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Retirement Income Funding

Review: When to Switch from a Roth IRA to a Traditional 401(k)

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Most people don’t really know whether they should use a traditional or Roth IRA or 401(k). It often simply comes down to the path of least resistance (or nothing at all). The standard advice is pretty straightforward – if you think your tax rate will be lower in retirement than it currently is then you should use a traditional IRA or 401(k). If you think your tax rate will go up in retirement, then you should put your money into a Roth account. What retirement accounts essentially do is allow you to choose when you want to pay taxes on your investments, so you want to pick whenever (you think) you will pay the lowest rate. But this article brings up an interesting wrinkle that I hadn’t considered before – for a lot of investors having wide open investment choices is not actually a good thing. When you can choose anything, a lot of people end up choosing nothing because they either get confused or just don’t want to deal with trying to sort everything out. If these types of folks stick with their company’s 401(k) plan (and the vast majority of 401(k) plans don’t offer the option of Roth […]

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Review: 6 Things You Can Do to Retire by 40, According to People Who Did It

By | Retirement Income Funding, Retirement Spending Goals, Weekly Review | No Comments

Retiring early – especially by 40 – may not be easy, but it’s no more complicated than retiring at any other age. It’s still “just” funding your income for the rest of your life. Of course, when you retire at 40, that means you add another 25 years to your retirement, and take away 25 years from the time you have to prepare for retirement. But it’s doable. Just like any financial plan, it’s a question of how much you want to spend, and how much you can save. That first part – how much you want to spend – takes on an even bigger role when you retire early. Figuring out your goals is incredibly important for any financial plan. Those goals are the foundation the plan is built on. But, for most people, it’s incredibly hard to accurately predict what they want to spend in retirement. You’ll pick up a new hobby, or realize you forgot to account for something, or your priorities change through time. And this is just for a typical thirty-year retirement. It gets even harder when you double the length of your retirement – especially since you’ll be young and active for so much […]

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Review: Your Confidence About Your Retirement Planning Is Probably Misplaced

By | Retirement Income Funding, Weekly Review, Social Security | No Comments

Most people don’t really understand how to prepare for a successful retirement. There are a lot of moving parts, and a lot of what you should be doing is not very obvious. For most people, the best they can do is throw money at the problem and hope that everything turns out okay (and a lot of people don’t even get here.) There are all sorts of reasons we have a retirement savings crisis, but one of the big reasons is that most people are just not financially literate. The article I linked above mentions a survey done by Financial Engines in which only 8 percent of respondents got six out of ten questions about financial topics right. I don’t know how tough those questions were, but any way you slice it, an 8 percent pass rate is not so hot. If you’re curious how you stack up, you can take our twenty-question retirement literacy test and find out. One of the areas they specifically called out was understanding Social Security. Only about a third of respondents knew that they could delay taking their benefits until they turned seventy. Deciding when to take your Social Security benefits is one of the […]

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Review: How to know whether you have ‘enough’ to retire early

By | Retirement Income Funding, Reliable Income, Retirement Insights, Weekly Review | No Comments

Deciding when to retire can be a nerve-wracking decision. You’ve spent the last few decades working toward, and preparing for, retirement. How do you know when to call it a career? If you don’t have a retirement income plan in place, then really, you’re just guessing and hoping for the best. It’s possible everything will work out, but you’re taking a shot in the dark – with the rest of your life. You can be a lot more confident if you do have a retirement income plan in place – and you’ve been working on that plan. Pulling the trigger and starting your retirement will still be stressful (I still get nervous and triple check the dates whenever I buy plane tickets), but you’ll know you have given yourself the best chance possible to reach the retirement you have always wanted. The first, and most often overlooked, step is to decide what your retirement will look like. What do you want to do? What will make you feel fulfilled over the long term? Remember, you’re potentially looking at thirty-plus years of retirement. That’s a lot of Law & Order reruns and rounds of golf. Once you know what you want […]

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Review: This is how much fees are hurting your retirement

By | Retirement Income Funding, Weekly Review | No Comments

Fees are incredibly important. Almost everything in investing is completely unknown, and outside of your control. The markets are going to do what they are going to do. But you do control how much you pay in fees. And you should focus on this very closely, as this recent MarketWatch article makes abundantly clear. But you shouldn’t monomaniacally focus on investment fees. They are part of the entire package when you are evaluating investments. You should care about what you are paying, but you should also care about what you are getting. It doesn’t matter how cheap a fund is if it doesn’t accurately represent its asset class, or it acts differently than you expect. Investment costs vary among different asset classes. You can find S&P 500 ETFs or index funds that cost a handful of basis points (as a point of comparison, iShares S&P 500 ETF – IVV – charges 0.04% per year), but you won’t find a fund that invests in international small cap value companies at that price. You need to look at what provides the most benefit to your portfolio. Sometimes that means paying a little bit more for a better fund. One other point about […]

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Review: How to gauge your chances of a phased retirement

By | Retirement Risks, Retirement Income Funding, Reliable Income, Retirement Insights, Financial Planning, Weekly Review | No Comments

A lot of people expect to work past “retirement age.” They either figure that they will need the additional income to live, or they just enjoy their work and everything that comes with it. Planning to work in retirement is a dangerous game. Working longer can have a huge impact on your retirement situation – not only will you still have an income, but you also won’t be pulling money from your savings. However, almost half of retirees leave the workforce before they planned to, and of those who retired early, over half left because of a personal or family health issue. That should be terrifying if your retirement income plan hinges on you working into your 70s. If you want to work in retirement, that’s great. But you need to recognize it’s a risk. You may not have that option. You owe it to yourself to look at the situation rationally and understand just how feasible your plan is. While 70 percent of companies say they are “aging friendly,” that doesn’t really mean all that much. Frankly, I’m curious about the third of companies that said they weren’t “aging friendly.” You need to look at what your company and […]

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