Retirement questions: You asked, we answered
November 08, 2013
Saving for retirement is a journey that even the savviest investor can be unsure of from time to time.
In celebration of National Save for Retirement Week (October 20–26), three of our retirement experts used Facebook to help investors better plan their retirements. Julie Edwards of Vanguard Asset Management Services™, Maria Bruno of the Vanguard Investment Strategy Group, and Jean Young of the Vanguard Institutional Investor Group and spent their lunch hour fielding retirement-related questions. Here's a sampling:
When the stock market is doing well, do we need to rebalance or capitalize on gains? I don't want to get in the habit of trying to time the market, but just as I invest more when the market is low, is it time to sell when things are going well?
Jean Young: You're right about market-timing—research has shown that most people don't get it right. We recommend that you rebalance to your asset allocation at least on an annual basis. Consider doing so around your birthday or tax time or some other date that works for you—the important thing is to rebalance at least annually. Sometimes rebalancing can be counterintuitive (you may be buying into asset classes that aren't doing well and selling out of your top performers), but research shows that rebalancing can pay off over time.
How do you determine if annuities are for you?
Julie Edwards: I would base your decision on your goals, risk tolerance, and time horizon in relation to how close you are to retirement. Annuities can be beneficial for older investors who are looking for a steady stream of retirement income. Costs are also an important factor when purchasing any annuity, along with how much flexibility you'll need in accessing the money. If you'd like to speak with one of our annuity specialists, call us at 800-357-4720.
What percentage of Treasury Inflation-Protected Securities (TIPS) do you suggest a retiree hold as a percentage of their bonds, and why?
Maria Bruno: First, consider your overall asset allocation. When it comes to bond allocation, we generally recommend broad market diversification so you have exposure to a range of maturities and high-quality bonds. TIPS are a very small portion of the taxable bond market, and while they may be a viable complement to your existing bond holdings, they should generally only represent a small part of your overall portfolio. The important thing to focus on is how TIPS mix with your other bond holdings.
For more information about TIPS, including the risks of investing in them, check out this article: Inflation: The long and short of TIPS.
Is long-term care insurance worthwhile?
Julie Edwards: It can be worthwhile. Someone who's looking to offset the risk of high health care costs may want to consider this type of insurance. Age is an important factor when you buy long-term care insurance. If you buy this coverage too early, you may end up paying more in premiums than it would be worth. If you wait until later in life, the cost may be too great to justify the expense. Ages 55–65 seem to be a good time frame for weighing these considerations.
Is it easy to leave an IRA to a non-relative, and is a traditional or Roth better for them?
Maria Bruno: Yes, it's easy to leave an IRA, whether it's a traditional or a Roth, to a person who isn't related to you—just designate the person as the beneficiary of the account. There are different rules for spouse and nonspouse beneficiaries.
Upon the death of the account owner, a spouse beneficiary "assumes" the IRA while a nonspouse beneficiary "inherits" it. The difference mainly impacts how the beneficiary needs to take required minimum distributions (RMDs) from the IRA. With both traditional and Roth IRAs, beneficiaries will need to take RMDs—but they're federally tax-free if they're taken from a Roth IRA. For more information, and to help you decide whether a traditional or Roth IRA makes more sense for your situation, take a look at our IRA center on vanguard.com. You can also call one of our investment professionals at 877-662-7447 if you want to discuss this topic in more detail.
- All investing is subject to risk, including the possible loss of the money you invest.
- Past performance is not a guarantee of future results.
- In a diversified portfolio, gains from some investments may help offset losses from others. However, diversification does not ensure a profit or protect against a loss.
- Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer's ability to make such payments will cause the price of that bond to decline.
- Variable annuities are long-term vehicles designed for retirement purposes and contain underlying investment portfolios that are subject to investment risk, including possible loss of principal.