Your vested balance is the amount of money in your retirement account that belongs to you. If you quit your job or leave your employer, your vested balance is the portion of the money that you can take with you. What Does Vested Mean? According to Webster’s, vested means: Fully and unconditionally guaranteed as a legal …
Fair warning, this post is a departure from my normal articles on retirement planning. I had an opportunity to meet one of the founding fathers of modern finance, Harry Markowitz, in June of 2019 and I simply want to share the experience with you here. Harry Markowitz isn’t a household name, but the work he …
Callable bonds are bonds that the issuing corporation can redeem before maturity. If you hold a callable bond and the issuer decides to redeem it you will have to surrender the bond. Not all bonds are callable. The bond indenture must contain a call provision to allow for it if the issuer want to redeem …
What is Inflation? Inflation is the gradual increase in prices over time. Specifically, it refers to changes in the Consumer Price Index. Understanding how price changes rise over time can help individuals budget and plan for the future. Businesses need to understand it to remain profitable. Policy makers need to know it as well to …
Having trouble understanding what a primary or contingent beneficiary is? Deciding between per stirpes vs. per capita? I’ll address it all in this article. When you name beneficiaries on a retirement account application there is an implied assumption that you will pass away before they do. Most people name their spouse as a beneficiary for …
A qualified longevity annuity contract, or “QLAC”, is a retirement withdrawal tool. It can be a helpful part of your retirement withdrawal strategy. A QLAC allows you to use the money in a qualified retirement plan to purchase a deferred income annuity without running afoul of required minimum distribution rules. In this article I’ll explain …
A gross expense ratio is the annual cost of operating a mutual fund or ETF. It tells you the total expense of owning the fund as a percentage of your investment. Fund families will often rebate portions of the fee so that your actual expense is lower than the gross expense ratio. That number is …
The simple fact that you are retired doesn’t mean you can’t contribute to an IRA. You can still contribute to an IRA if you are retired, but you need to have earned income. This is the same condition you had to satisfy before you retired. Be careful though. Not all income is considered earned income …
It is possible to retire on 500k in retirement savings, but you’ll need to do some careful planning. There aren’t many universal answers to retirement questions like this one. You need an individualized answer. I’m going to show you a simple process for answering this question. Whether you can or not depends largely on how …
If you contributed too much to your 401k you may end up owing a penalty. Depending on when you realize that you have contributed too much, you may be able to reverse it. If you do it before the deadline you can avoid the penalty entirely. In this article I’ll explain what you need to …
There are two different annual limits on 401k contributions. The elective deferrals limit, and the annual additions limit. Your employer match counts toward one, but not the other. Elective Deferrals Limit The money that you have withheld from your pay to go into your retirement account is an elective deferral. You might see this called …
A fund of funds is a collection of mutual funds bundled together. By combining different mutual funds into one package, the fund of funds purpose is to give you a single-choice investment solution. You’ll sometimes see a fund of funds abbreviated as FOF. This can simplify your investment process, but you need to understand how …
The market risk premium is the return that you earn on stocks above what you could earn by investing in government bonds. For example, if the rate of return on the market is 15% when the rate on a government bond is 3%, the market risk premium is 12%. A more formal way of defining …
A 702(j) retirement plan really isn’t a “retirement plan” at all. It’s a cash value life insurance policy sold as a retirement plan. You may have heard the spiel. The promise of a 702(j) plan is tax-free retirement income. It is possible to access the cash value in a life insurance policy tax-free, but there …
Tax-gain harvesting may seem counter-intuitive, but it can be an effective way to reduce your total tax burden in retirement. Mindful tax planning is one of the easiest ways to improve your finances in retirement. What makes that true is the fact that current tax rates are known, so any time you make a decision …
Want to know how long your money will last with systematic withdrawals? Use the retirement withdrawal calculator to give you a good reference point. It’s based on the 4% rule, but with updated data. Simply input your savings in the portfolio balance, your withdrawal rate as a percentage (for 4% just type in 4), and …
A multi-year guaranteed annuity, or MYGA, is very similar to a CD. A MYGA pays a fixed rate of interest and is most appropriate when you need a stable return from a conservative investment. Any time I mention annuities I try to make it clear that I am not licensed to sell them. Annuities tend …
In-kind distributions can sometimes provide tax or other benefits that a cash distribution doesn’t. So what is an in-kind distribution? Any distribution NOT made in cash. For a retirement account, that would typically be a distribution of stocks, bonds, mutual funds, or ETFs. In the case of an inheritance that would mean you would receive …
Knowing the difference between your marginal vs effective tax rate is an important element of tax planning. When you understand your tax rate, you’ll be able to incorporate that into an integrated retirement withdrawal plan. The ability to properly manage your tax bill can save you thousands of dollars. It can also dramatically improve your …
Whether you retire, change jobs, or even get fired, you’ll have a few options for your 401k. While it is generally up to you, what happens to your 401k when you leave a company is also dependent on why you leave and how long you’ve been there. You won’t have a choice on some things. …
If you hold a portfolio that contains stocks or equity funds, whether they are mutual funds or ETFs, then chances are you receive dividends. You probably reinvest at least a portion of them. But are reinvested dividends taxable? Reinvested dividends are generally taxable like any other dividend but that doesn’t necessarily mean you’ll incur a …
There isn’t a magic or standard 401k withdrawal age. You can withdraw from your 401k at any time. Of course, you’ll likely owe taxes and possibly penalties if you do. Beyond a certain age you may be required to withdraw. However, the consequences of a 401k withdrawal are very different depending on your age. Most …
This article covers the mechanics of paying Roth conversion taxes. Specifically, we will look at the source of money that you use to pay the tax bill due on the conversion, as this could actually impact the amount you owe on the conversion. If you are under 59 & 1/2, paying taxes with money from …
As for dramatic names, the Goodman Triangle wins the competition with the moniker “Unholy Trinity of Life Insurance”. Maybe I watched too many horror movies as a kid (don’t tell my mom) but when I hear that I envision something much more sinister than a tax scenario involving life insurance. While an exorcism won’t be …
When choosing between a Roth 401k vs Roth IRA, there are a few similarities and differences you need to be aware of. It’s customary to roll Roth 401ks into Roth IRAs at retirement for better options and more control. However, Roth 401k withdrawal rules differ from the rules for Roth IRA withdrawals in several ways. …
The idea for this article comes from a question submitted by a reader. I’ve copied the question below, and omitted the names to protect the innocent. (No animals were harmed in the creation of this article.) The question: Let me start by saying, I totally enjoy reading your articles/post! Do you have any information on …
A Mega Backdoor Roth is a conversion strategy that allows you to save a much higher amount in your Roth IRA than you are allowed to through direct contributions. Using a mega backdoor Roth is also a way that you can contribute to a Roth IRA if your income is above the phaseout limit and …
Money Market Accounts, or MMAs, are a type of savings account that pay a higher rate of interest than you typically earn on a standard savings account. Because they are highly liquid, money market accounts can be a good choice for the cash portion of savings. There are a few things to be aware of …
One of the easiest ways to increase your retirement income is to reduce your tax bill on that income. With tax-free municipal bonds you can reduce that tax bill to zero and enjoy tax-free retirement income. If you loan money to state and local governments by purchasing municipal bonds, the interest you receive is normally …
An emergency fund CD ladder can be a good tool to earn a little higher rate than you would likely get if you simply kept your emergency fund money in a checking account. One of the most basic components of a financial plan is an emergency fund. Keeping readily accessible cash on hand can help …
To use this bond price calculator simply select the item that you would like to solve for and input the variables that you know. Below the calculator you’ll see instructions to solve for anything you can use a bond calculator for to include tax-free equivalent municipal bond yield. A few quick notes… Coupon A bond’s …
If you are subject to required minimum distributions (RMDs), you may be wondering if they can affect your planned withdrawal strategy. You can see this easily by considering the RMD percentages by age and comparing them to your planned withdrawal rate. In this post I’ve made an RMD percentage table and will show you how …
Roth conversions can be a good strategy to reduce your tax bill both before and during retirement. A large market drop provides a good opportunity to convert even more of your retirement savings to a Roth IRA with an even lower tax bill. The benefit is even greater if you still have a long-term mindset …
If you have $600,000 saved toward retirement can you retire? It may be possible. It really all depends on what is important to you in retirement and how much income you need for a comfortable retirement. To figure out if $600,000, or any amount, is enough for you to retire on you’ll need to consider …
Should you hold your own employer’s stock in your 401K? The conventional answer, and my default response, is… no. However that is a topic that is worth some discussion. While I wouldn’t encourage you to buy your employer’s stock in your 401k plan it doesn’t necessarily follow that you should immediately sell it if you …
Roth IRA’s are one of the best retirement saving tools. You can’t deduct contributions from your taxable income, but you get to withdrawal them, and the earnings, tax-free in retirement. Because of your contributions ability to grow exponentially over time, that can be a big benefit. However, not everyone is able to contribute directly to …
The yield curve is a popular economic indicator. It is a graph of the yield on bonds with different maturity terms, and often used to gauge the direction the economy is headed. Although you can create a yield curve from the yield and maturity of any type of bond, “THE yield curve” usually assumes we …
Will working longer affect your retirement? Of course. But how much longer and how big of an impact will it make? That question will lead you down a much more useful thought path. There are many things that will affect how long you are in the workforce. Some of these things you can’t control (such …
Living happily in retirement means crafting a spending plan to support your lifestyle. To do that, you’ll need to think about how you plan to live in retirement. Not just now, but for the long term too. That could involve a plan to spend more early in your retirement.
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.
Asset allocation is the next step in the investment process. Your asset allocation involves two steps: Decide which index funds to include in your portfolio. 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. …
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, …
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 …
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 …
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.
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.
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 …
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 …
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 …
A bond ladder is a useful tool for providing security in retirement. A bond ladder can protect your investments from volatility and provide you with some peace of mind. 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 …
