Q: A little over a year ago, I took over managing my accounts from our financial planner. I switched the accounts to Vanguard and read a couple of the books you have recommended. I have read and reread William Bernstein’s The Investor’s Manifesto and Andrew Hallam’s Millionaire Teacher. Both are excellent books, especially for beginners like myself. My question regards the rebalancing of the accounts. When the annual rebalancing is done, as has been recommended, do I concern myself whether the market is high or low? Also, do you have any more book recommendations for beginners?
A: Rebalancing should not be a source of hand-wringing. Remember, we don’t know the future — so speculating about the best moment to rebalance is not a fruitful use of your time.
Both of those books, and their authors, are wonderful. You also can’t go wrong with any of the books Daniel R. Solin has written and would likely benefit from The Smartest Retirement Book You’ll Ever Read (Perigee, 2009).
In addition to the investing side of the retirement question, I think everyone would benefit from books that show the power of personal decision-making. They are important and empowering. Fred Brock’s Retire on Less Than You Think (Times Books, 2004) is direct and helpful. So is Rags to Retirement: Stories From People Who Retired Well on Much Less Than You’d Think by Gail Liberman and Alan Lavine (Authors Choice Press, 2007).
Q: I am 65 and my wife is 67. We are retired. I currently have a 401(k) with my past employer worth about $618,000. I want to be able to access some money each year for personal reasons, not to exceed 3 percent of the total investment. At age 70, if I am in an IRA, that one must make required minimum distributions. The 401(k) is invested in two bond funds. We have a reserve account with about $30,000. Our combined Social Security benefits will be about $40,000 next year. I also have a defined-benefit pension of $43,500 a year, with a 100 percent survivor benefit to my wife if something happens to me first. So our total income is about $83,000 — without touching the $618,000 in the 401(k). If something happens to either of us, it would result in only $14,000 less a year — my wife’s Social Security. I want to be able to take some money out each year from this account, if needed. Our goal is to leave some money to our son. Should I roll over my 401(k) to a Roth or a traditional IRA? I would have to pay the taxes with money from the rollover if it is to a Roth IRA.
A: Converting to a Roth is a nonstarter for you unless you do it in small segments over a number of years, pushing the edge of the 15 percent tax bracket. Since a couple filing jointly can have a taxable income up to $70,700 in 2012 and remain within the 15 percent tax bracket, and you also have at least $19,500 in exemptions and the standard deduction — not to mention some of your Social Security benefits not being subject to taxation — you should make sufficient withdrawals from your tax-deferred accounts so that you can put as much as possible into Roth accounts without triggering a 25 percent tax rate.