Color of Money Live: Financing in a post-election world

Nov 17, 2016

Join Washington Post nationally syndicated personal finance columnist Michelle Singletary for an online discussion.

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So glad you could join me.

And don't forget your Thursday Testimonies.

I will be 70 in January. What is a good source of information on required minimum distributions and any related actions I must take next year?

Good question and glad you are asking early.

Contact the investment company about the required distribution. The IRS is also a good source.

Here's a link to a FAQ posting about retirement plan and IRA minimum distribution. 

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions

Hi Michelle, When do you know you need a tax accountant? As of this year, we have a rental property and a primary residence. We are thinking it's time but it seems like quite a bit of money versus a tax prep software I've used for years.

My rule is when in doubt hire a professional. You could do it just this year and then you have direction to resume doing it yourself after the consultation. What you don't want is to do it wrong and be hit by a huge tax bill. Remember the old saying, "Don't be pennywise and pound foolish."

Hi Michelle, I’ve been following your column and work for over a year and have adopted your mantra of Getting The Monkey Off Your Back. I have approx. $16k in student loans. They are subsidized loans so interest will start accruing once I graduate and the rates vary from 3-6%. I of course want to pay off the loan with the highest interest first though as a soon-to-be college grad, I also recognize the need to have some savings in case Life Happens. I am being as frugal as possible (living at home, etc.) and would like to know what balance I should strike in finally getting the monkey off my back and having some savings.

I love, love that you want to get that monkey off your back ASAP. Typically I recommend attacking the debt with the lowest balance first. In my experience it motivates folks to really kick the debt to the curb when they see debts disappearing quickly. 

But low debt or high interest first your choice. Just do it. 

I also applaud you living at home. Are you paying rent? If you can get out of that with the understanding that it will be put toward your debt, do it! I wouldn't charge my kid if he or she had a plan to get out of debt.

As for savings. Save enough for maybe a large car repair. Then stop. Because you are living at home you have less risk of being without food or shelter should you lose your job. So save a little. Once you've reached a goal of say $1,000 or $2,000 put everything else toward the debt. Live like a hermit. Truly. Put almost ALL your paycheck toward the debt. It will be gone in no time. 

Then stay home for a little longer to then build up a good emergency fund (3 to six months of living expenses). Build up the Life Happens Fund some more (maybe $3,000 to $4,000). If you have a car payment, stay until that is gone.

Then you can move out on you own. 

Good luck!

Do I need a will or a trust?

Most folks just need a will. If you've got a complicated financial life you might need a trust. I've got three kids, one home, various savings, etc. and I only have a will. Plus all the other documents you need -- Living Will, Power of Attorney, etc. 

if I put aside some $$ to help pay for my brother's children's college, does that count against them re getting college loans? Also, what do you think/know about the Wellesley (College) form re college loans?

Don't know about the Wellesley thing.

As for helping save for the nieces, how wonderful of you. As for saving for them why not open a 529 plan. The assets in the accounts are yours and therefore have small bearing on them qualifying for financial aid. Plus I hope they DON'T take out ANY loans. 

What counts against them is not having the money to pay and them having to rely on loans or thinking that they do.

Talk to them now about choosing a school close to home or commuting to cut costs if there isn't enough for the traditional college experience. Or encourage them to go to community college first and then transfer to a 4-year school. With enough time you could easily save enough for the two years of community college in a 529 plan. Or really out of pocket since the cost is so much less then a four year university. 

 

I will be 70 in 2018 and will probably fully retire sometime that year. I have two 401-k's from previous employers, plus one from my current employer. Should I roll the ones from the previous employers into an IRA?

I get this question often and mostly because savers are being told by financial folks that they "need" to rollover the funds. But you may not need to do a rollover. Ask yourself:

-- What are the fees in the 401 (k). Because they are likely to be less than if you put them in a self-directed IRA

-- Have you been happy with the investing choices? I have a pretty good 401 (k) invested in Vanguard funds. I have no plans to rollover that money when I retire. Fees are low. Returns have been good and I still like the fund choices.

-- When you are in a 401 (k) fees can be kept lower because more folks participating. 

-- Is it really that hard to manage three investment plans? With technology you have easy access online, etc. If one plan allows you to roll outside money into the plan and you like the fees, returns, you could do that. 

 

Ask around your friends for reccs. There are some very good sole proprietors out there who don't cost an arm and a leg. I have my own business and that's what I did. Been in the hands of a wonderful guy now for about a decade, he hasn't steered me wrong.

Thanks. Good advice. 

Our experience has been that the institution where the IRA is located will indicate on the statement the amount needed to be distributed. The distribution is not needed until one turns 70.6 months so if you are hitting 70 near the end of the year, no RMD is needed. If for some reason, an individual has IRAs in several institutions, this may be the time to consider consolidating, if possible since the RMD is calculated on the total amount in the IRAs and their balances at the end of year, i.e., 2015 for what is needed to be distributed in 2016. If one searches IRA distribution table, I think a chart will come up showing the percentage for each year--it is based on an individual living , I think. 90+.

Right. As I said, good source is the investment company holding your money. 

I'm not sure about consolidating. See a previous answer about costs. 

But rest assure you can easily get the answer to your question. 

Hi Michelle - Almost the first thing most people learn about investing and saving for retirement is to put money in the 401K plan your company offers. I've done that, to include rolling over the money from my previous job, - and am finding that the fund options in the company plan (through Vanguard!) are barely breaking even. I'm not seeing any growth at all, even in this market. The choice of funds is pretty limited - should I continue to add money to the 401K until it's time to find a new job?

What are you investing in exactly? If it's mostly bonds, yup not much growth. So it's not just the company but the type of investment. I'm in a growth index and have experienced all the market growth. But when I look at how many are investing many are in bonds when they need a higher mix of stocks given their time to retirement.

If you are still not satisfied and you get a company match, you could put in enough to get the match and put the rest in an IRA. You might not get the tax advantage but at least you'll have more choice. Also depending on your income, you could invest in a ROTH outside the company plan. It's after-tax money but again you get to choose the investment option.

Finally, talk to co-workers. If a lot of you are unhappy about the fund choices talk to HR. They can open it up or change investment managers to give you better selections.

Hi Michelle, Thank you for all you do! My question is that I have heard that as a rule of thumb people should save 15% of their income for retirement. If you are lucky enough to work for a company that provides a pension and they are contributing 6% of your income to the pension, does that percentage count towards the 15%. Also, what about the match percentage to a 401 or 403?

So, having a benchmark helps people save. But what that benchmark is depends on just you. Your number or percentage if your number or percentage. For you it may be 15% or 9% if you have a generous pension or match.

I recommend you go to choosetosave.org. There is a Ballpark retirement calculator that can help you figure out if you are on track for your retirement savings.

Now, the number/percentage you get could scare you to death. Don't let it. Do what you can when you can.

As a solo widower 60-something and planning for assisted living late-70s and beyond, I'll almost certainly have to rent my Arlington townhouse if I want to leave an inheritance. I've surveyed 55+ communities but love living in vibrant Arlington for now even though social opportunities are limited. My question is, what would Michelle do? Would you move to a 55+ community and be a landlord sooner than later or just wait until you needed to move directly into assisted living?

So Michelle did the landlord thing and HATED IT!

It's not me. I don't want to manage a property. So when I moved, I sold my home. In this case it was a condo. My husband and I have talked about where we might live in retirement and should we decide we no longer can stay in our two-story colonial, we will sell and take the equity and buy a smaller more manageable place. I'm personally not a fan of 55+ community housing because they often come with some restrictions, such as young people can't live with you.

But what if you have a situation where a grandchild or younger relative needs a place to stay? 

I also want to be around people of all ages. 

But that's my bias. For many people such communities work. I just think renting isn't your only option. 

We have 2 windows that have to be replaced, water & mold inbetween the panes, but I am debating replacing the other 6 windows just so they all match. The windows are probably 30 years old. We have the money in savings, but the complication is with a baby on the way we need think long term. So how do you balance the money you would save with new windows vs needing to keep a good savings cushion? FWIW we would still have over $5k in savings if we did replace all the windows vs $10k if we didn't

I get it. So the key piece of information is the baby coming. I would only replace what I needed for now. Later after the baby is a little older and your childcare costs have come down, you can do the other windows, which I gather aren't in need of replacement right now.

Keep the extra savings until you are settle with the baby. What if you decide you don't want to go back to work or you might stay out longer with the baby. You'll  need the extra savings. Just do only what you have to do so that you have options once the baby comes.

You got an honorable mention (for your hatred of car leases) on Ric Edleman's show last weekend! He disagreed with you, but he couldn't argue with your rationale. He says nowadays it makes sense to lease -- for HIM; not for everyone. But when I heard your name, I said, "you go, girl."

Thank you for letting me know. Ric is a dear friend. I really appreciate how he informs. He and I disagree on a few things:

-- Leasing a car. Dumb. Dumb. Dumb.

-- And paying off your home before you retire. Do it. Do it. Do it. (But I do have a caveat. Don't do it if you'll clean out your savings. You don't want to be house rich and cash poor. And you don't want to do it if you aren't planning to stay in the house for a long time)

Otherwise, he and I are on the same pages financially. 

After all is said and done with settling our recently passed relative's estate and home sale, I'm looking at an estimated $75k as inheritance. I current have about $40k in debt (excluding mortgage) that I'd like to pay off, a $1k rainy day fund, about 4mo in savings and $150k in various retirement acounts (I'm 33). Would my smartest route to get rid of all my debt then pad savings? Invest? Do I have room to upgrade my kitchen cabinets/counters lol? P.S. side note to anyone who has heirs and assets... please talk to them about your wishes and let them know where your will and other documents are before it's too late. We had the hardest time trying to collect all the information, never found a will, and it's been a challenge through and through all on top of the grief.

First, I'm so sorry for your loss. 

You know me, right? I'm a hater of debt. So what would I do with the $75,000

-- You've got the emergency fund covered with that 4 months of savings. I hope you mean 4 months of "living expenses" meaning everything it cost to run your household. If so, that's a nice size emergency fund. Label it as such and don't touch it. 

-- If you label the 4-months of savings as emergency fund not to be touched unless something dire happens, then you ONLY have $1,000 in a "Life Happens Fund." So take about $4,000 to add to that fund. This is the pot of money for a major car repair, etc. Money will flow in and out. So if you pul from this pot, be sure to save and build it back up. If you want to really be aggressive build it up to $10,000. Or add enough to cover the cost of a new car so that you won't have to borrow any money anytime soon.

-- Once you've got the emergency fund and life happens fund set, pay off completely that $40,000. ALL OF IT!

-- Then do the kitchen and counters if you like. You have the cash. 

-- With what's left I suggest opening a growth index fund. This is money for things you may want in the future -- more than five years. I think you should have non-retirement money in a pot working for you that doesn't have restrictions (penalty for early withdrawal, etc.). 

How does Donald Trump promotions for products compare to Hillary's Pay for Play with foriegn governments? When did legitimate commerce become bad? amd "favors" given by Hillary to foreign nations who paid excessive fees for her to speak become good or something to celebrate? I'm greatful for the list of companies selling Donald Trump goods. I WILL make it a point to support those companies. And I doubt this submitted question will make it to print or on the air given the biased reporting from most of our news media. Will there are major portions of the US people in East Coast and West Coast cities who feel bad about the election results, there is a whole lot of Americans elsewhere that are thrilled at the possibilities of rolling back the hogwash that has been espoused and the illegal activities put in place by Executive Orders over the past 8 years. While some is good will be kept, we must obey the laws of our land or change them if they are so horrible (which they aren't. Kids will understand this once they start having to pay their own way)

Read Michelle's latest e-letter: Boycott is trying to trounce the Trump brand

I'll take the bait. But may I say your note in general seems a bit hostile. It's why this election was HORRIBLE. It was either Hilary is the devil and Trump a saint. Or Trump the devil and Hilary a saint. 

Can't we all have a decent, civil conversation without throwing "shade," which is what you did. 

I didn't agree with all that Obama did but I respected his efforts to help people of all colors and income. 

I've met Trump in person. He said some very sexist things to me. But I was also very disappointed in some things Hilary did. 

Because Trump is our next president, I will respect his position as such. I may not respect the person, but I respect the position!

However, I understand and respect people who say they want to boycott the Trump brand. I also respect your right to buy his products.

But what you miss is that no one in public office, Hilary or Trump should use that platform to profit themselves. 

In Trump's case there are serious concerns about the conflict of interest in his brand and business ownership. Do we really want a president who had products he can push while working for the American people? 

Or his kids?

I don't. 

Please also remember I'm a columnist. I'm paid to have an opinion, which may differ with yours. 

But I always try to state my position with respect. I expect the same in return. 

Michelle, my mom needs help. She never planned for retirement. Now she's 71 and tired of working, but only has Social Security to fall back on. She's clearly never been a planner, but desperately needs to do so now so she can stop working. Can you recommend any books that would help her finally set up a budget? I'm honestly not sure if she really ever has. Now excuse me while I go increase my TSP deposits. Thank you!

If you live in the DMV area, bring mom pass the free workshops I run at my church, First Baptist Church of Glenarden. All are welcome. Or go to debtadvice.org and help her set up an appointment with a counselor, who can help her with budgeting and figuring out how to retire.

Also consider your mom may need help. She may need to live with someone to make her retirement work. 

I suggest you have a family meeting and discuss her options. 

Giving all the prospective changes under a new President (to SS, Medicare, ACA), do you have any thoughts on how best to navigate the uncertainty?

Like so many others, I'm worried too. How will the markets react? Will millions of people suddenly NOT have healthcare, which could drive up more the costs for all of us? What about the consumer protections that were part of Dodd-Frank, which the new administration wants to roll back. 

Or maybe things will get better. 

But here's the thing. Sound financial planning is sound no matter who is in office.

-- Live below your means.

-- Have an emergency fund.

-- Have a life happens fund.

-- If you are investing, and you should be, be diversified. 

-- Watch the fees for your funds. Fees impact your returns.

-- Get out of debt as soon as you can. 

-- If you find your savings isn't enough and you are nearly retirement, think out of your box. Maybe you have top have shared housing? 

No matter who is in the White House, I just keep doing what my grandmother taught me. Hate debt. Save. 

The best any of us can do really.

I work in the nonprofit sector and our equivalent is the 403b. A lot of times they have limited choices and high expense ratios, so when I change jobs I roll them into an IRA at Vanguard where the expenses are much lower. They offer age-based plans if you are overwhelmed by the number of choices. Whether to rollover or not really depends on whether the 401k has low fees/expenses or not.

Good point. Thanks.

Google them. I was about to recommend an accountant we successfully used for a simple matter and was just looking for contact information online. Turned out since we used him, he had been reprimanded by the state board for mishandling clients' funds! :o

Wow!

Thanks for the reminder to double check.

$5K for 6 windows sounds like an awful lot. Just a gentle reminder to check local rating services (like Washington Checkbook) and get additional quotes. It has been awhile, but we paid far far less than that per window when we did ours. And you do see the savings in heating and cooling almost immediately. Just my 2 cents.

Actually I didn't think it was too high. Seen quotes like that. But still appreciate your recommendations to get additional quotes. FYI: I always, always, always get at least there quotes for any major job. And interestingly enough, I usually take the middle. Sometimes people who go really low, give you poor service. Just saying.

Your answer to that Trump supporter ROCKED. :)

Thank you!

 

We have four Vanguard funds--500 index, Wellington, Windsor, and Explorer--they are all making growing. We started with IRAs before 401K The investment advisor we had for those IRAs provided advice for the 401k investments. As I recall, when stocks are up bonds are usually down and bonds currently pay almost no interest unless they are corporate bonds which we have in our portfolio.

Thank you. As I said, you have to look at what you are investing in. Many people are over exposed in bonds because they wanted safety. But that can come at the cost of growth. Strive for balance. 

For the poster freaking out about the Trump backlash, maybe those "coastal" people think the way they do because they're exposed to something besides homogeneity all around them. And, by all means, pump more money into Trump's overseas sweatshops.

So, you just threw "shade" too.

Not all Trump supporters are bigots. They believe he had something to offer. I may disagree. You may disagree but we need to be civil to each other.

Use the facts to make your point. I had read that the clothes made by some of the brands use sweatshops. 

Facts folks not feelings. 

We all have to live with each other and our choices. 

$15k. I have no debt except a mortgage and an emergency fund. Should I put it into retirement (I'm 45) or the 529 (kid is 12)?

Put some in the life happens for the things in life that happen and then the rest in the 529 plan. Look at your state's plan especially if there is a state tax deduction. Don't buy into a plan through an adviser. Cost is higher.

I have a mediocre credit score based on some old debts I'm now working to take care of. I also am an authorized user of a credit card of my parents' with a 30k limit. It's currently and always without any balance. Does this ability to suddenly wrack up a ton of debt affect my score negatively? Should I have them remove me or close the account?

The No. 1 way to get a good credit score is to pay your bills on time. Do that.

As for being the authorized user, when they pay on time helps you. If they ever ran a balance or paid late, hurts you. 

If I were them I would remove you because you could run up charges and they are solely on the hook. I'm sure you wouldn't but seen others do it. 

So, looked up and it was 1:20. Way pass my quitting time. But wanted to answer more. And still didn't get to many that I wanted to answer. So sorry. Please know, as I say every week, I read all your questions and comments. 

I won't be here next week. Taking off for Thanksgiving. But I'm back the next week so come back and I'll try to get to your question. 

Thanks and have a great holiday.

Don't spend too much :)

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Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Thursday and Sunday and is carried in more than 120 newspapers.

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