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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 10162
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I am 51 and live in California. My father recently passed

Customer Question

I am 51 and live in California. My father recently passed away and left me an inheritance. Initially, I am opening a beneficiary (inherited) IRA with $400,000. Additionally, my brother and I will split the proceeds from the sale of his house. This should give me an additional $500,000. I have almost nothing saved for retirement and I have 5 year old twins that I want to put through college. My current salary is $72,000 a year. Can you help give me an idea of how to invest to help my kids as well a secure a comfortable retirement.
Submitted: 11 months ago.
Category: Finance
Expert:  Lane replied 11 months ago.

Hi - I hold a JD (Juris Doctorate, a doctoral degree in the law), concentration in Tax Law & Corporate law, an MBA (specialization in finance & tax), and BBA from Mercer University’s Stetson School of Business and Economics, as well as CFP® and CRPS designations.

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Wow that's a pretty tall order ... what you're really asking for is a financial plan.

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I'd be glad to help, (I use a financial planning package that allows the client to see the various outcomes of different scenarios and even play around with the what-if scenarios once the baseline plan has been established - on your end through a cloud based system) ...

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But we'd need to do do what's called an additional services offer - where a private link here will allow us to share contact information ... that would be needed for the additional data gathering to facilitate this

Expert:  Lane replied 11 months ago.

The variables are, of course, WHEN to retire, How much income you want that retirement to "pay" you, How (at what rate) the investments need to be made, what kind of school costs your wanting to fund, life expectancy, how you're using your qualified plans at work if you have them, etc., etc

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And of course these are all trade-offs (to some extent), opportunity costs, of each other

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Then out of that MATH comes they types of ownerships that make the most sense (529 plans for the school funding ? - maybe) ... Roth IRA's can make sense as a way to get tax deferred growth on earnings but access the principal tax free for education funding along the way (because of the Roth ordering rules - principal out first)

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Analysis of the options you have for taking distributions from the inherited IRA need to be analyzed as well (you can take the dollars out an pay tax - no 50 and 1/2 penalty for inherited IRAs - within 5 years OR you can take out over your OWN life expectancy to defer taxes) ... but that needs to be done within the parameters of your goals here.

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This may BE excellent timing for dollar cost averaging that cash into the market for some of the longer term dollars (say over the next year) as we will likely see another very choppy flat to slightly down year like the on we had this year ... but as the uncertainly leave (political and global) - regardless of who wins elections, 2017 could be poised for a very good "snap back correction." ... so systematically moning into the market over a 52 week period could make LOTS of sense

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but if you don't have the stomach for that, you certainly need to do the plan, the math (along with the estate planning, tax planning, and other ares a classic plan scrutinizes) because cash equivalents and even longer term bonds held to maturity won't get you there nearly as quickly... or generate as much coming back at you during retirement (all other things being equal)

Expert:  Lane replied 11 months ago.

We can also go at this in a much more general fashion, continuing here

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Let me know

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Even that shouldn't be done without some assumptions

Expert:  Lane replied 11 months ago.

Just to give you a feel for the math part ... I ran a very quick scenario with the following assumptions

Retirement Information and Assumptions

Your current age (1 to 120) ... 40

Current annual income ($) ... 72000

Spouse's annual income (if applicable) ($) ... 0

Current retirement savings ($) ... 500,000

Expected inflation (0% to 10%) ... 2%

Desired retirement age (1 to 120) ... 65

Number of years of retirement income (1 to 40) ... 20

Income replacement at retirement (0% to 300%) ... 75%

Pre-retirement investment return (-12% to 12%) ... 8%

Post-retirement investment return (-12% to 12%) ... 4%

Include Social Security (SS) benefits? ... Yes

Marital status (For SS purposes only) ... Married

Social Security override amount 0
(monthly amount in today's dollars) ($)

Expert:  Lane replied 11 months ago.

Sorry, looks like the formatting is not transferring but even at an 88000 retirement beginning at age 85 the balance (and again only used 500,000 as a starting point) .. the balance still grows to 6,430,581 by your age 85

Expert:  Lane replied 11 months ago.

Changing the returns to the other end of the spectrum (3%) the principal grows to a little over a million and does start to draw down as you start to take that same retirement amount and drops to 917,066 at your age 85

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SO this tells us that give what you have to work with (if I'm even close on the age and retirement level desired) you DON'T have to be especially aggressive to fund both college AND retirement

Expert:  Lane replied 11 months ago.

AgeAnnual Salary Increasing @ 2%Beginning Retirement BalanceEarnings
Pre-Ret 3%
Post-Ret 3%Estimated Annual SavingsRetirement Income Replace
75%Annual Social Security IncomeAnnual Retirement Account WithdrawalEnding Retirement Balance

40$72,000$500,000$15,000$0$0$0$0$515,000

4173,440515,00015,4500000530,450

4274,909530,45015,9140000546,364

4376,407546,36416,3910000562,754

4477,935562,75416,8830000579,637

4579,494579,63717,3890000597,026

4681,084597,02617,9110000614,937

4782,705614,93718,4480000633,385

4884,359633,38519,0020000652,387

4986,047652,38719,5720000671,958

5087,768671,95820,1590000692,117

5189,523692,11720,7640000712,880

5291,313712,88021,3860000734,267

5393,140734,26722,0280000756,295

5495,002756,29522,6890000778,984

5596,903778,98423,3700000802,353

5698,841802,35324,0710000826,424

57100,817826,42424,7930000851,217

58102,834851,21725,5360000876,753

59104,890876,75326,3030000903,056

60106,988903,05627,0920000930,147

61109,128930,14727,9040000958,052

62111,311958,05228,7420000986,793

63113,537986,79329,60400001,016,397

64115,8071,016,39730,49200001,046,889

6501,046,88931,407088,59358,17930,4141,047,882

6601,047,88231,436090,36559,34331,0221,048,297

6701,048,29731,449092,17260,53031,6421,048,103

6801,048,10331,443094,01561,74032,2751,047,271

6901,047,27131,418095,89662,97532,9211,045,769

7001,045,76931,373097,81464,23533,5791,043,563

7101,043,56331,307099,77065,51934,2511,040,619

7201,040,61931,2190101,76566,83034,9361,036,902

7301,036,90231,1070103,80068,16635,6341,032,375

7401,032,37530,9710105,87769,52936,3471,026,999

7501,026,99930,8100107,99470,92037,0741,020,735

7601,020,73530,6220110,15472,33837,8151,013,542

7701,013,54230,4060112,35773,78538,5721,005,376

7801,005,37630,1610114,60475,26139,343996,194

790996,19429,8860116,89676,76640,130985,950

800985,95029,5790119,23478,30140,933974,596

810974,59629,2380121,61979,86841,751962,083

820962,08328,8620124,05181,46542,586948,359

830948,35928,4510126,53283,09443,438933,371

840933,37128,0010129,06384,75644,307917,066

Expert:  Lane replied 11 months ago.

Yes, thought Id try pasting that in ...but as you can see we need a different platform ... be glad to run some numbers for you and discuss the TYPES of investments and ownerships that can make this all work, but this venue is not best suited

Expert:  Lane replied 11 months ago.

Now, if you want to talk about running an actual plan we would use Monte Carlo and other probability based models to analyze best case, worst case, and probability of hitting various goals, based on various portfolios

Expert:  Lane replied 11 months ago.

... just re-read your original statement ... left all variables the same (in the very basic model I'm using HERE) changed current age to 51, and even then (all other things being equal, projecting a 3% return) the balance that started out at 500,000 ended up at 582,816, at your age 85

Expert:  Lane replied 11 months ago.

OK time for you to give me some feedback (refine what you're looking for here, in THIS venue, let me know if you'd like to pursue a more sophisticated analysis, which again would have to be done outside of this venue) ... or something in between

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feel free to use examples

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I'll be here

Expert:  Lane replied 11 months ago.

Hi,

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Did you see my answer?

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Sorry for the data dump, but there are really a lot of ways to answer that question.

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If you'd like more simply to ask questions about types of accounts, types of investments, ways of owning these things, look at each goal independently, we can go at it that way as well.

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let me know

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Lane

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