ask an Advisor, together with any commentaries, articles, or other opinions should be considered general information presented to inform the public. They are based on the information provided in the question, which may have omitted important details that would have changed the answer had they been known. Please consult a financial advisor before concluding that the information is relevant to your own situation.
1. The best investment you can make as a young adult is investing in yourself, in your own education, after figuring out what you want to do.
2. Get rid of credit card debt if you have any to the point that you pay your balance in full every month and have a strategy for paying down your student loans as well.
3. Build your emergency fund gradually. A good rule of thumb is to have saved between 3 and 6 months of non-discretionary expenses in a liquid money market account, but it should be whatever makes you sleep well at night in case you lose your job, or an unexpected emergency comes up.
4. Make a plan to save for your financial freedom. Spend less than you earn.
- Pay yourself first! The sooner you start saving for your long-term retirement goal, the better it is. You are young, so make the time you have until your retirement age work in your advantage by starting to invest right away: a) contribute to company's 401(k) plan if available, take advantage of the match if available; b) open up a Roth IRA even if you don't benefit from the tax deduction advantage available with the Traditional IRA. You will get your money and your earnings on them tax free in retirement, when your tax bracket could be the same or higher than now.
- Stick with your plan by investing in an automatic fashion from each paycheck.
- Invest in a diversified portfolio of low cost index funds: domestic and foreign equities funds (90-100%) with the balance in bond funds. Revise asset allocation 10 years from now to start gliding it to a little more conservative mix.
- Rebalance to the asset allocation designed on a yearly basis.
Alina Parizianu, MBA, CFP®
This is unfortunately an unrealistic expectation. The answer it no, you can't. Your average long-term total return (dividends and capital appreciation) may be somewhere around 8%, but can't expect 10% just from dividends alone. In general, dividend paying companies are in the mature stage of their life cycle, at which point company earnings would not be as high as 10% year over year consistently. In any event, even if in some years they did have, the dividend payout ratio is never 100%. Also, dividends are not guaranteed by the companies. Just because they pay dividends in one year or that they have a history of paying dividends doesn't mean they will continue to pay it without interruption every quarter.
Your best bet would be to have a diversified portfolio that matches your risk tolerance and your goals.
Alina Parizianu, MBA, CFP®
First of all, kudos to you for committing to saving so early in your career. It is great that it is your focus and that your relatives help too. It will pay off in the long run.
Before discussing additional investing beyond your existing maxed out 401(k) ($18,000 a year at your age), you should consider the following:
- 3-6 months of living expenses should be saved in a liquid checking/money market account, or considering you don't have rental expense at the moment, what your living expenses would look like had you not lived at home.
- Open up and max out a Roth IRA account ($5,500 a year) by having automatic withdrawals from your paycheck, $500/month for 11 months assuming your Modified Adjusted Gross Income is less than $118K. This will provide tax-free earnings growth until retirement. You pay taxes now, and withdraw money tax free in retirement. Think of the Roth IRA as a two in one account (brokerage and retirement account), as you can withdraw your CONTRIBUTIONS at any time Tax Free and Penalty Free. Conversions will be tax free but will have 10% penalty if under 59 1/2 and if the conversion was done within the first 5 years (calculated from January 1st of the year for which the contributions were made). Earnings will be taxed and 10% penalty if under 59 1/2 and if the account was open in less than 5 years. Penalty can be avoided in certain circumstances: death, disability, tax levy, first time home (up to $10,000), for higher education purposes, or certain medical expenses/health insurance.
- For investments inside the Roth, you can afford to be aggressive at your age and invest most of the funds in equity ETFs (90% to 100%), with the rest in bond funds.
Great job so far and keep working at it!
Alina Parizianu, MBA, CFP®
Minimum distribution rules (MDRs) apply to 403(b), IRA, SEP, SIMPLE, or 457 plans. This means that by April 1 of the year following the year the participant attains the age of 70.5, the participant of a 403(b) has to take the required minimum distribution (RMD) based on a formula that considers the account balance and the age of the participant. If the participant does not take RMDs by that date, a penalty of 50% of the calculated RMD (less any distribution that was taken) will be applied to the participant.
MDRs don't apply to Roth IRAs, but they apply to the Roth portion of a 401(k) or of a 403(b).
Another exception to MDRs is if the participant is still employed by that particular plan sponsor even after reaching age 70.5. RMDs only habe to be taken after termination of employment (by April 1 of the year after termination). Read the details of the Summary Plan Document that your HR department can provide you for specifics of your plan. For any older plans from past jobs, RMDs have to be started as mentioned above. This exception does not apply, however, if the participant is a 5% owner of the business. But in your case, given the non-profit nature of the organization that offers the 403(b), this shouldn't be a concern for you.
Even if this is the case for you and you need to take distribution of funds from your retirement plan, you pay tax on the distributed amount (as the 403(b) is a tax-deferred plan), but you do not have to spend the net amount - you can invest it in a brokerage account (with an appropriate asset allocation) and let it grow over time.
Regarding Social Security:
- you can claim the benefits early, as early as 62, but your benefits will get permanently reduced.
- you can claim at your Full Retirement Age (between 66 and 67, depending the year you were born).
- you can delay claiming your benefits until reaching age 70, which will increase your benefits by about 8% per year.
There is no increase benefit after reaching age 70, so the latest you should start collecting Social Security is age 70. You can invest the proceeds in a brokerage account if you want to let it grow, but in an age-appropriate allocation.
I hope this helps and that your health allows you to work even after 70.5.
The tax deferred plan through an insurance company sounds like an annuity product (fixed or variable annuity). While there are some merits of annuities in someone's retirement plan, these are risky products and are definitely not for everyone.
While there is no limit, you can contribute to an annuity comparable to a Roth IRA. The expenses associated with buying one are usually very high, comprised of an initial high commission fee of the insurance salesperson, management and administrative charges (of ~2-3%), surrender charges if you decide you no longer need that product, that in the first 7-10 years of an annuity can be as steep as 7%, mortality and death risk expense to cover the insurance company for the assumptions they made for your life expectancy (another 1-1.5%), plus investment expenses for the funds invested in (another 1-2%).
Moreover, in today's low-interest environment, you are most likely going to get a low guaranteed rate, which will not be able to protect you from inflation risk.
The devil is in the details with these products. You need to read carefully the fine print.
Alina Parizianu, CFP®