Ask an author: David Loeper here to answer your retirement planning questions!

[David Loeper]

Based on this information, the difference in your reduced pension is about $16,000 a year in pension benefits ($44,000 full service versus $28,000 in reduced pension for leaving the money in the pension) and without a COLA you would have to save about $44,000 a year to make up the difference. This is corrected to remove the rollover assets as you outline below.

Originally Posted by breckrider

What you state above about the rollover and no pension is correct. I think--but am not sure--that I could choose to leave my money in the pension system then draw it when I reach the current company's retirement age which is 55. It would be at a monthly rate lower than what I would draw if I didn't leave the company.

Still, at this point, it appears better for me to stay.

[flowergirl]

I recently inherited $250,000 fom a trust that included the entire estate. I have no savings or IRA's etc. Currently am married and co -own a business and debt -free unfinished home. However, would like to purchase a home in a nearby town in my name only and invest for my personal retirement with this money. (Our joint income is about $30,000 per year and we have little debt.) I am 59 years old and in very good health. I plan to continue to work part time for an indefinite period. I have no medical insurance but some term insurance to benefit my 3 grown children. Where do I start?

[David Loeper]

Originally Posted by stephaniestangl

David,

Thanks so much. I was able to cancel the policy and just have term life insurance for less than $20 a month. She even refunded the $200 I had paid already. With your advice and an internal newsletter that accidentally was sent to me I realized she was making huge commissions off of pointless insurance! Oh, and thanks for the book. I won today I guess.

Thanks!

Stephanie

I'm glad you got out of it. I'm curious as to why you think you needed the term insurance still.

[David Loeper]

Originally Posted by flowergirl

I recently inherited $250,000 fom a trust that included the entire estate. I have no savings or IRA's etc. Currently am married and co -own a business and debt -free unfinished home. However, would like to purchase a home in a nearby town in my name only and invest for my personal retirement with this money. (Our joint income is about $30,000 per year and we have little debt.) I am 59 years old and in very good health. I plan to continue to work part time for an indefinite period. I have no medical insurance but some term insurance to benefit my 3 grown children. Where do I start?

First, not having health insurance is a very risky thing. As you can tell from most of my posts, I'm not a big fan of over insuring, but the risk to your personal finances could be devastating with one accident or medical situation. An associate in my office has a 25 year old son without medical insurance that broke his ankle playing soccer...$50,000 later....

I'm not suggesting you buy your typical health insurance policy. With the money you inherited you can easily self insure the first $10,000 of potential medical costs IF you maintain reasonable liquidity in your investments. There are catastrophic health insurance policies available for a fairly low cost with $5,000-$20,000 deductibles and I would make it a priority to find one. You only need this until you qualify for medicare at age 65.

Not having any savings until now, the last thing I would do is speculate on one single piece of real estate. What if the local economy gets worse? What if rents decline? What if a tenant trashes the house? While there are many properties this never occurs, it is a needless risk that you may not be rewarded for and a risky and speculative action. Also, real estate is not very liquid, in case you need the money for something like the deductible for your low cost healthcare.

I'd diversify into a globally balanced portfolio of low cost index funds or ETFs. Our portfolio allocations are available here:
http://www.financeware.com/ruminatio...nformation.pdf

With commonsense rebalacing of these allocations you can defer most taxation but have liquidity and a lot less "event" risk. By the way, 8% of the S&P500 is real estate, and that excludes all of the real estate on the books of companies.

You mention you want to put the assets in your name. Are you in a marital property state? If so, it is critical that you do not commingle your inheritance with ANY personal assets, or they automatically become joint property regardless of how they are titled. You should consult with an attorney on this.

[Will]

Congrats to mlmg and flowergirl for winning copies of Dave's book.

[FlorenceMcGillicutty]

Hi David—

Thanks so much for answering all these questions and for the work you’re doing. I’m planning on educating myself with your whitepapers and your book. Thanks for making them available to us!

My question is about the TSP for federal employees. In an earlier question, you said that the TSP can be good. Everything I’ve read has said that the TSP is in the upper echelon of 401(k)s and that the fees are really low at around .03%. Is there something I’m missing that I should know about hidden fees?

Also, I’m in the dreaded lifecycle fund. I didn’t know how bad they were until reading your posts! I’m 28 and in a fund targeted for retirement at 2040. That date is a little early for me, but it was better than keeping all my money in the government securities fund, which is the default for all employees. The thing is, all the TSP funds are managed…you just choose from a nebulous fund of government securities, small caps, international, etc. Since I can’t choose my own specific funds, is it okay to stay in the lifecycle fund or would I be better off trying to blance my portfolio myself?

Thanks in advance for your insight!

FM

[David Loeper]

Originally Posted by FlorenceMcGillicutty

Hi David—

Thanks so much for answering all these questions and for the work you’re doing. I’m planning on educating myself with your whitepapers and your book. Thanks for making them available to us!

My question is about the TSP for federal employees. In an earlier question, you said that the TSP can be good. Everything I’ve read has said that the TSP is in the upper echelon of 401(k)s and that the fees are really low at around .03%. Is there something I’m missing that I should know about hidden fees?

Also, I’m in the dreaded lifecycle fund. I didn’t know how bad they were until reading your posts! I’m 28 and in a fund targeted for retirement at 2040. That date is a little early for me, but it was better than keeping all my money in the government securities fund, which is the default for all employees. The thing is, all the TSP funds are managed…you just choose from a nebulous fund of government securities, small caps, international, etc. Since I can’t choose my own specific funds, is it okay to stay in the lifecycle fund or would I be better off trying to blance my portfolio myself?

Thanks in advance for your insight!

FM

The information on the TSP fund options (other than the Lifecycle alternatives) from what I have seen are all low expense, and do not make active bets (see: http://www.tsp.gov/rates/fundsheets.html) which is why they are great investment options.

The only concern I have is how people sometimes use (misuse) these funds. If you start with an overall strategic asset allocation appropriate for the best balance balance of your goals, priorities and financial situation (see our suggested macro asset class allocations here: http://www.financeware.com/f_frame.a...ors/index.html >participants> 401(k) Portfolios or directly at: http://www.financeware.com/ruminatio...nformation.pdf ) they are great.

However, some people merely look at historical returns (i.e. what happened to someone else's money) and ignore the reality that the returns for any one of these funds are going to be randomly bouncing around based on short term (i.e. 5-10 years) data.

People that do that invariably chase asset classes that DID (observe, past tense) well and underweight those asset classes that end up doing well in the future.

[dipetersen]

Thank you for making this valuable information available. It's nice to find someone who is willing to tell the truth about these fees.

Thanks again.

[David Loeper]

Originally Posted by dipetersen

Thank you for making this valuable information available. It's nice to find someone who is willing to tell the truth about these fees.

Thanks again.

It is unfortunate that people are subjected to unethical product peddlers that only tell their side of the story. When you think about the weight of how these decisions impact any one person, how their accumulated wealth represents a lifetime of compromises, it is quite sad that most of the financial services industry is doing nothing other than selling false promises, misleading information and hope, and evading the impact to each individual's one life.

I'm on a mission to change that though. I have three new books coming out within the next year to help convey the message. Thank you for your support.

[Will]

Congratulations to this week's winner FlorenceMcGillicutty.