Q I will turn 65 next summer and plan to retire. My Merrill Lynch portfolio ($171,000) includes 50 percent equities, 39 percent fixed income, and 11 percent cash. I also have a 403(b) plan with about $70,000. When I retire next July, I will receive $3,700 monthly from a retirement annuity and a one-time $37,000 payment from a Deferred Retirement Option Plan (DROP) available to teachers in Texas. I understand that I can roll over the DROP money into an IRA. If so, would just the interest be taxed as income when I make withdrawals? Also, is my Merrill Lynch portfolio apportioned correctly?
R.W., Amarillo, Texas
A "If you are comfortable with your Merrill Lynch portfolio mix, then you might want to leave it intact, since you have other income streams," says Gary Schatsky, a fee-only financial planner and attorney in New York. "You could always reduce the equity position a tad. But I would not increase the percentage."
He recommends you check the expenses of the Merrill Lynch portfolio. Then, compare them with the expenses of a discount brokerage, or a fee-only financial planner.
As for the DROP money, if you roll it over into an IRA, you can withdraw any amount without penalty since you are over age 59-1/2. "Still, you will have to pay taxes on [any] withdrawn amount," and treat it as ordinary income, Mr. Schatsky says.
Q I'm a woman in my early 60s with few assets. I have a 401(k) plan, with $38,000 invested. I have about $10,000 in savings, but will use a large part of it to relocate. I am working, but will have to start over again after moving. Do you have any advice to make my money grow larger?
J.D., Port Jefferson, N.Y.
A When you are dealing with modest amounts, such as $38,000, the important factor "is not to take untoward risks," says Schatsky.
"I would not put more than half the money within the 401(k) plan in equities," he says. "You might also consider investing the remainder of the money, again, within the 401(k) plan, in a short- to intermediate-term bond fund."
Finally, be as cost-conscious as you can with your relocation expenses, he says.
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