Preparing for retirement

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Profile: George and Janice Timms

The problem:
Should the Timms pay cash for their home?

The plan:
A paid-up home brings peace of mind.
 The plan in 6 steps
 Restructure retirement funds
Roll over 401(k) proceeds into an IRA.
Use any extra earnings or cash to fund traditional IRAs.
Consider the benefits of Roth conversions each year.

Learn how to take control of your IRA conversion.


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  The plan

George’s plan to be debt-free is a sound one. Many advisers would encourage their clients to incur a long-term, low rate tax-deductible mortgage and invest their savings. This can work to their advantage if the investment rate of return is greater than the after-tax cost of the mortgage. George would make money, but there is more to life than money.

Pay the house off with available cash
Most people find satisfaction and contentment being debt-free, and the Timms are no exception. George and Janice are also not in a position to take on added risk. Borrowed funds add leverage to the couple’s finances and require wise investing of the proceeds. Being debt-free is a known commodity and will provide tremendous peace. We advise George to use his money to pay for the house and also pay off the credit card with a portion of the money market cash fund.

We also advise George to roll over his proceeds from the American Greeting 401(k) to an IRA since he has no liability concerns, and he is currently 59½ years of age. This will give him more investment possibilities and greater control over the account. We recommend that if he is familiar and comfortable with Vanguard, that he stay with that company.

It is difficult for us to make a firm asset allocation recommendation, since we believe the when-to-sell decision is more important than the when-to-buy decision. It is a marketing concept of the financial services industry to teach people to buy and hold. That philosophy is for the benefit of the financial services industry, which profits more from it than does the client. The buy-and-hold mantra was touted and proclaimed “sound” in the bull market over the last 27 years (1980-2007) rather than during the previous 80 years (1900-1980), when being in and out occasionally was critical.


Keys to success
Live a debt-free lifestyle during retirement.
Use Social Security income to further build up retirement accounts.
Be aware of impact of employment earnings on Social Security benefit.
Restructure retirement assets to maximize tax benefits.
Reposition investment portfolio for more growth.
Make sure insurance coverage fits your needs.
Put together an estate plan.