help with IRA rollover to savings account

[KellyJef]

I would really appreciate some advice.

I will be 62 next month and will begin taking my social security. DH is on social security disability. I work part-time and make about $10,000 a year.

I currently have about $40,000 in an IRA rollover with Schwab from when I lost my job back in 2001 when my company closed its doors. Fortunately, while I have been losing money this past year, I have been luckier than many people.

Since I have been withdrawing $5,000 a year for the last few years to help with living expenses, I really can't afford to lose this money. I "think" I have heard both Suze Ormond and Dave Ramsey on tv recently saying that if you need your money within the next 5 years (which I do), you should take it out of the stock market. Do you agree?

I think I would feel much more secure if I could withdraw the total $40,000 from Schwab and put it in my on-line HSBC account since the interest on that account seems comparable to what it would earn in a CD.

What are the pros and cons of doing this? I assume I would take a hit with taxes next year, but would it be really bad?


Thanks for any input.

[disneysteve]

You are correct about SO and DR recommending not keeping money for short-term needs in stocks, but that does NOT mean cashing out your retirement accounts. It means keeping the money in non-stock investments. You can do that within your IRA. Buy a CD. Put the funds in a Money Market account. Buy a bond. What you don't want to do is cash it all out and be hit with a big tax bill.

[kork13]

also, since you're still rather early into your retirement years, you probably want to keep at least some portion of it in stocks anyway (20-30%?), just to keep some growth potential.

[KellyJef]

It means keeping the money in non-stock investments. You can do that within your IRA.

Thanks.

When I call Schwab next week, what do I say? Do I just explain that I want my money transferred to "something safe"?

[disneysteve]

Thanks.

When I call Schwab next week, what do I say? Do I just explain that I want my money transferred to "something safe"?

I would tell the advisor that you want to move money from stocks to something where your principal is safe. CDs, money markets and municipal bonds would probably be the main things to be looking at. Ask what they have available with the best interest rate.

[maat55]

I might look at pulling out 10k to 15k and leaving the rest for a possibly good rebound. You know your situation, good luck.

[KellyJef]

I would tell the advisor that you want to move money from stocks to something where your principal is safe. CDs, money markets and municipal bonds would probably be the main things to be looking at. Ask what they have available with the best interest rate.

Thank you so much!

I have written down your suggestion - word for word -- to use when I call

[KellyJef]

UPDATE --

I called Schwab and it turns out that my money is, in fact, already in money markets -- not stocks like I thought it was

Only about $2,000 -- which was stock from the company I had been working for -- was in stocks. So the rep said that was the only money that was at some risk, the rest of my money was in money markets so it was "very safe".

I did feel pretty foolish, though, when I asked him why there was almost a negative $6,000 under "change in value since 1/1/08". It turns out that the $5,000 I had withdrawn last year for living expenses was included in that amount -- so I had not "lost" that money at all

I am very glad that I posted here, got such helpful advice, and have now put my mind at ease.

Thanks.

[disneysteve]

I will be 62 next month and will begin taking my social security. DH is on social security disability.

I currently have about $40,000 in an IRA rollover with Schwab

I called Schwab and it turns out that my money is, in fact, already in money markets -- not stocks like I thought it was

I have to say that your update concerns me a lot. You are 62, depend on withdrawals from this $40,000 in IRA money to cover living expenses, and you had no idea how that money was invested. I have to wonder how good of a handle you have on your investments overall. I don't say that to be critical, but rather out of concern.

I'd suggest that you gather all of your most recent investment and saving account statements and sit down at the kitchen table and review them all. Make sure you understand exactly where all of your money is, how it is invested, what interest the cash investments are earning, etc.

Do you have a spending plan going forward? You've been drawing $5,000/year from the IRA but will now be collecting SS so I imagine those withdrawals will stop or be greatly reduced. That could change how you want that IRA money invested. If you will no longer be drawing on it to cover expenses, perhaps having almost all of it in a money market isn't the best option anymore. I don't know, but I think it is something you need to think about.

As always, if you have questions, posting here is a great option to get lots of helpful advice.

[KellyJef]

You've been drawing $5,000/year from the IRA but will now be collecting SS so I imagine those withdrawals will stop or be greatly reduced.

You are correct: I do not anticipate making withdrawals from that account going forward for the foreseeable future. It will be considered our emergency fund.

Actually, I had only withdrawn $5,00 for the last two years -- one year was for my daughter's wedding and the other was to pay cash for a used vehicle.

The good news is that our house is paid for and we have absolutely no debt whatsoever (and haven't for at least the last ten years) and my social security check will totally cover our monthly bills leaving DH's disability and my pension available, too.

[disneysteve]

You are correct: I do not anticipate making withdrawals from that account going forward for the foreseeable future. It will be considered our emergency fund.

In that case, it certainly makes sense to keep at least a portion of it in the money market fund, though your EF need is fairly small. Your SS covers all expenses and is guaranteed. You can't be fired or laid off from SS (at least we hope not). Hopefully the same is also true for his disability payments and your pension. So you don't need an EF to cover living expenses like most of us working folks do. You just need to be prepared for other types of emergencies like home or car repairs, medical bills and stuff like that.