Reader's Question:
I'm 55, married with a 17 year old and a 4-year old step son. I was fortunate enough to work 24 years at a pharmaceutical company during which I contributed to my 401(k). I’m no longer with the company, but my 401(k) is currently at $630,000 and I'm eligible to receive their pension which will be approximately $1,500 per month. The other impact payment I’m hoping for is to receive Social Security but with the way things are going in politics, I'm not sure I'll be able to count on this once I'm eligible. I also have another small 401(k), but as of today it only has $14,000. I don’t have any credit card debt. I only have my mortgage payment which is $850 a month plus $325 in HOA dues. My wife is 44 and immigrated here from China. She just started working as a card dealer in a casino. I’m trying to put as much as I can towards paying off our condo.
1. I’m a bit nervous and worried that we might not have enough money to retire. Is there someone who can help us figure out whether we'll need to sell the condo to reduce our cost of living? I need advice on our future finances.
Ronnie's Response:
Dear Reader,
It is wise to be concerned about your future retirement.
When faced with similar challenges, I find it is best to work interactively with my clients, providing education and planning so they can make the best decisions for their future.
I always start with financial education, including the rule of 72, and demonstrate how time and rate of return can affect your future nest egg. For example, the $630,000 in your old 401(k) would double if it achieves even a 7% rate of return over the next 10 years. You need to know which investments are available to you and the consequences of being too aggressive or too conservative.
An advisor using good planning software can help you determine whether you are on track and, if not, what it will take to get you on track. Various scenarios can be tested to inform you and help you make the right decisions for you and your family. You need the opportunity to make informed and educated decisions.
I will mention a few critical, obvious questions you need to answer when planning for retirement.
At what age do you wish to retire?
Will your wife continue to work during the first years of your retirement?
Can the pension be rolled into an IRA and grow potentially at a higher rate of return, providing income and continuing for the next generation? You may not be able to move the pension, and it may not be in your best interest, but you need to know your options.
Would it be in your best interest to roll over the 401(k) into an IRA?
This opens the door for the retirement funds to be at least partially converted into ROTH IRAs, providing you with tax-free income from those accounts.
How much income will you need per month?
What other goals and dreams do you have that are important in having a comfortable retirement?
Should you consider ROTH conversions? If so, when and how much?
How much can you and your wife contribute to retirement accounts moving forward?
Working with an advisor, you can determine your needs, goals, and wishes, and what it will take to achieve them.
Suppose it makes economic sense to live in this home long-term; that can be included in the process once the other factors have been discovered. Is this home or condo the place where you want to be when you retire?
It is certainly wise not to have a mortgage payment when you retire, but you don’t automatically want to put paying off your home ahead of saving for retirement. Once you know you have your retirement plan in place, you can then address a plan to pay off the mortgage.
I know there’s a lot of unknown and a lot of questions, but if you meet with an investment advisor who has the heart of a teacher and is willing to educate you and walk you through the process, I think you will find you can achieve your goals and ultimately find financial peace.
