Retirement Withdrawals in a Down Market

Market dips are inevitable. If you have been saving for retirement for decades, then you are no doubt aware of market fluctuations and have weathered a few yourself.

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Asset Allocation for Retirement

Asset allocation is the next step in the investment process. Your asset allocation involves two steps:

  1. Decide which index funds to include in your portfolio.
  2. Choose how much of your portfolio to place in each one.

After you decide which investments to include in your portfolio, you need decide how you want to combine them. Your asset allocation has a much greater impact on your investment performance than the individual investments you pick.

The asset allocation process is as much about managing risk as it is about investment performance. In fact, the process lets you deliberately manage your risk.

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Are Index Funds Good Investments For Retirement?

Are index funds good investments for retirement? If you’ve done any amount of reading on investment strategies, you have certainly heard about index investing. In this article I’m going to explain WHAT index investing is and WHY it is such a good strategy for your retirement.

This article goes a little deeper into market theory, so I want to give you the bottom line up front.

  1. Index investing simplifies investment selection. When you invest in an index, you are investing in all of the stocks that make up the index and make no attempt to pick the “best” ones. That is good because picking the out-performers is largely a function of randomness.
  2. You inherently accept the average market return.
  3. Investing in an index can dramatically reduce your investment expenses.
  4. The result is that you end up with the average market return, at a lower than average cost. You’ll be slightly ahead.
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How Much Will I Get from Social Security?

Social Security is a significant portion of most retirees total income. In fact, about a third of retirees get 90% of their income from Social Security.  Such an important component of your income deserves some attention. In this article you will learn how your benefit is calculated so that you can get an idea of what you will qualify for when you file.

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Is Social Security Going Broke?

Is Social Security Going Broke? More importantly, will YOU be able to collect Social Security benefits when you retire? Well, to quote the 42nd President of the United States, that depends on what the meaning of the word is… is.

That’s right. I said it. The point I want to make here is that there is a significant degree of confusion and misinformation regarding Social Security funding.

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Can I Withdraw a Fixed Percentage of My Portfolio in Retirement?

One withdrawal strategy that you could use for your retirement income is to withdraw a fixed percentage of your portfolio each year. Because of its simplicity this approach may be appealing to you. It is also very easy to implement.

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What are the Risks of Relying on Dividends for Retirement Income?

What are the risks of relying on  dividends for retirement income? Like most things used in moderation there isn’t anything wrong with dividends, or the stocks that pay them.  In fact, higher-dividend paying stocks are usually older, established, and strong companies. They can be good components of retirement income plans and help provide some diversification in investment portfolios.

The risk comes in their application, and the popular strategy of loading up on dividend paying stocks exposes retirees to more risk than they usually realize.

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Creating a Roth Conversion Ladder to Fund Early Retirement

What is a Roth conversion ladder and how can it help you fund early retirement? I’ve written before on the five year rules of Roth IRA’s. This strategy utilizes a specific rule that affects Roth IRA conversions, and provides a means of taking tax-efficient withdrawals from your retirement account BEFORE you turn 59.5.

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The Hellhound of Wall Street – How Ferdinand Pecora’s Investigation of the Great Crash Forever Changed American Finance

The Hellhound of Wall Street – How Ferdinand Pecora’s Investigation of the Great Crash Forever Changed American Finance provides a narrative of the Senate hearings that followed the Great Crash. It is an interesting story for it’s lively details of the personalities involved but also illustrates how far our perceptions of the financial elite have come.

This historical account illustrates how prominent bankers were held in such high regard that they were inherently trusted by the public. That idea is laughable now, but was a crucial truth in the buildup and subsequent unraveling of American financial system of the 1920’s.

In this review I highlight some of the key points of the story. If you are interested in the history of the American financial system, and particularly the crash, this is a great book.

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What is a 72(t) Distribution?

If you withdraw money from your tax-deferred IRA or 401k accounts before you turn 59.5 you will owe a 10% penalty in addition to income tax.  A 72(t) distribution is a way of accessing the money in your retirement account before you turn 59.5 without incurring the penalty.

No doubt, you are aware that withdrawing from your retirement accounts early is an excellent way to  ruin your retirement. For many, its a guarantee that their money will not last for as long as they need it to.

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How to protect your portfolio with a variable withdrawal strategy

One of the key considerations in a retirement income plan is the amount of money that you will withdraw from an investment portfolio. Your decision regarding  how much income to take from your retirement account necessitates that you strike a balance between current consumption and future account value.

In simple language, this means that you are deciding how much income to take now, and weighing the risk of withdrawing too much and running out of money, or withdrawing too little and leaving more than you anticipated to heirs. The last part may not seem as bad, and it arguably isn’t, but it depends on which end of the income spectrum you are on and how much you value your own consumption.

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Adaptive Markets

Adaptive Markets – Financial Evolution at the Speed of Thought by Andrew Lo is a deep dive into market theory. This book is not a surface-level read on retirement planning or investing. It provides insight into how markets operate and change over time. The takeaway from the book is enhanced understanding of market behavior.

I recommend this book for academics, professional advisors, and those with a deeper curiosity of market theory.

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Asset Location is Important Too

That’s not a typo. Asset location is an often overlooked aspect of retirement planning. That is unfortunate because asset location can significantly affect the after-tax value of your retirement income. I’ll explain what asset location means and how you can use that information to increase your retirement income.

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Inflation’s Effect on Retirement Portfolios

Retirement income is inherently dependent on many different factors. This is true because retirement income planning involves accounting for unpredictable variables over a long time horizon, and weighing them against the comfort level of the individual retiree. Inflation is one of those factors.

Even for a given amount of retirement savings, different retirees can have very different retirement incomes given the way they choose to plan for the various factors.

Many retirement income strategies call for distributions to be adjusted for inflation. This makes logical sense in order to maintain a fixed level of real spending. You want to be able to afford your morning coffee and monthly utilities regardless of how the value of a dollar changes over the course of your retirement. If something costs $1 in one year of retirement and inflation is 5%, you’ll want to spend the $1.05 required to purchase the same thing next year.

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The Five Year Rules of Roth Distributions

Roth IRA’s are one of the most popular retirement accounts. Roth IRAs have many advantages over tax-deferred accounts, namely the ability to provide tax-free growth. The ability to provide tax-free growth is premised on making contributions with after-tax dollars.

As I’m sure you are well aware, you must pay taxes on essentially each dollar you make. The Roth IRA allows you to pay that tax before you contribute.

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Secure a Minimum Retirement Income with a Bond Ladder

Retirement planning is a comprehensive issue. What I mean by this is that there are a number of sub-components of retirement planning that are pretty distinct from each other. Consider the two broad phases of retirement planning. First is the accumulation phase when the investor sets aside assets as they are earned in order to accumulate a sum of money for retirement. During this phase, the investor is concerned with building a “nest egg”. The second phase is the actual period of retirement itself. This phase is starkly different from the accumulation phase. At this point, the retiree has already accumulated the nest egg, and is instead living off of the nest egg. This is the point when you may want to consider stabilizing your income with a bond ladder.

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How to Make Your Money Last

In How to Make Your Money Last – The Indispensable Retirement Guide, Jane Bryant Quinn provides an excellent comprehensive overview of retirement planning. If you want to understand the key areas that will affect your retirement this book is a good read. If you are managing your own retirement, or plan to, I highly recommend this book.  Continue reading

Bond Prices and Rising Interest Rates

Bonds are a common asset in retirement accounts. Whether held individually or through an ETF, most retirement accounts contain bonds. Bonds are most often held because of their relative safety over equities, and for income through their contractual obligations to pay interest. However, bonds still exhibit market risk that needs to be managed.

Buying bonds with the understanding that they are “safe” and you will not lose your money could cause you unnecessary stress. That stress could be significantly reduced by simply understanding how bonds work.

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Are Social Security Benefits Taxed?

Yes, but with a nod to Paul Harvey, there is a “rest of the story”. It isn’t as simple as adding your benefit check to your taxable income and paying taxes at your marginal rate.

Social Security retirement benefits are an important part of retirement. For about 62% of retirees, Social Security represents at least half of their total retirement income. That is a significant amount. Further, the demise of Social Security is largely over-hyped.

Clearly, it is important to understand how Social Security benefits are taxed.

Some retirees are surprised to learn that Social Security benefits are taxed in the first place. Even for those who aren’t surprised, understanding how they are taxed is a separate matter.

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Required Minimum Distributions

If you save for retirement using tax-deferred accounts then you need to understand the rules surrounding required minimum distributions (RMDs) in order to avoid some pretty steep penalties. For some retirees, the required minimum distribution is less than they would withdraw anyway, and is therefore not much of a planning concern. For others who intend to defer withdrawals as long as possible, or simply don’t need to take them, required minimum distributions could be more of a challenge.

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Efficient Withdrawals to Maximize Retirement Income

The purpose of accumulating retirement savings with tax-advantaged retirement accounts is to withdraw an income that will last for the duration of your retired lifetime. Considering this could be thirty or forty years, it’s important to get this right. Efficient retirement account withdrawals can help stretch your savings and achieve this goal.

Clearly then, you should consider efficient retirement account withdrawal strategies that maximize the after-tax value of retirement income. In order to maximize the value of withdrawals from a retirement account, you have a number of options.

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The 4% Rule of Retirement Income

The most commonly cited method of withdrawing retirement income from an investment portfolio is “the 4% rule”.

This rule comes from a very popular study conducted by William Bengen and published in The Journal of Financial Planning in 1994 as Determining Withdrawal Rates Using Historical Data.

The short-hand version of the rule, and the basic conclusion of the study that is tossed around financial planning circles, is that a retiree can withdraw 4% of their portfolio each year in retirement. This rate would prevent you from depleting your retirement savings before the end of retirement.

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Sequence of Returns Risk in Retirement

What is sequence of returns risk? We often think of investment return as an average rate over some period, such as 10, 15, or 20 years. This is especially true regarding investment returns within a retirement planning context where the investment horizon is often very long.  

Anyone interested enough to be reading this knows that investments are volatile and do not generate returns in a strict, consistent, uniform manner. Instead, investment returns fluctuate. In some periods an investment (or portfolio of investments) may return much more than it’s average. In other periods, the investment may produce a return that is very near, or much less than, it’s average.

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Implications of Tax Reform for Retirement Planning

Tax reform stirred up a lot of debate. Fortunately, the Tax Cuts and Jobs Act did not greatly modify the retirement savings vehicles that often house index funds and a variety of other investments. However,  prudent and intelligent investors will still want to stay educated about all of the tax bill’s implications to generate greater wealth for retirement. Continue reading

6 Events that Can Interrupt your Retirement Plans and What You Can Do about it

C.S. Lewis said, “You are never too old to set a new goal, or dream a new dream.” Is it possible he could have known about today’s retirement crisis? The truth is, no matter how much we prepare, sometimes, life happens. The closer we are to retirement age, the more strategy we need to employ to recover. The following are six common life events that can potentially derail your retirement goals as well as recovery strategies. Continue reading

Is a Solo 401(k) Right for You?

As a self-employed solo entrepreneur, you need to save for retirement just like everyone else. However, you don’t have the benefit of a 401(k) retirement savings plan offered by an employer. It’s all on you to research, establish, and contribute to your own plan for retirement savings.

Fortunately, the Internal Revenue Service (IRS) offers several options for people in your situation. Most self-employed individuals are familiar with the Individual Retirement Account (IRA), but fewer know about the Solo 401(k). If you’re exploring your retirement savings options, this might be something for you to seriously consider. You might also see the names Solo-k, Uni-k, or one-participant k used to describe the same plan.

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Retirement Planning for the Self-Employed: 4 Mistakes to Avoid

When you’re self-employed, the burden of saving for retirement falls entirely on you, which can be a bit daunting. At the same time, being self-employed allows you total freedom over your financial future; you can more-or-less decide how much to contribute to your retirement fund as well as what type of retirement account will best suit you.

If you’re self-employed and beginning to consider your retirement options, however, there are a few common mistakes you’ll want to avoid. Continue reading

How a 403(b) Differs from a 401(k)


Most working people are familiar with the concept of a 401(k) tax-deferred retirement savings plan. If offered through an employer, the payroll department deducts a percentage of your check that you designate for retirement savings and invest it in your preferred portfolios. To encourage their employees to save for retirement, some employers offer a match of the employee’s 401(k) contribution up to a certain percentage. Continue reading

What You Need to Know About Taxes When You’re Newly Self-Employed


Being self-employed certainly has its perks; for the most part, you get to dictate your own schedule and enjoy a large amount of independence. At the same time, there are some potential drawbacks to being your own boss. One of the biggest headaches you might encounter as you transition into a self-employed or freelancing career is that of figuring out your tax return. Rather than receiving a simple W-2 from an employer at the end of the year, you’ll be responsible for tracking and accurately reporting all your income. Continue reading

Roth IRA Contribution Limits

Roth IRA’s can be an excellent retirement saving vehicle. Roth IRAs allow you to save $6,00 per year towards retirement if you are under 50. People who are 50 or older can contribute a “catch-up” contribution of $1,000 each year for a total Roth IRA contribution limit of $7,00 per year.

Unlike Traditional IRA’s and other tax-deferred retirement accounts, the Roth IRA allows you to contribute after-tax money. Contributing money that has already been taxed is beneficial because the IRS allows you to withdraw the money, and its accumulations, tax-free.

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Why are Investor’s Returns Often Different than the Investments They Hold?

The research on investor performance is clear. The average mutual fund investor tends to have worse returns than the average mutual fund. Behavioral factors have a lot do with this. People tend to be emotional, and can often react in precisely the most incorrect way possible when markets are volatile. Fear often causes investors to sell investments when they are down. Performance chasing is another notable behavior.

Heard a lot about the latest mutual fund that is performing so well? That’s probably not the time to buy it, yet many are tempted.

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How to Handle an IRA Inherited from your Spouse

When someone passes away leaving money in a traditional IRA, the money will go to whomever is listed as the beneficiary of the retirement account. That is simple enough, and is accomplished by writing names in the appropriate blocks on the IRA form at opening.  When this happens, the beneficiary has an inherited IRA.

However, what is the person that inherits the account supposed to do with the money they have received from the unfortunate death of a loved one?

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Retirement Saving Tips for Young Investors

It is no secret that Americans have a tough time saving for retirement. This is particularly true of millennials. The Great Recession has delayed the beginning of well-paying careers for many 18 to 34 year olds. A recent study showed that millennials fear running out of money in retirement, but if you are struggling to pay rent, make a car payment and pay off student debt, saving for retirement is not easy. Continue reading

Now or Later? Planning for Long-Term Goals

Have you thought about what you might be giving up by waiting to invest for long-term goals such as retirement? One of the greatest financial tools that young investors have is time. Time’s effect on long-term investment performance is much greater than financial savvy or a large income. So many younger would-be savers and investors put off starting because they don’t think they know enough. The truth is though that doing just about anything is better than doing nothing at all.

A 25-year-old person that puts just $100 per month into a savings account will have $48,000 when they are 65. Not much to retire on, but even that may help finish off a mortgage so you won’t have a monthly house payment. Continue reading

Planning for a Dynamic, Non-Traditional, Retirement

There are several key points to consider if you’re interested in a non-traditional retirement or one involving a second career. With the booming innovation economy and rapidly expanding communication technology, people are no longer restricted to one career or even location. Traditional methods of financial planning focus on wealth and capital accumulation during the working years, to fund a retirement that involves spending capital and enjoying leisure. For a non-traditional retirement that involves an innovative work/life balance, flexibility is as critical as accumulating capital. Continue reading

Two Common Retirement Saving Pitfalls

In your twenties or thirties you know that you’ve got a number of years left in the workforce. How long do you want to work before traveling, learning to sail, or playing golf as a full-time job? How much would you like to save for retirement at age 50, 60, or 70? What would you do if you had the means to retire at 40? These are important questions that could seem beyond your reach.

In reality, the age of forty isn’t that far off. As you approach middle age, consider how to grow your money at a rate that matches your financial goals. Retirement is just one goal. You might also want to acquire property, send your children to private school or college, and many other things. For many of these ideas, good investments come in handy. Continue reading

Why the Time To Implement Your Retirement Savings Plan Is Now

For most 20 to 30 year-olds, talk of retirement saving or planning makes their eyes glaze over. Some have so much student debt, they can’t even see the end of tunnel, much less any light that might be there. Others are just getting started in their careers and starting families, and don’t feel as though they can look beyond next month’s rent or mortgage payment. Yet, they’re all at the optimal age to start a retirement saving program. Here are 4 reasons why: Continue reading

Do Socially Responsible Mutual Funds Perform Well?

An important consideration of any investment strategy is the ability of the strategy to provide satisfactory results. Sustainable or socially responsible mutual funds and investment strategies are not immune to this line of investigation. Arguably, most investors who choose SRI investing likely emphasize the altruistic traits of the investments themselves over investment performance. However, even the most committed investor will eventually abandon SRI investments if performance isn’t acceptable.

So, do investments in socially conscious companies provide investors with adequate returns? According to Meir Statman in his article Socially Responsible Mutual Funds which appeared in the Financial Analysts Journal, yes, about the same as comparable non-socially minded investments. Continue reading

Traditional or Roth IRA?

So, you have decided to invest. Great. Presumably, you are investing for a purpose. Even better. If that purpose is for retirement you may have even spent time thinking about whether a Roth IRA or Traditional IRA is best.

For 2017, Roth and Traditional IRA contribution limits both remain at $5,500. The key difference in investing through a Roth IRA or Traditional IRA is the taxation of contributions and deductions. Continue reading

Starting Early

For the past few weeks in my personal financial planning class we have been discussing retirement planning. One of the things I like most about teaching this topic to college students is that I can provide some encouragement to a demographic that often feels overwhelmed, behind, and simply stressed.

It may seem like talking about retirement to a group of young people barely in their 20’s might not be the most engaging conversation, and it often isn’t. However, once the students see the difference time can make their interest is piqued. Continue reading