Our Retirement Expert Answers Your Questions
Q. Do you think there is any possibility that the government will allow people over the age of 70 1/2 to forgo taking the RMD for this year? As a widow, I have a loss on my IRA this year and it's really going to hurt retirees trying to live on Social Security and a little income from their investments. –-Barbara
A. During the presidential campaign Senator McCain floated this idea to discontinue the mandatory distribution for a year or two but, in my opinion, he was just pandering to seniors to get their votes. [Even under Obama] I don't foresee any changes with RMDs. Anything's possible, but I don't think it's probable. Yes, the market's are down this year and you and millions of others are hurting, however, the government needs your tax dollars desperately. --B.L.
Q. I am 51 years old. I would like your opinion about whether it would be better for me in the long run to contribute to my 403(b) or a Roth IRA? --Ronda
A. People always look at this as an either or proposition but it doesn't have to be. If you were my private client I would most likely suggest that you max out your 403(b) contributions since every dollar you invest is one less dollar you're currently taxed on. This can save you an immediate 20-30% in taxes today. If you can max out your 403(b) contribution (regardless of whether there is an employer match) and still have money left over to invest, then consider a Roth, assuming you qualify. As you know, withdrawals from your 403(b) will be taxable while withdrawals from a Roth IRA will be tax-free. Since we don't know what tax rates will be when you retire (let's assume higher), having a Roth IRA could make a nice tax diversification strategy. --B.L.
Q. I'm 28 and easily 30+ years from retirement. While I feel for the Baby Boomers during this Wall St. carnage, I can't help but have an "all in" mentality when it comes to the market, even if it means paying off some credit card debt more slowly. I just know I'll kick myself in 5-10 years if I don't get in heavy now. Is this dangerous? --Tony
A. Tony, for someone with a 30+ year time horizon and the stomach to handle the market volatility, it's a great time to buy stocks. In 5-10 years I believe many people will be kicking themselves for not investing more in stocks now. That being said, I'm not a big fan of you carrying credit-card debt. Will you earn more in stocks than what you're paying in interest? The stock market is a gamble in the short-term, but longer-term stocks have a history of rising dramatically, especially after a nasty bear period like we're going through now. If you are 100% convinced you are an investor with a long-term horizon (10+ years minimum) buy the stocks. If you have any doubt about your ability to stay invested and weathering the markets ups and downs, pay off the debt first. It may just be the things to make you sleep better at night. --B.L.
Bill Losey, CFP®, CSA, America's Retirement Strategist®, is the resident retirement planning expert on CNBC’s “On the Money”. He has been named one of America’s Top Financial Planners and is the author of Retire in a Weekend! The Baby Boomer’s Guide to Making Work Optional. He also publishes Retirement Intelligence, a free weekly award-winning newsletter. Bill can be reached online at www.MyRetirementSuccess.com.