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 …
One of the most common questions I get about retirement is “How long will my money last?” Considering the number one retirement fear for most people is running out of money, that really isn’t a surprise. With that in mind, your money can last as long as you need it to if you plan ahead. …
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. …
What Happens to Your 401k When You Leave a Company? Read More »
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 …
Goodman Triangle – The Unholy Trinity of Life Insurance Read More »
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 …
Sustainable Retirement Withdrawals from the S&P 500 in a Taxable Account Read More »
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 …
RMD Percentages – Can They Affect My Withdrawal Strategy? Read More »
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 …
Should I Do Roth Conversions When the Market is Down? Read More »
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 …
Can I Contribute to a Roth IRA if My Income is Too High? – The Backdoor Roth IRA Read More »
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, …
Are Index Funds Good Investments For Retirement? Read More »
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 …
How to protect your portfolio with a variable withdrawal strategy Read More »
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 …
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 …
Secure a Minimum Retirement Income with a Bond Ladder Read More »
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 …
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 …
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 …
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 …
Efficient Withdrawals to Maximize Retirement Income Read More »
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 …
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 …
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 …
Implications of Tax Reform for Retirement Planning Read More »
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 …
6 Events that Can Interrupt your Retirement Plans and What You Can Do about it Read More »
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 …
Retirement Planning for the Self-Employed: 4 Mistakes to Avoid Read More »
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 …
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 …
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 …
Why are Investor’s Returns Often Different than the Investments They Hold? Read More »
