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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75859  
Subject: Re: Late life retirement investing Date: 7/23/2010 5:53 PM
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I've been reading about investing books and posting on these boards for years so hopefully I have a better than average understanding of retirement investing, but when I get near to retirement I still plan on having a fee only financial advisor that charges by the hour help review my financial retirement plans and help me decide when to start social security. I think that one of the best ways that you can help him would be to help him get professional financial advice.

Even if the financial planning costs a few thousand dollars, that could easily pay for itself by making just a slightly better use of the money he has in the bank. Ask if you don't know why going to a financial advisor that does not charge by the hour can be very dangerous.

Before you meet with a financial planner you can help a lot by helping him get his numbers and paperwork in order and to help him learn some of the basics so you can minimize the time the financial planner needs to spend doing things like sorting through old tax returns. Since the advisor charges by the hour, this will help reduce the cost.

I did notice a few things;

If I understand it right, his monthly expenses are currently $2,300 including $700 for health insurance. When he turns 65 he should be eligible for Medicare so his monthly expenses will be down to $1,600 and at 66 he will get $1,150 per month so that only leaves $450 per month to be covered by his retirement funds while his expenses remain the same. That is only $5,400 per year or less than 1% of his current nest egg which even if invested very conservatively it would probably never be drawn down.

If you sit down with him and go the social security web site, they now have a pretty good calculator that will give you really good numbers for different retirement ages based on his real numbers. It would be good to know exactly what he could get at different ages.

With over half a million dollars in a money market fund at one bank, he has greatly exceeded the current quarter of a million dollar FDIC insurance limit so he should quickly move his money around to be under the FDIC limit at each bank. This is important, if that bank goes belly up like so many other banks have, then he could lose some of that money or have it locked up for a long time while he tries to get it back.

If he is earning about $20K and in a combined federal and state the 15% tax bracket then he is just barely in it. He can contribute $6,000 a year to combination Roth or traditional IRA accounts. One strategy would be to contribute just enough to a traditional IRA to get him down to the 10% tax bracket then put the remainder into a Roth. Since he is self employed he can likely contribute much more to other types of retirement accounts. After he stops working then if he has any money in IRA's he can roll that over into a Roth in years that he is in a low tax bracket.

There is a retirement contribution credit (form 8880) of up to $1,000 that he will likely qualify for if he makes a retirement account contribution so it is important to make a contribution. if he has been making contributions and doing his taxes by himself, then he might have missed this credit, but he can file amended tax returns to sell get it for past years.

Greg
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