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Financial Security is Within My Grasp

January 14th, 2014 at 07:18 am

OK, yesterday was my annual meeting with my financial adviser. All news was better than expected! It gave me a great boost of confidence and enthusiasm.

My family and I are ahead of the curve on every aspect. Whew!

I inherited an IRA 7 yrs ago and my adviser manages it. The IRA finished the year up 19.5%. Great news. My own 401k self managed was up 18% so my adviser earned his 1% commission there.

Since I am no longer working and we have increased our family size, my adviser believes we have dropped into the 15% tax bracket. The good news for us is that we now don't need to pay taxes on dividends, or capital gains.

Therefore, the annual IRA distribution that I am required to take is no longer taxed. Whoohoo!

Ok- more good news. We have figured out the baby college account. My adviser created a model showing me that if baby attends a 4 yr college at $25k a year with a 4% annual inflation rate- then my annual IRA distribution will almost cover the cost completely if I start saving it now. So we would essentially move the money from the IRA into a college dedicated account. Whoohoo! College is covered!

We opted to use a regular investment account because my adviser told me the 529 plans and such are tax sheltered accounts. Basically the big draw is that recipients don't pay taxes when the money is withdrawn. But if I remain in the 15% tax bracket then I wont need to pay taxes anyways. So its not a benefit. And since I wanted the money to be accessible in case baby encounters medical problems, early education costs or does not go to college- having the money in a regular account is going to fit my needs. YAHOO! College is figured out!

And then we tackled retirement. My adviser had a model to show me the expected returns on the IRA. He said that since we are not using the IRA we can expect it to grow 10% annually and it potentially could be multi-millions by the time I die.

But before I broke out the bubbly- he brought me to reality showing me another model. He said that right now we are living off the rental property income. He assumed the rent will increase 1% a year but expenses (taxes, maintenance) will increase 4% a year. So given that- By the time I retire, I will need the IRA to supplement as my rental income stops reaching as far. So I will be fine for retirement, given a small social security supplement- but I need to be aware that I will need to use the money given our current earning trajectory. Its not for frivolous expenses because it will be needed eventually.

And just as I was ready to jump out of my chair in celebration- he showed me a third model. If we were to start taking annual deductions now to supplement our income- the money will be gone by retirement. Boo.

So lesson is that my inheritance has given me the foundation to live a nice middle class life and leave a similar nest egg to our daughter provided that we live within our means and have very few large frivolous expenses. I think we can do that. We must do that!

Ahhh....I'm going to relax today and just enjoy the feeling of financial security. Obviously I would be no where as secure without my parents and their planning. I'm attributing my reality mostly to their hard work and just a tiny fraction to my own hard work.

I hope 2014 is starting out in a good direction for all of you as well.

4 Responses to “Financial Security is Within My Grasp”

  1. snafu Says:

    These good news meetings are such a joy! 2013 USA investments were phenomenal. We're expecting a mix 2014, some segments will perform well but not to the 'catch up' 2013. Will you manage DD's college funding as you've done so well yourself? What do you see your advisor did that made a difference or was it merely allocation numbers?

  2. Petunia 100 Says:

    Ira distributions are taxed as ordinary income, not as capital gains or dividends.

    Congrats on the good news. Smile

  3. Finance wannabe Says:

    Is there a mortgage on the rentals currently? If so I imagine that would be paid off by retirement providing additional income.

  4. Rachael777 Says:

    Great news! This is motivating me to meet with a financial advisor myself. So happy for you and thanks for the info. Smile

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