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How to Save on Taxes In Retirement/Where to Invest
Old 03-27-2017, 02:18 AM   #1
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How to Save on Taxes In Retirement/Where to Invest

My DW and I are reviewing her alternatives for saving. I am retiring in four years with a six figure pension and she will receive the same amount upon my death as we are 14 years apart. I have 403B with over $100,000. We have a four year old who we hope to go to college one day so a 529 account has been started. My wife has an IRA with Lincoln National in their American Legacy variable annuity. It currently has about $65,000 in it and another 401k from her old job that has $70,000. She currently is maxing out her 401k at her new job. She makes nearly $200K per year.

I could roll over the old 401k to the variable annuity but I am hesitant about doing that because I don't like the distribution payouts and the fees on it will be over 3% if I add the additional $70,000 as it has a step up fee to guarantee the principal. I don't have to step it up but it would be nice to do so.

My other concern is that all of this money is pre-tax dollars. We are going to get slammed with taxes on any distributions we take out when it's the two of us. She will more than likely outlive me so she will really be hit with taxes. We are looking at her retiring in 10-12 years. She would then be in her mid fifties. (I don't think I can get her to 55 but I am trying.) We are in the process of moving from California to Texas so our cost of living is drastically lower and our home a lot cheaper.

I know a financial advisor can help, but I am somewhat leery of them. That's how she got the variable annuity. I am thinking of getting taxable accounts or investing in stocks or something. Are there any suggestions? We want to save the majority of her check. Where should we put the money?

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Old 03-27-2017, 06:49 AM   #2
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I'm sure there might be one, but I can't come up with a good reason to use a variable annuity with fees like that. On second thought, there probably isn't one.

Once you've maxed out your tax advantaged account contributions, I'd put the money into a taxable account and invest in low cost index funds. Many (most?) people here are index investors and many utilize a 3-fund portfolio to get their desired asset allocation. You can read about a 3-fund portfolio over at the Boglehead site here

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Old 03-27-2017, 07:23 AM   #3
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Well, you're getting slammed with taxes now, probably in the 33% bracket, and (if the tax structure stays the same), you'll be in the 25% or 28% in retirement, so the deferral is helping some. If you do move to Texas, you'll avoid the California income tax as well, so that's another 9%. Just face up to the fact that you'll be paying some tax on that income, and do what you can to reduce it.

Once she retires, if there's room in the 25% bracket you can convert some of the tax deferred money to a Roth each year. That would put as much as possible in 25% over the years, and less in 28%.

Investing in taxable is great because you only pay 15% on the qualified dividends and LTCGs if/when you sell. The 3 fund portfolio mentioned above is as good as anything. At your income level you might look at tax free bond funds. Skip the annuities. Taxes may be unavoidable, but high fees certainly can be dropped.
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Taxes are unavoidable
Old 03-27-2017, 04:03 PM   #4
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Taxes are unavoidable

It seems that buying taxable investments will be the best way to go. I had pretty much realized that I would be paying taxes, just not as much.

I am being kicked in the teeth right now. Have considered purchasing real estate, but that is not something I really want to do so I haven't.

I will continue to look at alternatives.
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Old 03-27-2017, 04:46 PM   #5
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Another alternative in a taxable account would be tax-free muni bonds or bond fund... but choose carefully.
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Old 03-27-2017, 05:22 PM   #6
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Be careful. Taking a lower return to avoid taxes might actually net you fewer dollars. You have to do the calculations carefully. Over any longer period of time you are probably better off investing in equities and paying the taxes rather than investing in munis.

Are you putting money into Roth IRAs? There are arguments about the wisdom of this based on current versus projected retirement tax rates, so do the calculation. There are advantages though when you reach 70 1/2 and if they end up in your estate.

You don't need a financial planner that puts you into annuities. All those slimeballs are running in panic right now because the proposed fiduciary rule will stop that particular ripoff completely.

You can run your own money. Two index mutual funds like 50/50 VTSMX and VGTSX will do a pretty good job. You will beat the majority of professional money managers. This site: can get a little crazy but is a decent place to start. Also search for S&P SPIVA and Manager Persistence scorecards and poke around here:

If you really want a financial advisor I suggest the ones who sell DFA funds. Shop hard on advisor fees. NEVER do business with anyone who is not a "Registered Investment Advisor."

If you two are pulling down six figure salaries you are no dummies. Stop being intimidated by this kind of financial question and recognize that you are probably smarter than the majority of so-called investment advisor.

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