Charlotte Wealth Group
Michael has over 30 years of experience, consisting of: Over a decade of entrepreneurial experience in start-up, acquisition and development of small businesses. More than a decade of corporate management experience in Fortune 50 and Fortune 500 organizations, in operations and finance.
His MBA was earned at night school, providing the opportunity to place the theoretical into practice immediately. The MBA was awarded from UT San Antonio, which is the first MBA program to be certified in its first year of eligibility. He has testified in Federal court as an expert witness in a fraud trial in Dallas, TX. He has been quoted in Idiot's Guide to Social Security, written up in the Wall Street Journal - November 28, 2014 - Using Insurance to Reduce a Couple's Taxes.
Michael has served on his HOA Board of Directors, has been Cub Scout and Boy Scout den leader and administration volunteer, and performs photography projects at his church.
MBA, University of Texas - San Antonio
BA, Geography, University of Delaware
Assets Under Management:
With limited information, it's difficult to provide a solid commentary.
There are a number of things you should do, sooner rather than later. First, look at your current spending, break it down into parts: essential (mortgage, food utilities), lifestyle (dentertainment, vacations, hobbies, dining out) and dreams/legacy (world travel, charity, etc). Take the essential and lifestyle total, expect that you will need about 80% of that amount in retirement. That provides a starting point on the retirement income you will need.
Get your financial records in order so that all debt (mortgages, loans and credit card) information is easily accessed.
Do NOT get rid of the life insurance policies unless you are provided an overwhelming reason to do so. Moving the $60K to a ROTH is NOT such a reason. You can take funds (via a loan) out of your life policy, just like you can out of a ROTH. Here's the benefit: a life policy is not subject to market drops and the loan received from a life policy does not impact your social security taxation! Depending on how the policies are structured, you could at some point cease paying the premiums and have the policy remain in force.
Loaded with your spending data, debt and life insurance - seek out a retiement advisor to create a game plan for your wife and you.
My recommendation is to see someone who both manages assets and has their insurance license. There is too little information on your insurance policies to determine if they should be surrendered (my gut tells me not a good move).
There are a couple options the regulations may remove any penalty:
Regulation 72t allows someone make withdrawals from their 401k without a penalty. There are rules that need to be followed including: you must have payments made to you over a term of not less than 5 years or until age 59 ½ (whichever is longer). See IRS Pub 590
There is a second exception: If your funds are still at the company 401k where you were employed (not permitted for IRAs) and you left the company during or after the year in which you turned age 55, there is not penalty placed on the withdrawals. See IRS Pub 575
The 72t requires payment for a specified period of time, whereby, the 'rule of 55' seems to have more flexibility.
One last comment. When you buy a car, and find what you want at price and terms that satisfy you, does it matter how the person that sells you the car gets paid – salary or commission? Of course it doesn't, so why should it matter when getting a financial solution. Fee only advisors do NOT offer you a full spectrum of solutions. Employ the adage – caveat emptor – buyer beware. When challenged they will inform you that by not getting paid commission, they are looking out for your best interest. Here's what is not said, being paid a commission can be tempting, I may not be able to resist that temptation, so I don't do business that requires me to control myself. What other temptations are they not telling you about?
Investment advisory services offered through Virtue Capital Management, LLC (VCM), a SEC registered investment advisor. VCM and Charlotte Wealth Group are independent of one another.
Congratulations on your retirement and even more so that you have a pension, social security and 401(k).
Your analysis is on the right track, we just need to do some adjusting to get the numbers in line. The adjustments are based on you are a single filer for tax purposes and the pension is fully taxable. Regarding Social Security benefits, no one pays taxes on more than 85% of their Social Security benefits. Referencing SSA.gov, it appears your Social Security income is taxable up to 85%, making the amount included in gross income = $26,350.
The income tax brackets are based on taxable income. Perhaps try a tax calculator such as: http://www.calcxml.com/calculators/federal-income-tax-calculator?skn=#results. Using the pension of $39,000 and social security of $26,350, single filer and standard deductions, your taxable income is just under $55,000, with taxes due of about $9,500. This is in the 25% marginal tax bracket.
Now that we know your current taxable income, any additional taxable income up to $91,150 will be taxed at the 25% rate. To avoid escalation into the higher rate, 28%, one could take an additional $36,000 of income.
Using the Social Security exclusion and standard deductions resulted in the taxable income to be $55,000, not the $70,000 as originally expected. If you were to take all $50,000 from your 401(k), only $15,000 would be taxed at the next margin rate (28%). The additional 3% on $15,000 is $450.
When filing your income taxes, the taxes withheld by your 401(k) administrator will be shown as taxes already paid. This will result in taxes due being less that the total tax. If your 401(k) withdrawal is $50,000; the plan administrator withheld $5,000 and forwarded to the IRS. The tax calculator shows with your pension, taxable Social Security and $50,000 withdrawal from your 401(k), tax liability to be $22,368. The plan administrator withholding $5,000 or 10% would make the tax needing to be paid be $17,368.
Hope this helps in your planning!
Keep your cash, stocks and 401k. Refinance your house. Rates are around 4% - for a 20 to 25 year mortgage, that should lower your payment.
By doing so, you lower your fixed payment for 20+ years, which will make these assets along with Social Security go further for you.
Without knowing the details: such as your age, how long will the funds reside, what the investment was, how much are the fees and are you putting in more funds, it is difficult to provide specific course of action. Given that limitation, I would suggest one of the following courses of action:
If you are or soon will be over the age of 59 ½:
- Once age 59 ½, take distribution of the IRA, thus eliminating the annual fee. At $40, it is 2% of the IRA. Do not add any more funds to the IRA.
- Place the funds into a self-directed investment account that has no annual fee and low trading costs. Once your son is 18, you can have a joint account with him. Make him the primary account holder, any tax will be associated with his social security number.
- New Investment Dollars: Look at a closed end mutual fund that is a consistent dividend payer which provides a dividend re-investment program (DRIP). Such an investment will pay dividends and principal payments on a monthly or quarterly basis. Have those proceeds buy more shares, thereby increasing the number of shares and the value of the dividend increase for each distribution.
- While investment account is taxable, the DRIP distributions are partial principal and partial dividend. The only taxable gain is from the dividend (not the return of principal). Once you begin taking withdrawals, capital gains tax comes into play.
If you will not be 59 ½ for a while:
- leave the funds in the IRA, absorb the fees
- make sure your son is named as beneficiary
- Do NOT add more funds into the IRA. New investment dollars, see above.
- Seek a low cost, no-load mutual fund that has a good 3 year track record. It’s not what the fund did 10 years ago that will make it attractive, but what they have done lately.
Your current investment may not necessarily be a bad investment; it may be subject to bad timing. Prior to disposing of the current investment, research the investment again. Has it recovered? Over the long term (last decade) has it shown cyclical ups & downs? Did you buy at a peak? Has the trend been for each successive peak to be above the prior? If so, waiting may get you in a favorable position.
While not banking on others predictions, what do firms that track you investment have as an outlook for your investment? Is it buy, hold or sell? Do most analysts have this outlook? The stronger the consensus, the more merit one should give to that consensus.
Bottom line, before you do anything, check your emotions. Investment decisions should be based on fact not fear. It’s odd, when a retailer has a sale, many people buy, but when the stock market has a sale, many people sell. Learn not to follow the crowd!