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Are they both planning on quitting work at 62? Some quick thoughts as I read this:
1. The $600K should be deployed into a combination of dividend paying stocks and (probably) some bonds. That can be a pretty substantial income. For example if all invested into ATT (not a wise plan), it would generate $33,000 a year without touching principle.
2. Absolutely establish Roth's for them (this year) and as you can transfer anything you can while staying in 15% bracket.
3. I think Mom might consider not taking SS at 62. Several reasons why. Since Dad filed first, if she files under age 66 she is deemed to be taking her spousal benefit at that point. So the option of claiming his Age 66 benefits while her's rises will be gone. And should your father pass away first, she will get a maximum of $1,700 a month.
But if she holds off, she has the option at 66 to collect half of his age 66 which I'm guessing would be about $1,000 a month while her benefit climbs until age 70 and will probably be around $2,300. And if your Dad passes away before she is 66 she can collect Survivor Benefits ASAP while her benefit climbs.
If they are in the 15% tax bracket they could sell a property they have decent equity in (which you say are just breaking even anyway) and the Capital Gains rate would be 0. Let's say the cleared $50K. They could use $25K a year to substitute for Mom's SS, the taxable income goes way down allowing you to transfer more to Roths.
Just some initial thoughts...
Hey, thanks for taking the time to reply. Your responses got my brain thinking and opens options in my head.
As for my parent's work status, mom has been retired for 2 years already, and dad is unofficially retired from the union. Union hasn't been giving him jobs for past 2 years, but this year he officially retired, thus was now able to rollover his money. Weird thing is, the union withheld like $50k from his rollover amount, stating the $50k will be released around Feb. 2016. Actual amount will depend on market conditions. Very weird, but that's how it is (painters union).
My two cents. Sell the break-even rental properties. The last thing anyone needs in retirement is a source of endless stress that isn't generating income.
Very interesting you brought that up. I told my parents the same thing, to sell a condo and use it for their retirement and enjoy life! But my mom said no. I think she's afraid my dad is going to see all that extra money and go nuts at vegas, seriouslly. They already go 2 times a year, lol.
Also, another reason why my parents, or mom, doesn't want to sell it is because she rents it out to her sister, for cheap, thus not generating income, and stress free. Plus my brother and I pay for the property taxes.
The thing they need to look at closely is the doomsday scenario where he dies in a couple of years and she's trying to live on what's left of a $600K IRA portfolio and a $1,350/month Social Security check plus a small kicker in survivor's benefit from the higher pension her husband had.
Damn, now you really got me thinking. I never thought about this point of view. Thanks bro.
What does a person with very low income and very little to invest do? Is the only answer a bank savings acct.?
First of all they need to figure out why they have a very low income, secondly create a plan to make more. Whether someone is making $100 a week or $5000 a week they need to "pay them self first".
10% of what you make goes into saving. Not a bank account but mutual funds. They are one of the easiest vehicles for the average person to create wealth.
I need some advice from retires, thanks in advance!
I just helped my Dad roll over about $600,000 to Fidelity.
What should he do with his ira? What is the most he can withdraw to stay in the 15% tax bracket? Is there a strategic way to withdraw money so my parents won't get hit with social security taxes? What are you invested in? Medicaid planning? Annuities? Convert to Roth ira slowly? Slowly cash out while staying in the 15% tax bracket and keep cash?
Their monthly expense is $5000.
Extra information, not sure if it's important:
Dad is 62 (health not to great, smoker, drinker, painter type career so lots of chemicals, etc.)
Mom is 60 (healthy!)
Dad will be collecting ss in August 2015 ($1700 per month)
Mom will be collecting ss when she turns 62, on her own ($1350 per month)
Rental income of about $20,000 a year, but parents do not make any money/profit from it due to maintenance fees, property taxes, etc.
It sounds like there is a much larger problem than trying to avoid social security taxes. Your parents want to and actually have retired early. Retiring early requires more savings than they have if they want to continue to spend at the $60K per year level, unless they don't expect to live very long. That's a gamble because what happens if they don't die early?
The income property that produces no income should be sold. Since they already retired with insufficient funds to live at the $60K level, they need to reduce their expenses. Maybe they could live on a lot less money by lowering their standard of living to match their savings, maybe living on $30K a year, living in a lower cost of living area. I would recommend transferring their retirement accounts to Vanguard, not Fidelity. Vanguard has significantly lower fees than Fidelity.
depends what you buy . fidelity and vanguard have comparable fees on their index funds and you can buy etf versions from both at the same expense level . .
i have accounts at both and overwhelmingly prefer fidelity . ended up giving fidelity 90% and vanguard only 10% of my investment dollars .
I have noted on a lot of these money threads that a good many people have pretty good money to live on / invest with.
What does a person with very low income and very little to invest do? Is the only answer a bank savings acct.?
if it is cash flow you need , putting some in an immediate annuity could get you a 30-40% larger cash flow than you can get safely on your own,
of course you need emergency cash too but if low savings is a problem then it is one way of seeing a higher cash flow . the immediate annuity's invest in dead body's so those who die bolster the payments to those who live .
for someone with no discretionary income and where all income is for needs there is nothing other than short term bonds , tips and cd's but anything more than a 2% draw inflation adjusted is iffy .
with no where to cut back in the budget if need be equity's should be out of the equation .
you could try a little stratagy :
that is plan around living to age 85 or so which can increase your spending , then for not much money add a deferred annuity to act as longevity insurance . if you live past 85 the policy kicks in providing more money.
by planning with your own money to 85 instead of the preferred 95 you can get more cash flow and the longevity insurance for that age is pretty cheap . .
this way you get a 3rd party to bare the risk you live longer .
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