Retirement Reality Check

Posted by on Mar 6, 2015 in 401k, 403b, Fixed Income Investing, insurance, IRA, Retirement, TSA | 0 comments

THE RETIREMENT REALITY CHECK   Little things to keep in mind for life after work.   Presented by Frederick Saide, Ph.D.      Decades ago, there was a popular book entitled What They Don’t Teach You at Harvard Business School. Perhaps someday, another book will appear to discuss certain aspects of the retirement experience that go unrecognized – the “fine print”, if you will. Here are some little things that can be frequently overlooked.      How will you save in retirement? More and more baby boomers are retiring with the hope that they can become centenarians. That may prove true thanks to healthcare advances and generally healthier lifestyles.   We all save for retirement; with our increasing longevity, we will also need to save in retirement for the (presumed) decades ahead. That means more than budgeting; it means investing with growth and tax efficiency in mind year after year.   Could your cash flow be more important than your savings? While the #1 retirement fear is someday running out of money, your income stream may actually prove more important than your retirement nest egg. How great will the income stream be from your accumulated wealth?       There’s a longstanding belief that retirees should withdraw about 4% of their savings annually. This “4% rule” became popular back in the 1990s, thanks to an influential article written by a financial advisor named Bill Bengen in the Journal of Financial Planning. While the “4% rule” has its followers, the respected economist William Sharpe (one of the minds behind Modern Portfolio Theory) dismissed it as simplistic and an open door to retirement income shortfalls in a widely cited 2009 essay in the Journal of Investment Management.1,2     Volatility is pronounced in today’s financial markets, and the relative calm we knew prior to the last recession may take years to return. Because of this volatility, it is hard to imagine sticking to a hard-and-fast withdrawal rate in retirement – your annual withdrawal percentage may need to vary due to life and market factors.     What will you begin doing in retirement? In the classic retirement dream, every day feels like a Saturday. Your reward for decades of work is 24/7 freedom. But might all that freedom leave you bored?   Impossible, you say? It happens. Some people retire with only a vague idea of “what’s next”. After a few months or years, they find themselves in the doldrums. Shouldn’t they be doing something with all that time on their hands?   A goal-oriented retirement has its virtues. Purpose leads to objectives, objectives lead to plans, and plans can impart some structure and order to your days and weeks –...

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A Roth IRA’s Many Benefits

Posted by on Mar 2, 2015 in 401k, 403b, Fixed Income Investing, insurance, Investing, IRA, IRS, Retirement, taxes, TSA | 0 comments

Why do so many people choose them over traditional IRAs?   Provided by Frederick Saide, Ph.D.   The IRA that changed the whole retirement savings perspective. Since the Roth IRA was introduced, it has become a fixture in many retirement planning strategies.      The key argument for going Roth can be summed up in a sentence: Paying taxes on your retirement contributions today is better than paying taxes on your retirement savings tomorrow.   Here is a closer look at the trade-off you make when you open and contribute to a Roth IRA – a trade-off many savers are happy to make.   You contribute after-tax dollars. You have already paid federal income tax on the dollars going into the account. But in exchange for paying taxes on your retirement savings contributions today, you could potentially realize great benefits tomorrow.1    You position the money for tax-deferred growth. Roth IRA earnings aren’t taxed as they grow and compound. If, say, your account grows 6% a year, that growth will be even greater when you factor in compounding. The earlier in life that you open a Roth IRA, the greater compounding potential you have.1     You can arrange tax-free retirement income. Roth IRA earnings can be withdrawn tax-free as long as you are age 59½ or older and have owned the IRA for at least 5 years. (That 5-year clock starts on January 1 of the tax year in which you make your initial Roth IRA contribution.)2   The IRS calls such tax-free withdrawals qualified distributions. They may be made to you, to your estate after you are deceased, and/or to a beneficiary. (If you die before the Roth IRA meets the 5-year rule, your IRA beneficiary will see the IRA earnings taxed until it is met.)3   If you withdraw money from a Roth IRA before you reach age 59½, it is called a nonqualified distribution. If you do this, you can still withdraw an amount equivalent to your total IRA contributions to that point tax-free and penalty-free. If you withdraw more than that amount, though, the rest of the withdrawal may be fully taxable and subject to a 10% IRS penalty as well.1    Withdrawals don’t affect taxation of Social Security benefits. If your total taxable income exceeds a certain threshold – $25,000 for single filers, $32,000 for joint filers – then your Social Security benefits may be taxed. An RMD from a traditional IRA represents taxable income, and may push retirees over the threshold – but a qualified distribution from a Roth IRA isn’t taxable income, and doesn’t count toward it.4      You can direct Roth IRA assets into many different kinds of investments. Invest...

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